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Mutual Funds For Dummies®, 6th Edition

Name: Mutual Funds For Dummies®, 6th Edition
Author: Eric Tyson
ISBN: 9780470623213

by Eric Tyson

July 2010

Beginner

408 pages

10h 25m

English

For Dummies

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Copyright
Praise for Eric Tyson's Mutual Funds For Dummies®
About the Author
Author's Acknowledgments
Publisher's Acknowledgments
Introduction
What's New in This EditionHow This Book Is DifferentFoolish AssumptionsHow This Book Is OrganizedPart I: Mutual Funds: Sharing Risks and RewardsPart II: Evaluating Alternatives to FundsPart III: Separating the Best from the RestPart IV: Crafting Your Fund PortfolioPart V: Keeping Current and InformedPart VI: The Part of TensIcons Used in This BookWhere to Go from Here
I. Mutual Funds: Sharing Risks and Rewards
1. Making More Money, Taking Less Risk
1.1. Introducing Mutual Funds1.2. Making Sense of Investments1.2.1. Lending investments: Interest on your money1.2.2. Ownership investments: More potential profit (and risk)1.3. Surveying the Major Investment Options1.3.1. Savings and money market accounts1.3.2. Bonds1.3.3. Stocks1.3.4. Overseas investments1.3.5. Real estate1.3.6. Gold, silver, and the like1.3.7. Annuities1.3.8. Life insurance1.3.9. Limited partnerships1.4. Reviewing Important Investing Concepts1.4.1. Getting a return: Why you invest1.4.2. Measuring risks: Investment volatility1.4.3. Diversifying: A smart way to reduce risk
2. Mutual Funds: Pros and Cons
2.1. Getting a Grip on Mutual Funds2.1.1. Financial intermediaries2.1.2. Open-end versus closed-end funds2.2. Opting for Mutual Funds2.2.1. Fund managers' expertise2.2.2. Funds save you money and time2.2.3. Fund diversification minimizes your risk2.2.4. Funds undergo regulatory scrutiny2.2.5. You choose your risk level2.2.6. Fund risk of bankruptcy is nil2.2.7. Funds save you from sales sharks2.2.8. You have convenient access to your money2.3. Addressing the Drawbacks2.3.1. Don't worry about these . . .2.3.2. Worry about these (but not too much) . . .
3. Funding Your Financial Plans
3.1. The Story of Justine and Max3.2. Lining Up Your Ducks Before You Invest3.2.1. Pay off your consumer debts3.2.2. Review your insurance coverage3.2.3. Figure out your financial goals3.2.4. Determine how much you're saving3.2.5. Examine your spending and income3.2.6. Maximize tax-deferred retirement account savings3.2.7. Determine your tax bracket3.2.8. Assess the risk you're comfortable with3.2.9. Review current investment holdings3.2.10. Consider other "investment" possibilities3.3. Reaching Your Goals with Funds3.3.1. The financial pillow — an emergency reserve3.3.2. The golden egg — investing for retirement3.3.2.1. 401(k) plans3.3.2.2. 403(b) plans3.3.2.3. Small business plans3.3.2.4. Individual Retirement Accounts (IRAs)3.3.3. The white picket fence — saving for a home3.3.4. The ivory tower — saving for college3.3.4.1. Saving in your own name3.3.4.2. Using mutual funds for college cost funding

II. Evaluating Alternatives to Funds
4. Selecting Your Own Stocks and Bonds
4.1. Choosing Your Own Stocks and Bonds4.1.1. Beware the claims of stock-picking gurus4.1.2. Know the drawbacks of investing in individual securities4.1.3. Understand the psychology of selecting stocks4.2. How to Pick Your Own Stocks and Bonds
5. Exchange-Traded Funds and Other Fund Lookalikes
5.1. Understanding Exchange-Traded Funds5.1.1. Understanding ETF advantages5.1.2. Eyeing ETF drawbacks5.1.3. Seeing the pros and cons of trading ETFs5.1.4. Identifying the best ETFs5.2. Mimicking Closed-End Funds: Unit Investment Trusts5.3. Customizing Your Own Funds Online
6. Hedge Funds and Other Managed Alternatives
6.1. Hedge Funds: Extremes of Costs and Risks6.1.1. Getting the truth about hedge funds6.1.1.1. Hedge funds have a much higher risk than mutual funds6.1.1.2. Hedge funds have much higher fees than mutual funds6.1.1.3. Hedge funds aren't subject to the same regulatory scrutiny6.1.1.4. Hedge funds have lower returns compared to mutual funds6.1.2. Investigating hedge funds6.1.2.1. Read all the important documents6.1.2.2. Understand how a fund's assets are valued6.1.2.3. Ask questions about fees6.1.2.4. Understand any limitations on redeeming your shares6.1.2.5. Research the backgrounds of hedge fund managers6.1.2.6. Don't be afraid to ask questions6.2. Wrap (Or Managed) Accounts: Hefty Fees6.3. Private Money Managers: One-on-One
III. Separating the Best from the Rest
7. Finding the Best Funds
7.1. Evaluating Gain-Eating Costs7.1.1. Losing the load: Say no to commissions7.1.1.1. Refuting myths about loads7.1.1.2. Exposing loads7.1.2. Considering a fund's operating expenses7.2. Weighing Performance and Risk7.2.1. Star today, also-ran tomorrow7.2.1.1. Fidelity Growth Strategies7.2.1.2. Van Wagoner Emerging Growth fund7.2.1.3. Managers Intermediate Mortgage fund7.2.1.4. Matterhorn Growth fund7.2.2. Apples to apples: Comparing performance numbers7.3. Recognizing Manager Expertise
8. Using Fund Publications
8.1. Reading Prospectuses — the Important Stuff, Anyway8.1.1. Cover page8.1.2. Fund profile8.1.3. Other fund information8.1.4. Investment objectives and risks8.1.5. Investment adviser8.1.6. Financial highlights8.2. Reviewing Annual Reports8.2.1. Chairman's letter and performance discussion8.2.2. Investment adviser's thoughts8.2.3. Performance and its components8.2.4. Investment holdings8.3. Investigating the Statement of Additional Information (SAI)
9. Buying Funds from the Best Firms
9.1. Finding the Best Buys9.1.1. The Vanguard Group9.1.2. Fidelity Investments9.1.3. Dodge & Cox9.1.4. Oakmark9.1.5. T. Rowe Price9.1.6. TIAA-CREF9.1.7. Other fund companies9.2. Discount Brokers: Mutual Fund Supermarkets9.2.1. Buying direct versus discount brokers9.2.1.1. Why to buy funds direct9.2.1.2. Why to buy through a discount broker9.2.2. Debunking "No Transaction Fee" funds9.2.3. Using the best discount brokers9.3. Places to Pass By9.4. Hiring an Adviser: The Good, Bad, and Ugly9.4.1. The wrong reason to hire an adviser9.4.2. The right reasons to hire an adviser9.4.3. Beware of conflicts of interest9.4.4. Your best options for help9.4.5. If you seek a salesperson9.4.5.1. Protect yourself9.4.5.2. Make sure you get the best funds
IV. Crafting Your Fund Portfolio
10. Perfecting a Fund Portfolio
10.1. Asset Allocation: An Investment Recipe10.1.1. Allocating to reduce your risks10.1.2. Looking toward your time horizon10.1.2.1. Short-term goals10.1.2.2. Retirement and other long-term goals10.1.2.2.1. Factoring in your investment personality10.1.2.2.2. Divvying up your stocks between home and abroad10.1.2.3. College savings goals10.2. Taxes: It's What You Keep That Matters10.2.1. Fitting funds to your tax bracket10.2.1.1. Understanding ordinary (marginal) income tax rates10.2.1.2. Lower tax rates on stock dividends and long-term capital gains10.2.2. Minimizing your taxes on funds10.2.2.1. Use tax-free money market and bond funds10.2.2.2. Invest in tax-friendly stock mutual funds10.2.2.3. Watch the calendar10.3. Fund Investing Strategies10.3.1. Timing versus buy-and-hold investing10.3.2. Active versus index fund managers10.4. Putting Your Plans into Action10.4.1. Determining how many funds and families to use10.4.2. Matching fund allocation to your asset allocation10.4.3. Allocating when you don't have much to allocate10.4.4. Investing large amounts: To lump or to average?10.4.5. Sorting through your existing investments
11. Money Market Funds: Beating the Bank
11.1. Money Market Funds 10111.1.1. Comparing money funds with bank accounts11.1.2. Finding uses for money funds11.1.3. Refuting common concerns11.1.3.1. I won't have FDIC insurance11.1.3.2. The check may get lost or stolen11.1.3.3. I may have trouble accessing my money11.1.4. Grasping what money funds invest in11.1.4.1. Commercial paper11.1.4.2. Certificates of deposit11.1.4.3. Government debt11.1.4.4. Other types of securities11.2. Choosing a Great Money Market Fund11.2.1. Why yield and expenses go hand in hand11.2.2. Looking at your tax situation11.2.3. Deciding where you want your home base11.2.4. Keeping your investments close to home11.2.5. Considering other issues11.3. Finding the Recommended Funds11.3.1. Taxable money market funds11.3.2. U.S. Treasury money market funds11.3.3. Municipal tax-free money market funds
12. Bond Funds: When Boring Is Best
12.1. Understanding Bonds12.2. Sizing Up a Bond Fund's Personality12.2.1. Maturity: Counting the years until you get your principal back12.2.2. Duration: Measuring interest rate risk12.2.3. Credit quality: Determining whether bonds will pay you back12.2.4. Issuer: Knowing who you're lending to12.2.5. Management: Considering the passive or active type12.2.6. Inflation-indexed Treasury bonds12.3. Investing in Bond Funds12.3.1. Why you might (and might not) want to invest in bond funds12.3.2. How to pick a bond fund with an outcome you can enjoy12.3.2.1. Don't overemphasize past performance12.3.2.2. Be careful with yield quotes12.3.2.3. Do focus on costs12.3.3. How to obtain tax-free income12.4. Eyeing Recommended Bond Funds12.4.1. Short-term bond funds12.4.1.1. Taxable short-term bond funds12.4.1.2. U.S. Treasury short-term bond funds12.4.1.3. Municipal tax-free short-term bond funds12.4.2. Intermediate-term bond funds12.4.2.1. Taxable intermediate-term bond funds12.4.2.2. U.S. Treasury intermediate-term bond funds12.4.2.3. Municipal tax-free intermediate-term bond funds12.4.3. Long-term bond funds12.4.3.1. Taxable long-term bond funds12.4.3.2. U.S. Treasury long-term bond funds12.4.3.3. Municipal tax-free long-term bond funds12.5. Exploring Alternatives to Bond Funds12.5.1. Certificates of deposit12.5.2. Individual bonds12.5.3. Guaranteed-investment contracts12.5.4. Mortgages12.5.5. Exchange-traded bond funds
13. Stock Funds: Meeting Your Longer Term Needs
13.1. The Stock Market Grows Your Money13.1.1. Be patient13.1.2. Add regularly to your stock investments13.2. Using Mutual Funds to Invest in Stocks13.2.1. Reducing risk and increasing returns13.2.2. Making money: How funds do it13.2.3. Seeing your stock fund choices13.3. The Best Stock Funds13.3.1. Mixing it up: Recommended hybrid funds13.3.1.1. Vanguard Wellesley Income13.3.1.2. Vanguard's funds of funds13.3.1.3. Vanguard Wellington13.3.1.4. Fidelity Puritan13.3.1.5. Fidelity's Freedom funds of funds13.3.1.6. T. Rowe Price offerings13.3.2. Letting computers do the heavy lifting: Recommended index funds13.3.3. Keeping it local: Recommended U.S.-focused stock funds13.3.3.1. Fairholme Fund13.3.3.2. Fidelity Low-Priced Stock13.3.3.3. Sequoia13.3.3.4. Vanguard Primecap13.3.3.5. Vanguard Selected Value13.3.3.6. Vanguard Strategic Equity13.3.4. Being worldly: Recommended international funds13.3.4.1. Vanguard International Growth13.3.4.2. Dodge & Cox International13.3.4.3. Masters' Select International Equity13.3.5. Expanding your horizon: Recommended global stock funds13.3.5.1. Oakmark Global13.3.5.2. T. Rowe Price Spectrum Growth13.3.5.3. Tweedy Browne Global Value13.3.5.4. Vanguard Global Equity
14. Specialty Funds: One of a Kind
14.1. Sector Funds: Should You or Shouldn't You Invest in Them?14.2. Landlording Made Easy: Real Estate Investment Trust (REIT) Funds14.3. Profiting from What Everyone Needs: Utility Funds14.4. Arming for Armageddon: Precious Metals Funds14.5. Commodity Funds14.6. Hedging: Market Neutral (Long-Short) Funds14.7. Matching Morals to Investments: Socially Responsible Funds14.7.1. Evil is in the eye of the beholder14.7.2. Ways to express your social concerns
15. Working It Out: Sample Portfolios
15.1. Getting Started15.1.1. Starting from square one: Melinda15.1.2. Silencing student loans: Stacey the student15.1.3. Living month to month with debt: Mobile Mark15.1.4. Competing goals: Gina and George15.1.5. Wanting lots and lotsa money: Pat and Chris15.2. Changing Goals and Starting Over15.2.1. Funding education: The Waltons15.2.2. Rolling over (but not playing dead): Cathy15.2.3. Wishing for higher interest rates: Nell, the near retiree15.2.4. Lovin' retirement: Noel and Patricia15.3. Dealing with a Mountain of Moola15.3.1. He's in the money: Cash-rich Chuck15.3.2. Inheritances: Loaded Liz15.4. Getting Unstuck . . .
16. Applications, Transfers, and Other Useful Forms
16.1. Taking the Nonretirement Account Route16.1.1. Filling in the blanks: Application basics16.1.1.1. Account registration16.1.1.2. Your personal information16.1.1.3. Your investment16.1.1.4. Your method of payment16.1.1.5. Dividend and capital gains payment options16.1.1.6. Wiring and automatic investment options16.1.1.7. Check-writing option16.1.2. Buying in to discount brokerage accounts16.1.2.1. Borrowing money so you can invest: Margin accounts16.1.2.2. Getting personal16.1.2.3. Accessing your cash: Checks and debit cards16.1.2.4. Transferring your dough into a new brokerage account16.1.2.4.1. Information about your (new) brokerage account16.1.2.4.2. Information about the account you're transferring16.1.2.4.3. Brokerage account transfers16.1.2.4.4. Mutual fund transfer forms16.1.2.4.5. Bank, savings and loan, or credit union transfers16.1.2.4.6. Attach your account statement!16.2. Preparing for Leisure: Retirement Accounts16.2.1. Retirement account applications16.2.1.1. Register for an account16.2.1.2. Choose your investment method16.2.1.3. Select your account service options16.2.1.4. Designate your beneficiaries16.2.2. What to do before transferring accounts16.2.3. Filling out transfer forms16.2.3.1. Account ownership and address16.2.3.2. Where the retirement account funds will be invested16.2.3.3. Account being transferred16.2.3.4. Authorization to transfer your account16.3. Investing on Autopilot16.4. Finding Help for a Overwhelmed Brain
V. Keeping Current and Informed
17. Evaluating Your Funds and Adjusting Your Portfolio
17.1. Deciphering Your Fund Statement17.1.1. Trade date or date of transaction17.1.2. Transaction description17.1.3. Dollar amount17.1.4. Share price or price per share17.1.5. Share amount or shares transacted17.1.6. Shares owned or share balance17.1.7. Account value17.2. Interpreting Discount Brokerage Firm Statements17.2.1. Portfolio overview17.2.2. Account transaction details17.3. Assessing Your Funds' Returns17.3.1. Getting a panoramic view: Total return17.3.1.1. Dividends17.3.1.2. Capital gains distributions17.3.1.3. Share price changes17.3.1.4. Tallying the total return17.3.2. Focusing on the misleading share price17.3.3. Figuring total return17.3.4. Assessing your funds' performance17.3.4.1. Bond benchmarks17.3.4.2. U.S. stock benchmarks17.3.4.3. International stock benchmarks17.4. Deciding Whether to Sell, Hold, or Buy More17.4.1. Handling bear markets17.4.2. Dealing with fund company consolidations17.5. Tweaking and Rebalancing Your Portfolio
18. The Taxing Side of Mutual Funds
18.1. Mutual Fund Distributions Form: 1099-DIV18.1.1. Box 1a: Total ordinary dividends18.1.2. Box 1b: Qualified dividends18.1.3. Box 2a: Total capital gains distributions18.1.4. Box 3: Nondividend distributions18.1.5. Box 4: Federal income tax withheld18.1.6. Box 6: Foreign tax paid18.2. When You Sell Your Mutual Fund Shares18.2.1. Introducing the "basis" basics18.2.2. Accounting for your basis18.2.2.1. Specific identification method18.2.2.2. The "first-in-first-out" method18.2.2.3. The average cost method18.2.3. Deciding when to take your tax lumps or deductions18.2.3.1. Cashing in long-term gains and keeping taxes low18.2.3.2. Selling for tax deductions and the famous wash sale rule18.2.4. Looking at fund sales reports: Form 1099-B18.2.5. Getting help: When you don't know how much you paid for a fund18.3. Retirement Fund Withdrawals and Form 1099-R18.3.1. Minimizing taxes and avoiding penalties18.3.2. Making sense of Form 1099-R for IRAs18.3.3. Withdrawing from non-IRA accounts18.3.4. Understanding form 1099-R for non-IRAs
19. Common Fund Problems and How to Fix Them
19.1. Playing the Telephone Game19.2. Trouble-Shooting Bungled Transactions19.3. Specifying Funds to Buy at Discount Brokers19.4. Making Deposits in a Flash19.5. Verifying Receipt of Deposits19.6. Transferring Money Quickly19.7. Losing Checks in the Mail19.8. Changing Options after Opening Your Account19.9. Making Sense of Your Statements and Profits19.10. Changing Addresses19.11. Finding Funds You Forgot to Move19.12. Untangling Account Transfer Snags19.13. Eliminating Marketing Solicitations19.14. Digging Out from under the Statements19.15. Getting Older Account Statements
20. Fund Ratings and Forecasters
20.1. Avoiding the Bad Stuff20.1.1. Looking into market timing and crystal balls20.1.2. Keeping them honest and providing new fodder: The Hulbert Financial Digest20.1.3. Using bogus rankings, token awards, and mystery testimonials20.1.4. Pitching a product: Filler and ads in newsletter form20.1.5. Investing newsletter Hall of Shame20.1.5.1. Dwayne Dweeb's Personal Finance20.1.5.2. Harry Hacker's Mutual Fund Investing20.2. Getting In on the Good Stuff20.2.1. Morningstar Mutual Funds20.2.1.1. Reading a Morningstar bond fund report20.2.1.2. Reviewing a Morningstar stock fund report20.2.2. No-Load Fund Analyst20.2.3. The Independent Adviser for Vanguard Investors20.2.4. EricTyson.com
21. Harnessing Your Computer's Power
21.1. Using Computer Software21.1.1. Getting-and-staying-organized software21.1.2. Accessing investment research software21.2. Entering Cyberspace: Internet Sites21.2.1. Investment Company Institute21.2.2. Morningstar.com21.2.3. T. Rowe Price21.2.4. Securities and Exchange Commission21.2.5. Vanguard.com
VI. The Part of Tens
22. Ten Common Fund-Investing Mistakes and How to Avoid Them
22.1. Lacking an Overall Plan22.2. Failing to Examine Sales Charges and Expenses22.3. Chasing Past Performance22.4. Ignoring Tax Issues22.5. Getting Duped by "Advisers"22.6. Falling Prey to the Collection Syndrome22.7. Trying to Time the Market's Movements22.8. Following Prognosticators' Predictions22.9. Being Swayed by Major News Events22.10. Comparing Your Funds Unfairly
23. Ten Fund-Investing Fears to Conquer
23.1. Investing with Little Money23.2. Investing in Uninsured Funds23.3. Rising Interest Rates23.4. Missing High Returns from Stocks23.5. Waiting to Get a Handle on the Economy23.6. Buying the Best-Performing Funds23.7. Waiting for an Ideal Buying Opportunity23.8. Obsessing Over Your Funds23.9. Thinking You've Made a Bad Decision23.10. Lacking in Performance
24. Ten Tips for Hiring a Financial Adviser
24.1. Communicator or Obfuscator?24.2. Financial Planner or Money Manager?24.3. Market Timing and Active Management?24.4. Who's in Control?24.5. Fees: What's Your Advice Going to Cost?24.6. How Do You Make Investing Decisions?24.7. What's Your Track Record?24.8. What Are Your Qualifications and Training?24.9. What Are Your References?24.10. Do You Carry Liability Insurance?
A. Recommended Fund Companies and Discount Brokers

Content preview from Mutual Funds For Dummies®, 6th Edition

Part IV. Crafting Your Fund Portfolio

In this part ...

You start building a portfolio of funds to help you meet your goals. I explain the fundamentals of putting a portfolio together, including such concepts as asset allocation, buy and hold versus market timing, and selecting tax-appropriate funds. I recommend the best money market, bond, and stock funds for the job. And just to make sure that I don't leave you hanging, I pull it all together for you in a chapter that shows you how real people construct fund portfolios and fit funds into their overall financial plans. The last chapter of this part walks you through the paperwork you need to fill out to build your fund portfolio.

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Mutual Funds For Dummies®, 6th Edition

by Eric Tyson

Part IV. Crafting Your Fund Portfolio

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