Money management, or investment management, need not stress you out. An investment program complete with diversification and professional asset allocation can be yours at low cost. Here’s how to find professional money management to make your investing life as easy as possible while keeping your costs down.
Mutual funds (funds) were designed for average investors. These investments are basically investor-friendly baskets of securities that offer diversification and professional investment management to folks of all walks of life. Fund companies (families) that offer them want your business if you can afford to invest at least a couple of thousand dollars and/or a couple hundred a month.
But if you want to set up an investment program that works for you and is low-cost, remember two things. Some funds offer the inexperienced or new investor more money management service than others. Second, not all fund companies are low-cost. Let’s talk about the management aspect first.
When you invest in a mutual fund diversification and professional investment management are automatically a part of the package. For example, if you own shares in a stock fund you own a small part of a large diversified portfolio of stocks that is managed for you and many other investors.
But what you don’t get with a stock fund (or bond fund or money market fund) is asset allocation. That’s up to you to figure out. How much should you invest in stocks vs. bonds vs. the money market? That’s called asset allocation, and more than any other factor it determines your success or failure as an investor.
Some funds make life easier for you and offer asset allocation as one of their money management services. These are called BALANCED FUNDS and they go by various names. Examples include: asset allocation, total return, lifecycle, and target retirement funds. They range from conservative to aggressive.
In setting up your investment program just make sure you read the literature that profiles the fund’s risk (conservative, moderate or aggressive) and pick one that matches your risk profile. They take care of the rest: diversification, investment management and asset allocation.
In regard to investing costs, some fund companies charge considerably more than others. You can pay sales charges of more than 5% upfront plus more than 2% a year for fund expenses. Or, if you go with a major no-load fund company there are no sales charges and yearly expenses can be less than ½% a year.
The two largest fund companies in America offer no-load funds: Fidelity and Vanguard.