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Mutual funds and exchange-traded funds (ETFs) are great for professional management, diversification and liquidity into your portfolio, but what are the costs and risks? And how have the best investment strategies changed with the rise of robo-investing, ETFs, and new tax rules? Mutual Funds For Dummies answers all your questions, giving you insight on how to find the best-managed funds that match your financial goals.
With straightforward advice and plenty of specific fund recommendations, Eric Tyson helps you avoid fund-investing pitfalls and maximize your returns. This new edition covers the latest investment trends and philosophies, including factor investing, ESG investing, and online investing. You'll also find completely updated coverage on the best mutual funds and ETFs in each category.
Earn more with funds!
Mutual Funds For Dummies is a trusted resource, and this update has arrived to help you plan and implement a successful investment strategy. The fund market is rebounding-get on the train and take advantage of the opportunity today!
Eric Tyson is the best-selling author of Personal Finance For Dummies, Investing For Dummies, and co-author of Real Estate Investing For Dummies and Taxes For Dummies. Tyson is a nationally recognized personal finance counselor, writer, and lecturer.
Introduction 1
What's New in This Edition 2
How This Book Is Different 2
Foolish Assumptions 3
Icons Used in This Book 4
Beyond the Book 5
Where to Go from Here 5
Part 1: Getting Started With Funds 7
Chapter 1: Making More Money, Taking Less Risk 9
Introducing Mutual Funds and Exchange-Traded Funds 10
Making Sense of Investments 11
Lending investments: Interest on your money 11
Ownership investments: More potential profit (and risk) 12
Surveying the Major Investment Options 13
Savings and money market accounts 13
Bonds 14
Stocks 14
Overseas/international investments 15
Real estate 16
Gold, silver, currencies, and the like 17
Annuities 17
Life insurance 18
Limited partnerships 18
Reviewing Important Investing Concepts 19
Getting a return: Why you invest .19
Measuring risks: Investment volatility 20
Diversifying: A smart way to reduce risk 22
Chapter 2: Fund Pros and Cons 23
Getting a Grip on Funds 23
Financial intermediaries 25
Open-end versus closed-end funds 25
Opting for Mutual Funds 27
Fund managers' expertise 27
Funds save you money and time 30
Fund diversification minimizes your risk 31
Funds undergo regulatory scrutiny 32
You choose your risk level 32
Fund risk of bankruptcy is nil 33
Funds save you from sales sharks 34
You have convenient access to your money 34
Addressing the Drawbacks .35
Don't worry about these 36
Watch out for these 37
Chapter 3: Funding Your Goals and Dreams 39
Acting Before Researching: The Story of Justine and Max 39
Lining Up Your Ducks Before You Invest 41
Pay off your consumer debts 41
Review your insurance coverage 42
Figure out your financial goals 42
Determine how much you're saving 43
Examine your spending and income 43
Maximize tax-deferred retirement account savings .44
Determine your tax bracket 45
Assess the risk you're comfortable with 45
Review current investment holdings 46
Consider other "investment" possibilities 46
Reaching Your Goals with Funds 46
The financial pillow - an emergency reserve 47
The golden egg - investing for retirement 48
The white picket fence - saving for a home 52
The ivory tower - saving for college and higher education 52
Part 2: Evaluating Alternatives to Funds 57
Chapter 4: Selecting Your Own Stocks and Bonds 59
Deciding to Choose Your Own Stocks and Bonds 59
Beware the claims of stock-picking gurus 60
Know the drawbacks of investing in individual securities 64
Understand the psychology of selecting stocks 65
Picking Your Own Stocks and Bonds 66
Chapter 5: Exchange-Traded Funds and Other Fund Lookalikes 69
Understanding Exchange-Traded Funds 70
Understanding ETF advantages 70
Eyeing ETF drawbacks 71
Seeing the pros and cons of trading ETFs 73
Identifying the best ETFs 73
Mimicking Closed-End Funds: Unit Investment Trusts 75
Customizing Your Own Funds Online 76
Chapter 6: Hedge Funds and Other Managed Options 79
Hedge Funds: Extremes of Costs and Risks 80
Getting the truth about hedge funds 80
Investigating hedge funds 82
Managed Accounts with Hefty Fees 84
Private Money Managers: One-on-One 86
Robo-Advisors: Automated Investment 87
Part 3: Separating the Best from the Rest 89
Chapter 7: Finding the Best Funds 91
Evaluating Gain-Eating Costs 91
Losing the load: Say no to commissions 92
Considering a fund's operating expenses 98
Weighing Performance and Risk 100
Star today, also-ran tomorrow 100
Apples to apples: Comparing performance numbers 104
Recognizing Manager Expertise 105
Chapter 8: Using Fund Publications 107
Reading Prospectuses - the Important Stuff, Anyway 107
Cover page 109
Fund profile 109
Fund management and other fund information 116
Investment objectives and risks 116
Investment advisor 120
Financial highlights 122
Reviewing Annual Reports 125
Introduction and performance discussion 125
Investment advisor's thoughts 127
Performance and its components 127
Investment holdings 131
Investigating the Statement of Additional Information (SAI) 135
Chapter 9: Buying Funds from the Best Firms 137
Finding the Best Buys 137
The Vanguard Group 138
Fidelity Investments 139
Dodge & Cox 140
Oakmark 140
T Rowe Price 141
TIAA 142
USAA 142
Other fund companies 142
Discount Brokers: Mutual Fund Supermarkets 143
Buying direct versus discount brokers 144
Debunking "No Transaction Fee" funds 146
Using the best discount brokers 147
Places to Pass By 148
Hiring an Advisor: The Good, Bad, and Ugly 149
The wrong reason to hire an advisor 149
The right reasons to hire an advisor 150
Beware of conflicts of interest 150
Your best options for help 151
If you seek a salesperson 153
Part 4: Crafting Your Fund Portfolio 155
Chapter 10: Perfecting a Fund Portfolio 157
Asset Allocation: An Investment Recipe 158
Allocating to reduce your risks 158
Looking toward your time horizon 158
Taxes: It's What You Keep That Matters 163
Fitting funds to your tax bracket 163
Minimizing your taxes on funds 165
Fund-Investing Strategies 168
Market timing versus buy-and-hold investing 168
Active versus index fund managers 169
Putting Your Plans into Action 171
Determining how many funds and families to use 172
Matching fund allocation to your asset allocation 173
Allocating when you don't have much to allocate 175
Investing large amounts: To lump or to average? 175
Sorting through your existing investments 177
Chapter 11: Money Market Funds: Beating the Bank 179
Money Market Funds 101 180
Comparing money funds with bank accounts .180
Finding uses for money funds 182
Refuting common concerns 183
Grasping what money market funds invest in 189
Choosing a Great Money Market Fund 191
Understanding why yield and expenses go hand in hand 192
Looking at your tax situation 192
Deciding where you want your home base 194
Keeping your investments close to home 194
Considering other issues 194
Finding the Recommended Funds 195
Taxable money market funds 195
U.S Treasury money market funds 195
Municipal tax-free money market funds 197
Chapter 12: Bond Funds: When Boring Is Best 199
Understanding Bonds 199
Sizing Up a Bond Fund's Personality 201
Maturity: Counting the years until you get your principal back 201
Duration: Measuring interest rate risk 203
Credit quality: Determining whether bonds will pay you back 204
Issuer: Knowing who you're lending to 205
Management: Considering the passive or active type 206
Inflation-indexed Treasury bonds 207
Investing in Bond Funds 208
Why you may (and may not) want to invest in bond funds 209
How to pick a bond fund with an outcome you can enjoy 210
How to obtain tax-free income 214
Eyeing Recommended Bond Funds 214
Short-term bond funds 215
Intermediate-term bond funds 218
Long-term bond funds 221
Exploring Alternatives to Bond Funds 223
Certificates of deposit 223
Individual bonds 225
Guaranteed-investment contracts 226
Mortgages 227
Chapter 13: Stock Funds: Meeting Your Longer Term Needs 229
Seeing Your Money Grow 230
Be patient 231
Add regularly to your stock investments 233
Using Funds to Invest in Stocks 233
Reducing risk and increasing returns 234
Making money: How funds do it 235
Seeing your stock fund choices 236
The Best Stock Funds 238
Mixing it up: Recommended hybrid funds 239
Letting computers do the heavy lifting: Recommended index funds 243
Keeping it local: Recommended U.S.-focused stock funds 245
Being worldly: Recommended international funds 247
Expanding your horizon: Recommended global stock funds 249
Chapter 14: Specialty Funds 251
Sector Funds: Should You or Shouldn't You Invest in Them? 252
Landlording Made Easy: Real Estate Investment Trust (REIT) Funds 253
Profiting from What Everyone Needs: Utility Funds 254
Factor Investing and Factor Funds 254
Arming for Armageddon: Precious Metals Funds 255
Crypto Funds: Pathway to Digital Riches? 257
From Energy to Metals: Clarifying Commodity Funds 258
Hedging: Market Neutral (Long-Short) Funds 258
Matching Values to Investments: ESG Funds 259
Evil is in the eye of the beholder 261
Ways to express your social concerns 262
Chapter 15: Working It Out: Sample Portfolios 263
Getting Started 264
Starting from square one: Melinda 264
Silencing student loans: Saanvi, the student 266
Living month to month with debt: Mobile Marcos 268
Competing goals: Gina and George 269
Wanting lots and lotsa money: Pat and Chris 272
Changing Goals and Starting Over 274
Funding education: The Lees 274
Rolling over (but not playing dead): Rafaella 276
Wishing for higher interest rates: Nell, the near-retiree 277
Lovin' retirement: Noel and Patricia 279
Dealing with a Mountain of Moola 282
He's in the money: Cash-rich Carlos 282
Inheritances: Loaded Liz 284
Getting Unstuck 285
Chapter 16: Applications, Transfers, and Other Useful Forms 287
Taking the Nonretirement Account Route 287
Filling in the blanks: Application basics 288
Buying into brokerage accounts 293
Preparing for Leisure: Retirement Accounts 297
Retirement account applications 297
What to do before transferring accounts 300
Filling out transfer forms 301
Investing on Autopilot 304
Finding Help for an Overwhelmed Brain 305
Part 5: Keeping Current and Informed 307
Chapter 17: Evaluating Your Funds and Adjusting Your Portfolio 309
Deciphering Your Fund Statement 310
Trade date or date of transaction 310
Transaction description 310
Dollar amount 311
Share price or price per share 312
Share amount or shares transacted 312
Shares owned or share balance 312
Account value 313
Interpreting Brokerage Firm Statements 313
Portfolio overview 314
Account transaction details 314
Assessing Your Funds' Returns 314
Getting a panoramic view: Total return 315
Focusing on the misleading share price 316
Figuring total return 317
Assessing your funds' performance 319
Deciding Whether to Sell, Hold, or Buy More 324
Handling bear markets 324
Dealing with fund company consolidations 325
Tweaking and Rebalancing Your Portfolio 325
Chapter 18: The Taxing Side of Mutual Funds 327
Mutual Fund Distributions Form: 1099-DIV 328
Box 1a: Total ordinary dividends 329
Box 1b: Qualified dividends 330
Box 2a: Total capital gains distributions 330
Box 3: Nondividend distributions 330
Box 4: Federal income tax withheld 331
Box 7: Foreign tax paid 331
When You Sell Your Fund Shares 332
Introducing the "basis" basics 332
Accounting for your basis 333
Deciding when to take your tax lumps or deductions 335
Looking at fund sales reports: Form 1099-B 336
Getting help: When you don't know how much you paid for a fund 337
Retirement Fund Withdrawals and Form 1099-R 337
Minimizing taxes and avoiding penalties 338
Making sense of Form 1099-R for IRAs 340
Withdrawing from non-IRA accounts 341
Understanding form 1099-R for non-IRAs 341
Chapter 19: Common Fund Problems and How to Fix Them 343
Playing the Phone Game 343
Troubleshooting Bungled Transactions 344
Specifying Funds to Buy at Discount Brokers 345
Making Deposits in a Flash 346
Verifying Receipt of Deposits 347
Transferring Money Quickly 347
Losing Checks and Applications in the Mail 348
Changing Options after Opening Your Account 348
Making Sense of Your Statements and Profits 349
Changing Addresses 349
Finding Funds You Forgot to Move 350
Untangling Account Transfer Snags 350
Eliminating Marketing Solicitations 351
Digging Out from under the Statements 352
Getting Older Account Statements 352
Chapter 20: Information Sources: Fund Ratings and Forecasters 353
Entering Cyberspace: What the Internet Is Good For 354
Understanding Online Perils 355
Avoiding the Bad Stuff 356
Looking into market timing and crystal balls 357
Keeping them honest and providing new fodder: The Hulbert Financial Digest 358
Using bogus rankings, token awards, and mystery testimonials 359
Pitching a product: Filler and ads in newsletter form 359
Investing newsletter Hall of Shame 360
Getting In on the Good Stuff 362
Investment Company Institute 362
Morningstar 362
T Rowe Price 365
Securities and Exchange Commission 366
Vanguard.com 366
EricTyson.com 366
Part 6: The Part of Tens 367
Chapter 21: Ten Common Fund-Investing Mistakes and How to Avoid Them 369
Lacking an Overall Plan .369
Failing to Examine Sales Charges and Expenses 370
Chasing Past Performance 370
Ignoring Tax Issues 371
Getting Duped by "Advisors" 371
Falling Prey to the Collection Syndrome 371
Trying to Time the Market's Movements 372
Following Prognosticators' Predictions 372
Being Swayed by Major News Events 372
Comparing Your Funds Unfairly 373
Chapter 22: Ten Fund-Investing Fears to Conquer 375
Investing with Little Money 375
Investing in Uninsured Funds 376
Rising Interest Rates 376
Missing High Returns from Stocks 377
Waiting to Get a Handle on the Economy 377
Buying the Best-Performing Funds 378
Waiting for an Ideal Buying Opportunity 378
Obsessing Over Your Funds 379
Thinking You've Made a Bad Decision 379
Lacking in Performance 379
Chapter 23: Ten Tips for Hiring a Financial Advisor 381
Communicator or Obfuscator? 381
Financial Planner or Money Manager? 382
Is Your Focus on Market Timing and Active Management? 383
Who's in Control? 383
Fees: What's Your Advice Going to Cost? 385
How Do You Make Investing Decisions? .386
What's Your Track Record? 386
What Are Your Qualifications and Training? 388
What Are Your References? 389
Do You Carry Liability Insurance? 389
Appendix: Recommended Fund Companies And Brokers 391
Index 393
Whether you're a regular reader of investing books or this is your first, Mutual Funds For Dummies, 8th Edition, which is thoroughly revised and updated, provides practical and profitable techniques of fund investing that you can put to work now and for many years to come.
Funds aren't literally for dummies - in fact, they're an incredibly wise investment choice for people from all walks of life. Mutual funds are investment companies that combine your money with that from many other people to create a large pool of assets that can be invested in stocks, bonds, or other securities. This book also extensively covers exchange-traded funds, which are like mutual funds except that they trade on a stock exchange when the financial markets are open. Because your assets are part of a much larger whole, the best funds enable you to invest in securities that give you low-cost access to leading professional money managers.
With the best money managers investing your nest egg in top-flight investments that match your financial goals, you can spend your time doing the activities in life that you enjoy and are best at. Funds should improve your investment returns as well as your social life!
I practice what I preach. All my investments that I've devoted to securities (stocks and bonds) are invested through funds. Why? For the simple reason that I'm confident the best fund managers that I recommend in this book can do a superior job (higher returns, less cost) than I can by researching and selecting individual stocks and bonds on my own.
I've enjoyed successfully investing in funds for more than 30 years and enjoyed seeing funds that I've invested in over the long haul appreciate 10-fold, 15-fold, or more in some cases. Consider recent decades' top performing stocks - companies such as Activision Blizzard, Alphabet/Google, Amazon, Apple, BestBuy, Chipotle Mexican Grill, Costco, Idexx Labs, Intuitive Surgical, Microsoft, Monster Beverage, Netflix, Nike, Nvidia, Starbucks, Tesla, Tractor Supply, UnitedHealth, and Walmart. Many of these stocks have posted unbelievable long-term returns - rising 50-fold, 100-fold, or more. The beauty of the diversified funds I've been recommending for more than 30 years is that they have bought and held onto such outstanding stocks.
As a financial counselor, writer, and educator, I've helped investors make informed investing decisions with mutual funds and exchange-traded funds as part of comprehensive personal financial management. So I know the questions and challenges that you face when you invest in funds. I wrote this book to answer your fund-investing questions in plain English.
Life and the investment world change. Although the essence of what makes mutual funds and exchange-traded funds worthy of your investment dollars hasn't changed since the last edition of this book was published several years ago, the fund industry has certainly seen new developments. In this newly updated eighth edition, here are the major amendments:
Many investment books confuse folks. They present you with some newfangled system that you never figure out how to use without the help of mathematicians and a Nobel laureate as your personal tutors. Books that bewilder more than enlighten may be intentional because their authors may have another agenda: to get you to turn your money over to them to manage or to sell you their pricey newsletter(s). Writers with an agenda may imply - and sometimes say - that you really can't invest well, at least not without whatever else they're selling.
Going another route, too many investment books glorify rather than advise. They place on a pedestal the elite few who, during decidedly brief periods in the history of the world and financial markets, managed to beat the market averages by a few percentage points or so per year. Many of these books (and their publishers) suggest that reading them shows you the strategies that led Superstar Money Manager of the Moment to the superlative performance that the book glorifies. "He did it his way; now you can, too," trumpets the marketing material. Not so. Reading a book about what made Giannis Antetokounmpo or Luka Doncic a phenomenal basketball player or Shakespeare a great playwright won't help you shoot a basketball or versify like these famous folks. By the same token, you can't discover from a book the way to become the next Wall Street investment wizard.
Mutual Funds For Dummies, 8th Edition, helps you avoid fund-investing pitfalls and maximizes your chances for success. When you want to buy or sell a fund, your decision needs to fit your overall financial objectives and individual situation. Fund investors make many mistakes in this regard. For example, they invest in funds that don't fit their tax situation.
This book also covers pesky issues completely ignored by other fund books. For novice fund investors, simply finding and completing the correct application in the blizzard of forms that fund companies offer can be a challenge. And if you invest in funds outside of tax-sheltered retirement accounts, you're greeted by the inevitable headache from figuring out how to report distributions at tax time. This book puts you on the right path to avoid these problems.
The truth is, investing isn't all that difficult - and funds are the great equalizer. There's absolutely no reason, except perhaps a lack of time and effort on your part, why you can't successfully invest in mutual funds and exchange-traded funds. In fact, if you understand some basic concepts and find out how to avoid major mistakes that occur for some fairly obvious reasons, you can be even more successful than most so-called investment professionals.
Whenever authors sit down to write a book, they have to make some assumptions about their audience, and I've made a few that may apply to you:
If one or more of these descriptions rings true, you're in the right place. Mutual funds are a huge business, and they can be confusing. Today, thousands of mutual funds account for more than $27 trillion under management, and exchange-traded funds hold another $7 trillion. Although the basic principle behind funds sounds simple enough - pooled money from many individuals that's invested in stocks, bonds, or other securities - you have to understand the different types of investments, such as stocks and bonds, and the way they work.
Unfortunately, you have too many individual funds from which to choose - hundreds of fund companies, brokerage firms, insurers, banks, and so on are selling thousands of funds. Even experienced investors suffer from information overload. Luckily for you, I present short lists of great funds that meet different needs.
And because no investment, not even one of the better funds, is free of flaws and shortcomings, I explain how to easily avoid the worst funds - and the numerous mediocre ones - that clutter the investment landscape. I also help you understand when investing in funds may not be appropriate for you and what your best options may be.
Throughout this book, you can find friendly and useful icons that enhance your reading pleasure and flag special types of information. So when you meet one of these margin-hugging doodads, consider the following:
This icon points out something that can save you time, headaches, money, or all the above!
The warning icon helps steer you away from mistakes and boo-boos that others have made when investing in funds. Something here could cost you big bucks if you don't devote your attention to these icons.
This icon denotes my favorite mutual funds and exchange-traded funds.
Eminently skippable stuff here, but if you don't read it, you may not seem as astute at the next cocktail party when fund trivia games begin. Neat but nonessential stuff - read at your leisure.
I've told you as much as I can, but you may need or want to check it out more on your own before you make a move.
This icon designates something important that I want you to make sure you don't forget when you're making your own...
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