Mutual Funds For Dummies

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 1What’s New in This Edition 2How This Book Is Different 2Foolish Assumptions 3Icons Used in This Book 4Beyond the Book 5Where to Go from Here 5Part 1: Getting Started With Funds 7Chapter 1: Making More Money, Taking Less Risk 9Introducing Mutual Funds and Exchange-Traded Funds 10Making Sense of Investments 11Lending investments: Interest on your money 11Ownership investments: More potential profit (and risk) 12Surveying the Major Investment Options 13Savings and money market accounts 13Bonds 14Stocks 14Overseas/international investments 15Real estate 16Gold, silver, currencies, and the like 17Annuities 17Life insurance 18Limited partnerships 18Reviewing Important Investing Concepts 19Getting a return: Why you invest .19Measuring risks: Investment volatility 20Diversifying: A smart way to reduce risk 22Chapter 2: Fund Pros and Cons 23Getting a Grip on Funds 23Financial intermediaries 25Open-end versus closed-end funds 25Opting for Mutual Funds 27Fund managers’ expertise 27Funds save you money and time 30Fund diversification minimizes your risk 31Funds undergo regulatory scrutiny 32You choose your risk level 32Fund risk of bankruptcy is nil 33Funds save you from sales sharks 34You have convenient access to your money 34Addressing the Drawbacks .35Don’t worry about these 36Watch out for these 37Chapter 3: Funding Your Goals and Dreams 39Acting Before Researching: The Story of Justine and Max 39Lining Up Your Ducks Before You Invest 41Pay off your consumer debts 41Review your insurance coverage 42Figure out your financial goals 42Determine how much you’re saving 43Examine your spending and income 43Maximize tax-deferred retirement account savings .44Determine your tax bracket 45Assess the risk you’re comfortable with 45Review current investment holdings 46Consider other “investment” possibilities 46Reaching Your Goals with Funds 46The financial pillow — an emergency reserve 47The golden egg — investing for retirement 48The white picket fence — saving for a home 52The ivory tower — saving for college and higher education 52Part 2: Evaluating Alternatives to Funds 57Chapter 4: Selecting Your Own Stocks and Bonds 59Deciding to Choose Your Own Stocks and Bonds 59Beware the claims of stock-picking gurus 60Know the drawbacks of investing in individual securities 64Understand the psychology of selecting stocks 65Picking Your Own Stocks and Bonds 66Chapter 5: Exchange-Traded Funds and Other Fund Lookalikes 69Understanding Exchange-Traded Funds 70Understanding ETF advantages 70Eyeing ETF drawbacks 71Seeing the pros and cons of trading ETFs 73Identifying the best ETFs 73Mimicking Closed-End Funds: Unit Investment Trusts 75Customizing Your Own Funds Online 76Chapter 6: Hedge Funds and Other Managed Options 79Hedge Funds: Extremes of Costs and Risks 80Getting the truth about hedge funds 80Investigating hedge funds 82Managed Accounts with Hefty Fees 84Private Money Managers: One-on-One 86Robo-Advisors: Automated Investment 87Part 3: Separating the Best from the Rest 89Chapter 7: Finding the Best Funds 91Evaluating Gain-Eating Costs 91Losing the load: Say no to commissions 92Considering a fund’s operating expenses 98Weighing Performance and Risk 100Star today, also-ran tomorrow 100Apples to apples: Comparing performance numbers 104Recognizing Manager Expertise 105Chapter 8: Using Fund Publications 107Reading Prospectuses — the Important Stuff, Anyway 107Cover page 109Fund profile 109Fund management and other fund information 116Investment objectives and risks 116Investment advisor 120Financial highlights 122Reviewing Annual Reports 125Introduction and performance discussion 125Investment advisor’s thoughts 127Performance and its components 127Investment holdings 131Investigating the Statement of Additional Information (SAI) 135Chapter 9: Buying Funds from the Best Firms 137Finding the Best Buys 137The Vanguard Group 138Fidelity Investments 139Dodge & Cox 140Oakmark 140T Rowe Price 141TIAA 142USAA 142Other fund companies 142Discount Brokers: Mutual Fund Supermarkets 143Buying direct versus discount brokers 144Debunking “No Transaction Fee” funds 146Using the best discount brokers 147Places to Pass By 148Hiring an Advisor: The Good, Bad, and Ugly 149The wrong reason to hire an advisor 149The right reasons to hire an advisor 150Beware of conflicts of interest 150Your best options for help 151If you seek a salesperson 153Part 4: Crafting Your Fund Portfolio 155Chapter 10: Perfecting a Fund Portfolio 157Asset Allocation: An Investment Recipe 158Allocating to reduce your risks 158Looking toward your time horizon 158Taxes: It’s What You Keep That Matters 163Fitting funds to your tax bracket 163Minimizing your taxes on funds 165Fund-Investing Strategies 168Market timing versus buy-and-hold investing 168Active versus index fund managers 169Putting Your Plans into Action 171Determining how many funds and families to use 172Matching fund allocation to your asset allocation 173Allocating when you don’t have much to allocate 175Investing large amounts: To lump or to average? 175Sorting through your existing investments 177Chapter 11: Money Market Funds: Beating the Bank 179Money Market Funds 101 180Comparing money funds with bank accounts .180Finding uses for money funds 182Refuting common concerns 183Grasping what money market funds invest in 189Choosing a Great Money Market Fund 191Understanding why yield and expenses go hand in hand 192Looking at your tax situation 192Deciding where you want your home base 194Keeping your investments close to home 194Considering other issues 194Finding the Recommended Funds 195Taxable money market funds 195U.S Treasury money market funds 195Municipal tax-free money market funds 197Chapter 12: Bond Funds: When Boring Is Best 199Understanding Bonds 199Sizing Up a Bond Fund’s Personality 201Maturity: Counting the years until you get your principal back 201Duration: Measuring interest rate risk 203Credit quality: Determining whether bonds will pay you back 204Issuer: Knowing who you’re lending to 205Management: Considering the passive or active type 206Inflation-indexed Treasury bonds 207Investing in Bond Funds 208Why you may (and may not) want to invest in bond funds 209How to pick a bond fund with an outcome you can enjoy 210How to obtain tax-free income 214Eyeing Recommended Bond Funds 214Short-term bond funds 215Intermediate-term bond funds 218Long-term bond funds 221Exploring Alternatives to Bond Funds 223Certificates of deposit 223Individual bonds 225Guaranteed-investment contracts 226Mortgages 227Chapter 13: Stock Funds: Meeting Your Longer Term Needs 229Seeing Your Money Grow 230Be patient 231Add regularly to your stock investments 233Using Funds to Invest in Stocks 233Reducing risk and increasing returns 234Making money: How funds do it 235Seeing your stock fund choices 236The Best Stock Funds 238Mixing it up: Recommended hybrid funds 239Letting computers do the heavy lifting: Recommended index funds 243Keeping it local: Recommended U.S.-focused stock funds 245Being worldly: Recommended international funds 247Expanding your horizon: Recommended global stock funds 249Chapter 14: Specialty Funds 251Sector Funds: Should You or Shouldn’t You Invest in Them? 252Landlording Made Easy: Real Estate Investment Trust (REIT) Funds 253Profiting from What Everyone Needs: Utility Funds 254Factor Investing and Factor Funds 254Arming for Armageddon: Precious Metals Funds 255Crypto Funds: Pathway to Digital Riches? 257From Energy to Metals: Clarifying Commodity Funds 258Hedging: Market Neutral (Long-Short) Funds 258Matching Values to Investments: ESG Funds 259Evil is in the eye of the beholder 261Ways to express your social concerns 262Chapter 15: Working It Out: Sample Portfolios 263Getting Started 264Starting from square one: Melinda 264Silencing student loans: Saanvi, the student 266Living month to month with debt: Mobile Marcos 268Competing goals: Gina and George 269Wanting lots and lotsa money: Pat and Chris 272Changing Goals and Starting Over 274Funding education: The Lees 274Rolling over (but not playing dead): Rafaella 276Wishing for higher interest rates: Nell, the near-retiree 277Lovin’ retirement: Noel and Patricia 279Dealing with a Mountain of Moola 282He’s in the money: Cash-rich Carlos 282Inheritances: Loaded Liz 284Getting Unstuck 285Chapter 16: Applications, Transfers, and Other Useful Forms 287Taking the Nonretirement Account Route 287Filling in the blanks: Application basics 288Buying into brokerage accounts 293Preparing for Leisure: Retirement Accounts 297Retirement account applications 297What to do before transferring accounts 300Filling out transfer forms 301Investing on Autopilot 304Finding Help for an Overwhelmed Brain 305Part 5: Keeping Current and Informed 307Chapter 17: Evaluating Your Funds and Adjusting Your Portfolio 309Deciphering Your Fund Statement 310Trade date or date of transaction 310Transaction description 310Dollar amount 311Share price or price per share 312Share amount or shares transacted 312Shares owned or share balance 312Account value 313Interpreting Brokerage Firm Statements 313Portfolio overview 314Account transaction details 314Assessing Your Funds’ Returns 314Getting a panoramic view: Total return 315Focusing on the misleading share price 316Figuring total return 317Assessing your funds’ performance 319Deciding Whether to Sell, Hold, or Buy More 324Handling bear markets 324Dealing with fund company consolidations 325Tweaking and Rebalancing Your Portfolio 325Chapter 18: The Taxing Side of Mutual Funds 327Mutual Fund Distributions Form: 1099-DIV 328Box 1a: Total ordinary dividends 329Box 1b: Qualified dividends 330Box 2a: Total capital gains distributions 330Box 3: Nondividend distributions 330Box 4: Federal income tax withheld 331Box 7: Foreign tax paid 331When You Sell Your Fund Shares 332Introducing the “basis” basics 332Accounting for your basis 333Deciding when to take your tax lumps or deductions 335Looking at fund sales reports: Form 1099-B 336Getting help: When you don’t know how much you paid for a fund 337Retirement Fund Withdrawals and Form 1099-R 337Minimizing taxes and avoiding penalties 338Making sense of Form 1099-R for IRAs 340Withdrawing from non-IRA accounts 341Understanding form 1099-R for non-IRAs 341Chapter 19: Common Fund Problems and How to Fix Them 343Playing the Phone Game 343Troubleshooting Bungled Transactions 344Specifying Funds to Buy at Discount Brokers 345Making Deposits in a Flash 346Verifying Receipt of Deposits 347Transferring Money Quickly 347Losing Checks and Applications in the Mail 348Changing Options after Opening Your Account 348Making Sense of Your Statements and Profits 349Changing Addresses 349Finding Funds You Forgot to Move 350Untangling Account Transfer Snags 350Eliminating Marketing Solicitations 351Digging Out from under the Statements 352Getting Older Account Statements 352Chapter 20: Information Sources: Fund Ratings and Forecasters 353Entering Cyberspace: What the Internet Is Good For 354Understanding Online Perils 355Avoiding the Bad Stuff 356Looking into market timing and crystal balls 357Keeping them honest and providing new fodder: The Hulbert Financial Digest 358Using bogus rankings, token awards, and mystery testimonials 359Pitching a product: Filler and ads in newsletter form 359Investing newsletter Hall of Shame 360Getting In on the Good Stuff 362Investment Company Institute 362Morningstar 362T Rowe Price 365Securities and Exchange Commission 366Vanguard.com 366EricTyson.com 366Part 6: The Part of Tens 367Chapter 21: Ten Common Fund-Investing Mistakes and How to Avoid Them 369Lacking an Overall Plan .369Failing to Examine Sales Charges and Expenses 370Chasing Past Performance 370Ignoring Tax Issues 371Getting Duped by “Advisors” 371Falling Prey to the Collection Syndrome 371Trying to Time the Market’s Movements 372Following Prognosticators’ Predictions 372Being Swayed by Major News Events 372Comparing Your Funds Unfairly 373Chapter 22: Ten Fund-Investing Fears to Conquer 375Investing with Little Money 375Investing in Uninsured Funds 376Rising Interest Rates 376Missing High Returns from Stocks 377Waiting to Get a Handle on the Economy 377Buying the Best-Performing Funds 378Waiting for an Ideal Buying Opportunity 378Obsessing Over Your Funds 379Thinking You’ve Made a Bad Decision 379Lacking in Performance 379Chapter 23: Ten Tips for Hiring a Financial Advisor 381Communicator or Obfuscator? 381Financial Planner or Money Manager? 382Is Your Focus on Market Timing and Active Management? 383Who’s in Control? 383Fees: What’s Your Advice Going to Cost? 385How Do You Make Investing Decisions? .386What’s Your Track Record? 386What Are Your Qualifications and Training? 388What Are Your References? 389Do You Carry Liability Insurance? 389Appendix: Recommended Fund Companies And Brokers 391Index 393