Best Vanguard Mutual Funds
February 5, 2008
One way to get the highest return on your investment is to find the best mutual funds that also have the lowest fees. All mutual funds charge you a small fee for their service of professionally managing your money and also to deal with all the administration fees. This fee can really eat into your profit each year. Think about it this way, if a mutual fund is charging you a 1% managing fee per year; and the fund returns 10% on the year, you only got a 9% return. Now that doesn’t seem like a big deal but that small percentage is hitting you every year; even when the fund goes down. If you can find the best mutual funds that also have the lowest fees you will have a good chance at out performing the markets most year.
Vanguard is a great company that is known for having some of the lowest fees in the industry. Combined with their proven track record, you have a winning combination. Liper did a study and found that on average Vanguard’s fees are just one fourth the cost of other mutual funds. That is a big savings, especially when your savings are compounded every year. If you could get the same or better return and pay a lower fee for it, then you better be going with the mutual fund company that charges the least.
A lot of times low cost is associated with bad quality or bad service. This is not the case with Vanguard mutual funds. Vanguard has been around since the mid 1970s and is now managing over $800 billion in assets. If they didn’t provide quality service and good returns they wouldn’t have been around so long and manage such a large amount of money.
Vanguard is a big name in the mutual fund industry and we will discuss more about them and all their different types of funds in future posts. The main point to take away from this post is that mutual fund fees can really hurt your return. Your goal is to find the best mutual funds that also have very low fees.
Basics of Mutual Funds
January 30, 2008
Ok if you want to find the best mutual funds you are going need to understand a few basic principles of how mutual funds works. This post will go over the very basics so if you already have a good understanding how things work I would recommend reading some of the other more involved posts.
What is a mutual fund? To make things easy, think of it as a pool of investors who bring all their money together. This money is then invested in stocks or bonds by professional money managers. Right there is the ultra simple definition of what a mutual fund is. But if you want to find the best mutual funds you have to understand more than that.
Mutual funds allow a small time investor to have their money professionally managed even thought they would never be able to have this happen with just the small amount of money they have. Economy of scale comes into play here; because so many investors combine their money in a mutual fund they get some advantages. It would be pretty tough to find a professional money manager to take the time to invest a little amount like $5,000 but when you combine hundreds of investors they can all benefit.
When you invest in a mutual fund you will buy shares in it just like you would an individual stock. But unlike stocks; they do not trade through out the day. What usually happens is that the NAV which is the net asset value is calculated each day and that is the price that you either buy or share you best mutual fund shares at. There are companies out there who’s main objective is just to figure out what each mutual fund is worth each day. If the stocks or bonds your mutual fund holds, are making money and going up in price than your shares in the best mutual funds will be going up in price as well. Of course if the fund your invested in is not doing good then your shares will be dropping in price as well.
I hope this overview will help you understand the best mutual funds a bit better.
