Ask MAX: Where do I start?
Matthew asks:
I’m 21 and in the U.S. Navy, currently serving on the ground in Iraq. I have saved about $2000 and I plan on saving and investing an additional $500 a month. I want an investment that will grow, but I don’t want a crazy amount of risk either. How should I invest? Thanks!"
I don’t claim to be the Amazing Kreskin, but allow me to look into the future and reveal to you this: you are going to be a terrifically successful investor, and you’ll retire fat, rich, and happy.
How do I know? Because you’re just 21 years old and you’re already building an investment portfolio, and because right off the bat you are being sensible about risk.
Starting early means that you have years upon years of compounding returns coming your way. The money you invest will make you money. Then you begin making money on the original investment plus the return you’ve made. As your investment grows, you’ll earn a return on a bigger and bigger pool of money.
The fact that you are concerned about risk at your age is equally impressive. Many investors a heck of a lot older than you still don’t realize that they need to consider both the upside and downside potential of an investment. You are quite right in wanting to build a growth-focused investment portfolio, but even aggressive investors should have some exposure to lower risk securities like government bonds. ...read the rest of this article»
Ask MAX - Are Roth IRAs Too Good to be True?
Daria from North Carolina asks:
I can't seem to find a clear description of how the tax implications work with Roth IRAs. I understand that what I put into the ROTH is never taxed. Please correct me if I am not understanding that correctly.
My confusion is in the capital gains and distribution of dividends into the ROTH account. Are gains taxed? It would seem like too much of a plus for the investor if they (gains) were not taxed. I have been to several web sites to find a clear definition of the ROTH itself before I commit to opening an account."
Roth IRA's have only been around since 1997, when the Senate passed the Taxpayer Relief Act. The differences between a regular IRA and a Roth IRA are significant, and choosing the one that's right for you could have a big impact on how much money you end up with in your golden years. Please keep in mind when reading this that IRAs are a concept originated by the United States Government and hence are rife with ins, outs, and what-have-yous.
Are Roth IRA's too good to be true? Well, they are pretty terrific. ...read the rest of this article»
The Worst Fund Advice Ever
We’ve been telling investors for years that they should never, ever buy a load fund, be it a front end, back end, or the intentionally deceptive level load funds. Loads are built in sales commissions primarily used to compensate brokers who sell funds to investors.
The gist of our anti-load argument is simple: there is no difference between load and no load funds other then the added sales commission. It’s like running a race with wet boots on – you’re at a disadvantage from the get-go.
But has our anti-load proselytizing been wrong all these years? If you had read a recent article in Investors Business Daily, you might think so. ...read the rest of this article»
Ask MAX: What's better: an index fund or an actively managed fund?
Blanche from Florida asks:
The rivalry that exists between active fund people and index fund people is a long and bitter one, and has been growing in intensity ever since Vanguard's John Bogle launched the first index fund, the Vanguard 500 Index Fund (VFINX), back in 1976. Supporters of index funds think active fund owners are suckers who pay higher fees for worse performance. Active fund owners consider index fund owners over-diversified, risk-averse wimps.
I want to be very careful here, Blanche. Because of the highly controversial nature of your question and the potential for harm an incomplete answer could cause on one side or the other, I'm going make sure to respond to it as carefully and completely as I can.
An index fund is a mutual fund that tries to mimic, as closely as possible, the holdings of a particular index. Depending on the fund, the index tracked might be the S&P 500 Index, the Dow Jones Industrial Average, the Wilshire 5000 Equity Index, the NASDAQ Composite Index, or any one of the scores of other indexes that have sprung up over the years.
An actively managed mutual fund doesn't follow an index. Active managers build their funds one company at a time, through painstaking research and analysis. The job of an active fund manager is to identify and buy the very best stocks that fit their fund's prospectus objective.
Both actively managed and index funds have aspects to them that are good, and aspects that are not so good. In our MAXadvisor Newsletter model portfolios we invest in both index and actively managed funds. Which one is 'better' depends on who it is that is buying the fund, what that person hopes to achieve with the money they place in the fund, and even the markets conditions that exist during the life of the investment. ...read the rest of this article»
Ask MAX: Avoid Buying Funds In December?
Martha from Ohio asks:
I was told by a friend that I shouldn’t buy mutual funds at the end of the year because I can be hit with additional fees. Is this true?
Your friend was referring to capital gain distributions, which are actually a different animal than ordinary mutual fund expenses (like management fees, expense ratios, or 12b-1’s). But while your friend is right (cap gains do pose a potential risk to investors who purchase a fund near the end of the year), the distribution trap is a hazard that can usually be avoided with a simple phone call. ...read the rest of this article»