“Don’t look for the needle in the haystack. Just buy the haystack.” —John C. Bogle Founder, Vanguard
YEARS ago, I was searching for something to place a small amount of money that can yield a little growth if left alone for some time. A bank certificate of deposit, perhaps, I thought. But the yield was minuscule and hardly worth my time and effort. Then I understood slowly what investing was all about. No risk was involved in a CD and so the payoff was tiny.
In my previous work as a bushy-tailed researcher who dug for information in libraries and asked a lot of questions long before the information superhighway was built, I stumbled on the idea of investing using mutual funds.
Heck, I didn’t even want to use the word “investing” for I felt it was too big and pretentious for me for the amount of money I had. It was laughable. I was a young mom with children then and grappling with the challenges of the immigrant life in the US. It left me with very little time to think about investing. Also, I wasn’t interested in watching the ups and downs of the financial market day after day. How dull to watch numbers when you can smell the flowers! It just wasn’t my schtick. There was too much to learn and experience and so little time. So I hied off to read books on it instead and called a few companies. I bungled my way through.
Here’s what I have discovered in a nutshell. A mutual fund is an investment tool consisting of a portfolio of hundreds of stocks, bonds and other securities. It gives personal small investors like me and millions of others, access to the world of diversified portfolios at a low price (thus, the haystack reference in the Bogle quote).
In my case, I am also the poster child for the lazy do-it-yourselfer who just wants to choose a winning horse, a thoroughbred like Secretariat, if possible, stay the course and forget about it most of the time, simply checking occasionally. That’s why I choose index funds for the most part. Indexing and reinvesting is the way to go for people who really don’t have the time, the patience, the gumption and the persuasion to do a full dive.
There are load funds and no-load mutual funds. Guess where I was drawn to? Of course, no-load funds made sense for me. Load funds charge commissions which affect returns on the whole. “Duh!” The down side? Most of the no load funds with excellent track records with a low expense ratio in a big mutual fund company require a bigger initial outlay. How much, you ask? At this time, $3000 on average to get in although there is a fund that requires only $1000 if buying a fund as a trust for minors, like children and grandchildren.
Let me explain. If you bought a load fund which is professionally managed and the return for the year is a whopping 10% and the load is 3%, then your net return is 7% on your investment for the year. Not bad, but if the return for the year is a negative 10%, you’re in the hole for 13%.
There are behemoth professionally staffed companies that offer mutual funds. The big names are Fidelity, Vanguard, T. Rowe Price among others. Don’t be intimidated. You can get in for a thousand dollars if you want to test the waters. The big money, perhaps in trillions, in employer-sponsored retirement plans, 401k and others in the US are invested in mutual funds.
I studied John C. Bogle’s fiscal conservatism. Bogle is the Yoda of mutual fund investing.
He founded Vanguard and shepherded the company for a long time. A stalwart fiscal conservative, he championed the cause of low expense funds. The lower the expense ratio of a fund, the happier he was for investors. It was a common sense strategy then as now, neither sleek nor sexy for wanna-be hotshot investors. It was said that Bogle preferred woolen neckties rather than silk ties because they lasted longer and can be worn many times. Sadly, he passed away fairly recently at 89 years old. The mutual fund investing world lost a true hero. God bless John C. Bogle.
Mutual funds have many varieties to choose from. There are stock funds, bond funds, balanced funds, specialty sector funds, index funds and fairly recently, exchange traded funds (ETFs) that can be traded like stocks. The choices can be overwhelming to a newbie but don’t be.
If you are in your twenties, thirties and forties, you have the benefit of time. Use it. The key is to choose wisely after much study, stay the course over time, monitor periodically.
Have an exit strategy for how you will use the yield you will harvest when the time comes.
Some rich person once said that money is like manure, it stinks if left on a pile but used as fertilizer on tilled soil, can yield a rich harvest for a much greater good.
The stock or equity funds with higher risk factors can get stellar performance and heartbreaking losses too. There are bond funds which yield far less stellar results or yields but are stodgy and reliable. They move in opposite directions. When the stock market is on the rise, the bond funds are dipping and vice versa. It’s like yin and yang. The financial markets are always reflective of the fears and hopes of the investing world at any given time. The market is jittery and acts like a psycho. It gets jolted easily by political and economic rumblings and upheavals but try and stay above the fray. Tune out for your peace of mind.
If and when you go this route, you must be there for the long haul if you want to see real results that bless and teach you wisdom over the long term. The stock market is not a casino although day traders treat it as such and not a few suffer greatly not only in their pocket books but also in the rise and fall of their blood pressure as they try to time the market. Be aware too that there are tax consequences when you sell or liquidate your funds. Beware of churning. Consult a trusted expert.
There is a direct correlation between risk and return that one learns in investing. The same is true of life. We learn to tamp down the niggling fears about the future. We learn to stay the course with steely resolve specially when there is blood on the streets. And there will be. But the upside if we are faithful and give it time, can be worth it. Good Luck!
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The opinions, beliefs and viewpoints expressed by the author do not necessarily reflect the opinions, beliefs and viewpoints of the Asian Journal, its management, editorial board and staff.
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Nota Bene: Monette Adeva Maglaya is SVP of Asian Journal Publications, Inc. To send comments, e-mail [email protected]
