High Return Index Funds With Low Fees
Although increases in stock market value do not correlate with increases in GDP, it is the case that large magnitude drops in stock market value portend recessions and decreases in GDP. In any case, investors generally pull out of index and total stock market funds as yields on these investments fall dramatically. These investors are seeking replacement financial products with no load that can duplicate the rise of stocks during good years. A high yield mutual fund of comparable risk is not always available but let us consider some possibilities.
One of the first places to consider finding alternative investments is the high yield mutual funds available at a discount or no load brokerage firm. Such firms have very low fees as they do not pay managers for performance unlike loaded funds. Instead the manager sticks to a predefined game plan by balancing the funds according to some index formula. The manager makes less but has a much more stable job. Likewise, a loaded fund is actively managed and incurs high costs.
Another possibility that is related to equity investments is the ETF or exchange traded fund. They are baskets of stocks much like mutual funds but are bought and sold on the exchange rather than being handled exclusively by a single brokerage. Their advantage lies in their treatment as stock-like instruments, bought and sold all day with few minimums restrictions. Regular mutual funds are bought and accounted together, and usually have high minimums unless they are part of a retirement account.
Some other choices exist for wise investors trying to diversify their portfolio beyond high yield mutual funds.
Checking and savings accounts infrequently offer the best available yields encouraging investors to turn elsewhere. Undoubtedly investors will encounter the money market account that are similar to typical bank accounts but offer more lucrative rates. Investors who are concerned about the reliability of online banks should be comforted as long as the banking institution is licensed, it is insured by the FDIC in the event of a serious collapse. Money market accounts must not be confused with a money market fund which invests in a portfolio of such instruments, and accordingly are not federal government insured.
A less appreciated gem in the financial world is the GNMA mutual fund, frequently eclipsed by the related companies Fannie Mae and Freddie Mac. All three manage real estate loans but Ginnie Mae funds are thought to be the most conservative. In the time of the home loan meltdown of 2007-2008, when Fannie Mae and Freddie Mac were lambasted due to their part in taking on the risks of underqualified home buyers, Ginnie Mae emerged largely undamaged because of extremely low-risk investments. Not all mutual funds can title itself a Ginnie Mae fund. Only those that have more than 80% share of assets in GNMA securities are allowed.
If the government conducts its operations it is required to in some way finance it enough taxes are collected to reward employees. The loaned money is in the form of a bond which is essentially an IOU to return the borrowed money in addition to some extra interest. Personal investors, companies and even sovereignties invest in bonds offered by the American government on account of perceived trustworthiness and robustness of the U.S. economy. Some brokerages offer bond funds as no load index funds.
Article Source: FxTradingStock.com
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by: Gustavo Inez
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Date: Fri, 25 Jun 2010
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