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Tuesday, September 30, 2008

Bond Mutual Funds

From The Hoss's Mouth

bond mutual funds

Hoss Cents Free Money Magazine takes a look at Bond Mutual Funds (BMFs) in todays post. Bond mutual funds are a fixed income fund. The BMF manager has two basic styles to choose from when purchasing for the fund. S/he may elect spread trading, which is a conservative approach or s/he may choose an interest rate anticipation style. The other option for a BMF manager is a blend of spread trading and interest rate anticipation.

Spread Trading: The Bond Mutual Fund manager takes advantage of small or large yield changes in bonds to enhance the profits of the fund. Remember that BMFs have multi-million dollar assets and are able to take advantage of day to day yield fluctuations. Of course the bonds also accumulate interest which is paid to the fund and hence the bond mutual fund investor.

Interest-rate anticipation: Means exactly what it says. The fund manager uses various strategies and analysis to anticipate fluctuations in interest rates. Bond purchases are made on the basis of these analysis.

If the mutual bond fund manager believes interest rates will rise s/he will purchase short term bonds because they are the least effected by interest rates and can be easily sold to purchase bonds with a higher yield. If s/he foresees an interest rate drop s/he will purchase long term bonds and will benefit not only from the bond interest rate but also from the increase in value of the bond itself. (Remember that when interest rates go down bond prices generally rise).

Blend: This strategy is used often when a fund, which has a number of long term bonds in its portfolio, resorts to spread trading because the bond mutual fund manager has anticipated a decline in interest rates and needs to make adjustments in order to maximize profits. Some bond mutual fund managers will use what is referred to as a "barbell" strategy. This strategy combines a portfolio of long term bonds , short term money market holdings and no intermediate term bonds. This is very profitable when short term interest rates rise and long term rates decrease.

The Hoss reminds you that the MER of a bond mutual fund reduces the funds profits and given today's low interest rates it may be wise for the invester to evaluate whether or not the outright purchase of bonds would be more profitable than purchasing a bond mutual fund.

Stay on track,

The Hoss

Next Hoss Cents Free Financial Money Magazine Post: The Financial Crisis and You

Previous Post:Money Market Funds

Wednesday, September 24, 2008

Money Market Funds

From The Hoss's Mouth



Money Market Funds are featured in today's Hoss Cents Free Financial Money Magazine. Money market funds are a safe hitching post to park your cash. Income or growth potential is very low but in times of unstable stock markets they are a good place for your money.

Money Market Funds are appropriate for the investor who wants liquidity, stability of capital, and an interest income higher than savings accounts. If you and your financial adviser have determined that you have a very low risk tolerance level, a MMF would be perfect for you.

When shopping for a Money Market Fund, you and your financial adviser should consider no-load funds only. The returns on money market funds do not vary much, so The Hoss cannot see any advantage to purchasing a commission-based Money Market Fund. Also, closely review the fund's expenses, which are outlined in the prospectus.

The investment objectives of most money market funds are to preserve capital and provide a steady level of income for the investor. It is the intention of the fund company to maintain the per unit price at a constant level, usually ten dollars, but the prospectus may contain a clause that states there is no guarantee that the unit price will not fluctuate.

Money market funds usually invest in a well diversified portfolio of short term securities such as, government or government guaranteed treasury bills (T-Bills), asset-backed commercial paper, certificates of deposit, and bankers acceptances. The funds are conservatively managed, and the average term to maturity varies, but never more than 364 days.

Distribution of interest earned is paid monthly and can be deposited directly into your bank account, paid by cheque, or reinvested in units of the fund. Most fund companies will automatically reinvest in units of the fund unless otherwise directed by the investor.

To sum up, you will not make a large return from a money market fund, but your money is relatively safe and can be accessed quickly.

Stay on track,

The Hoss

Next Hoss Cents Free Financial Money Magazine Post: Bond Mutual Funds

Previous Post: How Do Mutual Funds Work Management Expense Ratio

Thursday, September 18, 2008

How Do Mutual Funds Work Management Expense Ratio


From The Hoss's Mouth

management expense ratio


Hoss Cents Free Financial Money Magazine: How Do Mutual Funds Work? There are many elements to the effective workings of mutual funds(MFs): Management Expense Ratio (MER) is one such element.

MFs, just like a horse race stable, have management and operating costs. Generally, these expenses are charged directly to the fund. All the expenses charged to a MF are contained in the MER. The MER is expressed as a percentage of the fund's assets. A 100 million dollar MF with a MER of 1% would have management expenses of $1,000,000, which would be subtracted from the fund before dispersement. However, that same 100 million dollar fund with a MER of 2% would have management expenses of $2,000,000. The MER has a huge impact on returns , so The Hoss suggests you carefully review the MER before purchasing.

The fees in the MER include, but are not limited to :

* Management Fees: payment to the manager for his/her expertise in managing the fund

* Legal Fees

* Accounting Fees

* Custodial Fees: paid for establishing, promoting and maintaining the MF

* Service Fees: paid to advisers and their firms


Trading costs are hidden fees not included in the MER and must be taken into consideration when asking: How do mutual funds work? Trading costs are the brokerage or commission fees paid for the purchase and sale of the fund's stocks and bonds. These fees are contained within the price of the securities and therefore not visible to holders of the fund. The total trading costs varies depending on how active the MF manager is in trading the fund's stocks and bonds. They are one of the largest expenses a fund has, and it would be inappropriate to ignore this cost in answering the question: How do mutual funds work?


The Small Print:

MFs have other costs that may or may not apply to the fund you are purchasing.

* Set Up Fees: Typically charged by no-load funds and is a one-time fee. Price varies from fund to fund.

* Trustee Fees: Some fund companies charge these fees for registered funds.

* NSF Cheque Charges: If you invest monthly by post-dated cheque you may have a service charge, and if the cheque bounces, expect to pay a penalty.

* Automatic Withdrawal: Some investors choose to receive regular income from their fund and set up an automatic withdrawal. You may be charged either an annual fee or a fee for each withdrawal.

* Switching Fees: Most MF companies permit switching from one fund to another within the same mutual fund company. The wise investor will check and see if fees are charged for this privilege.

* Close-Out Fees: You may be charged a fee to close out your account or transfer to another MFcompany.


At the risk of repeating myself, one must also consider the above fees and charges when one is asking: How do mutual funds work?


The next series of posts from The Hoss will demonstrate various types of mutual funds and the investment strategies employed by these mutual funds.


Stay on track,
The Hoss

Next Hoss Cents Free Financial Money Magazine Post: Money Market Funds

Previous Post: Green Party in Canadian National Debate

Tuesday, September 16, 2008

Green Party in Canadian National Debate


From The Hoss's Mouth




Hoss Cents Free Financial Money Magazine salutes the Canadian electorate. Initially, federal Green Party leader, Elizabeth May, was to be excluded from the federal leaders' nationally televised debates Oct 1, and Oct 2, 2008. The Canadian public inundated the other political parties and the media with phone calls and e-mails to express their outrage. Canadian's were not going to stand for this discrimination.

Gilles Duceppe of the Bloc Quebecois, who to his credit never did threaten to boycott the debate even though his party opposed the inclusion of the Green Party leader, maintained he always encouraged the participation of Ms. May.

Stephane Dion of the Liberal Party was first to reverse his position and welcome Ms. May to the debate. He was quickly followed by Conservative leader Stephen Harper, and NDP leader Jack Layton.

Stephen Harper originally opposed Ms. May's participation because of her often-stated preference for Liberal leader Stephane Dion.

Jack Layton's own party members were upset at his threatened boycott. After all, they like to be referred to as the party of the "working class". He finally recanted, saying the issue was becoming a distraction.

Why Stephen Harper originally opposed her participation is beyond me. Let's face facts here, the most likely parties to suffer vote drainage at the hands of the Green Party are the Liberals and NDP. They both have a stronger environmental platform than the Conservatives. Stephen Harper should have encouraged her inclusion in the debate from the outset, and not only because it is the right thing to do; but because doing so is likely to have the effect of increasing his chances of obtaining a majority government.

In any event, The Hoss is thrilled the will of the people won out and the Green Party leader will take part in the upcoming debates.

By the way, what were the Canadian networks thinking, scheduling a debate the same night as an American Presidential election debate? That's like running the Kentucky Derby and Queen's Plate on the same day. It's just not done.

Stay on track,

The Hoss

Next Hoss Cents Free Financial Money Magazine Post: How Do Mutual Funds Work Management Expense Ratio

Previous Post: Canadian Federal Election

Friday, September 12, 2008

Canadian Federal Election


From The Hoss's Mouth







Hoss Cents Free Financial Money Magazine now has two major elections to cover. Canada and the United States are running concurrent national elections. Canadian Prime Minister Stephen Harper called a Canadian federal election for Oct. 14, 2008. This came as no surprise to Canadians; ads soliciting votes for Stephen Harper were appearing on TV days before the election call.

So what is the Hoss to do? He has already started a series on the American presidential election with posts on:

Democratic National Convention


Obama and McCain Health Care Plans


Obama and McCain Economic Plans

The Canadian federal election will be over nearly a month before the American presidential election, so, The Hoss will concentrate his efforts on that election. He will keep an eye on the American presidential election and provide updates of significant events in that race.

Canada has four major political parties (Conservatives, Liberals, Bloc Quebecois, NDP [New Democratic Party]) and one relatively new but important kid on the block: The Green Party. Though The Green Party is just getting started, they may take enough votes away from the Liberals and/or NDP to allow the Conservatives to form a majority government. Current House of Commons standings:

Party Leader Seats
Conservative Stephen Harper 127
Liberal Stephane Dion 95
Bloc Quebecois Gilles Duceppe 48
NDP Jack Layton 30
Green Elizabeth May 0
Independent

4
Vacant
4

The Canadian Parliament has a total of 308 seats. To win a majority, a party must win at least 155 seats.

Anything less results in a minority government, which the opposition could defeat at any time.

Stephen Harper is the current Prime Minister and has been operating with a minority government since the last Canadian Federal Election

The Hoss suspects Mr. Harper called this election on the basis of internal polls which may suggest now is his best opportunity to obtain a majority government. The leader of the Liberal Party, Stephane Dion, does not appear to be making friends with the Canadian people; he has promised a carbon tax on gas which is the last thing most Canadians want: yet another gas tax. The NDP have a solid core of supporters, but nowhere near enough to form a government. And the Bloc Quebecois is only in Quebec, but can--and has in the past--won enough seats to become the official opposition.

So the starting gate is open and the race is underway. Being only six weeks long, this race is a sprint to the finish with the winner having his photo taken as Prime Minister of Canada.


Stay on track,

The Hoss


Next Hoss Cents Free Financial Money Magazine Post: Green Party Allowed in All-Party Debate

Previous Post: Obama and McCain Economic Plans

Tuesday, September 9, 2008

Obama and McCain Economic Plans

From the Hoss's Mouth


American Presidential Election

Hoss Cents Free Financial Money Magazine provides the highlights of the economic plans of presidential candidates Barack Obama and John McCain. For comprehensive details on the implementation and characteristics of these plans, visit the respective Obama and McCain websites.

Barack Obama’s Economic Plan

Homeowner Protection:
  • Protect homeownership and crack down on mortgage fraud
  • Ensure more accountability in the subprime mortgage industry
  • Mandate accurate loan disclosure
  • Create fund to help homeowners avoid foreclosures
  • Close bankruptcy loophole for mortgage companies
  • Create a universal mortgage credit
Taxes:
  • Provide middle class Americans tax relief
  • Provide a tax cut for working families
  • Simplify tax filings for middle class Americans
  • Create the American Opportunity Tax Credit
  • Expand the Child and Dependent Care Tax Credit

For Seniors:
  • Strengthen retirement security
  • Eliminate income taxes for seniors making less than $50,000
  • Create automatic workplace pensions
  • Expand retirement savings incentives for working families

Credit Cards:
  • Address predatory credit card practices
  • Create a credit card rating system to improve disclosure
  • Establish a credit card bill of rights to protect consumers
  • Ban unilateral changes
  • Apply interest rate increases only to future debt
  • Prohibit interest on fees
  • Prohibit “Universal Defaults”
  • Require prompt and fair crediting of cardholder payments

Stimulate Economic Growth:
  • Fix the health care crisis in America
  • Invest in U.S. manufacturing
  • Create new job training programs for clean technologies
  • Boost the renewable energy sector and create new jobs
  • Fight for fair trade
  • Invest in the Sciences
  • Make the Research & Development Tax Credit permanent
  • Deploy "Next-Generation Broadband"
  • Improve transparency in the market
  • Investigate potential conflict of interest between credit rating agencies and financial institutions


John McCain’s Economic Plan


Bring the budget to balance by 2013 with a three-step process:

1. Provide For Reasonable economic growth
  • Low individual tax rates
  • Low tax rates on dividends and capital gains
  • Minimize expensive mandates
  • Keep jobs here
  • Lower corporate tax rate
  • Improve investment and research incentives
  • Reduce federal borrowing

2. Institute comprehensive spending controls

  • One-year spending pause; freeze non-defense, non-veterans discretionary spending
  • Comprehensive review of all spending programs
  • Take back earmark funds

3. Eliminating wasteful spending
  • Stop earmarks, pork-barrel spending, and waste
  • Eliminate broken government programs
  • Reform civil service system
  • Reform procurement programs
  • Reform Social Security:
  • Control Medicare growth

The Lexington Project highlights:
  • Increase domestic exploration of oil and natural gas
  • Build 45 new nuclear power plants by 2030
  • Research that will allow the clean use of coal


Controlling health care costs:
  • Provide $5,000 for health insurance to every American family
  • Safe re-importation of drugs and faster introduction of generic drugs
  • Federal research into treating and curing chronic disease
  • Coordinated care
  • Greater access and convenience
  • Information technology improvement
  • Reform the payment systems in Medicaid and Medicare
  • Promote the availability of smoking cessation programs
  • Improve transparency
  • Provide Tort Reform


Taxes:
  • Keep tax rates low
  • Keep the top tax rate at 35 percent
  • Maintain the 15 percent rates on dividends and capital gains
  • Phase-out the Alternative Minimum Tax
  • Cut the corporate tax rate from 35 to 25 percent
  • Allow first-year deduction or "expensing" of equipment and technology investments
  • Establish permanent tax credit equal to 10 percent of wages spent on Research & Development
  • Reduce the estate tax rate to 15 percent with a $10 million exemption
  • Ban Internet taxes
  • Ban new cell phone taxes

Immediate relief for American families:
  • Suspend the 18.4-cent federal gas tax and 24.4-cent diesel tax from Memorial Day to Labor Day
  • Implement policies to increase the value of the dollar
  • Repeal tax on imported sugar-based ethanol
  • Roll back corn-based ethanol mandates
  • “Home Plan” to assist those caught in the mortgage crisis
  • Propose a student loan continuity plan

Mrs. Hoss insists that The Hoss provide links for those of you who would like to explore these economic plans in depth, so here they are:

Barack Obama Economic Plan

John McCain Economic Plan


Stay on track,

The Hoss

Hoss Cents Free Financial Money Magazine Next Post:Canadian Federal Election
Previous Post: Obama and McCain Health Care Plan



Friday, September 5, 2008

Obama and McCain Health Care Plans


From The Hoss's Mouth



Presidential Election
Hoss Cents Free Financial Money Magazine turns its attention to the Obama and McCain presidential election. The Hoss has researched both Obama and McCain campaign literature. Each candidate has a clearly defined and opposing view. Over the next several weeks, The Hoss will provide information on the key issue's important to the public. He will provide summary information on Obama's and McCain's plans for health care, education, taxation, and military strategy.


The winner of this presidential election will have a huge impact on the direction of the American economy over the next four years. The Hoss hopes the information he provides will help you to vote for the candidate whose values are closest to your own, whether that be Barack Obama or John McCain.


Onto the issue at hand...health care in the United States costs over $2 trillion a year. The Hoss has provided a summary of each candidate's health care plan below, which is by no means a complete picture. For detailed information, The Hoss suggests you visit their respective websites.


Barack Obama: According to Obama's website, he has a three part plan to improve the U.S. health care system:


(1) Provide affordable, comprehensive and portable health coverage for every American:

  • Guaranteed eligibility
  • Comprehensive benefits
  • Affordable premiums, co-pays and deductibles
  • Simplify paperwork and rein in health costs
  • Easy enrollment
  • Portability and choice
  • Quality and efficiency
  • National health insurance exchange
  • Employer contributions
  • Mandatory coverage of children
  • Expansion of Medicaid and SCHIP (State Children's Health Insurance Program)
  • Flexibility for state plans

(2) Modernize the U.S. health care system to contain spiraling health care costs and improve the quality of patient care:

  • Reduce costs of catastrophic illnesses for employers and their employees
  • Lower costs by ensuring patients receive quality care
  • Support disease management programs
  • Coordinate and integrate care
  • Require full transparency about quality and costs
  • Ensure providers deliver quality care
  • Promote patient safety
  • Align incentives for excellence
  • Utilize comparative effectiveness reviews and research
  • Tackle disparities in health care
  • Reform medical malpractice while preserving patient rights
  • Lower costs through investment in electronic health information
  • Improve technological systems
  • Lower costs by increasing competition in the insurance and drug markets
  • Increase competition
  • Drug re-importation
  • Increase use of generic medications
  • Lower Medicare prescription drug benefit costs

(3) Promote prevention and strengthen public health, to prevent disease and protect against natural and man-made disasters.


John McCain: According to McCain's website, his health care plan will provide better health care at a lower cost for every American. He has listed the following initiatives:

  • Provide cheaper drugs
  • Provide initiatives to reduce chronic disease
  • Provide coordinated care
  • Improve access and convenience
  • Deploy information technology
  • Reform Medicaid and Medicare
  • Promote the availability of smoking cessation programs
  • Tort reform. Fight for medical liability reform that eliminates lawsuits directed at doctors who follow clinical guidelines and adhere to proven safety protocols.
  • Improve transparency
  • Reforms to make health insurance innovative, portable and affordable
  • Health care costs: Make it easier for individuals and families to obtain insurance
  • Make the Tax Subsidy fair
  • Make insurance more portable

Again, The Hoss reminds you this is a summary of the health care plans of Obama and McCain. Details of how each intends to achieve these goals can be found on their respective websites.


Stay on track,

The Hoss


Hoss Cents Free Financial Money Magazine Next Post: Obama and McCain Economic Plans
Previous Post: How do mutual funds work the loads

Tuesday, September 2, 2008

How Do Mutual Funds Work The Loads


From The Hoss's Mouth

MUTUAL FUNDS LOADS

How do mutual funds work? In today's post Hoss Cents Free Financial Money Magazine will answer that very question, in particular, with regard to their load charges: front-end, back-end and no-load funds. MER (management expense ratio) will be detailed in the next posting of Hoss Cents.

Funds have two types of charges. Those that you see and those that you don't see. Load charges are the obvious costs that you see. Management fees are those costs that you don't see, but they are taken into account and reported as the management expense ratio (MER). Both have an impact on your funds' bottom line performance.


How Do Mutual Funds Work: "Front-End Loads":

When you purchase a front-end load mutual fund, you agree to pay a certain percentage of your total investment as the sales charge, also known as the commission. If you have $10,000 to invest and agree on a 3% commission, then the total that is actually invested in the mutual fund is (10,000 - 300) = $9,700. Every dollar you pay in commission has a negative effect on your bottom line. The Hoss suggests that you shop around before purchasing a front-end load mutual fund. Front-end load mutual funds do not charge a redemption fee, but they may charge a close out or switching fee.


How Do Mutual Funds Work: "Back-End Loads":

Also known as deferred sales charges (DSCs). A back-end load mutual fund sales charge is applied only when you redeem the fund. The percent charged is on a sliding scale that reduces by a prescribed amount each year over a specified time frame. For example, the payment may be 5% if you redeem after one year, and reduced down to zero % if you redeem after seven years. While these back-end mutual funds have the advantage of having all your money go to work for you, watch out for those funds that impose a distribution fee, or charge a higher management fee for back-end load mutual funds.


How Do Mutual Funds Work: "No-Load Mutual Funds":

The Hoss buys only no-load mutual funds. The no sales charges on purchases or upon redemption is just to big an advantage to pass up. However, before purchasing any mutual fund, The Hoss evaluates the mutual fund's performance, management expense ratio and any hidden fees associated with the fund. All of this information can be found in the Prospectus of the mutual fund you have selected.


Stay on track,
The Hoss

Disclaimer

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