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Sunday, October 26, 2008

Index Mutual Funds

From The Hoss's Mouth


Index mutual funds are a favorite of Hoss Cents Free Financial Money Magazine. In fact most money magazines will recommend index mutual funds to both the novice and experienced investor.


index mutual funds
Index mutual funds reflect the performance of the index market they represent. This could be a bond market index or stock market index such as Dow Jones or Nasdaq, or in Canada the Toronto Stock Exchange (TSE) or Venture Exchange.

Numerous studies comparing actively managed mutual funds with index mutual funds have consistently shown the index mutual fund as having the best performance.

How is this possible? Index mutual funds are managed to mirror the performance of a published index . It is a relatively simple matter to develop a computer model that tracks a particular index and recommends adjustments in an index fund to match the index it is tracking.

Generally speaking actively managed mutual funds are required to make more trades than index funds and therefore incur higher trading costs. In addition actively manged mutual funds have higher research costs than do index funds. All of these extra costs incurred by an actively traded mutual fund reduce the profits of that fund. Not to mention that market timing is not an exact science and often produces losses rather than gains.

Diversification is the key to financial success and investing in index mutual funds enables you to maintain your portfolio balance with relative ease. Lets say you are a conservative investor with a portfolio balance of 70% fixed income (bond, money market index) and 30% in equities(Dow Jones or other equity index). Interest rates tumble and as a result your fixed income is now 60% of your Portfolio and equities are 40%. It is a simple matter for you to sell some of your equity index fund and purchase more fixed income index fund to obtain your original 70-30 balance. In addition if you hold these index mutual funds within the same fund company you may be able to switch the balance without cost and in some cases the fund company will set up a periodic automatic rebalance at no charge to you.

I am sure you can now understand why index mutual funds are a favorite of Hoss Cents Free Financial Money Magazine. The recent heavy decline in all market index's provides a buying opportunity. Remember buy low, sell high.

Stay on track,

The Hoss

Next Hoss Cents Free Financial Money Magazine Post: Obama or McCain
Previous Post: Green Mutual Fund Investing

Sunday, October 19, 2008

Green Mutual Fund Investing

From The Hoss's Mouth

Today, Hoss Cents Free Financial Money Magazine discusses Green Mutual Fund Investing.

Green Mutual Fund Investing

There are many mutual funds that are called green, ethical, socially responsible, or that support a clean environment. In many cases a close look at their investment portfolio will reveal investments in companies one would not normally consider "Green." Why then do they bill themselves as a green mutual fund? Because they invest in companies that have socially responsible business practices. A simplified prospectus of such funds would state that the fund invests primarily in companies that:

  • show leadership in environmental practices
  • are committed to complying with environmental regulations
  • respect workers' rights
  • encourage equal employment opportunities
  • adhere to strong corporate governance practices
  • do not support the acts of repressive regimes

Further, the prospectus may also detail companies whose securities the fund intends to avoid because they produce, promote or distribute:

  • alcohol
  • tobacco
  • gaming
  • military weapons
  • pornography

Did you notice the use of the word primarily rather than exclusively and intends rather than will. The Hoss is not trying to criticize these funds, many of which are managed expertly by environmentally conscious people, and have a relatively high exposure in green. He is pointing out that to find a stand-alone or purely Green Mutual Fund will require close scrutiny of the fund's prospectus and of the companies it holds in the fund.

If the investing public demands purely Green Mutual Funds, then we will see the development of such funds alongside the current socially responsible green mutual funds.

Stay on track,

The Hoss

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

Previous Post: Equity Mutual Funds

Saturday, October 11, 2008

Equity Mutual Funds

From The Hoss's Mouth


Equity mutual funds are spotlighted in today's Hoss Cents Free Financial Money Magazine. What is an equity mutual fund? You will no doubt remember from the Hoss's money magazine previous post, types of investments, that equities are stocks. Equity mutual funds are simply funds that invest in stocks.

In horse racing a trainer has a choice of entering his horse in sprints, middle distance or long races. He can also choose to run on a grass or dirt track or a grass track one time and a dirt track the next. Similarly, equities have various capitalization (cap)sizes from which to choose and different investment styles to utilize when purchasing equities for a mutual fund.

S/he can choose a value, growth or blend investment style when purchasing stocks for the mutual fund he manages and he can pick between companies that have a small, medium or large cap.

equity mutual funds


Value Investing: An investment style that utilizes detailed research (called bottom-up) to identify companies that for whatever reason are currently (in the opinion of the fund manager and staff) undervalued. The late John Templeton was a value investor. At the time of this posting there are at great number of stocks undervalued.

Growth Investing: Here the mutual fund manager also utilizes the bottom-up approach to obtain an in depth analysis of individual companies. But rather than pick companies that appear undervalue S/he chooses companies that are in currently in favour and growing rapidly. These stocks come at a high price because of their growth and success and potential for continued positive returns.

Blend Funds: A wide open style of investing. The fund manager could invest in conservative, high risk or specific sector stocks. S/he will usually purchase a large number of stocks in sectors of the economy they expect will increase in value.

The Hoss hopes you find some value (pun intended) in today's post. Remember whatever mutual fund(s) you purchase whether it is an equity mutual fund or otherwise make sure the mutual funds investment style compliments your investment goals and risk assessment.

Stay on track,

The Hoss

Next Hoss Cents Free Financial Money Magazine Post: Green Mutual Fund Investing

Previous Post: Alternative Energy Mutual Funds

Sunday, October 5, 2008

Alternative Energy Mutual Funds

From The Hoss's Mouth


Hoss Cents Free Financial Money Magazine explores Alternative Energy Mutual Funds. The alternative energy mutual fund is a relatively new type of mutual fund which has developed due to the world wide demand for renewable energy sources.

The world's current nonrenewable energy sources such as coal, oil, and natural gas are being depleted and alternate energy sources must be harnessed and utilized. Alternate energy mutual funds invest in projects such as:

Solar Power: Solar panels are used to harness the sun's energy and convert that energy to electricity. An environmental friendly way of producing electricity.

 solar Power

Wind Power: The Hoss is sure you have all seen the gigantic wind turbines dotting the landscape in areas where wind is plentiful. Although science has not yet developed a method to harness the wind produced by politicians, it has successfully managed to produce energy from the wind produced by Mother Nature.

Wind Power

Ocean Power: The energy produced by ocean currents and waves is utilized to power turbines and produce clean renewable power.

Ocean Power

Hydro Power: The old standby that has been capturing the power of water behind dams and then using that water to power generators. Another very clean source for power.

Hydro Power

Geothermal Energy: The heat stored by Mother Nature below the earth service is converted to power and/or used as a source of heat for the home.

Geothermal Power

Other alternate energy sources: include but are not limited to fuel cells, hydrogen, biomass and simple energy conservation techniques

The Hoss, will do his small bit towards conserving energy by keeping this post concerning alternate energy mutual fund investing short and concise.

Stay on track,

The Hoss

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

Previous Post: The Financial Crisis and You

Friday, October 3, 2008

The Financial Crisis and You


From The Hoss's Mouth


Hoss's Money Magazine answers the question: How does the financial crisis affect me?
Well, if you have a good credit rating, no mortgage and a steady job, probably not very much other than a reduction in the value of your retirement and/or investment plans.

On the other hand, if you are like the majority of the people, and from time to time require a loan to finance a new car, mortgage or home repairs/alterations you may not be able to obtain a loan, even with a good credit rating. Bank's can no longer lend money without using stringent guidelines that clearly indicate the borrower(s) will not default on the loan.

The Hoss and Mrs. Hoss live in a Bare Land Strata Complex with by-laws that provide for the control, management, maintenance, use and enjoyment of the strata lots, common property and common assets of the strata corporation and for the administration of the strata corporation.

What has that got to do with the financial crisis? The Hoss will explain. Our Strata has a by-law that requires roof replacements be done with cedar shakes or a very specific type of rubber roof. Nothing else is permitted, period. These types of roofs are considerably more expensive to install than either asphalt or fibreglass composite shingles, as much as $5,000 more.

Many owners may have to obtain a loan to have his/her roof replaced. Unfortunately, because of the high cost, they may not be able to obtain the necessary loan.

So what was the response of some Strata Council members when a proposal was brought forward to permit a verity of roofing materials as long as a uniform color was maintained? "I do not want my view spoiled. I bought in here because it is a 'high end complex'. If they cannot afford a cedar roof, tell them to move." Fortunately, there are some forwarding-thinking people on Council, and it now appears they will attempt to progress this matter and find an acceptable roofing alternative that is a reasonable cost.

As it stands now, an owner without the financial means to replace their roof with cedar will have to move, or ignore the by-law and risk being taken to court by Council to have the roof removed.

The Hoss struggled with the thought of using a real life situation to illustrate what effect the current financial crisis has on the average person--or if you prefer, the middle class--but in the end, decided this type of example would be of the most value to his readers.

Stay on track,

The Hoss

Next Hoss Cents Free Financial Money Magazine Post: Alternate Energy Mutual Funds

Previous Post: Bond Mutual Funds

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