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.

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

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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

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Working with Your Financial Adviser

From The Hoss's Mouth

Working with Your Financial Adviser

You have done all the necessary leg work, conducted the interviews and have selected a financial adviser. The race for financial freedom is on track but far from over. In fact, you have just entered the starting gate. You and your financial adviser must communicate on a frequent basis. Just like the ongoing communication between jockey and horse, you must let each other know if the pace is just right, or you need to proceed a little slower or a little faster.

Before leaving the starting gate, ensure your financial adviser has a complete and thorough understanding of your financial goals, your current financial situation and your tolerance for risk. This will enable him/her to assist you in producing a strategy for your financial future. Your financial adviser should be providing you with specific and clear recommendations, detail the reasons for the recommendations, and identify the strong and weak points and risks involved.

A word of caution: Do not expect your financial adviser to perform miracles. A quarter horse cannot win a route race, nor can a financial adviser foresee how the markets will perform or always select profitable investments. In other words, do not weigh your financial adviser down with unrealistic expectations.

Remember, this is your money being invested. It is imperative that you stay informed. You and your financial adviser should have a clear understanding of how often you should receive progress reports and statements, and develop a schedule for regular meetings to review your plan. He/she should also know how quickly you expect e-mails and phone calls to be answered. Review all statements when you get them. Make sure the information contained therein is consistent with your agreed upon goals and strategies. If they are not, contact your financial adviser and arrange for a meeting.

It would be to your benefit to stay informed on financial matters by reading newspapers, books
magazines, or blogs such as this one. If you have time, enroll in a few courses. If you see something of interest, contact your financial adviser for his/her opinion.

Last but not least, keep your financial adviser updated with any change(s) in your personal or financial situation. A work promotion, a new child, and a change in marital status are a few examples that could impact your financial situation.

That's enough for today. Time to trot back to the barn.

Stay on track,

The Hoss

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