Mutual funds incur costs that must be paid from fund assets. These costs are incurred through marketing, advisory fees, accountants’ fees, legal fees, custodial fees, etc. Simple transactions such as buying, selling and exchanging shares can be costly.
Mutual funds can be classified into several sub-groups: types of funds, open-end vs. closed-end and share classes. An investor who chooses to invest in mutual funds should understand the various differences between funds to ensure that their goals and objectives are inline with those of the fund.
Investing in individual common stocks can be an expensive endeavor. Commissions to the broker on every buy and sell can add up over time. Many investors instead choose to invest in mutual funds based on the misconception that mutual funds do not charge commissions. In reality, mutual funds, even funds that are no-load funds, can be costly to buy, sell or simply hold.
Once an investor makes a decision to purchase shares of a mutual fund, all aspects of the fund must be fully understood. Under the Securities Act of 1933, new issues of a security must be registered with the Securities and Exchange Commission and a prospectus must be provided to all purchasers of the new issue.
TIPS are a type of security offered by the U.S. Treasury that provides protection against inflation. When you purchase a TIP, you will receive the interest payments semi-annually and you will at least receive your original principal amount at maturity, however unlike a regular Treasury bond, the interest and redemption amounts are tied to inflation rates.
Preferred stock is a hybrid security, meaning it is not a stock or a bond. Preferred stock is an equity security that shows ownership in a company. In most cases, preferred stock is offered to the public by the issuing company to acquire another company, or to improve capital and expansion at a time when stockholders and the public are not buying common stock. Unlike common stock, preferred stock does not fluctuate very much in price.
All securities listed on either the New York Stock Exchange, the American Stock Exchange, or the NASDAQ system are identified by a unique stock symbol or ticker symbol. The stock ticker symbol appears on the “ticker tape” that scrolls across the bottom of most financial news programs whenever the stock is traded. A stock’s symbol also provides the investor with some basic information about the company.