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In recent years, money market fund investments have become increasingly popular as investors have become increasingly risk-averse. Particularly, during the recent credit crisis, investors have discovered a sort of safer investments in money market funds as opposed to short-term bonds and traditional savings accounts. However, the drop of the share price of Reserve Primary Fund (RFIXX) below the $1 level (‘breaking the buck’) has shown that money market funds are not the safest of options for risk-averse investors.

Money market funds use the invested money to buy into a large pool of short-term bonds that may include corporate bonds, government bonds or municipal bonds. Unlike other investment vehicles such as stock and bond mutual funds that are subject to price fluctuations, money market funds maintain a net asset value (NAV) of $1.00 per share. This gives investors the feeling that money market mutual funds have virtually no risk.

Money market mutual funds were not supposed to lose their value. Their short-term nature (290 days) provides a considerable level of security against default because, typically, corporate difficulties do not arise in such a short period of time. Theoretically, if a company faces difficulties that would make lending to it a risky option, it would take more than 290 days for the money market mutual funds to exchange their securities at full value. Yet, the default of Lehman Brothers in 2008, the Internet bubble and the implosion of Enron are prominent examples of major companies that defaulted on their debt seemingly overnight.

Money market funds are risky because they are subject to different factors that can drive their price below $1 level. Breaking the buck implies that investors’ returns are less than the invested principal. Indeed, the price decline of the Reserve Primary Fund to 97 cents a share has shown that money market funds can lose their value and be as illiquid as any other mutual fund.

For 2010, analysts cannot estimate accurately when and if there will another surprise related to money market investments. However, there are some factors that are likely to contribute to money market funds ‘breaking the buck’ barrier, affecting their value.

In particular:

a)      Company’s declining assets

Since mid-2009, capital markets have been on an uptrend bull rally as many companies reported profits. On the other hand though, the banking sector continued to fail and job losses continued to mount across several industries. For 2010, the uncertainty is likely to limit investment, while new regulation for investor protection are likely to be implement throughout the year. In such an uncertain and turbulent environment, companies may not be profitable enough to sustain a net asset value of $1.00 in their bonds. If the company whose bonds the money market funds owns faces financial problems, the bonds’ value will decline causing a proportional decline in value in the funds owned by each shareholder.

b)      Investors redeeming simultaneously

In majority, money market funds are invested in short-term bonds that have similar maturity dates. If a large number of investors redeem their money simultaneously, it will create a major problem of liquidity in the market that will cause loss in the value of money market funds. Large simultaneous redemptions could lead a money market fund to sell a part of its assets prior to their maturity date. This may cause a decline in the value of fund.

The truth of the matter is that ‘breaking the buck’ happens all the time. Investors may not realize it because it is not obvious, but considering that they spend their after-tax, after-inflation money, it is certain that by factoring in tax and inflation, money market funds lose their value.  However, as this is more a technical thing, investors seek for the confidence level associated with the fact that the NAV will almost never fall below the $1 level.

Money market mutual funds diversify their short-term investments to protect investors against unexpected difficulties. In doing so, even if one company were to unpredictably default on its debt, the other investments would trade-off for those losses. Besides, in case of a widespread fluctuation in the short-term debt markets, the price of all short-term securities could drop considerably regardless of the financial situation of the individual companies that issued the debt. This explains the “breaking the buck” situation of 2008 where several money market mutual funds collapsed.

Investor expectations in relation to net asset value, particularly after years of consistent NAV, are that a major crisis is required to cause a severe fluctuation in the net asset value of money market funds. However, as investor confidence is shaken, it is possible that, in 2010, money market funds are not an option, unless investors feel protected under new regulations that will allow borrowing and investing with evident reassurance. The Treasury temporarily guaranteed money market mutual funds aiming to put off further investor confidence problems in the short-term debt markets. To that end, the Federal Reserve guarantee that was originally scheduled to expire in October, 2009 has been extended until February 1, 2010.

Christina Pomoni has acquired her MBA Finance from the American College of Greece. Her advanced familiarity with financial statement analysis, capital budgeting and market research has been acquired through her professional career at high-esteemed organizations. As part of her long journey, Christina has served as an Equity Research Associate at Telesis Securities (EFG Eurobank) and a Financial & Investment Advisor at ING Group. Besides, having lived at Chicago, IL, Boca Raton, FL and Paris, France has helped her, not only to be a successful professional, but mostly to see life under a more creative and innovative perspective.

Since 2005, Christina provides high quality writing services to numerous websites and research companies contributing her knowledge and expertise. Her areas of specialization are Business, Finance & Investment, Society, Politics & Culture. She also has a very good knowledge of Entertainment, Health & Fitness and Computers & Technology.

Christina currently designs the website of her own writing company. Believing that knowledge is the road to opportunity and development, her mission is to promote her already established knowledge to a growing number of visitors and to provide high quality writing services to meet the most demanding customer requirements.

Article Source:http://www.articlesbase.com/investing-articles/how-safe-are-money-market-mutual-fund-investments-for-2010-1656681.html

From 1991-2007 I increased my 401K plan over 3,000% using company stock and mutual funds,  ETF’s are popular, but are passive, index managed vehicles with subpar gains most of the time and hard to pick if you do not know what sector is hot.

 Believe me, I did not earn a fortune in the insurance industry during the 1990’s and mid-2000’s.  Religious payroll contribution of 6% did the trick.  Plus I was in the hot service sector and my company stock increased 1200% in one case and another 500% in the other when my division was spun off.  Sure, lucky me, but the 2000’s brought on a private equity firm buyout of my spun off division and mutual funds were the only game in town:  between 2001-2007 I increased my portfolio 11.36% annually with just Fidelity mutual funds in the Mid-Cap Value arena and the Large Cap Value arena.

 The next 3-5 years looks good for stocks after we get over this final hump of the recession and the Fed starts to slowly raise interest rates in a timely manner.  Company stock should do well and a 25% allocation in a 401K plan would be a prudent choice.

 As far as mutual funds, I would go with a mix of Mid-Cap and Large Cap Value…the two areas that take off after a recession as new monies are put to work in R&D at small to medium sized firms and Value stocks in the Large Cap arena are the hottest new thing.  Slow and steady investment and dollar cost averaging never hurt anyone, especially the 20 and 30 somethings who have time to over come downturns in the economy.

 But you might be saying, why is this 50’s something guy smiling after the Financial Crisis of 2008?  Because I was 90% cash since late 2007!  After the Dow backed down from 14,000 level,  I knew the party was over for a while.  One thing all investors should have is a stop in mind for ANY investment be it investment monies or 401K monies.

The market contracts regularly on a 5%-10% correction basis and then snaps back; once the correction hits an 11% or 12% correction, the next move is a 20% correction or greater like we experienced in the Fall of 2008 and  the Spring of 2000.

 Watch your investments monthly or better yet bi-weekly and have a level when it dips go mainly to cash while being eligible to remain in the mutual funds you are in.  Hopefully, your 401K plan is good and matches not only company stock but mutual fund contributions as well.

 Become a student of the market!  Its hard to do I know with a full-time job and family.

 Learn and prosper!

Check out my websites:  www.make100percent.com and www.thetradersalliance.com .  Also look into the following mutual funds:  FLPSX, FCNTX, FDVLX and TAVFX for the Value mix I spoke of earlier.  These are the funds I was in and the funds that I am still invested.  

Steven Kinney is a day trader and internet marketer with various websites: www.make100percent.com, www.thetradersalliance.com and www.makeingmoneyonamazon.com.

Article Source:http://www.articlesbase.com/investing-articles/mutual-funds-are-the-way-to-go-for-ira401k-funding-1644506.html

Stop chasing the latest hot mutual fund and start checking out mutual fund families and their performance records.  To begin, you start off looking at Fidelity, Vanguard and T. Rowe Price.  These are the three major players in the mutual fund field.

All have been around.  Fidelity is the family of funds I am invested in and Vanguard is a bunch of index funds that follow a particular segment of the market and provide passively managed returns at low cost.  T.Rowe Price is a lot like Fidelity.  All fund families recommended above are no-load funds that do not charge an upfront fee or “Load” to join.

Next start looking at funds that are actively managed vs. looking at passively managed index funds….you are betting on the jockey and not on the horse for performance.  Look at their three, five and ten year returns.  Look at the growth of $10,000.00 over a ten year period.  And finally, look at their Morningstar or Lipper Ranking and how the fund is rated by these two non-profit organizations.

 The outlook for the economy over the next 3-5 years looks good after we get over this final hump of the recession.  Now is the time to SLOWLY and PRUDENTLY rearrange your portfolio to take advantage of the next up trend in the market.  And don’t forget to allocate a small portion of your monies to alternate investments such as futures, stock options and low risk Forex currency accounts.  Emerging Markets and International Investments should do well as the over all world economy improves too.

 Use any website you like to track your mutual funds:  Fund family websites and MarketWatch are the best to research and track fund performance.

 With Fidelity, try looking at FLPSX, FCNTX, FDVLX. And also look at Third Avenue Value (TAVFX) as an alternate or addition to FDVLX.  I have been in these funds since 2001 and averaged 11.36% annual returns up until late 2007.

Please see my websites:  www.make100percent.com and www.thetradersalliance.com .

Steven Kinney is a day trader and internet marketer. See his websites: www.make100percent.com, www.thetradersalliance.com and www.makingmoneyonamazonb2b.com.

Article Source:http://www.articlesbase.com/investing-articles/how-to-pick-a-mutual-fund-family-on-performance-1644602.html

What’s in a name? Well, with bond mutual funds, the name clearly suggests that it invests in bonds – no question about that. Therefore, if you are thinking of investing in bond mutual funds, then you have to protect your principal loan while paying your income.

This means that you incur more risk whenever you generate the returns but with the bond mutual funds, you get dividends from your interest payment.

Just like with the other mutual funds, bond mutual funds have net asset value or the NAV.

This is the dollar value of your share in the fund and the price that you pay whenever you receive an amount from the buying or selling of your shares in the fund.

Investors opt for bond mutual funds because this means more income for them and a way to diversify their portfolio. Bond mutual funds pay higher dividends compared to savings account and money market.

They are more frequent than the individual bunds as well. When talking risks, bond mutual funds have lower risks and can provide the investor with the stability that he wants and needs in his portfolio.

When the investor has good bond mutual funds, this means that he is stable in the stock market.

But as an investor who is planning to go into bond mutual funds, you should still keep in mind that there are risks involved in this kind of investment. However, this depends on how smart your investments weigh along the stock.

The investments you get from your bond mutual funds may easily be spread out. The key is to not put all your eggs in one basket. In that case, the risk of losing it all is lowered.

Think of bond mutual funds as liquid investments and they flow faster than individual bonds. Shares are sold and bought just like that. But the advantage of this is that these are exempted from taxes – be it state or federal.

There are three kinds of bond mutual funds. These are the US government bond funds, municipal bond funds, and the corporate bond funds.

The returns of these bunds differ depending on the amount of the risks that are inherent in every fund.

If you are going to choose among the three, we suggest that you go for the US bond funds because the inflation rate depends on your debt securities and this is something that you have total control of.

Discover what are the best bond mutual funds at my site. Learn where to buy mutual funds online.

Article Source:http://www.articlesbase.com/investing-articles/what-are-bond-mutual-funds-1625559.html

Investing your money in mutual funds is a wise move especially for your long term goals. There are different types available in the market. One of these is the income mutual funds whereby the investor gets an income on a monthly or quarterly basis.  Other types focus mostly on capital growth instead of this type or they opt for a combination of both. When you want to invest for a long period of time and get a regular income, then this is the option you need to consider. When you invest in this type of fund you get a percentage of its total earnings.

You make an initial investment of a couple of dollars or even less and still enjoy the benefits of owning a part of a large portfolio. Income mutual funds are mostly categorized as either balanced or equity income funds. The balanced type normally tries to balance the investments in stocks and bonds. The income equity funds often concentrate more on dividend paying stocks. Despite the fact that they may both have varying holdings, their main focus is generating and maintaining a high income level and preserving capital.

In comparison to money market or bonds funds, they are considered to be a better investment choice. This is because they produce higher returns than those that you would find in the money market and bond funds.  

This type of investment is also considered quite safe as they mostly invest in companies that are creditworthy and established. These companies can be counted onto provide dividends and interest payments.

Mercy Maranga writes content on Finance and Finance Management. Visit her site here for more information on Mutual Funds and how to effectively invest your money. Mutual Funds

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It can be difficult sometimes to find a reliable and safe way of investing. This is because many people may not be fully aware of the options that they have available in the market. However, the best thing to do when you decide to invest is to ensure that you are equipped with the necessary and proper facts. It is important that you are fully aware of what your investment option entails so that you do not get any surprises along the way. Mutual funds are a popular investment option and have the advantages of professional management, convenience and liquidity.
It is also vital that you understand that mutual funds are not entirely risk free. When you have the proper information, it is easier for you to make an informed decision and compare the different mutual funds so that you can get the right one for you. This will depend on your goals, the length of time you want to invest and your risk tolerance.

It is also essential that you also put funds sales charges, fees and expenses, the age and size of the fund, the fund’s risk and volatility into consideration. You can also compare funds by measuring them by their returns. This way you will be able to see how much the fund has gained over a certain period of time. The fund’s benchmark is also another way for you to compare mutual funds.

It will provide you with a standard for you to make your assessment. This will help you assess what the fund has made against what it should have earned. It is also advisable that you compare returns. When doing this, ensure that the time period is equal and also the product is similar as far as risk is concerned.

Mercy Maranga writes content on Finance and Finance Management. Visit her site here for more information on Mutual Funds and how to effectively invest your money. Mutual Funds

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In these tough economic times it is hard for you to trust a particular type of investment. Luckily, mutual bonds offer some sort of shelter during these times and give you a chance to still make money. However, it is advisable that you take your time when you are choosing the type of mutual fund that will work well for you. Investing in bonds is a good idea and this ensures constant interest payments and possible capital appreciation when the bond prices increase.

Bond mutual funds help you achieve this and much more. The middle risk investment venture that pursue strategies that are supposed to give higher returns. Investing in bonds and debt securities is less risky than stocks. They also provide the stability that many investors are looking for and since they are diversified, there is the reduced risk of default. In addition some bond mutual funds are also federal or state tax exempt. They are also more liquid than bonds since they can be bought easily and sold in smaller units. It is not easy to buy bonds and hold them since they are not as liquid as bond funds.  

There are many different types of bond funds. The government bond funds invest in debt securities that are offered by the government such as treasury bills, treasury bonds, treasury notes etc. Then there are the municipal bond funds that invest in securities issued by the state and/or local governments for doing public works like building bridges, constructing schools etc.

Some of these are exempt from federal taxes since they have the backing of the federal government. The corporate bond funds invest in debt securities of corporations. They are a bit more risky than the other two types as they are not backed by the government. Despite this, they pay out a higher income in comparison to government funds.

Mercy Maranga writes content on Finance and Finance Management. Visit her site here for more information on Mutual Funds and how to effectively invest your money. Mutual Funds

Article Source:http://www.articlesbase.com/investing-articles/bond-mutual-funds-best-for-those-who-want-low-risk-investment-1427273.html

Mutual funds are one category of investment securities that offer a very wide range of options from which an investor can choose from. This means that, one will be able to spread risk and also increase chances of making more money from the various investment options. The securities that one can buy under the mutual funds investment category include stocks and bonds. This is what is known as mutual funds diversification.

This means that, with the diversification, there is a great chance for growth and as such, mutual funds are able to balance themselves out, even when the economic times are hard or when the stock market is not doing so well. However, they have their disadvantages as well. Depending on where you invest your money, there is usually no guarantee that you will fetch a good return on your investment.

The reason for this is because, the mutual fund managers are not the same, charges on commissions and other fees differ widely also. The other criteria for mutual funds diversification is the categorization into income and equity funds. Income funds are those that one invests in, purposely for the sake of earning an income. They are more reliable because they are offered by the government and they have a steady dividend return.

Equity funds on the other hand are more growth oriented and they guarantee no return on the investment. However, the more they grow, the more they are likely to fetch, once dividends are declared. Other mutual funds diversification strategies are to be found in other categories like the index funds, the international funds and the sector funds, they all have their specific attributes that make them unique. To get the best out of these investments, keep looking out for any changes and keep your mind open. Also invest in as many categories as possible.

Peter Gitundu Creates Interesting And Thought Provoking Content On Mutual Funds. Read More Of His Articles Here MUTUAL FUNDS DIVERSIFICATION

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The world’s economy is in turmoil and so is the stock market. This has made investing quite difficult. Among other alternatives, people have been left with the option of investing in mutual funds. Mutual funds 2009 come in various types and the best of these are discussed in this article.

There are various criteria used in selecting these funds. The first is to look at the income-dividends ratio.  It is through one’s income that they can know the percentage that their income will yield. The second criterion is the future trends.  On should be able to choose funds that will be able to stand the test of time. Here we focus on future gains as opposed to the short term ones.

The last but most important method of selecting funds is to look at the long-term performance. It is important to purchase such investments not based on how they are performing today but by considering how they will be performing in the future. The most realiable mutual funds 2009 have been suggested as follows; The American Century High-Yield Fund: This has higher percentage of dividends of 9% which is higher than others. The New Alternative Fund is another type of fund that one would want to put into consideration.

There is an environmental-friendly way of doing things. It is mainly used by companies that focus on renewable energy.  The Franklin Utilities Fund has a dividend yield of 4% and a ten year annualized return of 5%.  ING Corporate Leaders Trust Fund is another type of mutual funds 2009 which has 2% dividends. Other types include Vanguard Energy Fund and the Municipal Bond Fund. The investor of this should be careful on the choices they make.

Peter Gitundu Creates Interesting And Thought Provoking Content On Cake Decorating. Read More Of His Articles Here MUTUAL FUNDS 2009

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