Expert: Paul Henneman - 3/2/2004

Question
Investments - Mutual Funds etc
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Hi. I have just read that it is best to invest money in something like mutual funds and have a lot of money for pension. I have a little bit of fear, because I am from Russia and there was somthing similar to mutual funds during communism and when communism ended all the moeny went to goverment, who did't returned anybody anything. I am afraid somthing like this may happen with my money in USA. I live in Washington state and there is a big company called Washington Mutual that probably makes this all this stuff. It sounds cool to have 10% profit from your investments every year. I will have a good salary and would like to put them in such funds, rather then spend on flashy cars and houses etc. Do you support this kind of investment - mutual funds? As i understand it means you give some of you rmoeny to some people, they invest them smart and take 2% and you 10% of the return each year. Well, your 10% will increase your money to 110% and every year it will grow more and more if you dont make withdrawals. It works for me. Does it work for you?

Answer
Diamind,
 Thank you for your question!
 Yes, mutual funds are a good way to invest. The returns on average for mutual funds are slightly lower than a good stock portfolio, but less risky.
 Do not worry about what happened in Russia, it would not happen in the US. The economny is so much larger, and major mutual funds are insured by the US government. There is no similar fear here.
 It is true that you can expect 10% in returns (profit) a year from mutual funds. But this is not every year, just an average. Some years you will make more than that, as much as 20 or 30 percent. But some years you will make less, and will likely even lose money in some years. It is not a regular return. But, this is fine as long as you are aware in times where the investments are not doing as well that it will do better in the future.
  In order to minimize the 'downside' risk, where you can lose money, do not invest in a single mutual fund. Instead, it is far better to invest in several, and make sure that each one specializes in a different area. Some of these are Technology, energy, real estate, transportation, health care, there are many others.
  I also agree that you should not hire someone to give them your money to manage. As you say they charge alot of fees, and most often do not really have your best interest as their goal. They are after your fees, it does not matter to them how much return you make on your investment.
  Before you make the move to invest, I strongly recommend two things: Get a copy of "Investing for Dummies", available in most major bookstores and on www.Amazon.com  This book has a large section on Mutual Funds so you can learn exactly what you would be investing in. It also covers other types of investments so that you can determine for sure if Mutual Funds are what you want.
  I also recommend that you visit www.morningstar.com as this is one of the best know and respected online sources for mutual fund information.
  I hope this helps! Please do not hesitate to follow up with me if I can be of any additional assistance,

Sincerely,
Paul Henneman
President
ValuEngine, Inc.
www.ValuEngine.com