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MUTUAL FUNDS

• PORTFOLIO: The portfolio is simply the stocks and other investments one owns.
• DIVERSIFICATION: Diversification means to put your eggs in different investment baskets- to have a diverse portfolio. Investments in different "sectors", different business areas, will accomplish this. Examples of different sectors include: bank stock, retail outlet stock, medical technology stock, Health Maintenance Organization stock, Internet provider stock, high tech stock etc. One might diversify within a sector and own differing stock from the same sector. Investing in several different sectors, say, pharmaceuticals, aircraft manufacturing and software design yields more diversification.
• MUTUAL FUND: Ah the Mutual Fund- a near perfect way to diversify. A mutual fund is a collection of stocks, from different companies, combined (or co-mingled) together to provide one single investment. An example might be a mutual fund that invests 10% in bank stock, 25% in retail outlet stock, 25% in medical technology stock, 25% in high tech stock and the remaining % in government securities. The mutual fund attracts money from many investors and manages the "mix" of stocks, often for a fee.
• MUTUAL FUND ADVANTAGES: The main advantage to mutual funds is that the funds are managed by professional investment managers. The second advantage is, mutual funds offer a (somewhat) diversified portfolio because of the many different stocks a fund holds. Some funds, "sector" funds, offer a diversified portfolio of companies within the same industry.
• SECTOR FUNDS: A sector fund provides a concentration in a particular industry, such as, computers or tobacco. A sector fund might be chosen because of the bright future of a particular industry. Fidelity offers many such sector funds.
• LOADED FUNDS: Loaded funds are ones that charge a fee to the fund (share) holders, usually a "management " fee or a sales commission. These fees can be relatively large or small, depending on the fund. The stated advantage of a loaded fund is; the sales person explains the fund to the buyer and provides advise as to when it is appropriate to sell or buy more of the fund. It is felt by some that a self reliant investor could make better use of the fees by investing them rather than to pay for additional "management". These fees can be either front end loaded or back end loaded.
• FRONT END LOAD: Front load is when the sales fee is charged at the time of purchase of a fund. Three percent is average but some funds charge more, some less. From the fund's point of view, the earnings of the fund should more than make up for the upfront sales fee (? hummm).
• BACK END LOAD: Also called a redemption charge, the back-end load is charged at redemption (part or all) of the fund. This fee is also called a deferred sales charge or exit fee, and in most cases includes any and capital gains of the fund. The back-end load, or end-load, was designed to discourage investors from withdrawal of the fund. Also note that the back end charge may be waived after a certain time period, say five years.
• NO-LOAD FUND: The no load fund is just that- a fund which charges no sales, management or commission fees. No-loads are increasingly popular and provide a more affordable investment vehicle, and a better value, to many investors. No-load mutual funds listed in the financial pages are designated by the symbol "NL".