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| Mutual Funds in Your Retirement Plan and Dollar Cost Averaging |
Dollar cost averaging is an investment strategy where equal
regular intervals to reduce volatility. This can be done with
monthly deposits through payroll deduction into a qualified
retirement plan, such as a 403(b)(7), which many school
employees have (often referred to as a TSA or Tax-Sheltered
Account), or it can be done through monthly bank drafts to an IRA
or to an after-tax account.
Each month, or whatever regular interval you have chosen, your
investment buys shares in the fund. For example, if you are
investing $100 per month and the share price at the close of the
market on the day your investment is received is $100. then you
would own one share of that fund.
The next month when your $100 investment is received, if the
share price is $110, you would own a little over 9/10 of a share
from that investment plus your initial one share for a total of 1.909
shares. Their value on that day would be $209.99. But what if
the share price that day were $90? Your investment would
increase 1.111 shares, which in addition to your initial share
would give you 2.111 shares. Their value on that day would be
$189.99. Notice that there is a difference in the number of
shares and the value on that day.
The benefit in the long term is that when the market is low, you
purchase more shares. If the market moves up, then the value of
all your shares moves up, even shares purchased at a lower
price. The opposite is also true. There is no guarantee that the
value will go up and that you will make a profit. Remember, that
investing involves risk. Your actual value can be more or less
than the amount you invested.
Mutual funds can be an integral part of a solid overall retirement
plan. Consult with your advisor about how best to diversify your
retirement account.
regular intervals to reduce volatility. This can be done with
monthly deposits through payroll deduction into a qualified
retirement plan, such as a 403(b)(7), which many school
employees have (often referred to as a TSA or Tax-Sheltered
Account), or it can be done through monthly bank drafts to an IRA
or to an after-tax account.
Each month, or whatever regular interval you have chosen, your
investment buys shares in the fund. For example, if you are
investing $100 per month and the share price at the close of the
market on the day your investment is received is $100. then you
would own one share of that fund.
The next month when your $100 investment is received, if the
share price is $110, you would own a little over 9/10 of a share
from that investment plus your initial one share for a total of 1.909
shares. Their value on that day would be $209.99. But what if
the share price that day were $90? Your investment would
increase 1.111 shares, which in addition to your initial share
would give you 2.111 shares. Their value on that day would be
$189.99. Notice that there is a difference in the number of
shares and the value on that day.
The benefit in the long term is that when the market is low, you
purchase more shares. If the market moves up, then the value of
all your shares moves up, even shares purchased at a lower
price. The opposite is also true. There is no guarantee that the
value will go up and that you will make a profit. Remember, that
investing involves risk. Your actual value can be more or less
than the amount you invested.
Mutual funds can be an integral part of a solid overall retirement
plan. Consult with your advisor about how best to diversify your
retirement account.
| Mutual Funds |
A mutual fund is a type of investment that creates diversification
for a small investor. It consists of a large number of investors
who put their money in the hands of an investment company a
diversification of the total investment that a small investor would
not have enough money to achieve on his/her own.
As an example, a mutual fund may create this diversification by
investing money in one hundred (100) companies. A small
investor would not have enough money to buy the suggested
minimum number of shares (100) of each of the one hundred
companies. A mutual fund creates this diversification by
combining the money of many investors to purchase the shares
of the companies. It puts the eggs in many baskets for the small
investor.
There are many types of mutual funds: stocks, bonds, specific
types of stocks, income, index, large companies only,
medium-sized companies only, small-sized companies only, etc.
The description of where and what type of investment that will be
made by the fund is provided to the investor through a
prospectus. Once that description is made in the prospectus, it
cannot be changed unless a majority of the shareholders of that
fund vote to change it.
A mutual fund is often a member of a family of funds. In that
family there may be twenty (20) to thirty (30) different funds.
Each fund will have a different objective, and that objective is
described in the prospectus for that fund. So, an investor who is
in one fund can often trade (exchange) from fund to fund within
that family of funds without any transfer or surrender fees. This
is a real advantage as investment goals change.
for a small investor. It consists of a large number of investors
who put their money in the hands of an investment company a
diversification of the total investment that a small investor would
not have enough money to achieve on his/her own.
As an example, a mutual fund may create this diversification by
investing money in one hundred (100) companies. A small
investor would not have enough money to buy the suggested
minimum number of shares (100) of each of the one hundred
companies. A mutual fund creates this diversification by
combining the money of many investors to purchase the shares
of the companies. It puts the eggs in many baskets for the small
investor.
There are many types of mutual funds: stocks, bonds, specific
types of stocks, income, index, large companies only,
medium-sized companies only, small-sized companies only, etc.
The description of where and what type of investment that will be
made by the fund is provided to the investor through a
prospectus. Once that description is made in the prospectus, it
cannot be changed unless a majority of the shareholders of that
fund vote to change it.
A mutual fund is often a member of a family of funds. In that
family there may be twenty (20) to thirty (30) different funds.
Each fund will have a different objective, and that objective is
described in the prospectus for that fund. So, an investor who is
in one fund can often trade (exchange) from fund to fund within
that family of funds without any transfer or surrender fees. This
is a real advantage as investment goals change.
| Dollar Cost Averaging |
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