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| What
are the Market Indeces? |
The Dow Jones
Industrial Average(DIJA)
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At over 100
years old the Dow Jones Industrial
Average(DIJA) is one of the best known stock
indexes in the world. It is used as a
yardstick by the public to measure the
performance of the stock market in the
United States. The Dow started in 1885 at 85
and today it has surpassed the 10,000 mark.
The Dow is made up of 30 blue chip stocks
listed in the New York Stock Exchange(NYSE).
These stocks represent different sections of
the economy. These thirty stocks represent
the US stock market as a whole.
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Standard &
Poor. s Index (S&P 500)
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This, like the
Dow, is used as a mark by professional
investors. The index in made up of 500
stocks. The S&P 500 is mainly comprised
of industrials, while a small portion is
comprised of railroads and utilities.
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New York
Stock Exchange (NYSE)
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The NYSE is
comprised of utilities, finances,
transportation, and industrial. It mainly
trades common mid to low cap stocks.
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National
Association of Securities Dealers Automated
Quotation (NASDAQ)
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The NASDAQ is a
measure of the movement of prices on
domestic common stocks. It is mainly
comprised of technological stocks. It is one
of most focused on indices in the US.
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American
Stock Exchange (AMEX)
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This measure the
movements of the common stocks on the
American Stock Exchange.
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Russell 2000
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This is and
index that measure the movements of 2,00
small companies.
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Wilshire 5000
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This is an index
that has compiled the largest indexof about
7,000 stocks.
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Now
that I have chosen my stocks and what
markets to invest in what do I do after
here?
For
this you should read our investment
strategies section .
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What is a
Mutual Fund?
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A mutual fund is
a collaboration of individual investments to
invest in stocks, bonds, and other
securities. The way that it works is that
when the items that you invested in gain or
lose value, you will gain or lose as well.
So are you with me? OK, your probably
wondering how you get paid if your investing
in a group. Well here is how it works. When
dividends are paid you will get a share of
them. Since more and more people are
investing in mutual funds there are many
more experts that can help you manage your
money.
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Advantages:
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Mutual funds
provide diversity to your portfolio
If you only have a small amount of money
to invest, a mutual fund will give you the
opportunity to own a large amount of stocks
and bonds. The way that this works is that
you will be investing with many other small
investors to form a large portfolio.
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Disadvantages
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Same philosophy
applies here as it does with other
investments. That philosophy would be, the
higher the risk the higher the chance to
gain or lose your money.
Mutual funds are more of a long term
investment. This maybe a downside to some
people however not to all.
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How do I buy
a Mutual Fund?
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To buy mutual
fund share you could either go trough a
mutual fund company or from a stock broker.
If you want to buy shares directly form the
mutual fund you have to send the money
directly to the fund. This is similar in all
cases of transactions with mutual funds,
they are all customer initiated. Many funds
require a $1,000 initial investments however
there is a way to circumvent this. That way
is to have an automatic investment plan.
This mean that a certain amount of money is
withdrawn from your bank account each month.
The money that is withdrawn is then invested
in the fund. To redeem shares all you have
to do is to make a phone call, however,
other funds require physical presence redeem
the shares.
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Open/Closed-end
Mutual Funds
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Mutual funds come in
two varieties, open and closed ends. In today.
s market whenever mutual funds are
talked about they are usually talking bout
open-end funds. The name of the open-end
fund explains it all. The open-end fund
gives you much more flexibility than the
closed-end funds. It allows you to redeem
your shares at any time while the closed-end
only allows you to redeem them when
the fund. s trust is terminated. If
they do want to sell before they trust
terminates they can sell their shares
through a broker to other investors. We are
going to focus on open-ended funds on this
site.
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How do I
select a mutual fund to invest in?
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Here are some
essential items to look at when assessing a
mutual fund:
-Obtain a copy of the fund. s prospectus
to see how it is performing, its goals, and
other critical information.
- Past Performance: make sure to find out
if the fund has performed well in the past.
This may ensure a promising performance in
the future.
- How much are you willing to risk? This
is a question that you should consider when
deciding to invest in any security. You
should look at the high and low of the fund
and see how volatile the fund can be. This
will help you decide on how much you should
invest in the fund.
- How much taxes will you have to pay?
One downside to investing is that you must
pay taxes from your profits, but some funds
are more tax efficient than others. So look
to see how tax efficient your fund is.
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