Some Advices for Investors on How to Behave Now

Times are tough. During these chaotic times, the principals of proper portfolio management are crucial:

1. Don't sell into fear
2. Rebalance your portfolio to buy equity
3. Continue dollar cost averaging
4. Inject cash if you have it

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The financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So ... I've been buying American stocks. This is my personal account I'm talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation's many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can't predict the short-term movements of the stock market. I haven't the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor's best friend. It lets you buy a slice of America 's future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn't. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts. |

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky's advice: "I skate to where the puck is going to be, not to where it has been."

I don't like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I'll follow the lead of a restaurant that opened in an empty bank building and then advertised: "Put your mouth where your money was." Today my money and my mouth both say equities.

Source: Warren Buffet, "Buy America. I Am.", New York Times, 17th October.

Mutual Funds as a Long Term Investment

Mutual Fund is actually meant for a long term investment. the duration could in the range of 3-25 years depends on investors objectives.

Mutual fund is a collection of stocks, bonds or money market securities, which have been bundled together in one offering based on not only the goal, but the past performance of the individual components. They are taken as a whole, and as such, when some of the holdings in a fund rise, others may be falling, so the growth potential is not as extreme as, say, just one stock or bond. Over time though, mutual funds, can grow up to 8-9% a year, while the stock markets can gain anywhere from 10-11%.

There are a variety of mutual funds that an investor can invest;Equity Funds, Balanced Funds, Money Market and Bond Funds.

There are some terms associated with Mutual Funds that the investor should be aware of. The first is the Net Asset Value, or NAV, for short. The NAV is a calculation that takes the Funds total assets and minuses the total liabilities. This calculation is done daily, at the end of trading, to reflect the true value of the Fund.

Another term is liquidity, which is used to describe the amount of time it takes to convert the investment to its cash equivalent with the minimal amount of fees or price discount. Mutual Funds are not known for being liquid, that's why we started out saying that they are a long term investment.

One of the most important factors in dealing with Mutual Funds is the Prospectus. The prospectus is a legal document that contains information about the Mutual Fund, such as what holdings are invested in, what the goal of the fund is, what the past performance of the fund, listing of fees, the manager of the fund, the risks of the fund, and the strategy to achieve the optimal investing balance. Anytime you have a question about a Mutual Fund, you can always refer to the Prospectus, and you can always have one mailed to you, or made available to you through download, when searching for a Mutual Fund to invest in.

Advantages Of Mutual Fund Investing

Mutual funds are growing dramatically over the years to the point where it's harder to find an investor who is not using mutual funds. The popularity of mutual funds is no surprise when you consider that they are one of the easiest investments to use and require very little knowledge of the financial markets. There are few advantages that mutual funds can offer every single investor:-

1st
Mutual funds offer professional management of your investment dollars. Mutual funds are run by fund managers, who are essentially watching over your investment daily. There is almost no other place where you get that kind of investment management without paying huge management fees.

2nd
Mutual funds are extremely liquid. Any investor can sell his shares in a mutual fund any day that the stock market is open. Compare that to investing in real estate, CDs or even stocks that have low trading volume which can takes weeks to months to liquidate your stake. The liquidity of mutual funds gives any investor the ability to get out of the investment quickly if needed.

3rd
Mutual funds offering diversification. Mutual funds invest in tens or even hundreds of different stocks, bonds or money markets. Trying to duplicate this type of diversification in your own portfolio would result in very high trading fees, not to mention huge headaches from tying to monitor hundreds of stock positions. This leads us into the fourth advantage of mutual funds, lower fees.

4th
Mutual funds have very low fees due to their ability to take advantage of economies of scale. Since mutual funds are pooling the investment dollars of so many investors they can buy stocks in larger quantities which leads to lower fees for mutual funds investors.