A mutual fund is an investment company that pools the money of many investors and invests it on their behalf. Based on a fund’s stated objective, the money is invested in stocks, bonds, money market securities, or a combination of these. At the end of 2004, there were about 8,000 mutual funds with 267 mil- lion accounts worth in excess of $8.1 trillion. All investments have an element of risk. Mutual funds are no different. And, with so many choices, great care should be exercised to find a fund that is right for you. (more…)

The capital allocation line shows the risk-return trade-offs available by mixing risk-free as- sets with the investor’s risky portfolio. Investors can choose the assets included in the risky portfolio using either passive or active strategies. A passive investing strategy is based on the premise that securities are fairly priced and it avoids the costs involved in undertaking security analysis. Such a strategy might at first blush appear to be naive. However, we know that intense competition among professional money managers might indeed force security prices to levels at which further security analysis is unlikely to turn up significant profit opportunities. Passive investment strategies may make sense for many investors. (more…)

Exchange-traded funds (ETF’s) are one of the most popular publicly traded entities to date. Making up over 40% of the market’s volume, ETF’s have become an overnight phenomenon for the mainstream investor looking for instant diversification and a diverse range of specifications to help mold a portfolio more suitable to his taste. ETF’s have been highlighted as the cure-all for diversification, the greatest thing since sliced bread. Nevertheless, there should always be some precaution used when investing, even in something seen to be as safe as an ETF. (more…)