how's it going today guys so today I
thought it would be good to make a video
talking about mutual funds and I just
wanted to mention before this video
there's a number of videos on YouTube
about mutual funds that are I'm going to
be honest they're pretty good but the
one thing that I've noticed that they
don't do is they don't really lay out
the pros and cons of mutual funds so
well after I go over explaining the
basics of the mutual fund I'm going to
go through the pros and cons list of
them now here's the reason why most of
the videos on YouTube do not do this and
that's because most of the videos about
mutual funds are are made by people who
sell mutual funds so buy some company
that makes mutual that sells mutual
interest involved in mutual funds so for
me I don't gain anything by selling you
guys on mutual funds so I can be honest
with you guys where is some other
companies posting videos they want you
to buy mutual funds so they're going to
lay them out in a very positive way and
they won't really talk about the cons
with the mutual funds so I'm going to be
doing that for you and I think that will
kind of add more value for you to have
that perspective but mutual fund is
basically a pool of funds invested in
securities such as stocks bonds and
money markets and generally speaking
it's a blend of those things so if you
can picture many people giving their
money into a collective pool and then
there's investors who basically are very
skilled at investing and they diversify
that money across different stocks and
bonds and money markets so that's what I
said here it's operated by money
managers who invest the funds capital
attempting to produce income or capital
gains so obviously the idea with the
mutual fund is to have your fund grow
over time so your investors make capital
gains and they're very happy and they
stick with the fund and they give you
and then they give people their money
and then they're making their money off
their commissions so everyone's happy so
the idea there is that you're making
money in the process of doing this so
the portfolio the mutual fund is
structured to match
investment objectives so there are
different risks as far as mutual funds
go there's some people who have a higher
tolerance for risk and a lower tolerance
and that may also be due to the fact of
you know how close you are to retirement
and how much you want to be risking your
money versus you know having more money
in bonds so that way you know that it's
more of a surefire debt than it is you
know betting in stocks or investing in
stocks so there are different mutual
funds to suit your risk tolerance and
there's also funds that have different
investment objectives so the portfolio
is kind of structured by the investors
of the fund the people who basically
structure it around those different
objectives based on whatever it is that
you're looking for your investment so
the mutual fund performance is tracked
by total fund market cap and this is
derived from clustering the performance
of the underlying investments so because
you're investing in so many different
stocks and bonds the performance of each
is different on any given day so what
they do is they have to pretty much
combine all those together and see if
the losses are outweighing the gains or
however that's doing to determine how
the fund in general is doing now that's
actually considered the nav or the net
asset value of the fund so that's kind
of like similar to saying oh this is the
share price of the stock the net asset
value a mutual fund is basically the
total value of the Securities divided by
the outstanding shares so that's
basically how the fund is performing in
general with all those different you
know stocks and bonds and money markets
collectively how they're all performing
so there's three types of fees that are
generally associated with a mutual fund
you have your advisory fees your
management fees and then any
administrative costs um and we're going
to get into the pros and cons of mutual
funds after I go through this but that's
one of the cons of leases there's a lot
of fees involved with mutual funds that
you wouldn't see another invest
types so there's a number of different
ways that they'll structure the fees
with a mutual fund there's a front-end
load which is where the fees are
assessed at the time of purchase of the
mutual fund there's a back-end load
where fees are assessed when the
investor sells the shares and then there
are some no-load mutual funds personally
I haven't come across them but this is
where there's no Commission or sales
charge Newton is because the mutual fund
is sold directly by an investment
company not through a second party like
I said I'm not super familiar with that
one but this was just pretty much a lot
of the information I saw people talking
about I wanted to kind of collect the
pool together so if you like you're more
curious about a no load mutual fund I'm
sure you can do your own research but
this is just kind of an overview video
so I'm not going to go crazy in depth
about that all right so here are the
pros and cons of mutual funds these are
pretty much the main ones that I saw
through the research I was doing and
I'll kind of explain those to you
because some of them kind of easel
explanation the pros will do first so
the main reason people like mutual funds
is because they're highly diversified um
as you know any investor knows this you
don't want to have all of your eggs in
one basket so you don't want to be
investing only in one sector because if
that sector performs badly your whole
portfolio goes down with it so you want
to be diversified across many different
sectors and be involved in many
different stocks and markets
so when you're more highly diversified
there's going to be a lower risk because
the odds of all of those sectors
performing badly that's very uncommon so
generally speaking you know if one
sector is performing poorly another ones
doing better and they tend to offset
each other that's the idea with being
diversified the other Pro with this is
there's a high demand for most mutual
funds which means they're easy to sell
um a lot of people don't consider this
with an investment but when you're
buying a stock or whatever it is you're
buying you want to make sure there's a
buyer for you when you're waiting to
sell um there are some cases where you
could buy a you could buy a small cap
stock or some kind of OTC
over-the-counter traded stock and
probably with day trading tool you can
run into that as well if you bought well
not day trading but if you're buying on
um Penny Stocks very low you know low
trading price stocks there may not
necessarily be a buyer for that stock
when you're waiting to sell so that's
something to consider you definitely
want to be able to liquidate when you
when you want to you don't want to be
waiting for the buyer to come along so
because there is a high demand for these
they're pretty easy to sell um there are
very passive investment for somebody who
doesn't want to be thinking about their
investments on a day to day basis
they're great for you because you said
it and you forget it the idea is the
fund is being managed and it's all being
taken care of for you behind the scenes
and that's a good thing too with this is
it does allow people who may not have as
much money to have professional
management of the fund because you know
management of your of your finances is
very expensive but when you collectively
pool your money it makes it so that way
people with less money can have
professional management of their
finances which is another advantage that
kind of falls into this passive
investment Pro on the list here and then
the other Pro is is there's generally
easy comparison between the different
mutual funds so those are the reasons a
lot of people generally like them now
here's the cons with mutual funds and
like I said this is the I didn't see
anybody else on YouTube talking about
this because I think most of people
making videos about mutual funds we're
trying to sell them so they wouldn't
want to tell you about the cons of them
but this is the cons of mutual funds
because of these people that are
managing the funds for you they get to
be kind of expensive some of them do
with the advisory fees and management
fees so they are a more expensive
investment as far as commission goes and
you know the different fees you're
paying out on them and I can eat into
your profits
the other problem or the other con with
these that the index may actually
outperform the investment in which case
you're paying those managers to do
nothing because you could have just
invested in the index as a whole and it
outperformed the actual mutual fund
which was being managed at that point so
you're paying your Commission and you
didn't even uh perform the index so
that's another con and you know that
that that could happen in any mutual
fund really it doesn't really it's not
specific to any one but it's just
something to consider
um the other issue with these is if
you're looking for a high
your risk mutual fund in some cases
you're going to be paying more in
advisory fees because that requires more
management and more human involvement in
that fund because there may be more
trading on a daily basis so you may be
paying your the people who are managing
the fund you may be paying them more
money
because they're more involved in that
investment the other problem or con with
this in the you know this isn't a huge
deal because for the most part when
you're buying a mutual fund it's a
long-term investment you're not trying
to buy a mutual fund and sell it three
weeks later well you shouldn't be so if
that's what you were thinking
don't buy a mutual fund this is
something you buy and you sell many many
many years down the road so another
thing to point out here too you don't
want to tie up money in a mutual fund
that you're going to need within the
next I'll say five years it's money that
you want to set aside you want to leave
it to grow over many years you don't
want to be putting money in there that
you're going to need six months later to
buy a car just you know find something
else to do it honestly just keep it in
the quiddity it's not worth it to do
anything with that for the most part but
this is the issue
there's no intraday training with a
mutual fund that's because like we
talked about before that net asset value
they have to settle that at the end of
the trading day so once they've
determined you know the stock price for
all those different or the market price
for all those stocks and bonds or the
money markets that that mutual fund has
they settle the value for the mutual
fund by seeing you know how the fund
performed as a whole so you can't sell
mid day if you were to sell a mutual
fund during that day it would sell for
whatever that net asset value was
settled for at the end of the day so you
can't trade any kind of you know there's
like a mid day spike in the fund or if
there was a mid day spike and a lot of
the stocks involved in that you couldn't
take advantage of that you would be
selling for whatever it all settled for
at the end of the day basically and I
like I said I don't think that's a huge
con because most people are you know day
trading mutual fund nobody they trades
mutual funds you're selling them um you
know because a ston how the markets
doing over a long span of time
generally the other thing is and I don't
know what ton about this I'm not going
to lie I just threw it up there because
a lot of people mention this they're not
the most tax-efficient investment and
this is just an overview video I'm not
going to go crazy in depth with this if
you want to do your own research I'm
sure there's a lot of different
resources that could explain that better
but there are some investments that have
like tax loss harvesting and different
ways that you're kind of avoiding paying
so much in taxes and you do pay you know
your capital gains tax on whatever
you're making on the fund so it isn't
the most tax efficient investment I'll
put it that way if you want to learn
more about that you know just do a
google search on that I'm sure you can
find some information on that and this
is an interesting point too because I
actually didn't realize this until I did
my own research but um if they're you
know the herd investors are basically
you know doing whatever the market is
doing so when the market is down they're
selling and when it's up they're buying
they're basically doing the exact
opposite what they should be doing and
the problem with this is these herd
investors these inexperienced investors
you're not one of them because you know
you're watching these videos you're
learning and you're being educated but
for those of you out there people who
aren't watching these videos they may be
the herd investors and they're going to
end up you know selling out of panic
when the market goes down so here's the
problem because the mutual fund is a you
know combination of many different
stocks and bonds um if you had somebody
sell at in a down market or in a bear
market the the fund is going to have to
liquidate money to pay that person off
so at that point they you're forcing the
whole basically the whole fund to sell
at that point there so when you really
should be holding and waiting for that
market to come back up the people who
sell will force the fund to liquidate
assets in order to pay that person off
because that money is invested they
don't just have you know liquidity
sitting around so they have to free up
some assets in order to pay that person
off so that is one way that other
investors could pull you down in a
mutual fund and it's something you
should consider if you're getting into
them but I mean how much is it really
affecting the fund as a whole yeah that
all depends
probably not a ton but
something to consider personally I do
have a mutual fund it's with Franklin
Templeton they seem pretty good I mean
I'm not sure I didn't really go crazy
into the few structures I have a family
member who's involved in financial
planning so they set me up with that but
you know if you are looking at different
you know funds you look at those fees
especially and see what each one is
charging you and you know figure out
what the investment objectives are of
the fund and find something that you're
comfortable with um personally most of
the training I do these days is actually
individual stocks I don't like the
passive investments I want to kind of be
more involved in my investments and
because I'm you know make videos about
you know trading stocks I kind of like
to learn stuff myself by doing and share
with you guys so if you guys are at all
interested in my own stock market
trading strategy I just finished my
ebook I've been working on for the past
three months and I will link up to that
in the description because I've actually
had pretty good luck just trading
individual stocks using technical stock
analysis to figure out when to buy and
sell my stocks and I've had pretty good
luck with it
so if that's something you're interested
in I will make that up in the
description but that's pretty much all I
got on this video
mutual funds if you guys have any
questions drop them in the comments I'll
be sure to answer them and thank you
guys for watching
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