18 � (((b))) magazine | s u m m e r 2 0 0 8

WWEE AALLLL LLIIKKEE CCHHOOIICCEESS, but when faced with

more than 8,000i mutual funds, taking a dart to

the newspaper’s financial section can begin to

seem like a logical selection technique.

But wait; there is a better way. Let’s peel back

the layers of mystery and start at the core of

importance: the objective of the fund. Every fund

must state the type of stocks or bonds in which it

is investing and their concentration. For example,

a U.S. Large Company fund will be searching for

those big companies based in the United States

with capitalizations over $60 billion. A balanced

fund will invest in a blend of perhaps 60 percent

stocks and 40 percent bonds. There are

international funds, which invest outside the

United States, and global funds, which are

worldwide. Select the fund with the objective that

helps to diversify your portfolio.

You do not manage the fund yourself; you are

hiring managers to do this for you. For myself, I

want the most experienced managers I can find,

preferably with a long track record on the fund in

which I am interested. And I don’t want to pay

too much for them.

Every fund has expenses. Every one. Even the

index funds. If you don’t know what these

expenses are, you could be paying too much for

your fund. These expenses are deducted from the

investment results, which means that in years of

low returns, the fund company is reaching into

mutualfundsfornovices

WRITTEN BY RRoossee MM.. AAnnddeerrssoonn,, CCFFPP®®

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your pocket to pay their fees. I like to keep my

investment results in my account and the best

way I know to do that is to keep the expenses

very low. I’m not a fanatic about it. If there is a

management team that I would like to have

manage money for me and they cost a little bit

more, then all right, so long as the emphasis is

on ‘little.’

Everybody likes to buy a fund based on its

return history. But you can’t simply because it is

history. This history serves as a gauge to

measure the manager against the fund’s

benchmark, assuming the manager hasn’t

changed. If you have a new manager, you really

have no track record for that fund with that

manager.

So, where can you find all these informative

pieces of data for the mutual funds? The

prospectus is the one source that holds it all.

Most mutual funds now have the prospectuses

available online. Yes, it is worth the time to read

through it. You will find a 10-year return history

of the fund. You will be able to read the

objective and decide if you are comfortable with

what it describes. The expenses will be spelled

out in detail. This expense area will also detail

whether there is a front-end sales charge or a

back-end charge. A sales charge is not a bad

thing, but you should know about these charges

in advance so you can make the decision to buy

the fund knowing all of the variables.

A sales charge is nothing more than the fee

to the advisor for the direction and advice given

to you. There are ways to reduce this sales

charge and it’s all spelled out in the prospectus.

There is still a big debate over paying the

sales charges: load vs. no-load. It’s up to the

individual to decide if you have the time and the

tools to dig into the nuances of a mutual fund

and decide if it’s right for your investment

portfolio. It takes time and patience. An

alternative is to seek professional guidance.

But you should expect to pay for this advice.

Briefly, there are three ways to pay: fee-for-

service, which is typically by the hour; a

commission; or an asset-based fee.

My preference is to pay the hourly rate on

the fee-for-service basis, but you must have

follow-through. In my experience, some people

get to a certain point and then get busy and

never accomplish their goals. So for many

people, this option won’t work well.

My second preference is to pay the

commission. It’s very straightforward and a one-

time payment on your investment. You know how

much it is before you agree to the investment. If

you don’t understand it, keep asking questions

until you do understand what you’re spending.

My least favorite method of paying for advice

is the asset-based fee. Over time, this will be the

most expensive way for you to invest.

One last caveat: you should take a look at

your investments once a year. Do the objectives

still feel comfortable to you? What has changed

in your life? If you are working with a

professional, you should schedule a review at

least once a year and whenever a major life

event takes place. This doesn’t mean to start

over with new funds, but maybe rebalance or

add to an IRA. Investing is fun and mutual

funds are the most efficient way to invest. I hope

you enjoy it!

Tip: Check out the investment glossary of the

American Association of Individual Investors

(AAII) at www.aaii.com/glossary. )) )) ))

Rose M. Anderson, CFP®, is the owner of

Anderson Financial, Inc. and Pure Gallery, Inc.

www.PureGallery.net. Rose@puregallery.net.

i Per Chicago’s Morningstar, Inc. as of February 2008.

The information contained in this article is for information purposes

and is not to be considered as financial, tax, or legal advice. As with

any financial or legal matter, consult your qualified securities, tax, or

legal advisor before taking action.

s u m m e r 2 0 0 8 | (((b))) magazine � 19

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Let’s

peel back

the layers of

mystery and

start at the

core of

importance:

the

objective of

the fund.

“

”

20 � (((b))) magazine | s u m m e r 2 0 0 8

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MMuuttuuaall FFuunndd – A fund operated by an

investment company that raises

money from shareholders and invests

it in stocks, bonds, options, futures,

currencies, or money market

securities. These funds offer investors

the advantages of diversification and

professional management. Funds

levy fees for this management as well

as 12b-1 fees, exchange fees, and

other administrative charges.

All shareholders share equally in

the gains and losses generated by

the fund.

LLooaadd FFuunndd – A fund sold through

a broker.

NNoo--LLooaadd FFuunndd – A fund sold directly to

investors.

AAllpphhaa – In the case of a mutual fund, the

alpha measures the relationship

between the fund’s performance and

its beta over a three-year period.

BBeettaa – The coefficient measuring the

fund’s relative volatility. The beta is

the covariance of the fund in relation

to the rest of the stock market. The

S&P 500 Stock Index has a beta

coefficient of 1. A fund with a higher

beta is more volatile than the market,

and any fund with a lower beta can be

expected to rise and fall more slowly

than the market.

SSttaannddaarrdd DDeevviiaattiioonn – The statistical

measure of the degree to which an

individual value in a probability

distribution tends to vary from the

mean. The greater the degree of

dispersion, the greater the risk.

MMaarrkkeett VVaalluuee oorr MMaarrkkeett CCaappiittaalliizzaattiioonn –

Number of shares outstanding

multiplied by stock price.

OObbjjeeccttiivvee ––

LLaarrggee CCaapp –– Typically contains

companies with at least $5 billion in

outstanding market value.

SSmmaallll CCaapp – Typically contains

companies with $500 million or less

in market value.

MMiidd--CCaapp – Contains companies with a

market value in between small and

large.

MMiiccrroo--CCaapp – Those companies under

$50 million in market value.

GGrroowwtthh – Funds that emphasize

companies that have exhibited faster-

than-average gains in earnings over

the last few years and are expected to

continue these high levels of profit

growth.

VVaalluuee – Funds that emphasize

companies that have not shown

growth or profits but where the fund

managers expect this to change. By

buying at the current lower prices, the

managers expect bigger fund gains

when the market recognizes the

opportunities in these companies.

Keep in mind that these opportunities

may never be recognized and the

prices of some individual holdings

may stagnate.

UU..SS.. FFuunnddss – Concentrates on

companies based in the United States.

IInntteerrnnaattiioonnaall FFuunnddss – Concentrates in

companies outside the United States.

GGlloobbaall FFuunnddss – The fund managers

can find opportunities for investment

anywhere in the world.

IInnddeexx FFuunndd – That which follows a

benchmark or index. The investment

results will most likely trail the

benchmark by the amount of the

fund’s expenses.

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s u m m e r 2 0 0 8 | (((b))) magazine � 21

Enriching the lives

of people we touch.

Thinking about your financial

strategy can seem intimidating, and

the issues and strategies involved

can be complex. Because of this,

you need to feel comfortable with

your financial professional on many

levels. Are you?

My approach in assisting you in

implementing sound financial

strategies begins with a thorough

understanding of you, your

aspirations, goals and risk tolerance.

I recognize the many roles you play,

both personally and professionally

and realize it’s a challenge to find

time in our busy lives.

At Cambium, we provide

professional financial, business and

personal strategies in a not-so-

intimidating manner. Call me today

to schedule a “getting acquainted”

meeting. I look forward to getting to

know you and helping you meet

your financial goals.

Jeanne A. Connelly, RFP

Cambium Group LLC

1869 Charter Lane, Suite 203

Lancaster PA 17601

717-299-9450

jconnelly@cambiumonline.com

Jeanne A. Connelly, Registered Representative and Financial Advisor,

Park Avenue Securities LLC (PAS). 1869 Charter Lane, Suite 201,

Lancaster PA 17601. Securities products/services and advisory

services offered through PAS, a registered broker–dealer and

investment advisor, (717) 393-4465. Cambium Group LLC is not an

affiliate or subsidiary of PAS.

PAS is a member of FINRA, SIPC.

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