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Business Matters The mutual fund option: diversity, convenience

February 16, 2011

By Staff Reporter

By Kevin FitzGerald

After a number of years of hard work, my wife and I have accumulated enough money to start thinking of investing. But we don’t know where to start. Our only experience (both here and in Ireland) is with CDs and money markets. A friend of mine suggested mutual funds. Could you give us some help?

— R.K., Mineola

Investors who are seeking growth, income or preservation of capital have many investment options from which to choose. The challenge is to determine which ones can help you reach your specific goals while diversifying your portfolio and minimizing your exposure to risk. Investing in mutual funds is an excellent way to do this.

What is a mutual fund?

Mutual funds are diversified investments that pool investors’ money to purchase stocks, bonds and other securities. When you purchase shares of a mutual fund, you pay the Net Asset Value plus any applicable sales loads and transaction fees. You also pay ongoing expenses while you remain invested in the fund.

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The mutual fund advantage

Mutual funds have long been valued for the many attractive advantages they offer, including:

Diversification: It is important to diversify among issuers and/or market sectors within each asset class in order to reduce the risk of loss in any single investment. Mutual funds offer an efficient way to achieve diversification by enabling investors to purchase shares in a professionally managed portfolio of securities.

Professional Management: Few investors have the time or skill it takes to effectively manage a large portfolio of securities. Each mutual fund has a professional fund manager who monitors the fund’s investments on a daily basis and decides which securities to buy and sell, and when.

Liquidity: If you need cash, you can redeem all or part of your shares any business day and receive the current value of your investment.

Flexibility: When you invest in a "family" of mutual funds, you can typically transfer all or a portion of your investment dollars from one fund to another as your objectives change, or the economic climate dictates.

Convenience: The funds handle all the paperwork associated with share ownership. You will receive simplified records of the tax status of all dividends and capital gains received.

Today there are more than 8,000 mutual funds from which to choose, so it pays to seek the advice and counsel of an investment professional to help you make the right choice. A financial advisor can work with you to develop a customized mutual fund investment program. After defining your investment goals, time frame and risk tolerance, you and your financial advisor can determine an asset allocation strategy that is appropriate for our needs. You can then implement the strategy with carefully chosen mutual funds. Your financial advisor will periodically review your portfolio with you to evaluate whether the performance of your mutual funds is in line with your expectations and goals, and your asset allocation can be adjusted as needed.

For more information about how you can use mutual funds to diversify your portfolio, call your financial advisor today.

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Tips for Mutual Fund Investors

As with all securities, the value of the fund will fluctuate with market conditions. Therefore, an investor’s shares, when redeemed, may be worth more or less than their original cost.

Mutual funds are sold by prospectus. Investors should read a fund’s prospectus carefully for information on risks and fees.

The information contained herein has been obtained from sources we believed to be reliable, but we cannot guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale on any security.

Kevin FitzGerald is First Vice President-Investments at Paine Webber. He focuses on the areas of professional money management, asset allocation and retirement planning. he can be reached at 1 (800) 654-6162, ext. 448.

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