Fundamental analysis looks at the fortunes of a company that issues common stock that individuals and financial institutions may purchase. Fundamental analysis concerns itself with a company’s balance sheet, competition from other companies in the same business, product launches, costs of inputs to production such as raw materials and labor, the effect of macroeconomic trends on the company in question, and really anything that concerns the current and future health of a given company.

Notice that I did not mention the price of a company’s stock, whether it is high or low, trending up or trending down, etc.

Technical analysis looks at nothing except the price of a company’s stock and hundreds of different indicators that have to do with people buying and selling shares of the stock. It is concerned with quantifying all aspects of market activity surrounding the stock, as opposed to the fortunes of the company that issues the stock. Technical analysis in its most basic form has to do with charts of price movements of individual stocks as well as groups of stocks and stock indexes. In addition to raw movements, ‘technical indicators’, often obscure and arcane, have been invented. Technicians use them to attempt to further analyse aspects of market moves, all in the hope of forecasting future price movements with some amount of consistency, through a combination of these indicators.

So if you want to make money in the market, whether through buying stock, buying stock options, ETFs or mutual funds, is technical or fundamental analysis more reliable? Many experts think that one should be aware of both the fundamentals and the technical side of a company and its stock chart.

At the same time, it is true that many experts in fundamental analysis concern themselves only with how well a company is doing when determining whether or not to buy stock or a stock option contract in it, and think that charts are useless tools for the task. Also, many pure technicians have no interest at all in the business of the company whose chart they are analyzing; they think that signals from the charts are sufficient to determine whether the stock should be bought or not.

The argument as to the relative merits of technical analysis versus fundamental analysis will probably never be conclusively resolved. But at least now you’ll hopefully have a handle on the difference between the two.

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Why Mutual Funds?
The stock market is generally considered the best investment over the long haul, but one of the riskiest, especially if you’re a beginner investing for the first time. No one is guaranteeing your money and the factors that control the price of a stock can be complicated. The pool of billions of dollars from many people’s accounts can support a top notch investing team to make decisions without the hefty price bill of paying for them yourself. Also, a mutual fund is significantly less work than managing your own stock portfolio. Choosing stocks, watching their prices to buy in, watching their prices to know when to get out, and making sure what was a good investment 5 years ago still is can be a full time job in itself. Many people just don’t have the time or inclination to do this properly. If this is you a mutual fund can be an excellent choice.

What to Look For When Buying Your First Mutual Funds?
The first things you want to do when buying a mutual fund, especially your first ones, is make sure they have a long healthy track record. Look for mutual funds that have been around for 20 years or longer. If they haven’t been able to stand the test of time you don’t need them right now. The stock market has averaged around 8-10% per year annual returns. The mutual fund you are looking at should at least have maintained this return over the last 20 years to be in your consideration. Also, look at the worse years the mutual fund has had and see if you can stomach that kind of loss without bailing out.

The second thing you want to look at is the performance of the current portfolio manager; he will be driving the decisions. You mutual fund broker should be able to fish up where this person has worked prior.

The last note of caution is you want to make sure you are well diversified. At least split your investment money into four fund pools. I like small cap, international, blue chip, and commodity.

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1. What is the fund’s goal?
The fund’s goal should match your own. If your goals change over time, you may need to reevaluate your investments. If you invest primarily for growth, your goal is to increase the value of your investment over the long term. If you invest primarily for income, your goal is to receive a regular flow of earnings from your investment. If you invest primarily for stability, your goal is to protect your investment from loss. No investment can maximize all three goals simultaneously. Some funds emphasize one goal; others try to assign priorities among goals; still others try to strike a balance among different goals.

2. What is the fund’s investment strategy?
The prospectus describes the range of securities the fund may purchase, how it selects them, the types of securities it emphasizes, and investment practices the fund may use. The fund’s investment strategy relates to its, and  your goals.

3. What are the fund’s fees and expenses?
All funds must fully disclose their fees and expenses in a table at the front of the prospectus. To make it easy to understand and compare to different funds, all fee tables must follow a standardized format. You must decide if the cost of owning a particular fund is acceptable to you.

4. How are the fund’s distributions made and taxed?
Fund distributions—your earnings—include dividends earned on the investments the fund holds, and any capital gains made when the fund sells investments for more than it paid for them. Funds must make distributions at least once each year. Many shareholders elect to have their distributions reinvested in the purchase of additional shares of the fund, rather than taking them out as cash. It may also be important to you to determine when distributions are made and how they’re taxed. You will be taxed on all taxable distributions, whether you take them as cash or reinvest them in additional shares. Of course, if you sell your fund shares, you may realize a gain or loss which is subject to taxation.

5. How can you buy fund shares?
Some mutual funds offer their shares through investment professionals who provide investment advice, such as brokers, bank representatives, and financial planners. Other funds offer shares directly to investors through the mail, by telephone, over the Internet, or at their own retail offices. Funds may also be offered through employer retirement plans. No matter how or where you invest, mutual funds, unlike bank deposits, are not insured or guaranteed by the federal government.

6. How can you sell fund shares?
By law, the fund must stand ready to buy back your shares on any business day. Depending on their value at the time you redeem, you may receive more or less than you paid for them. Redemptions may be made by contacting the fund company directly or through your investment professional

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When I left one job to go work for another, I had to wait a certain time until I could enroll into their 401K plan. The company only had 21 employees and one third of them had started within the past year. Since the company was small, it had been using a local financial broker in the city and a representative come down to the office to talk with all of us.

He spoke to each of us to see how he would best invest for our individual needs. I told him that I since I still had over twenty years before I would retire and was thinking of investing more on the aggressive side. On the forms that were in front of us, there were well over a hundred and fifty different ETFs, mutual funds and bonds, but nothing towards individual stocks. He told me his suggestions and at the time I wasn’t has informed as I am now, so I took his advice and agreed.

I received a quarterly report from them about nine months later and noticed that there wasn’t much growth in the portfolio. I ask some of the other employees how they were doing with their investments. Out of the five of us that discussed our investments, none of us were the same age, marriage status, or had the same amount of dependents. The odd thing was that roughly 60% of each of the portfolios were invested in the same funds. We realized that these funds that we were invested in, were high commission earners for the “salesman”. These funds were also the laggers in the portfolios.

I tried to reach the representative who handled my account to get answers, but it was next to impossible to get to speak to him. I spoke to the owner of the company I worked for to see if he could make contact to get some answers, but it never happened.

I left the company about three months later and decided to move my money out shortly after leaving. They informed me that I shouldn’t be looking to take the money out, “I would do better if I’d just leave it in there”. I received my annual statement from the firm and noticed that my account had increased by less 5% overall.

I decided to get my money out and put it in an IRA with one of the online discount broker. They had me jumping through hoops with all the forms and procedures that it took almost two months to finally get transferred. They told me that there would be early withdrawal frees and penalties. At that point I didn’t care, I just wanted it out of their hands. If it wasn’t for the online discount broker going straight after the firm directly on my behalf, who knows how long it would have taken.

After the firm took out its management fees and costs as well as the penalties for removing my money, I had only a 2% gain for the time that I was invested in the plan. The firm was able to take over three percent of the profits for themselves.

When someone else is handling your investments, you need to know what you’re being charged for otherwise you might lose a good portion of you retirement fund to costs. You might think of it as only 1% of your portfolio each year, but consider how much that first year of capitol would be twenty years later, it adds up once you factor in compounded interest on the principal from those earlier years of investing.

Be aware of what you’re paying for, it could mean the difference in when you can retire.

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