-=PCTechTalk=- Re: offtopic,mutual fund questions

  • From: Gman <gman.pctt@xxxxxxxxx>
  • To: <pctechtalk@xxxxxxxxxxxxx>
  • Date: Sat, 31 Jan 2009 17:33:23 -0500

It's off-topic, but this affects just about everyone and it's probably on 
most folks minds more than they care to admit.  So let's get to it.  Note 
that the following ONLY applies to investments based in mutual funds.  Any 
other type of investment would need to be valuated separately.


I'm about 20 years removed from a stunted career in financial services 
(Reaganomics put many of us out of business back then), but the advice I 
always gave holds true just as much today as it did back then.

When you buy into ANY form of mutual funds (including a 403b), you're buying 
'shares' of that fund at whatever price the fund's collective investments 
are worth at the time of purchase.  A fund is a collection of stocks, bonds, 
futures, etc. that collectively determine the value of the individual 
shares.  A decently managed fund will also have a certain amount of their 
'investments' kept aside as uninvested 'cash' to allow them to move in 
quickly on good opportunities (or as a hedge against loss during troubled 
times like these).  The most important thing you need to understand is that 
no matter what happens to the price of the underlying investments, you don't 
own any of them.  As companies begin showing heavy losses, the fund will 
shift those investments to other companies that are doing better.  If the 
overall economy turns for the worse, they will aim to focus on businesses 
and investments that are most likely to better weather the harsher financial 
climate.  If a company goes out of business, they are in a much better 
position than the rest of us to know ahead of time and pull their 
investments out before the inevitable quick plunge to 'worthless', even 
though such a loss would only represent a small percentage of the overall 
'fund'.

However, no matter how all of that shakes out on their end, you STILL have 
that same number of shares (more if you're reinvesting any dividends you 
receive &/or are still actively contributing to the fund) and are, in a way, 
isolated from the stocks/bonds ups & downs that the fund managers have to 
deal with daily.  Even if your fund happens to 'go under', it will be 
absorbed by another fund and you'll STILL have your shares.  The "Sell 
Value" of them will just be determined by the efforts of a different set of 
fund managers that was obviously stronger than the one that closed its 
doors.

I just saw that Don tossed in the old equation to Buy Low, Sell High 
(provided you're not needing to pull out your money soon).  He's absolutely 
right and, in my previously professional opinion, now would be the absolute 
worst time to sell ANY mutual fund shares.  For one thing, you'll get very 
little for them compared to what they used to be worth.  But the worst part 
is that you'll lose out on the rebound profits when the economy eventually 
turns around (and of course it will - it's just unknown how long it will 
take to turn it around).  Remember that as long as you own shares in a 
mutual fund, you're safe from individual company closings and you don't need 
to even think about following the market until you're within several years 
of retirement.  Even then, you don't have to start making withdrawls from 
retirement plan-type packages (401k, 403b, etc.) until the age of 70 or so 
(that may have changed since I last looked it up), so if you don't need the 
money the moment you retire, you can still leave it in there to soak up even 
more of the economic recovery rebound.

All told, the only folks who should turn out to be negatively affected by 
this economic downturn are those who are very close to retirement (or 
mandatory withdrawl) age, didn't pull out before the severe drop in share 
prices and will actually need to use that fund money to live on.  You can 
add to that group anyone else who panics and sells their shares now.

So, unless you're very close to absolutely HAVING to pull out your money in 
order to survive, hang in there and stop reading the financial section of 
your local paper.  You'll thank me later when your share prices go back up.

Peace,
Gman

"The only dumb questions are the ones we fail to ask"

----- Original Message ----- 
From: "cristy" <poppy0206@xxxxxxxxxxxxx>
To: <pctechtalk@xxxxxxxxxxxxx>
Sent: Thursday, January 29, 2009 7:51 PM
Subject: -=PCTechTalk=- offtopic,mutual fund questions


>I know this is offtopic but are there any 403b mutual fund experts on the
> list;0, I have some questions ;0
>
> thanks,'
> christy 

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