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

  • From: "Sandi Beach" <sandib2@xxxxxxxxx>
  • To: <pctechtalk@xxxxxxxxxxxxx>
  • Date: Sat, 31 Jan 2009 18:32:00 -0600

You absolutely continue to amaze me with your broad scope of knowledge on so 
many different subjects!
Sandi
----- Original Message ----- 
From: "Gman" <gman.pctt@xxxxxxxxx>
To: <pctechtalk@xxxxxxxxxxxxx>
Sent: Saturday, January 31, 2009 4:33 PM
Subject: -=PCTechTalk=- Re: offtopic,mutual fund questions


> 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"
>

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