Retirement Happiness – At my age money is … by Bill Storie

RH Weekly Cover

This is the 3rd in the weekly Series called Retirement Happiness. In this Series we discuss the issues and concerns about money, and how its various components are so inter-twined that sometimes we cannot see a solution to our constant fear of running out of money as we get older.

 Part 5    –              Investment Income (Mutual Funds)

 Generally speaking there are three types of standard investment for your pension fund :-

Stocks and shares

  1. Fixed income securities
  2. Mutual Funds

Over the past two weeks we have discussed – Part 1 : Stocks and Shares and – Part 2 : Fixed Income Securities. This week’s Part will discuss the third, #3 – Mutual Funds.

A mutual fund is simply an investment vehicle which gathers money from a large number of individual investors like you, and merges them into one huge amount and invests that amount in either ordinary shares, fixed income securities or any number of other types of investment. When you buy into a mutual fund you are given “Units” in the Mutual Fund, each of which has the same equal value as every other “fellow investor.”

If you buy into the mutual fund at the outset of the fund the chances are your Unit will cost $1.00. As time moves along, and investments grow in value, the value of the Unit itself will usually (hopefully) correspondingly increase as well, so that a year from now it could (by way of example) be worth $1.50. Clearly if you buy in one year after the launch of the fund, then you will have to pay the $1.50, not the initial $1.00.

Mutual funds are always managed by good quality professional investment managers and as such, the trust element is high. Of course, sometimes, a manager can go off the rails, so caution must always be taken into consideration. But by and large, the mutual fund method investing your mutual fund is safe and secure.

Mutual funds come in all sorts of varieties. This can range from the safe fixed income fund – where all the underlying investment made by the mutual fund are top quality (high rated) Government fixed income bonds etc. … to the mutual fund that only invests in ordinary shares (an “Equity Fund”), with further classification such as US Equities, or Global Equities, or Small Growth Equities … to the mutual fund that invests in the more risky type of investment – usually known as a “hedge fund” – where the manager buys some form of investment protection to balance out the risk.

The varieties of mutual funds are endless, in today’s investment world. You must pay as much attention to the underlying nature of the mutual fund as you would if you were buying straight into the ordinary share market. The mere fact that you buy the so-called safety of the mutual fund is not a guarantee that your investments can be ignored. Quite the opposite.

You should be able to instruct your pension provider, and in turn, the investment manager of your pension fund, what tolerance level you have for your investment decisions, ranging from “conservative” to “aggressive”. It is not an easy decision to make, especially to get it consistently right, so every appropriate financial advice must be taken. This is a broad overview and by no means can be classified as solid advice in your case. Be careful.

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