Mutual Funds 101
Mutual funds are sold by companies that pool money (capital) from many investors. This capital is then invested in bonds, stocks and/or other securities. Investors in the fund all have shares, and these shares represent a part of the fund’s holdings.
If you’re interested in making an investment, a mutual fund may or may not be the right choice for you. Like all investments, they come with many different levels of risk. They aren’t insured or guaranteed by financial institutions or government agencies, even those sold by banks. However, because mutual funds are often a mix of various bonds and/or stocks, the risk is some mutual funds is “spread out” or diversified. That said, some mutual funds are not diversified, and it is important to understand that a mutual fund investment can be very high risk, or very low risk, depending upon the holdings and the goals of the fund. Each fund must be looked at individually to determine if it is appropriate for the investor, in the same manner as any individual stock or other investment.
Mutual funds are managed by professional fund managers. These managers invest the money investors contribute into individual stocks, bonds and other securities. And because mutual funds buy and sell securities in large amounts at one time, they usually incur fewer fees, thus operating in a cost-efficient manner. However, it is very important to carefully examine prior to purchase all of the fees and costs associated with the fund you are purchasing as they can vary greatly and take a significant bite out of your return.
If you feel your financial advisor placed you in inappropriate mutual fund investments and/or failed to disclose the fees and costs associated with investment or that the underlying holdings of the fund were beyond your tolerance for risk, you may have a case. Call Carlson Law at 858-544-9300 for a free consultation.
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There are over 210 possible different credentials available to financial advisors. Very few of those credentials are regulated and some mean little or nothing. It is important for every investor to do their homework and really get to know their financial advisor, their credentials, licensing and experience. Simply because your advisor has many credentials or friends have recommended them is not enough.
While the CFP (Certified Financial Planner) and CFA (Certified Financial Advisor) designations require course work, exams and continuing education many certifications in the financial industry do not. So what should an investor do in order to select a financial advisor? There are a number of things that can be done.
- Everyone can go and look up the record of the advisor they are considering using on the Financial Industry Regulatory Authority’s BrokerCheck service. The BrokerCheck service will give you important information about the advisor you are considering; such as if that advisor has had prior complaints, been sued before, where he or she has worked in the past and for how long, the reason they left a prior employer, in addition to information about licensing and credentials.
- Next, look at the information from state securities regulators at the North American Securities Administrators Association.
- Also, review the National Association of Insurance Commissioners website regarding the advisor you are considering using.
A good question to ask a prospective advisor regarding their credentials is what percentage of people who apply for the credential obtain it? Also, feel free to ask about the qualifications of the instructors for the credential program touted. As an investor interviewing a financial advisor, you should be careful if the advisor is put off or unable to answer such simple questions.
If you have already fallen victim to an unqualified investment advisor and suspect an incidence of investment fraud, please call the Carlson Law Firm at (619) 544-9300 or contact a San Diego securities fraud attorney today.
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