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Rookie Mutual Fund Investors

You’re a Rookie Mutual Fund Investor if you’re a beginner or fairly new to the investing world. You likely have little or no direct participation in the financial markets. (Many rookies do have extensive holdings in mutual funds, but perhaps they were selected for you by an advisor.) Maybe you’re transitioning from a full-service brokerage or employer-sponsored retirement plan to a do-it-yourself online broker like TradeKing. Rookies often use dollar-cost averaging to accumulate shares of a mutual fund. Your investing objectives may run the spectrum from conservative to aggressive, but it’s likely you don’t grasp the full meaning and implications of these viewpoints.

Just because you’re a rookie doesn’t mean you don’t have high expectations for your investments, and you’re probably eager to expand your general market knowledge and investment experience to achieve your goals. That said, many beginners aren’t fully aware of the time and dedication involved with investing. As a rookie, you may have heard about asset allocation and retirement planning, but don't really understand how that works (or why it’s so important to think through). Rookies often hear about mutual funds investments through news programs, financial magazines, or friends. You may want to dig a little deeper, but you may find the financial markets overwhelming and not know how to begin.

As a mutual funds rookie, you may need some extra help in understanding some key characteristics of funds, such as net asset value vs. public offering price, load vs. no-load, open-end vs. closed-end, or active vs. passive management. Rookies may not be aware that mutual funds can go up and down in value or that your fund’s shares can become worth more or less than their original cost. As a rookie, you may be attracted to certain funds when seeing a successful track record, but not completely understand how to interpret those figures, nor realize that past performance is not an indication of the future. Rookies often have had successful investments during strong bull markets, but during tougher times when volatility is up and bears rule the game, you may feel at a loss.

As a Rookie Mutual Fund Investor, here are the fundamentals you should master:

  • The basics of mutual funds, their fees and expenses, and how funds can impact your taxes
  • How to obtain a fund’s prospectus, either by mail or online, and understand it
  • The meaning of a fund’s stated average annual returns
  • How to obtain a mutual fund’s net asset value and public offering price
  • The concept of dollar cost averaging, its risks and costs, and if it’s right for you
  • How T+3 settlement affects mutual fund transactions
  • Basic SIPC insurance

Rookie Mutual Fund Investors can improve their skills by:

  • Finding investment opportunities with TradeKing’s Mutual Fund Screener
  • Reviewing mutual fund strategies geared to the rookie skill level
  • Reviewing the basics of investing in stocks and bonds
  • Understanding how capital gains and dividends are distributed for mutual funds
  • Anticipating and planning for all possible outcomes for your investments, not just the positive scenarios
  • Understanding how commissions and fees impact your bottom line
  • Engaging members of the Trader Network to help you work through investing ideas
  • Inquiring members of the Trader Network to explain their investing analysis
  • Attending or watching TradeKing’s free educational webinars, geared to the rookie skill level

Rookie Mutual Fund Investors should steer clear of the following:

  • Do not take advice from phone solicitations, direct-mail or email newsletters regarding investments
  • Do not trade strategies labeled for more advanced traders
  • Do not invest in mutual funds if you do not completely understand the fund’s investment strategy or the holdings of the fund’s portfolio

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