Jason Kelly, the author of this text entitled The Neatest Little Guide to Mutual Fund Investing is a1993 graduate of English Language from the University of Colorado at Boulder. Kelly worked for several years at IBM’s Silicon Valley Laboratory, where he wrote articles and books that won him the Society for Technical Communications Merit Award. He moved from writing about computers to writing about finance, and found his niche in the stock market.
Kelly says there are more and more mutual funds, as more and more people understand that mutual funds are the best place to put money, revealing that these include the good and the bad; the highly secure and the very risky. He illuminates that to find the funds that are right for you without spending a lifetime trying to become a market maven and finding yourself in graphs and charts, what you need to do is to spend a little time with this text that will lead you through the mutual fund maze with wit and wisdom.
Kelly says this text tells you concisely the different kinds of mutual funds; how to choose your own goals and decide your own risk level; how to spilt your mutual fund investments to reflect your wants and needs; how to quickly learn which funds are the best of their kind; how and where to buy funds at the lowest price; how to spot hidden charges; how to track performance; how to know when to sell; how to make funds work for you in retirement, etc.
This author educates that the ten steps to investing in mutual funds are learning what a mutual fund is; choosing your goals; choosing an acceptable risk level for your goals; deciding what allocation is right for you; matching your allocation to fund categories; researching the funds; selecting your funds; purchasing your funds; tracking your funds; and selling your funds.
Structurally, this text is segmented into seven chapters. Chapter one is entitled The best investments you can buy. According to Kelly here, “Mutual funds have become the choice of millions of investors across the world. Today you can select from over 8,000 funds – far more selections that you’ll find on the New York Stock Exchange…. A mutual fund is a gathering of money from investors with a common objective. The ‘mutual’ part is the common objective, and the ‘fund’ part is the money. When you invest in a mutual fund, you put your money in a pot with other people’s money. The fund manager uses all of it to buy stocks, bonds, and money market instruments. In exchange for your money you’re given shares in the fund.”
This expert says a share’s price fluctuates with the value of what the fund owns, adding that if you send $100 to a fund whose shares are worth $10, you will own ten shares. “If the value of the stocks, bonds, or money market instruments that the fund owns increases, the price of the share increases and so does your investment. Say, for example, that the price of each share rises to $11. Your initial $100 will have turned into $110 because each of your ten shares is worth a dollar more. Of course, it works in the other direction too. But more on that latter,” adds Kelly.
He explains that the price of each fund share is called its “net asset value” or “NAV” for short and at the end of every day, the net asset value is determined by dividing the value of a fund’s investments by the number of shares sold.
According to Kelly, the most common funds are called Open-end funds and the other type of mutual fund is called Closed-end. This author explains that whenever somebody sends money to an open-end fund, he or she purchases shares in the fund that are worth that day’s net asset value, plus a sales commission if there is one.
He adds that an investor can sell shares back to the fund for the current net asset value at any time. As for the closed-end funds, Kelly says these sell a limited number of shares, adding that if you want to but shares in one of these funds, you need to buy them on the stock market from somebody who already owns them.
Chapter two is based on the subject matter of preparing to invest. According to this expert here, “With mutual funds, as with everything else, there are certain things everybody should understand. You need to know how to steer before you can drive on the freeway….Nothing else matters until you know why it is that you’re willing to part with money from your daily life to buy something that brings you no amount of pleasure. An investment’s only value lies in what it is able to eventually buy for you. In and of itself it has no worth. That means you have to know what it should eventually be able to buy for you, and when.”
Kelly says there are three basic mutual fund objectives, and these are growth, income and stability. He stresses that every fund strives to achieve some combination of the three, adding that some funds focus exclusively on one objective, others concentrate on one objective while devoting a portion of their money to the remaining two, and still others mix the three objectives evenly.
“Growth, income, and stability are like the three primary colours. They can combine to create any desired variation. Each of the three objectives focuses on one of three asset classes. The asset classes are stocks, bonds, and the money market. There is a risk with any investment that it will lose money, and the three asset classes have varying degrees of risk associated with them,” adds this author.
In chapters three to five, Kelly analytically X-rays concepts such as a fund for every occasion; investing in the right funds and tracking your funds.
Chapter six is entitled Other investment considerations. This chapter covers tax issues related to investing in mutual funds, special retirement accounts available to you and ways to consolidate your investments. This author explains that taxes are probably the most tedious part of mutual fund investing, adding that taxes are probably the most tedious part of life in general. Kelly educates that a capital gain is the profit you receive when you sell an investment for more than what you paid, while a capital loss is the amount of money you lose when you sell an investment for less than what you paid. According to him, “Capital gains are taxable income and must be reported to the IRS on your annual tax return. Capital losses are deducted from your annual income and are also reported on your tax return.”
In chapter seven, he discusses the concept of helpful tools, listing 20 great fund companies and their phone numbers.
Stylistically, it is not an exaggeration to assert that this text is a success. Despite the technicality of the language caused by the technicality of the subject matter, Kelly is able to achieve simplicity through proper explanation of concepts, which also makes the text highly didactic.
The text is also logical in presentation and elaborate in research as exemplified by fantastic real-life illustrations. Kelly makes generous use of graphics or graphic embroidery to achieve visual reinforcement of readers’ understanding.
I think the title “The Neatest Little Guide” of the title of the text is an understatement in that what is offered in the text is more that just a little. Probably this author employs this technique to convey intellectual humility. However, some concepts are repetitive in the text. Maybe Kelly deliberately uses this style to lay emphasis and ensure long memory on the part of readers.
On the whole, the text is fantastic. It is a must-read for all those who want to achieve success in mutual fund investing. It is simply irresistible.