I admit that the first time Mutual Fund was introduced to me three years ago, I did not do my homework. All I know is that it’s a good investment and I’m aware that I could potentially lose the money I invested in. But even though I know the things I learned now, I would still do the same thing. I know I made the right decision and I’m just glad I did.
Before you continue reading my notes, I recommend that you read the previous articles I wrote about Mutual Funds below. They may not be comprehensive but I believe these articles tapped important details on how you can get started on Mutual Funds.
Again, I’m no guru in this field and these are so far the things I learned that have changed my insights and open my mind about Mutual Funds.
1. Mutual Funds don’t have insurance. Unlike bank products such as savings and time deposits, mutual funds are not covered by the PDIC. It doesn’t give guaranteed return and you can even lose money along the way. However, it has much higher potential to earn than a regular savings offered by the bank. Take note – higher return means higher risk.
2. Your money doesn’t grow over night. Depending on the kind of mutual fund you choose, the money you invested in Mutual Funds should be something that you won’t need in the next five years or willing to lose. So it’s always a pre-requisite to build your emergency fund and have separate high interest earning savings account first in case of emergency.
3. Set a goal and know how to diversify. The earning of your investment does not roll over so it it important that you set a goal and diversify to maximize the earning potential of your profit. See this post about Diversification for Beginners.
4. NAVPS. According to Investopedia, “NAVPS is the value of a single unit, or share, of a fund. This figure for a mutual fund is the price at which shares are bought and sold. Because exchange-traded and closed-end funds are listed and traded as stocks, which are subject to market forces, their NAVPS and buying/selling prices per share can be divergent.”
Depending on your goals and buying/selling strategy, it’s always good to know the NAVPS on a daily basis to keep you updated.
5. Know the amount of risk you can tolerate. I’m very conservative when it comes to money management decision that’s why I started with Balanced Mutual Fund. I don’t want to give it all out even though those are money that I’m willing to lose. I just don’t want this financial decision rob my peaceful sleep. If you do not have such risk-taking ability, it is always better to stick to funds with low-risks involved.
If you are an expert in this field and you find something wrong in my notes, please contact me ASAP so I can immediately correct them. In case you have something to add that is worth sharing, please leave it as comments below.