Is a 10% annual return on a mutual fund a great investment?
Thursday, December 19, 2013
, Posted by Ryanita at 7:59 AM
Ollie Will
My financial adviser recently suggest a fund that annually returns 10% It has a morning star rating of 5 stars and has a good overall look do you think that I should invest in the fund. What is another good investment and I don't touch forex trading
Answer
If you read the fine print on any mutual fund prospectus, you will find there that "previous performance is not a guarantee for future results" or something that sounds like that.
Did your financial advisor disclose that they are going to get commissions if you bought into this 10% mutual fund investment? Some CFA's who charge upfront fees will still get commissions from the mutual funds or other investments that they sell. In some investments that these CFA's sell, they get ongoing commissions, year after year. Now who pays for these--the mutual fund, or you? You should be clear about this with them to rule out possible conflict of interest.
10% is pretty average (lame, IMO) return for a mutual fund. You need to ask if, considering the recent stock market situation, if this 10% return still exists. Some mutual funds do not update their funds' performance until after a given period of time.
You mentioned that Morning star rated this fund as 5 stars and has good overall outlook. What does this mean? Good overall outlook based on what? compared to what? Compared to a standard benchmark, how did the fund perform? Factoring in all fees that you, the investor will incur, what will be your expected returns?
What type of investments does the fund invest in? There are several fixed income securities that you can invest that pays 10%.
If you were to invest like everyone else, then the returns you will get will not fare better than every one else.
Good luck!
If you read the fine print on any mutual fund prospectus, you will find there that "previous performance is not a guarantee for future results" or something that sounds like that.
Did your financial advisor disclose that they are going to get commissions if you bought into this 10% mutual fund investment? Some CFA's who charge upfront fees will still get commissions from the mutual funds or other investments that they sell. In some investments that these CFA's sell, they get ongoing commissions, year after year. Now who pays for these--the mutual fund, or you? You should be clear about this with them to rule out possible conflict of interest.
10% is pretty average (lame, IMO) return for a mutual fund. You need to ask if, considering the recent stock market situation, if this 10% return still exists. Some mutual funds do not update their funds' performance until after a given period of time.
You mentioned that Morning star rated this fund as 5 stars and has good overall outlook. What does this mean? Good overall outlook based on what? compared to what? Compared to a standard benchmark, how did the fund perform? Factoring in all fees that you, the investor will incur, what will be your expected returns?
What type of investments does the fund invest in? There are several fixed income securities that you can invest that pays 10%.
If you were to invest like everyone else, then the returns you will get will not fare better than every one else.
Good luck!
Why does a savings glut lower interest rates?
Carefree
With increased savings rather than investment, how does this lower interest rates?
I always though interest rates were set by the central bank (Bank of England or FED etc)?
Thanks financegal27, that was a good answer for part of the question. Though, I was asking the question more so in the context of the âglobal savings glutâ (particularly in China), and how this led to very low interest rates in the West and low corporate borrowing costs?
Answer
Interest rates are global, you can arbitrage them through the Forex exchange Market.
Saving glut means that the amount of savings increases compared to the amount of investments they can finance.
The interest rate being the price of investment and savings when supply increase faster thhan demand the "price", lon-term interest rates goes down.
That increase in the fall of interest rate has been called the Greenspan Conundrum and os the cause of the economic crisis and of Keynes's Liquidity Trap.
"There is little doubt that, with the breakup of the Soviet Union and the integration of China and India into the global trading market,
more of the world's productive capacity is being tapped to satisfy global demands for goods and services.
Concurrently, greater integration of financial markets has meant that a larger share of the world's pool of savings
is being deployed in cross-border financing of investment.
The favourable inflation performance across a broad range of countries resulting from enlarged global goods,
services and financial capacity has doubtless contributed to expectations of lower inflation in the years ahead and lower inflation risk premiums.
But none of this is new and hence it is difficult to attribute the long-term interest rate declines of the last nine months
to glacially increasing globalization.For the moment, the broadly unanticipated behavior of world bond markets remains a conundrum.
Bond price movements may be a short-term aberration,
but it will be some time before we are able to better judge the forces underlying recent experience."
Chairman Alan Greenspan
Federal Reserve Board's semiannual Monetary Policy Report to the Congress.
Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate.
February 16, 2005
"The third major uncertainty in the economic outlook relates to the behavior of long-term interest rates. The yield on ten-year Treasury notes, currently near 4-1/4 percent, is about 50 basis points below its level of late spring 2004. Moreover, even after the recent widening of credit risk spreads, yields for both investment-grade and less-than-investment-grade corporate bonds have declined even more than those on Treasury notes over the same period.
This decline in long-term rates has occurred against the backdrop of generally firm U.S. economic growth, a continued boost to inflation from higher energy prices, and fiscal pressures associated with the fast approaching retirement of the baby-boom generation.
The drop in long-term rates is especially surprising given the increase in the federal funds rate over the same period.
Such a pattern is clearly without precedent in our recent experience.
The unusual behavior of long-term interest rates first became apparent last year. In May and June of 2004, with a tightening of monetary policy by the Federal Reserve widely expected, market participants built large short positions in long-term debt instruments in anticipation of the increase in bond yields that has been historically associated with an initial rise in the federal funds rate.
Accordingly, yields on ten-year Treasury notes rose during the spring of last year about 1 percentage point. But by summer,
pressures emerged in the marketplace that drove long-term rates back down. In March of this year, long-term rates once again began to rise,
but like last year,market forces came into play to make those increases short lived.
Considerable debate remains among analysts as to the nature of those market forces.
Whatever those forces are, they are surely global, because the decline in long-term interest rates in the past year
is even more pronounced in major foreign financial markets than in the United States.
Two distinct but overlapping developments appear to be at work: a longer-term trend decline in bond yields and an acceleration of that trend of late.
Both developments are particularly evident in the interest rate applying to the one-year period ending ten years from today that can be inferred from the U.S. Treasury yield curve. In 1994, that so-called forward rate exceeded 8 percent. By mid-2004, it had declined to about 6-1/2 percent--an easing of about 15 basis points per year on average. Over the past year,that drop steepened, and the forward rate fell 130 basis points to less than 5 percent.
Some, but not all, of the decade-long trend decline in that forward yield can be ascribed to expectations of lower inflation, a reduced risk premium resulting from less inflation volatility, and a smaller real term premium that seems due to a moderation of the business cycle over the past few decades. This decline in inflation expectations and risk premiums is a signal development. As I noted in my testimony before this Committee in February, the effective productive capacity of the global economy has substantially increased, in part because of the breakup of the Soviet Union and the integration of China and
Interest rates are global, you can arbitrage them through the Forex exchange Market.
Saving glut means that the amount of savings increases compared to the amount of investments they can finance.
The interest rate being the price of investment and savings when supply increase faster thhan demand the "price", lon-term interest rates goes down.
That increase in the fall of interest rate has been called the Greenspan Conundrum and os the cause of the economic crisis and of Keynes's Liquidity Trap.
"There is little doubt that, with the breakup of the Soviet Union and the integration of China and India into the global trading market,
more of the world's productive capacity is being tapped to satisfy global demands for goods and services.
Concurrently, greater integration of financial markets has meant that a larger share of the world's pool of savings
is being deployed in cross-border financing of investment.
The favourable inflation performance across a broad range of countries resulting from enlarged global goods,
services and financial capacity has doubtless contributed to expectations of lower inflation in the years ahead and lower inflation risk premiums.
But none of this is new and hence it is difficult to attribute the long-term interest rate declines of the last nine months
to glacially increasing globalization.For the moment, the broadly unanticipated behavior of world bond markets remains a conundrum.
Bond price movements may be a short-term aberration,
but it will be some time before we are able to better judge the forces underlying recent experience."
Chairman Alan Greenspan
Federal Reserve Board's semiannual Monetary Policy Report to the Congress.
Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate.
February 16, 2005
"The third major uncertainty in the economic outlook relates to the behavior of long-term interest rates. The yield on ten-year Treasury notes, currently near 4-1/4 percent, is about 50 basis points below its level of late spring 2004. Moreover, even after the recent widening of credit risk spreads, yields for both investment-grade and less-than-investment-grade corporate bonds have declined even more than those on Treasury notes over the same period.
This decline in long-term rates has occurred against the backdrop of generally firm U.S. economic growth, a continued boost to inflation from higher energy prices, and fiscal pressures associated with the fast approaching retirement of the baby-boom generation.
The drop in long-term rates is especially surprising given the increase in the federal funds rate over the same period.
Such a pattern is clearly without precedent in our recent experience.
The unusual behavior of long-term interest rates first became apparent last year. In May and June of 2004, with a tightening of monetary policy by the Federal Reserve widely expected, market participants built large short positions in long-term debt instruments in anticipation of the increase in bond yields that has been historically associated with an initial rise in the federal funds rate.
Accordingly, yields on ten-year Treasury notes rose during the spring of last year about 1 percentage point. But by summer,
pressures emerged in the marketplace that drove long-term rates back down. In March of this year, long-term rates once again began to rise,
but like last year,market forces came into play to make those increases short lived.
Considerable debate remains among analysts as to the nature of those market forces.
Whatever those forces are, they are surely global, because the decline in long-term interest rates in the past year
is even more pronounced in major foreign financial markets than in the United States.
Two distinct but overlapping developments appear to be at work: a longer-term trend decline in bond yields and an acceleration of that trend of late.
Both developments are particularly evident in the interest rate applying to the one-year period ending ten years from today that can be inferred from the U.S. Treasury yield curve. In 1994, that so-called forward rate exceeded 8 percent. By mid-2004, it had declined to about 6-1/2 percent--an easing of about 15 basis points per year on average. Over the past year,that drop steepened, and the forward rate fell 130 basis points to less than 5 percent.
Some, but not all, of the decade-long trend decline in that forward yield can be ascribed to expectations of lower inflation, a reduced risk premium resulting from less inflation volatility, and a smaller real term premium that seems due to a moderation of the business cycle over the past few decades. This decline in inflation expectations and risk premiums is a signal development. As I noted in my testimony before this Committee in February, the effective productive capacity of the global economy has substantially increased, in part because of the breakup of the Soviet Union and the integration of China and
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