Business Channel 2007-01-20&22

Want to get some fireworks in your portfolio 1? Money magazine is your pyrotechnic coach.

Your asset allocation will have the biggest influence on your returns and your success in achieving your investment goals. Its influence is much greater than the actual funds or investments that you choose, so it's important to get that part right before you do anything else.

Money recommends four types of funds: index, actively 2 managed, exchange traded and target retirement 3 funds.

An index fund mirrors a specific index such as the S&P 500.

With an index fund, you basically get the return of that index the market that it is tracking minus whatever expenses are charged. So you are assured of pretty much market performance though you aren't going to be able to get better than market performance.

An actively managed fund is where a manager makes investments with the goal of outperforming a specific index.

The downside of actively managed funds is that it's a tough proposition for managers to beat the market to beat the averages over the long term.

Exchange traded funds track a particular index but can be traded like a stock.

The benefit of ETFs for people who like to trade is the fact that they can be bought or sold like stocks in the middle of the day, so you can be assured of the price that you'll get. Another benefit to ETFs is that as index funds, um, their costs are pretty low. Though you do have to usually pay a commission every time you buy or sell one, which is a kind of a downside.

Target-retirement funds are good investments for people who don't wanna spend a lot of time planning their portfolio. With these you choose a fund with a date close to your retirement, invest in it and basically leave it alone.

Even with type(口误) target retirement funds, you do have to do a little bit of homework and ask a few questions. They are not all alike, some funds invest more aggressively than others. It is worthwhile to take a look at the division of stocks versus 4 bonds and decide if you are comfortable with that.

To get off to a good start, experts say you shouldn't focus so much on the short-term performance of your funds, it's more important to keep in mind factors like cost and consistency 5 of fund management. These have a big influence on your returns. To learn more about investing, go to cnnmoney.com/investtowin.


Vocabulary


commission n. If a bank or other company charges commission, they charge a fee for a providing a service, for example for exchanging money or issuing an insurance policy.

Travel agents charge 1 per cent commission on sterling 6 cheques.