Help me with my mutual fund.

In My Humble Opinion
1

When I was born, my grandfather plunked down $1,000 into a mutual fund in my name. Up until a year ago or so, all I ever really saw of it was the quarterly statements I got in the mail. Right now, it’s worth roughly $7,000.

Problem is, it’s been steadily declining in value over the last 10 years. At one point it was worth around $13,000. I’d like to do something about this decline (and I would have sooner, but like I said, I only took control of this account recently). Compounding things is the fact that I know next to nothing about mutual funds and investing in general.

What are my options? Based on my knowledge, if it were entirely up to me, I’d withdraw my money and stick it into a savings account or CD. But I’m sure there are more worthwhile options out there. I’m open to anything.

Does anyone have any advice or recommendations?

2

If you don’t need the money right now, you can wait it out. This has been a bad time for mutual funds, and the value will most likely begin to increase at time goes by.

Of course, this depends on what type of fund it is. If it’s a growth fund, you may get hammered for some time. It may make sense to transfer the money to another type of fund that doesn’t promise growth, but is less likely to drop.

3

It should not have been declining for the past ten years. The mid 90s were some of the best times ever for the stock market. Its been tough everywhere for the past three years or so.

If you don’t want to spend the time educating yourself, check with your bank. They may have an investment department that will provide advice or, for a small fee, manage your investment for you.

4

I agree. The only index that has been declining for that long is the MSCI Japan Index.

Is it a Japan fund?

5

Moving the money into “cash” (savings account/CD) is not exactly a bad idea. You get a guaranteed rate of return (although very low), you won’t see the value drop, and the generally the deposit is insured. None of these are true of a mutual fund. The only real downside is that you miss out if the market (or your mutual fund) goes up.

That said, there are a lot of considerations:

Do you have high interest credit card debt? Many financial advisors would tell you to take the money and pay that off first. After all, what good is making 7% return on one pile of money while you’re paying 18% for your debt.

What is your “risk tolerance”? What are your goals? What are your time horizons? These questions are somewhat objective and somewhat subjective. Do you hate hate HATE to lose money? Are your young (can you expect to replace your losses with income before you absolutely need the money)? Do you make enough money to add to your savings? etc.

If you are comfortable staying in the market, consider either:

  • Index Fund - They try to mirror the movement of a whole market. Lower fees, over the long term will always beat a “managed” fund (one where a fund manager picks and chooses which stocks to include).

  • Blended Fund - Usually an index fund contains only stock. A good portfolio should contain a mix of stocks, bonds, cash instruments, and other. Blended funds try to mirror a portfolio by containing different instruments.

These are good broad fund types, you don’t have to worry about sector, industries, large cap vs small cap, yadda yadda yadda.

Everything I’ve stated is kinda Investing 101, so it’s not all carved in stone. (Once you know more, you’ll see what I mean.) Also, pick up a “For Dummies” book, search the web. There is a ton of information out there at your fingertips.

6

Thanks for the input, everyone.

I don’t need the money right now. Though I’m looking for work, I don’t intend to touch that money unless an emergency comes up (knock wood). I believe the intention behind the investment was to give me a start on saving for college or a home or even retirement.

I don’t know what kind of fund it is, although I’m sure a little investigation will reveal that info. I’m almost 100% sure it’s not a Japan fund.

I am also quite sure that its performance has been on the decline for the several years-- perhaps not ten, but definitely more than three. The older performance reports are back home so I can’t check them, but I am sure that the fund has declined in value almost every year.

Icarus, to answer your questions:
I don’t have high-interest credit card debt. When it comes to money matters I’m pretty conservative. I’m not a big spender, and I only buy pricey things after much planning and saving. Spare cash goes right towards expenses and savings.

I don’t hate losing money, but I would, however, like to minimize my losses.

I’m 25 now, so I have most of my working years ahead of me to save. At my age I suppose one thing I should be saving for is down payment on a house. It is something I want, eventually, but not in the next couple years.

I’ll look for books the next time I’m at the library. Usually, I’m better at research and do plenty of it on my own, but I’ve been needing a push to get this ball rolling and figured a thread on it would do it.

I’m still leaning towards yanking out and putting it into a CD until I figure out what I want to do with the money. I do want to learn more about investing, and I’m lucky to have money to invest. But I don’t want to take losses while I’m educating myself.

Thanks again for the responses.

7

Actually, it may be better invested into some real estate. Home prices generally do not decline and there are some tax breaks in having a mortgage.
I think that most mutual funds have a money market fund that is similar to bank CD in that they return a low rate but do not loose value. I recently moved some of ours there after watching it loose about 25% in the last 2 years.

8

Putting the money into CDs right now is probably your best bet to avoid any more losses and decide what you want to do. Suggestion - get 6 month CDs and split the money into 2 or 3 CDs starting a month or two apart from each other. That way all of your money isn’t tied up in one CD in case you need some for an emergency.

Money Markets are good if you need access to the money at a moments notice, they’re basically interest bearing checking accounts. However, the interest returned is lower (very low) than CDs right now. So, maybe you start out in the Money Market account and move into the CDs as I suggested above.

9

Last night I went to my mom with the idea (it may be my money, but that doesn’t mean she can’t disapprove of what I do with it ;)) and to my surprise, she was all for me taking out the money. That was my only real obstacle, so it looks like I’m all set.

I like your idea of putting it into multiple CDs. I think I’ll go for a traditional CD, though, since I realized last night that I already have money set aside (also in a CD) for emergencies. I’d rather this money sit and collect interest for a while.

Thank you, Icarus, for your help and the info.

10

You are very welcome, and good luck!