Saturday, June 9, 2007

MMM: Mutual Funds

Alternate Dimension Andy (ADA):

That stock market shit is nuts. I mean, there are thousands of stocks to pick from, and each of those stocks has about, oh, a kajillion factors that could make it a good or bad pick.


My first instinct is, "Christ, I wish there were someone who was not a fucking moron who would just pick stocks for me." Yeah man, that'd be nice.


It's called a mutual fund. Here's how it works:
  1. You put money into the fund. (This is an intentionally-vague black box, but the precise "hows" are left for a future post/ as an exercise for the reader).
  2. A fund manager uses that money to buy stocks, bonds, futures, and whole bunches of other shit. Exactly what she buys is determined by the type of fund.
  3. Based on how much you put in, you are given a percentage cut of the mutual fund. So, if you put in a total of 10% of the money into the fund (you'd have to be rich as hell to do it, but let's just pretend), you'd own 10% of the fund.
  4. You can cash out at any time. If the overall value of the fund has gone up, then so has your share.
Why this is rockin' awesome:
  1. The mutual fund is automatically diverse. I'll talk more about what that means in the future, but the short version is this: you're not putting all your eggs into one basket.
  2. Someone else is doing all the work for you. All you have to do is give them your money.
What is not rockin' awesome about this scheme:
  1. The mutual fund manager, believe it or not, is not doing this out of the kindness of her heart. Indeed, she's probably taking a cut of about 2% of the total fund for herself every year. If the fund is worth 100 hojillion dollars, she keeps about half a hojillion dollars for herself every quarter. FUCKED UP, RIGHT
  2. Because you don't have all your eggs in one basket, you're less likely to make a shit ton of money. On average, over the long haul, you'll probably make a little bit of money every year.
Precisely how to choose a mutual fund is a task far beyond the scope of this post. I will say that I recommend against choosing one solely because it has a cool name.

There's a lot more to know about mutual funds, and I'll probably talk about that more in the future. For the time being, just know that they exist, and that they're a good way for a typical investor to invest safely.

Yes, even a jackass like you, ADA.

Free: Bankrate

Alternate Dimension Andy (ADA):

There's another website in the tubal internets that I want to tell you about. It's called What is it? Well duh, it's a website that lets you look up bank rates and shit.

If you want to know where to get the best rate for a 1-year CD, check out Bankrate. Want to know what an average mortgage payment is for someone with your credit rating buying a $200,000 house? Bankrate. Want to know how much term life insurance should cost you? Bankrate.

Think about this: there are a whole bunch of banks and insurance companies out there that make money by charging interest, fees, monthly payments, etc. A lot of them get away with murder. If you take the first mortgage you're offered, you could end up paying many hundreds of dollars more per month, for instance.

Now, zag with me and think about it like this: pretend you'd never bought a banana in your life. Also, pretend that there are two grocery stores within a block of your house. So, you walk into one grocery store and see that bananas are on sale for $550 a bunch. You'd have to be crazy to buy them at that price, but even if you didn't know that was a terrible price, you'd be crazy not to go to the other grocery store and compare prices, since you're spending so much money.

In this day of interwebal communications, doesn't it only make sense that you should shop around before you spend hundreds of dollars? You know, just to make sure that shit is on the up and up? That's what Bankrate is all about. Of course, if you're a fucking moron, you can just stick with the first offer that comes your way.

Also, they have whole bunches of articles about personal finance, written by people who (unlike me) have a fucking clue as to what they're talking about. Imagine that!

Hope you love it. Cowabunga, over and out.