A sales charge or fee that is assessed when an investor sells certain classes of fund shares before a specified date. Deferred loads usually run on a flat or sliding scale for one and seven years after purchase, with the load/fee eventually dropping off to zero. Deferred loads are most often assessed as a percentage of assets. Deferred loads are becoming a much less-used feature of investment companies, thanks to the exploding popularity of exchange-traded funds (ETFs) and no-load mutual funds. Investors now have thousands of choices in the no-load arena, although deferred loads are still found in many types of insurance products, such as annuities and even in many hedge funds. These types of charges are typically put in place to discourage against short-term investment in favor of a buy-and-hold strategy amongst its investors.
A prominent private investor who founded the investment company Dreman Value Management. David Dreman has also published three books and is on the board of directors for the Institute of Behavioral Finance. He is also the co-editor of the Journal of Psychology and Financial Markets. Dreman received his juris doctorate in law from the University of Manitoba in 1999. He previously served as a senior investment officer with Seligman Funds and was also the former senior editor for Value Line. His investment company manages money for mutual funds, pension and high net-worth individuals.
The aggregate amount that an investment has gained or lost over time, independent of the period of time involved. Presented as a percentage, the cumulative return is the raw mathematical return of the following calculation: Investors are more likely to see a compound return than a cumulative return, as the compound return figure will be annualized. This helps investors to compare different investment choices. A common way to present the "effect" of a mutual fund's performance over time is to show the cumulative return with a visual such as a mountain graph. Investors should check to confirm whether interest and/or dividends are included in the cumulative return; such payouts may be assumed to be re-invested or simply counted as raw dollars when calculating the cumulative return. Any marketing material for a mutual fund or similar investment should state any assumptions clearly when presenting such performance data.
A way that an investor in a mutual fund can qualify for lowered fees by totaling transactions in several funds from the same fund family to obtain a reduced fee. Generally, fees for investing in a mutual fund decrease as the amount that a person invests increases; therefore, if there is a required minimum investment that allows an investor to receive the fee discount, the investor can receive the discount without having to invest all of that minimum in the same fund. Investors can also qualify for lower fees by committing to make several investments in a fund over a defined period. If a mutual fund's fees are 4.5% for $5,000 invested, but 3.5% for $10,000 invested, the cumulative discount privilege means that you won't need to invest $10,000 in one fund to get the reduced fee. Instead, you can invest $10,000 in several different funds from the same fund family to get the rate. You can also set up an agreement to invest the $10,000 into the fund in smaller increments over an allotted amount of time. As long as you follow the agreement, you will be charged the lower fee.
A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio. Diversification strives to smooth out unsystematic risk events in a portfolio so that the positive performance of some investments will neutralize the negative performance of others. Therefore, the benefits of diversification will hold only if the securities in the portfolio are not perfectly correlated. Studies and mathematical models have shown that maintaining a well-diversified portfolio of 25 to 30 stocks will yield the most cost-effective level of risk reduction. Investing in more securities will still yield further diversification benefits, albeit at a drastically smaller rate.Further diversification benefits can be gained by investing in foreign securities because they tend be less closely correlated with domestic investments. For example, an economic downturn in the U.S. economy may not affect Japan's economy in the same way; therefore, having Japanese investments would allow an investor to have a small cushion of protection against losses due to an American economic downturn.Most non-institutional investors have a limited investment budget, and may find it difficult to create an adequately diversified portfolio. This fact alone can explain why mutual funds have been increasing in popularity. Buying shares in a mutual fund can provide investors with an inexpensive source of diversification.
A visual representation of the principle investment characteristics of stocks and stock mutual funds. The style box was created by Morningstar and is a valuable tool for investors to use to determine the risk-return structures of their stocks/stock portfolios and/or how these investments fit into their investing criteriaAlso known as a "stock style box". An equity style box is comprised of nine squares, or categories, with the investment features of stocks/stock mutual funds presented along its vertical and horizontal axes.For stocks and stock funds, the horizontal axis is divided into three investment style (objective) categories: value, blend (a value/growth mix) and growth. The vertical axis is divided into three company-size (based on market capitalization) indicators: large, medium and small. A stock investor looking for relative safety would confine his or her stock or stock fund investments to the large category for company size, combined with selections in the value and blend in the investment style categories. For a risk taker, the category combination of small company (small-cap) and growth will provide a high-risk, high-return opportunity.
1. Dividend income that is earned through an investment in stocks (equity). 2. A type of mutual fund that invests in high-quality companies with a reliable history of dividend payments and growth in the dividend rate. 1. Dividend paying stocks are usually those of large, well-established companies that are favored by moderately conservative investors and/or those seeking current income. 2. In the mutual fund context, the investment objective will be a combination of generating both moderate current dividend income and moderate capital appreciation.
A mutual fund or exchange-traded fund that invests the majority of its assets in the financial markets of a single developing country or a group of developing countries. For the most part, these countries are in Eastern Europe, Africa, the Middle East, Latin America, the Far East and Asia. A developing country is characterized as being vulnerable to political and economic instability, having low average per-capita income, and of being in the process of building its industrial and commercial base. The "emerging market" label has been adopted by the investment community to identify developing countries with superior growth prospects. The potential for rewarding investment opportunities in this category of fund comes with relatively high risk.
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