Mutual Funds (part F)
by
Charles Lamson
Specialized Funds
The process of classifying mutual funds is a fuzzy one at best. Ultimately, it is not really important how you classify a fund as long as you know what the fund is about and whether it is suitable for you.
I have included some specialized funds here and others in the next post. Attach no significance to this placement. Some people in the industry prefer to stick with defining mutual funds strictly by their investment objectives, and that is probably the best strategy in the long run.
The funds I have included here are specialized in their investments, which by definition means they are specialized in their objectives. Bear with me as we push through this and it will all fall into place near the end.
The specialized funds we will discuss here include REITs and international funds.
Real Estate Investment Trusts
Real estate investment trusts (REITs) are specialized investment units that invest in income-producing real estate, such as shopping centers, apartments, and so on. The management takes a fee for doing all the legwork of finding the properties and managing them.
REITs are very much like closed-end funds. Like their closed-end cousins, REITs trade like securities and are bought through a broker. This gives them the liquidity so desperately lacking in straight real estate investments. However, be aware that some REITs are "thinly" traded, meaning there are not many buyers and sellers, so dumping your investment may not be a quick and easy proposition.
A good alternative is to put your money in a mutual fund that invests in REITs. If this seems like you are getting further away from the investment, you are right, but it does give you better liquidity if that is important. REIT mutual funds often specialize in certain types of property, like hospitals, or shopping centers, which allow you to target industries or market segments that are growing.
International Funds
International funds open the door to worldwide investing. Overseas markets are some of the most rapidly growing in the world. Developing countries are expanding their economies, and there are good opportunities to participate in the growth. However, here more than ever, you need the expertise of professional fund managers to guide investments through foreign waters.
These funds come in several varieties; some spread investments all over the world and are known as global funds or overseas funds. Others may focus on a single region, like Latin America, and are known as regional funds. Country funds focus their investments in specific countries, such as Mexico.
Many investment advisers suggest you have a portion of your portfolio in overseas investments. While this may be a sound idea, it is one of the last investments you should make after you have all of your other investment goals covered with safer investments.
Overseas investments carry some particular risks---and the opportunity for some spectacular rewards. You should keep in mind that as goofy as our political system can be, it is stable and predictable. Unfortunately, we have had presidents assassinated, but when it happens it does not cause the government to fall. The same cannot be said of all countries around the world.
*SOURCE: ALPHA TEACH YOURSELF INVESTING IN 34 HOURS, 2000, KEN LITTLE, PGS. 149-151*
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