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This image displays how investing can lead to security, money, savings, freedom, success and wealth. When you invest in yourself and other things, you'll help better your future so you can be more secure and live more comfortably.

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This image displays stocks. Stocks are constantly changing whether they're going up or down. You can never be too sure about which stock you invest in and if it will be worth it in the end.

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These are currently the best stocks to buy right now. (Updated November 21, 2020). The list includes FedEx, Target, Apple, and Novocure. Since the coronavirus bear market, stocks rebounded powerfully. The strong action reflects that the economy will eventually recover from the coronavirus.

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Buying a stock is easy, but buying the right stock without a time-tested strategy is incredibly hard. So what are the best stocks to buy now or put on a watchlist? Google-parent Alphabet ( GOOGL), Nike ( NKE), West Pharmaceutical Services ( WST), NXP Semiconductors ( NXPI) and Arista Networks ( ANET) are prime candidates.

Since the coronavirus bear market, stocks rebounded powerfully. The strong action reflected rising confidence that the economy will eventually recover from the coronavirus.

Worries around Covid rose with the emergence of a omicron variant, but there are hopes that this coronavirus strain tends to result in mild cases.

Stocks were also punished after the November U.S. job growth came in much weaker than expected. But the market fought back last week, even as inflation reached a 39-year high.

This week the Federal Reserve holding its final meeting of the year. Investors will be looking to see if central bankers opt to speed up the tapering of bond repurchases, and whether they will offer clues on when interest rate hikes will take place.

Best Stocks To Buy: The Crucial Ingredients

Remember, there are thousands of stocks trading on the NYSE and Nasdaq. But you want to find the very best stocks right now to generate massive gains.

The CAN SLIM system offers clear guidelines on what you should be looking for. Invest in stocks with recent quarterly and annual earnings growth of at least 25%. Look for companies that have new, game-changing products and services. Also consider not-yet-profitable companies, often recent IPOs, that are generating tremendous revenue growth.

IBD's CAN SLIM Investing System has a proven track record of significantly outperforming the S&P 500. Outdoing this industry benchmark is key to generating exceptional returns over the long term.

In addition, keep an eye on supply and demand for the stock itself, focus on leading stocks in top industry groups, and aim for stocks with strong institutional support.

Once you have found a stock that fits the criteria, it is then time to turn to stock charts to plot a good entry point. You should wait for a stock to form a base, and then buy once it reaches a buy point, ideally in heavy volume. In many cases, a stock reaches a proper buy point when it breaks above the original high on the left side of the base. More information on what a base is, and how charts can be used to win big on the stock market, can be found here.

Don't Forget The M When Buying Stocks

A key part of the CAN SLIM formula is the M, which stands for market. Most stocks, even the very best, follow the market direction. Invest when the stock market is in a confirmed uptrend and move to cash when the stock market goes into a correction.

New Covid worries have taken a toll on the market, causing the IBD market outlook to slip to "market in correction." A market rally attempt is underway, with the Nasdaq and the S&P 500 both moving back above the key 50-day moving average. The Dow Jones Industrial Average managed to power away from its 200-day moving average and retake its 50-day line. However the rally attempt hit the skids as the week wore on, which prevented the market going back into an uptrend. Market breadth also remains a concern.

So with the stock market now still in a correction, investors should avoid making new stock purchases and consider taking money off the table to reduce market exposure. Also keep a close eye on your holdings in case sell signals are triggered.

It is also vital to remain engaged for when a new uptrend emerges. Now is the time to be building a robust watchlist of fundamentally strong stocks forming sound chart patterns. This makes one ready to pounce when sentiment changes. The stocks featured below are potential candidates.

Remember, things can quickly change when it comes to the stock market. Make sure you keep a close eye on the market trend page here.

Best Stocks To Buy Or Watch

Google

Nike

West Pharmaceutical Services

NXP Semiconductors

Arista Networks

Now let's look at Google stock, Nike stock, West Pharmaceutical Services stock, NXP Semiconductors stock and Arista Networks stock in more detail. An important consideration is that these stocks all boast impressive relative strength.
Check out IBD Stock Lists and other IBD content to find dozens more of the best stocks to buy or watch.
Google Stock

Google parent Alphabet has back in its buy zone after previously breaking out of a flat base. The ideal buy point here is 2,925.18, according to MarketSmith analysis. It is actionable as high as 3,071.44.

The stock is trying to bounce away from its 10-week line. This can be used as an entry, and is actionable as much as 10% above the line. This is a good place to start a position in a Long-Term Leader like GOOGL stock, but the market correction raises the risks for all new buys.

The relative strength line is just below record highs. It has been moving sideways as it consolidates. This gauges a stock's performance compared to the S&P 500.

stock has a near-perfect IBD Composite Rating of 96. That puts it in the top 4% of stocks tracked overall. Earnings outshine stock market performance, with its EPS Rating a very strong 98 out of 99.

Earnings have grown by an average of 123% over the past three quarters. This is almost five times the 25% growth sought by CAN SLIM investors.

Analysts see strong growth ahead, with Google earnings per share expected to explode 105% in 2021, and then growing by a further 5% in 2022.

The tech giant has a Relative Strength Rating of 93. That means it has outperformed 93% of stocks tracked over the past 12 months in terms of price performance.

Recent performance is strong, with e stock rising about 69% so far in 2021. This far outstrips the S&P 500's gain of over 25%

Big money has getting rid of Alphabet stock of late, though this comes amidst a broad sell-off. This is reflected in its Accumulation/Distribution Rating of D+, which reflects slightly more selling than buying over the past 13 weeks.

Alphabet in April announced a new $50 billion GOOGL stock buyback. On its June quarter earnings call, Google announced a modification of the share repurchase agreement allowing the company to repurchase either class A or class C shares.

Late on Oct. 26, Alphabet posted Q3 earnings. EPS jumped 71% to $27.99, including gains on equity investments. Gross revenue rose 41% to $65.12 billion in the quarter ended Sept. 30.

Analysts had estimated Google earnings of $23.73 per share on gross revenue of $63.5 billion.

Internet search and other revenue rose 44% to $37.93 billion vs. estimates of $36.41 billion. Google said cloud-computing revenue rose 45% to $4.99 billion vs. estimates of $5.17 billion. Despite the revenue miss, Google cloud cut its operating loss almost in half to $644 million.

YouTube advertising revenue rose 43% to $7.2 billion. Analysts had estimated YouTube ad revenue of $7.42 billion.

While Google has expanded into cloud computing and consumer hardware, digital advertising still makes up the lion's share of revenue. Google announced in early March that it will stop employing web browser-tracking technology for the purpose of selling advertising. Earlier, Google said it would phase out third-party cookies.

Google plans to utilize "contextual" technology that enables advertisers to target aggregated groups of consumers with similar interests, such as travel, sports or fashion.
What To Do With Fed Set To Speed Up Inflation Fight
Nike Stock

Nike stock is eying a new 179.20 buy point from a flat base, next to a cup pattern. It closed last week down 0.7%, solidly off its high for the week.

One encouraging factor for investors is the fact the stock has been finding support around its short-term 21-day exponential moving average and its 10-week moving average.

The relative strength line has choppy in recent weeks after a period of solid momentum. Investors will want to see it turn higher again going forward.

Earnings are due Dec. 20, which could act as a catalyst for the sportswear stock.

Shares were given a boost after the shoe and athletics gear firm notched its 20th straight year of dividend hikes. Nike boosted its quarterly dividend by 11% to 30.5 cents per share.

The firm recently revealed that it has created Nikeland. This is a virtual world on the Roblox ( RBLX) gaming platform. Nikeland lets players customize their avatar with Nike products.

NKE stock investors shrugged off supply-chain concerns for the holiday quarter from Foot Locker ( FL), a major Nike seller.

The pattern formed as investors assessed whether the holidays will test Nike's supply chain. The RS line for the Dow Jones giant has improved since late September. It's now just below early August highs.

Nike stock has a strong Composite Rating of 87, which puts it in the top 13% of stocks overall. Earnings need to improve going forward, with its EPS Rating sitting at 74.

Analysts expect Nike earnings to grow 1% in 2022 before exploding to 31% growth in 2023, MarketSmith data says. In 2019, Nike earnings fell 20% amid the coronavirus pandemic, which originated in China.

On Sept. 24, Nike earnings modestly beat estimates but sales missed and guidance was weak, amid supply headwinds.

West Pharmaceutical Services Stock

WST stock has formed a handle with an ideal buy point of 458.09. Shares have drifted down to the 10-week line, offering a possible rebound entry. WST stock dipped about 0.6% last week as it continues to trade tightly.

The relative strength line is taking a pause, but has performed solidly for the year. It has slipped slightly after a period of outperformance that started early November. The stock is up more than 52% so far in 2021.

WST stock has a very strong IBD Composite Rating of 94. At the moment earnings are even better than stock market performance, with its EPS Rating coming in at 98.

West Pharmaceutical earnings held solid in the most recent quarter, which was slightly disappointing.

But the Stock Checkup shows EPS growth has come in at an average of 67% over the past three quarters. This is well clear of the 25% growth sought by the CAN SLIM cognoscenti.

A number of notable funds own WST stock, including Baron Asset Retail Fund (BARAX) and the T. Rowe Price New Horizons Fund (PRNHX).

The company is a leader in integrated containment and delivery of injectable medicines. It is not itself a drugmaker, but its vials, syringes and other products and services help customers deliver drug products to patients.

Its biotech and pharmaceutical customers include many, if not most, of the companies working to develop Covid-19 vaccines and treatments. With Covid looking likely to become endemic going forward, this could make a lasting contribution to its business.

It's unclear how West Pharma will respond to omicron variant news.

WST stock is currently an IBD Long-Term Leader. This is means it is part of a portfolio of select high-performing stocks that could potentially be held for years.
Looking For The Next Big Stock Market Winners? Start With These 3 Steps
NXP Semiconductors Stock

NXPI has been trading around its buy point for a couple of weeks after breaking past a 227.60 buy point in a cup-with-handle base. The fact it has been finding support at its 21-day exponential moving average should encourage investors.

The chip stock did give up strong gains last week after UBS gave NXP stock a sell rating. Nevertheless, it has held up well overall, closing the week down just 0.3%.

The stock's relative strength line is nearing August highs, a positive sign during a weak market environment.

NXPI stock has a strong 98 out of a perfect 99 IBD Composite Rating. This puts it in the top 2% of stocks when a combination of technical and fundamental metrics are taken into account.

The IBD Stock Checkup shows that earnings are picking up steam as the firm looks to get its profitability back on track. In the most recent quarter earnings came in at $1.91 per share, improving on a loss of eight cents per share a year ago.

The largest share of Netherlands-based NXP's revenue comes from sales of chips to the automotive industry.

It also makes chips for industrial uses, Internet of Things, mobile and communications infrastructure applications.

With demand for autos seen ramping up as the economy gets back on its feet following the coronavirus pandemic, the future could be bright for the firm.

Automotive semiconductors have been in short supply this year because of tight capacity at chip foundries. The situation has forced some carmakers to idle factories.

The firm's CEO Kurt Sievers was keen to point out the broadness of the firm's offerings during its most recent earnings call at the start of November.

"For NXP, it's of course, not just automotive driving our performance, within the Industrial and IoT market, we see our ability to provide complete turnkey connected edge processing solutions consisting of processes, connectivity, security and analog, all leading to increased customer traction," he said. "These are all just a few examples that underpin our confidence in our Company-specific growth."

Arista Networks

Arista Networks stock has a flat base with a 134.24 buy point. It is also extended after offering up an early entry last week after broke a trend line and moved above the 21-day moving average.

Arista stock gapped up after delivering strong earnings and guidance last month. The cloud computer networking company was able to hold on to those gains despite a choppy market.

ANET stock has a near-perfect IBD Composite Rating of 97. It offers a robust balance of earnings and stock market performance. The stock is up 80% so far in 2021.

Big money is piling into the stock, with its Accumulation/Distribution Rating coming in at B+. In total, 54% of stock is held by funds, with a further 22% being held by management.

Santa Clara, Calif.-based Arista sells switches that speed up communications among racks of computer servers packed into data centers. Arista's primary customers have been internet companies.

ANET stock soared last month after the firm issued fiscal 2022 revenue growth guidance.

For fiscal 2022, Arista forecast revenue growth of 30% as data center orders pick up from Meta ( FB). The Cisco Systems ( CSCO) rival also sees strong demand ahead from the corporate market.

Needham analyst Alex Henderson said the 30% revenue growth target is do-able. "Part of that upside reflects a 10% price increase going effective imminently in the fourth quarter, but much of it also reflects exceptionally strong supply chain management," he said in a research note.

Arista said it expects $400 million in corporate campus sales next year, up about 100%.

"They raised their picture for revenue growth in 2022 to 30% year-over-year, or roughly $3.7 billion in total sales," Jefferies analyst George Notter said in a note to clients. "It's a huge bump up. Prior consensus views called for $3.23 billion."

A four-for-one stock split announcement also fueled ANET stock.

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The 5 Best Stocks To Buy And Watch Right Now

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Buying a stock is easy, but buying the right stock without a time-tested strategy is incredibly hard. So what are the best stocks to buy now or put on a watchlist? Google-parent Alphabet ( GOOGL), Nike ( NKE), West Pharmaceutical Services ( WST), NXP Semiconductors ( NXPI) and Arista Networks ( ANET) are prime candidates.

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This website outlines and describes what common and preferred stocks are as well as the difference between the two. The main difference outlined between the two is that preferred stock gives no voting rights to shareholders, while common stocks do. This is the main reason as to why common stocks are the more favourable way to go among investors. Another interesting fact was that common stockholders are paid last, which means they will be paid after creditors, and preferred shareholders. Another difference is preferred shareholders have power over a companies income which means essentially they are paid before common shareholders.

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Preferred vs. Common Stock: An Overview

There are many differences between preferred and common stock. The main difference is that preferred stock usually does not give shareholders voting rights, while common or ordinary stock does, usually at one vote per share owned. Many investors know more about common stock than they do about preferred stock.

Both types of stock represent a piece of ownership in a company, and both are tools investors can use to try to profit from the future successes of the business.

Key Takeaways

Preferred Stock

One main difference from common stock is that preferred stock comes with no voting rights. So when it comes time for a company to elect a board of directors or vote on any form of corporate policy, preferred shareholders have no voice in the future of the company. In fact, preferred stock functions similarly to bonds since with preferred shares, investors are usually guaranteed a fixed dividend in perpetuity.

The dividend yield of a preferred stock is calculated as the dollar amount of a dividend divided by the price of the stock. This is often based on the par value before a preferred stock is offered. It's commonly calculated as a percentage of the current market price after it begins trading. This is different from common stock, which has variable dividends that are declared by the board of directors and never guaranteed. In fact, many companies do not pay out dividends to common stock at all.

Like bonds, preferred shares also have a par value which is affected by interest rates. When interest rates rise, the value of the preferred stock declines, and vice versa. With common stocks, however, the value of shares is regulated by demand and supply of the market participants.

In a liquidation, preferred stockholders have a greater claim to a company's assets and earnings. This is true during the company's good times when the company has excess cash and decides to distribute money to investors through dividends. The dividends for this type of stock are usually higher than those issued for common stock. Preferred stock also gets priority over common stock, so if a company misses a dividend payment, it must first pay any arrears to preferred shareholders before paying out common shareholders.

Unlike common shares, preferreds also have a callability feature which gives the issuer the right to redeem the shares from the market after a predetermined time. Investors who buy preferred shares have a real opportunity for these shares to be called back at a redemption rate representing a significant premium over their purchase price. The market for preferred shares often anticipates callbacks and prices may be bid up accordingly.

Common Stock

Common stock represents shares of ownership in a corporation and the type of stock in which most people invest. When people talk about stocks, they are usually referring to common stock. In fact, the great majority of stock is issued in this form.

Common shares represent a claim on profits (dividends) and confer voting rights. Investors most often get one vote per share owned to elect board members who oversee the major decisions made by management. Stockholders thus have the ability to exercise control over corporate policy and management issues compared to preferred shareholders.

Common stock tends to outperform bonds and preferred shares. It is also the type of stock that provides the biggest potential for long-term gains. If a company does well, the value of a common stock can go up. But keep in mind, if the company does poorly, the stock's value will also go down.

Preferred shares can be converted to a fixed number of common shares, but common shares don't have this benefit.

When it comes to a company's dividends, the company's board of directors will decide whether or not to pay out a dividend to common stockholders. If a company misses a dividend, the common stockholder gets bumped back for a preferred stockholder, meaning paying the latter is a higher priority for the company.

The claim over a company's income and earnings is most important during times of insolvency. Common stockholders are last in line for the company's assets. This means that when the company must liquidate and pay all creditors and bondholders, common stockholders will not receive any money until after the preferred shareholders are paid out.

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Preferred vs. Common Stock: What's the Difference?

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The main difference between preferred and common stock is that the former usually do not give shareholders voting rights, while the latter stock does.

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Advantage of Mutual Funds:

Ease of buying and selling

Meet specific investment goals

Diversification (spreading out investments in different areas to reduce risk).

Disadvantages of Mutual Funds:

Ongoing management fees

Complicated tax reporting issues

Purchase and withdrawal costs

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What Is a Mutual Fund?

A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities such as stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund's assets and attempt to produce capital gains or income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus.

Mutual funds give small or individual investors access to professionally managed portfolios of equities, bonds and other securities. Each shareholder, therefore, participates proportionally in the gains or losses of the fund. Mutual funds invest in a vast number of securities, and performance is usually tracked as the change in the total market cap of the fund-derived by the aggregating performance of the underlying investments.

The Basics of a Mutual Fund

Mutual funds pool money from the investing public and use that money to buy other securities, usually stocks and bonds. The value of the mutual fund company depends on the performance of the securities it decides to buy. So, when you buy a unit or share of a mutual fund, you are buying the performance of its portfolio or more precisely, a part of the portfolio's value.

That's why the price of a mutual fund share is referred to as the net asset value (NAV) per share, sometimes expressed as NAVPS. A fund's NAV is derived by dividing the total value of the securities in the portfolio by the total amount of shares outstanding. Outstanding shares are those held by all shareholders, institutional investors, and company officers or insiders. Mutual fund shares can typically be purchased or redeemed as needed at the fund's current NAV, which-unlike a stock price-doesn't fluctuate during market hours, but is settled at the end of each trading day.

The average mutual fund holds hundreds of different securities, which means mutual fund shareholders gain important diversification at a low price. Consider an investor who buys only Google stock before the company has a bad quarter. He stands to lose a great deal of value because all of his dollars are tied to one company. On the other hand, a different investor may buy shares of a mutual fund that happens to own some Google stock. When Google has a bad quarter, she only loses a fraction as much because Google is just a small part of the fund's portfolio.

KEY TAKEAWAYS

How Mutual Funds Work

A mutual fund is both an investment and an actual company. This dual nature may seem strange, but it is no different from how a share of AAPL is a representation of Apple, Inc. When an investor buys Apple stock, he is buying part ownership of the company and its assets. Similarly, a mutual fund investor is buying part ownership of the mutual fund company and its assets. The difference is that Apple is in the business of making smartphones and tablets, while a mutual fund company is in the business of making investments.

If a mutual fund is a virtual company, its CEO is the fund manager, sometimes called its investment adviser. The fund manager is hired by a board of directors and is legally obligated to work in the best interest of mutual fund shareholders. Most fund managers are also owners of the fund.

There are very few other employees in a mutual fund company. The investment adviser or fund manager may employ some analysts to help pick investments or perform market research. A fund accountant is kept on staff to calculate the fund's NAV, the daily value of the portfolio that determines if share prices go up or down. Mutual funds need to have a compliance officer or two, and probably an attorney, to keep up with government regulations.

Most mutual funds are part of a much larger investment company; the biggest have hundreds of separate mutual funds. Some of these fund companies are names familiar to the general public, such as Fidelity Investments, the Vanguard Group, T. Rowe Price, and Oppenheimer Funds.

Types of Mutual Funds

Mutual funds are divided into several kinds of categories, representing the kinds of securities they have targeted for their portfolios and the type of returns they seek.

Equity Funds

The largest category is that of equity or stock funds. As the name implies, this sort of fund invests principally in stocks. Within this group is various sub-categories. Some equity funds are named for the size of the companies they invest in small-, mid- or large-cap. Others are named by their investment approach: aggressive growth, income-oriented, value, and others. Equity funds are also categorized by whether they invest in domestic (U.S.) stocks or foreign equities.

Fixed-Income Funds

Another big group is the fixed income category. A fixed income mutual fund focuses on investments that pay a set rate of return, such as government bonds, corporate bonds, or other debt instruments. The idea is that the fund portfolio generates interest income, which then passes on to shareholders.

Index Funds

Another group, which has become extremely popular in the last few years, falls under the moniker " index funds." Their investment strategy is based on the belief that it is very hard, and often expensive, to try to beat the market consistently. So, the index fund manager buys stocks that correspond with a major market index such as the S&P 500 or the Dow Jones Industrial Average (DJIA). This strategy requires less research from analysts and advisors, so there are fewer expenses to eat up returns before they are passed on to shareholders. These funds are often designed with cost-sensitive investors in mind.

Balanced Funds

Balanced funds invest in both stocks and bonds to reduce the risk of exposure to one asset class or another. Another name for this type of mutual fund is "asset allocation fund." An investor may expect to find the allocation of these funds among asset classes relatively unchanging, though it will differ among funds. This fund's goal is asset appreciation with lower risk. However, these funds carry the same risk and can be as subject to fluctuation as other classifications of funds.

There is a fund for nearly every type of investor or investment approach. Other common types of mutual funds include money market funds, sector funds, alternative funds, smart-beta funds, target-date funds, and even funds-of-funds, or mutual funds that buy shares of other mutual funds.

Mutual Fund Fees

A mutual fund will classify expenses into either annual operating fees or shareholder fees. Annual fund operating fees are an annual percentage of the funds under management, usually ranging from 1-3%. Annual operating fees are collectively known as the expense ratio. A fund's expense ratio is the summation of the advisory or management fee and its administrative costs.

Shareholder fees, which come in the form of sales charges, commissions and redemption fees, are paid directly by investors when purchasing or selling the funds. Sales charges or commissions are known as "the load" of a mutual fund. When a mutual fund has a front-end load, fees are assessed when shares are purchased. For a back-end load, mutual fund fees are assessed when an investor sells his shares.

Sometimes, however, an investment company offers a no-load mutual fund, which doesn't carry any commission or sales charge. These funds are distributed directly by an investment company rather than through a secondary party.

Some funds also charge fees and penalties for early withdrawals or selling the holding before a specific time has elapsed. Also, the rise of exchange-traded funds, which have much lower fees thanks to their passive management structure, have been giving mutual funds considerable competition for investors' dollars. Articles in the financial media about how fund expense ratios and loads can eat into rates of return have also stirred negative feelings about mutual funds.

Classes of Mutual Fund Shares

Mutual fund shares come in several classes. Their differences reflect the number and size of fees associated with them.

Currently, most individual investors purchase mutual funds with A shares through a broker. This purchase includes a front-end load of up to 5% or more, plus management fees and ongoing fees for distributions, also known as 12b-1 fees. To top it off, loads on A shares vary quite a bit, which can create a conflict of interest. Financial advisors selling these products may encourage clients to buy higher-load offerings to bring in bigger commissions for themselves. With front-end funds, the investor pays these expenses as they buy into the fund.
(Investopedia's broker reviews offer insight into the firms offering the best mutual fund choices)
To remedy these problems and meet fiduciary-rule standards investment companies have started designating new share classes, including "level load" C shares, which generally don't have a front-end load but carry a 1% 12b-1 annual distribution fee.

Funds that charge management and other fees when an investor sell their holdings are classified as Class B shares.

A New Class of Shares

The newest share class, developed in 2016, consists of clean shares. Clean shares do not have front-end sales loads or annual 12b-1 fees for fund services. American Funds, Janus and MFS, are all fund companies currently offering clean shares.

By standardizing fees and loads, the new classes enhance transparency for mutual fund investors and, of course, save them money. For example, an investor who rolls $10,000 into an individual retirement account (IRA) with a clean-share fund could earn nearly $1,800 more over a 30-year period as compared to an average A-share fund, according to an April 2017 Morningstar report, co-written by Aron Szapiro, Morningstar director of policy research, and Paul Ellenbogen, head of global regulatory solutions.

Advantages of Mutual Funds

There are a variety of reasons that mutual funds have been the retail investor's vehicle of choice for decades. The overwhelming majority of money in employer-sponsored retirement plans goes into mutual funds.

Diversification

Diversification, or the mixing of investments and assets within a portfolio to reduce risk, is one of the advantages of investing in mutual funds. Buying individual company stocks and offsetting them with industrial sector stocks, for example, offers some diversification. However, a truly diversified portfolio has securities with different capitalizations and industries and bonds with varying maturities and issuers. Buying a mutual fund can achieve diversification cheaper and faster than by buying individual securities.

Easy Access

Trading on the major stock exchanges, mutual funds can be bought and sold with relative ease, making them highly liquid investments. Also, when it comes to certain types of assets, like foreign equities or exotic commodities, mutual funds are often the most feasible way-in fact, sometimes the only way-for individual investors to participate.

Economies of Scale

Mutual funds also provide economies of scale. Buying one spares the investor of the numerous commission charges needed to create a diversified portfolio. Buying only one security at a time leads to large transaction fees, which will eat up a good chunk of the investment. Also, the $100 to $200 an individual investor might be able to afford is usually not enough to buy a round lot of the stock, but it will purchase many mutual fund shares. The smaller denominations of mutual funds allow investors to take advantage of dollar cost averaging.

Professional Management

Most private, non-institutional money managers deal only with high-net-worth individuals -people with at least six figures to invest. However, mutual funds, as noted above, require much lower investment minimums. So, these funds provide a low-cost way for individual investors to experience and hopefully benefit from professional money management.

Freedom of Choice

Investors have the freedom to research and select from managers with a variety of styles and management goals. For instance, a fund manager may focus on value investing, growth investing, developed markets, emerging markets, income or macroeconomic investing, among many other styles. One manager may also oversee funds that employ several different styles.

Disadvantages of Mutual Funds

Liquidity, diversification, and professional management, all these factors make mutual funds attractive options for a younger, novice, and other individual investors who don't want to actively manage their money. However, no asset is perfect, and mutual funds have drawbacks too.

Fluctuating Returns

Like many other investments without a guaranteed return, there is always the possibility that the value of your mutual fund will depreciate. Equity mutual funds experience price fluctuations, along with the stocks that make up the fund. The Federal Deposit Insurance Corporation (FDIC) does not back up mutual fund investments, and there is no guarantee of performance with any fund. Of course, almost every investment carries risk. It is especially important for investors in money market funds to know that, unlike their bank counterparts, these will not be insured by the FDIC.

Heavy Cash Supplies

Mutual funds pool money from thousands of investors, so every day people are putting money into the fund as well as withdrawing it. To maintain the capacity to accommodate withdrawals funds typically have to keep a large portion of their portfolios in cash. Having ample cash is excellent for liquidity, but money is sitting around as cash and not working for you and thus is not very advantageous.

Mutual funds provide investors with professional management, but it comes at a cost-those expense ratios mentioned earlier. These fees reduce the fund's overall payout, and they're assessed to mutual fund investors regardless of the performance of the fund. As you can imagine, in years when the fund doesn't make money, these fees only magnify losses.

Diworsification

Diworsification-a play on words-is an investment or portfolio strategy. Many mutual fund investors tend to overcomplicate matters. That is, they acquire too many funds that are highly related and, as a result, don't get the risk-reducing benefits of diversification. These investors may have made their portfolio more exposed; a syndrome called diworsification. At the other extreme, just because you own mutual funds doesn't mean you are automatically diversified. For example, a fund that invests only in a particular industry sector or region is still relatively risky.

Lack of Transparency

One thing that can lead to diworsification is the fact that a fund's purpose or makeup isn't always clear. Fund advertisements can guide investors down the wrong path. The Securities and Exchange Commission (SEC) requires that funds have at least 80% of assets in the particular type of investment implied in their names. How the remaining assets are invested is up to the fund manager. However, the different categories that qualify for the required 80% of the assets may be vague and wide-ranging. A fund can, therefore, manipulate prospective investors via its title. A fund that focuses narrowly on Congolese stocks, for example, could be sold with a far-ranging title "International High-Tech Fund."

Evaluating Funds

Researching and comparing funds can be difficult. Unlike stocks, mutual funds do not offer investors the opportunity to juxtapose the price to earnings (P/E) ratio, sales growth, earnings per share (EPS), or other important data. A mutual fund's net asset value can offer some basis for comparison, but given the diversity of portfolios, comparing the proverbial apples to apples can be difficult, even among funds with similar names or stated objectives. Only index funds tracking the same markets tend to be genuinely comparable.

Real World Example of a Mutual Fund

One of the most famous mutual funds in the investment universe is Fidelity Investments' Magellan Fund (FMAGX). Established in 1963 the fund had an investment objective of capital appreciation via investment in common stocks. Fidelity founder Edward Johnson originally managed it. The fund's glory days were between 1977 and 1990 when Peter Lynch served as its portfolio manager. Under Lynch's tenure, Magellan regularly posted 29% annual returns, almost double that of the S&P 500. Both the fund and Lynch became household words.

Even after Lynch left, Fidelity's performance continued strong, and assets under management (AUM) grew to nearly $110 billion in 2000, making it the largest fund in the world. By 1997, the fund had become so large that Fidelity closed it to new investors, and would not reopen it until 2008.

As of April 2019, Fidelity Magellan has over US$16 billion in assets and is managed by Jeffrey Feingold since 2011. The fund's performance has pretty much tracked or slightly surpassed that of the S&P 500.

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A mutual fund is a type of investment vehicle consisting of a portfolio of stocks, bonds or other securities, which is overseen by a professional money manager. Long a favored choice for retail investors, mutual funds have both advantages and disadvantages compared to other asset classes.

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Face value is the money amount the bond will be worth at maturity; it is also the reference amount the bond issuer uses when calculating interest payments. For example, say an investor purchases a bond at a premium $1,090 and another investor buys the same bond later when it is trading at a discount for $980. When the bond matures, both investors will receive the $1,000 face value of the bond.

The coupon rate is the rate of interest the bond issuer will pay on the face value of the bond, expressed as a percentage. For example, a 5% coupon rate means that bondholders will receive 5% x $1000 face value = $50 every year.

Coupon dates are the dates on which the bond issuer will make interest payments. Payments can be made in any interval, but the standard is semiannual payments.

The maturity date is the date on which the bond will mature and the bond issuer will pay the bondholder the face value of the bond.

The issue price is the price at which the bond issuer originally sells the bonds.

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What is a 'Bond'

A bond is a fixed income investment in which an investor loans money to an entity (typically corporate or governmental) which borrows the funds for a defined period of time at a variable or fixed interest rate. Bonds are used by companies, municipalities, states and sovereign governments to raise money and finance a variety of projects and activities. Owners of bonds are debtholders, or creditors, of the issuer.

BREAKING DOWN 'Bond'

Bonds are commonly referred to as fixed-income securities and are one of the three main generic asset classes, along with stocks (equities) and cash equivalents. Many corporate and government bonds are publicly traded on exchanges, while others are traded only over-the-counter (OTC).

How Bonds Work

When companies or other entities need to raise money to finance new projects, maintain ongoing operations, or refinance existing debts, they may issue bonds directly to investors instead of obtaining loans from a bank. The indebted entity (issuer) issues a bond that contractually states the interest rate that will be paid and the time at which the loaned funds (bond principal) must be returned ( maturity date). The interest rate, called the coupon rate or payment, is the return that bondholders earn for loaning their funds to the issuer.

The issuance price of a bond is typically set at par, usually $100 or $1,000 face value per individual bond. The actual market price of a bond depends on a number of factors including the credit quality of the issuer, the length of time until expiration, and the coupon rate compared to the general interest rate environment at the time.
Are you ready to invest in bonds? Pick the right broker by reading Investopedia's broker reviews.
Example

Because fixed-rate coupon bonds will pay the same percentage of its face value over time, the market price of the bond will fluctuate as that coupon becomes desirable or undesirable given prevailing interest rates at a given moment in time. For example if a bond is issued when prevailing interest rates are 5% at $1,000 par value with a 5% annual coupon, the bondholder will be credited $50 in interest income annually. The bondholder would be indifferent to purchasing the bond or saving the same money at the prevailing interest rate.

However, if interest rates in the economy drop to 4%, the bond will continue paying 5% coupon rates, making it a more attractive option. Investors will purchase these bonds, bidding the price up to a premium until the effective rate of the bond equals 4%. On the other hand, if interest rates rise to 6%, the 5% coupon is no longer attractive and the bond price will decrease, selling at a discount until it's effective rate is 6%.

Because of this mechanism, bond prices move inversely with interest rates.

Characteristics of Bonds

Most bonds share some common basic characteristics including:

Face value is the money amount the bond will be worth at its maturity, and is also the reference amount the bond issuer uses when calculating interest payments. For example, say an investor purchases a bond at a premium $1,090 and another purchases the same bond at a discount $980. When the bond matures, both investors will receive the $1,000 face value of the bond.

Coupon rate is the rate of interest the bond issuer will pay on the face value of the bond, expressed as a percentage. For example, a 5% coupon rate means that bondholders will receive 5% x $1000 face value = $50 every year.

Coupon dates are the dates on which the bond issuer will make interest payments. Typical intervals are annual or semi-annual coupon payments.

Maturity date is the date on which the bond will mature and the bond issuer will pay the bond holder the face value of the bond.

Issue price is the price at which the bond issuer originally sells the bonds.

Two features of a bond - credit quality and duration - are the principal determinants of a bond's interest rate. If the issuer has a poor credit rating, the risk of default is greater and these bonds will tend to trade a discount. In addition, bonds with a high default risk, such as junk bonds, have higher interest rates than stable bonds, such as government bonds.

Credit ratings are calculated and issued by credit rating agencies. Bond maturities can range from a day or less to more than 30 years. The longer the bond maturity, or duration, the greater the chances of adverse effects. Longer-dated bonds also tend to have lower liquidity. Because of these attributes, bonds with a longer time to maturity typically command a higher interest rate.

When considering the riskiness of bond portfolios, investors typically consider the duration (price sensitivity to changes in interest rates) and convexity (curvature of duration).

Bond Issuers

There are three main categories of bonds.

Corporate bonds are issued by companies.

Municipal bonds are issued by states and municipalities. Municipal bonds can offer tax-free coupon income for residents of those municipalities.

U.S. Treasury bonds (more than 10 years to maturity), notes (1-10 years maturity) and bills (less than one year to maturity) are collectively referred to as simply "Treasuries."

Varieties of Bonds

Zero-coupon bonds do not pay out regular coupon payments, and instead are issued at a discount and their market price eventually converges to face value upon maturity. The discount a zero-coupon bond sells for will be equivalent to the yield of a similar coupon bond.

Convertible bonds are debt instruments with an embedded call option that allows bondholders to convert their debt into stock (equity) at some point if the share price rises to a sufficiently high level to make such a conversion attractive.

Some corporate bonds are callable, meaning that the issuer can call back the bonds from debtholders if interest rates drop sufficiently. These bonds typically trade at a premium to non-callable debt due to the risk of being called away and also due to their relative scarcity in the bond market. Other bonds are putable, meaning that creditors can put the bond back to the issuer if interest rates rise sufficiently.

The majority of corporate bonds in today's market are so-called bullet bonds, with no embedded options and a face value that is paid immediately on the maturity date.

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A bond is a fixed income investment in which an investor loans money to an entity (typically corporate or governmental) which borrows the funds for a defined period of time at a variable or fixed interest rate. Bonds are used by companies, municipalities, states and sovereign governments to raise money and finance a variety of projects and activities.

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A stock is a representation of a small part of a company. Purchasing a stock essentially means that you are paying for a part of the company. There’s two main types of stocks a common stock and a preferred stock A common stock is the more common type of stock due to the fact it offers growth in share price. Common shareholders are usually entitled to three things, dividend payments, vote at shareholders meetings, and claim on the company assets. The second type is preferred stock which tends to be more stable, and preferred shareholders are entitled to fixed dividends payments, and claim on company assets.

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A bond is loan given to a company or government and in return the investor will get money back with interest. There is 3 main parts to a bond. First part is Maturity, which is the period of time when the loan is able to be collected. The second part is par value, which is the amount that was loaned to the government Or corporation in the first place, And lastly the interest rate which is how much money the investor can hope to get in return at the time of maturity . Those are the basic ways to outline a bond

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Mutual Funds is a collective investment that pulls together the money a large number of investors to purchase a variety of securities such as stocks and bonds. Each investor has a right to a proportional share of the assets of the fund and any income it earns. You can buy shares in the fund and many people choose mutual funds for their retirement account.
Benefits of Mutual Funds are:

A way to make a diversified investment

Managed by a financial professional

Allow investors to participate in a wide variety of investments.

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1. Start a Retirement Account:  Put in a little bit every month and it will pay off.
2. Index Fund:
An affordable way for investors to invest in a diversified basket of securities; constructed to track the components of a market index such as the S&P 500 or the S&P/TSX Composite.
3.Put money in for years/decades and let it grow overtime when you're ready to buy a house or retire.
4. Put money in consistently and DON'T touch it

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How to Start Investing for Beginners | Tips For Your 20’s

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This padlet will outline and describe various ways on how stocks, bonds, and mutual funds. The padlet will also mention various benefits and risk of each of the investment methods mentioned.