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How to Pick Between a Mutual Fund or ETF

Here at Ally Wealth Management, we know that investing and developing strategies can be difficult, puzzling, and downright frustrating. There seem to be a million secrets to investing. Whether it’s as investment advisors, retirement planners, or simply as your wealth manager, we want to help simplify that process by providing more information and wealth management news. Today, we want to focus on mutual funds and ETF’s (Exchange Traded Funds), two concepts that are very similar, and highlight the significant differences between the two, and how your investment and risk management strategy should reflect your choices between the two. Most importantly, we’re going to look at why these two types of investments matter over the course of constructing your portfolio.

Mutual Funds:

To start things off, let’s take a look at mutual funds. Mutual funds are an investment method that collectively compiles funds from a large group of investors. From there, the money is split up and largely invested in stocks, bonds, and money markets (which are essentially extremely safe, but low-return, investments on loans between financial institutions). This ensures a level of diversification that is not feasible for the average investor. Mutual funds can be actively managed; this can drive up fees, but also helps to reduce the risk they present when looking at the return on investment. As a whole, mutual funds are an extremely popular investment method because they put the money in the hands of those who study financial markets and look at the companies being invested in on a daily basis.  They enable individuals with expertise to make decisions with the management of money that often results in safe, steady, long-term returns.

Exchange-Traded Funds or ETF:

On the other hands, ETF’s, or exchange-traded funds, are securities that trade like a stock on an exchange but follows the value of indexes, commodities, or bonds. Think of them like “mutual fund stocks.” ETF’s are not as carefully managed as mutual funds, and this results in lower fees for them. ETF’s also have a more efficient tax structure than mutual funds. When mutual funds buy and sell stocks and bonds, the holders of the Fund are responsible for the fees incurred by these sales and purchases. However, with ETF’s the individual is reinvesting money with the buying and selling of stocks and bonds, so the result is a better tax structure. And while mutual funds are usually purchased through a financial management company, ETF’s are something that individual can purchase on their own, like a stock. Because of these factors, ETF’s are often bought by people who spend a lot of time handling their personal investments and feel highly confident in their abilities to predict the marketplace.

With these basics in mind, both mutual funds and ETF’s present a variety of benefits and drawbacks. There is no right or wrong choice when looking at mutual funds and ETF’s. What is more important is viewing how they fit with you and your investment strategy. Because ETF’s have a more tax-efficient structure and have low operating expenses, they tend to be sought after by people who are active traders, who want to invest in a particular niche of the market, or are specifically looking for more tax-efficient trading options. And while investors can directly purchase ETF’s, they must go through a brokerage or company such as Ally Investment Management to purchase registered mutual funds. Mutual funds do not carry trading commissions like ETF’s, but they will incur some fees, which are also known as loads.

Many mutual funds will charge commissions for fees when trading and these are known as load mutual funds. However, there is another option: no load funds.  At this point, you are probably wondering, “What are no load mutual funds”? No load mutual funds are funds where shares are sold without commissions or sales fees. You can find these types of funds with many different brokerages, and Ally Wealth Management is one of them.

There are also two main strategies within mutual funds. Some funds will try to beat benchmarks and earn very high returns on investments while others will just try to mirror index funds and provide safer steady returns. Again, there are so many different choices that are in the marketplace. What is most important is to invest in your strategy and make your decisions accordingly.

Ultimately, with the variety of options that both ETF’s and mutual funds offer, there is not going to be a right or wrong answer as to which one to pick. The trick to investing is designing a strategy that works to benefit your specific needs as an individual. Certain mutual funds may present greater risk and greater reward while other ETF’s might try to track the S&P500, an index fund with modest but steady gains. Ally Financial, in Little Rock AR, works to develop investment strategies that suit your wants and needs, backed by years of experience successfully helping clients turn their investment, retirement, and savings dreams into reality. We can help you avoid retirement planning mistakes, and explain the tough questions in-depth and in person such as what is index fund investing, how do I buy mutual funds, and what is a mutual fund initial investment? Ally Wealth Management prides itself on its dedication to solving the needs of our customers and centering our strategy on them. Our recommendation: determine your wants, your needs, and your level of knowledge about investing options and the investing marketplace. And if, from there, you need advice, just know that Ally is always there to provide strategies, explore options, and help you find the path to reaching your financial goals.



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Investment For Beginners | The Basics of Investment and Wealth Management

Most people with disposable incomes will fail to invest it, not for lack of initiative, but for the lack of information on how to get started. The term ‘investment’ is taken by many to mean a series of events that is hard to master or follow. Lets’s learn the basic and  important types of  investment for beginners

What Is Investment?

But is that really the case? Is investment that hardest thing to understand? Not really, when you have the information we are about to share.

Investing is committing money towards a particular economic endeavor with the intention of gaining profit or income from the same. It is not a get-rich-scheme, and so in most cases, money committed will be tied in that endeavor for a reasonable period of time.

Income from Investing: 

The return that you get from investing can be in terms of interest, profit, or dividends, depending on the type of investment you have made.

Most forms of investment take a long-term approach. With a longer period, the risk is reduced and so is the potential earnings. There are few investment opportunities that are short-lived, which require massive amounts of capital. Their returns are quite handsome, but the risk is equally high.

Let’s know 4 Ways to Improve Your Investment Returns even investing with little money.

Types of Investment For Beginners

types of investment - investment for beginners

There are several types of investments for beginners and others, which are all geared towards giving you return on your capital.

  • Stocks

They are undoubtedly the most popular types of investment for improver. Before we define ‘stock,’ we could demystify a shareholder. A shareholder is a someone who owns some stake in a company. That stake gives him the right to say that he owns the company to a certain percentage. There are mainly two types of stocks  The stake is also known as stock.

Ownership of a company is determined the number of shares a person owns. If for example, you, the shareholder owns 100 shares in a company whose total issued shares of stock are 1,000, then you own 10% of the company’s assets. If the company were to liquidate, you would claim 10% of their assets.

Shares are classified into two, preference, and common shares. Preferences shareholders receive pre-determined amounts in interest every year, while ordinary stock shareholders receive dividends based on the company’s performance.

You can invest in various company’s shares to diversify your portfolio. There is a significant difference between trading in shares and investing in a company. Traders are speculators who sell their shares

once the price has risen, only to buy them back after the price goes down. Investors leave their money to accumulate dividends for them, and most of them use it as a wealth-accumulating source.

  • Bonds

They are basic IOU’s where a borrower (could be a corporate or the government) issues you an acknowledgment that they owe you, and that they intend to pay you the face value of that bond upon maturity. Your return for lending them the money, they will give you a fixed interest per month. This another good type of  smart investments for beginners

They are ideal because they are risk-free or with very low risk. You are also assured of a fixed income per month. Some bonds, especially those issued by the government, are tax-free. Upon maturity, which varies from bond to bond, the entity will return the face value of the bond as was the agreement.

Check the bonds service of Ally Wealth Management

  • Mutual Funds

A mutual fund means a pool of resources from a group of people whose aim is to invest in a diversified portfolio, but not individually. The investors will want to invest in money markets, shares, bonds and a variety of profitable investments, and so they pool resources together to have better bargaining power. These monies are managed by money managers who invest it safely and wisely to make good returns for the investors.

Check the Mutual Funds service of Ally Wealth Management


Real Estate Investment Trusts work like mutual funds in a way. Real estate is a costly investment ad not everyone who would want to be in it can afford. Therefore, REITS exist to enable more people to get into real estate investment through pooling their resources together and co-owning property. They then get an agreement return at the end of each fiscal period. The returns are of course from the income generated by the real estate.

  • Dividends

This is the primary return from investing in shares. Every year, a publicly listed company will make their financial results for that year public, and then proceed to announce their dividend per share. All common stock shareholders get their dividends, which will be a percentage of the company’s net profit after taxation. This is also a good type of investments for beginners

Capital Gains

A capital gain is made when capital asset gains value. Capital assets include shares and real estate. Capital gains are not realized until the capital asset is sold.


Learning about investments makes you more knowledgeable about the allocation of money that will undoubtedly have an effect on your future. Start learning today about investments for beginners from this article and build your knowledge on wealth management.



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Buy Low and Sell High is Easy for You to Say

Are you frustrated with the market downturn we’ve seen in the past few weeks? If so, you might need to make some adjustments to your portfolio, i.e. 401(k), 403(b), etc. William Bernstein, author of The Intelligent Asset Allocator said, “The essence of effective portfolio construction is the use of a large number of poorly correlated assets.”

What does he mean by “poorly correlated?” I’ll get to that in a minute. First, I want to quote another master of investment strategy. Roger G. Ibbotson is emeritus professor of the practice of finance at Yale School of Management. He said, “On average, 94 percent of the variability of returns and 100 percent of the absolute level of return is explained by asset allocation.”

Now let’s summarize these two statements. A viable portfolio that is poised to make decent returns has two characteristics: 1. It is diversified 2. The assets don’t behave identically. In other words, asset A doesn’t move in the same direction as asset B when the stock market goes up and down.

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4 Ways to Improve Your Investment Returns

We have met the enemy and he is us,” said a wise opossum named Pogo (not to be confused with POGO, the Project on Government Oversight, which is featured in my next book Train Wreck) in a 1970 newspaper cartoon written by Walt Kelly. Cicero put it in a more general context: “Man is his own worst enemy,” sometime around 50 B.C. It has been modified to say you are your own worst enemy. Ok. I think you get the idea.

No one will ever accomplish their investment goals, if they don’t first master their own emotions.

Let me just say at the forefront of this article; if you think you can be profitable in the stock market, without addressing your emotional makeup first, well, allow me to use another quote, “A fool and his money are soon parted.” I have seen the well-educated, the housewife, the retiree, the CEO, the business owner, and many others from all walks of life, forfeit their chance to make very good money. All were brought down by an overlooked nemesis known as emotions. I don’t care how great of an investment plan you, and your adviser have hatched. If you don’t learn how to identify, and corral your feelings, you will never be a successful investor. You will be doomed to walk in the land of meager returns, where CDs and savings accounts dwell. If you think these are “safe” investments, consider this: On average, the cost of goods double every 18 years, due to inflation. So, what costs $100 today, will cost $200 in 18 years.

Dalbar, a premier market research company, with one focus being in the field of investor emotions. How an investor behaves is more important to investing than you might imagine. I would venture to say it is the single greatest issue that determines investment success or failure. No one will ever accomplish their investment goals, if they don’t first master their own emotions. You can be the smartest or luckiest investor ever to walk the face of this planet, but one single emotion can completely annihilate any chance of making money from your investments. But we aren’t dealing with just one emotion; we must contend with two: fear and greed.

annualized_returnsA twenty-year study conducted by Dalbar, revealed the number one factor directly affecting the amount of money an investor makes, is the investor’s emotional responses to the movements of the market. Consider this.

During the two decades spanning 1987 to 2006, the average investor achieved an annual return of 4.3% from his equity investments. In contrast, the unmanaged S&P 500 index achieved a return of 11.8% per year. That is a cumulative return of 236%! Remarkable! If a person had simply purchased an index fund, and held it for 20 years, she would have acquired double-digit returns on her money. Unfortunately, the average investor only realized a 4.3% gain, over the same time period. Are you beginning to get the picture?

Fear and greed are no laughing matter. If you cannot consistently defeat these two evil twins, your returns will suffer. Here is a breakdown of the disparaging gap between disciplined investors, and the herd. While there is no simple answer to this dilemma, there are some steps you can take to help move you from the red column to the blue one. Here are five to consider.


1. Know Your History.

know_your_historyWilliam O’Neil, founder of Investor’s Business Daily said, “The American Stock Market has been growing since 1790. So, in my opinion, faith and confidence in America’s long-term future is a very shrewd and intelligent position to take and stick with for as long as you live.” The stock market makes more than it loses. Otherwise, the DOW would be at zero. There has never been a time in history, where the stock market did not recover from a downturn. When you recognize that markets move in cycles, and that history is on your side, you will make significant gains on controlling your emotions.

2. Consider the Source.

Ever since TV showed up at the 1939 World’s Fair, we have been indoctrinated with so-called expert advice on how to invest. There is a 24/7 stream of investment noise available to every American. Rutherford D. Rogers said “We’re drowning in information and starving for knowledge.” Louis Engel said, “The cheapest commodity in the world is investment advice from people not qualified to give it.” There is no scientific evidence which proves short-term price fluctuations are consistently predictable. Therefore, I encourage you to adopt a long-term view of investing. The Dalbar studies spanned 20 years, not 20 minutes.

3. Overcome Negative Experiences.

Samuel Case said: “Most investors try various markets, lose money, and finally acquire some knowledge through bitter experience. This is roughly analogous to learning how to drive by having a series of accidents.” A salty sea captain was asked by his first mate how he knew where all the shoals and reefs were in the bay. The captain replied, “by hitting them all!” That’s not what we would call a good investment strategy. If you have been a victim of your own behavior in the past, make a new resolution to approach your investment strategy, without letting your emotions control your behavior.

4. Find a Coach.

No one has the self fortitude to overcome fear and greed all the time. It only takes one moment of weakness to ruin everything. This is where a consultant can bring value to your investment strategy. Unlike brokers, who get paid a commission regardless of the outcome, an investment consultant makes more money when you do, and less when you do, since their income is tied to a percentage of your portfolio value. Find one who is a strong advocate of client education. Understanding why the market behaves the way it does, is empowering for the investor. You can make better gains if you will learn how to overcome your fears, and harness the destructive power of greed.