Throughout the late 1990s, Enron was almost universally considered as one of the most innovative companies in the United States. In addition to selling gas and electricity, it created a whole new market in Internet industry; but it falsely led its investors to believe that the company was worth about $70 billion, when in reality it was under huge debt and heavy losses on its trading businesses.
In 2001 the Enron Company came crushing down because its officials were pocketing millions of investors’ dollars for themselves. As a result, thousands of investors lost almost all their investment dollars as Enron's shares shrank to penny-per-stock levels. Why did some of these investors lose everything? Because they put all their “eggs in one basket,” and that “basket” fell apart, which in this case is Enron.
Since putting all your money in one company or asset class comes with great risks, you should diversify your investments---that is, spread out your investment options across different asset classes such as stocks, bonds, real estate, commodities, and even private equity. Furthermore, you should spread your investments over different types of companies that have different growth levels. For example, you can buy a few aggressive high-growth stocks in certain emerging companies which are sometimes wild but very promising in terms of its equity growth potential. This is the roller coaster of mutual funds, because there will be some really high-highs and probably some really low-lows. Next, there are average growth mutual funds in medium-sized companies. These companies are still in the growth stage, so investments in this category are called mid-cap stocks or average growth funds. Then, there are large, well-established companies from which you can buy large-cap stocks, which are slow-growing mutual funds. Usually, these stocks don’t have wildly fluctuating values--- that is, they won’t shoot up as much when the market is up, but they won’t fall as much when the market is down. Hence, they are the calmest of the bunch for investments. Lastly, you can invest in international companies and participate in the growth of foreign products. This will add another layer of diversification just in case something unexpected happens to the domestic stock market.
Because investment gains or losses are often tied to the unpredictable market conditions or political situations around the world, there is no way of telling how exactly one investment type will perform at a given point in time. So, if you spread your investments over a wide area, you won’t lose all your money when something goes wrong in one part of it. To illustrate, investments are like manure: left in one pile, it could start to stink; but when it is spread around, it could grow and produce yields a lot more in the average count.
Indeed, all investing requires certain degrees of risk. But the general principle to remember is this: as the risk goes up, so does the hopeful return. That means if you don’t take much of a risk, you aren’t going to make as much money.
Today, many high-net worth investors invest in mutual funds because they can look at a fund’s five-year track record rather than having to make their own investment decisions based on short-term market trends. Although the past history of a fund performance of a company is no guarantee of future expected performance, most investors anticipate returns in the same neighborhoods. But should the investment not meet expectations, investors are free to switch to another fund option since many companies that sell mutual funds usually offer a large number to choose from.
To understand what exactly a mutual fund is, let me use another illustration. Imagine several baskets on a table with 20 individuals sitting around it. Let’s assume, everyone puts some money---some more and some less---into the baskets. Now, these baskets would represent mutual funds because all the 20 people have contributed their funds into the common baskets. Similarly, imagine several companies floating around together in the baskets which those 20 individuals have funded.
How can you be sure that you have only the best investments in the common baskets? Perhaps, the safest answer is, to have a professional portfolio-manager managing your money. As a matter of fact, this individual won’t do it alone. He would have a team of smart financial personnel working with him. If the fund includes technology stocks, he will have someone who knows the technology market well. If it includes stocks on natural gas and oil, he will have an expert in that market, too. These specialists spend all day, every day, learning every detail about these companies and industries. And they pass that information to the portfolio-manager, who then uses it to keep the baskets filled with the best of the best investments. On a more personal note, my wife and I use the service of an American multinational financial service corporation, the Fidelity Investments firm, which helps us in choosing the best investment options in the financial markets around the world, while giving us the freedom to make our own investment decisions via the Internet.
In 1980 only 6% of U.S. households owned mutual funds. By mid-2015, that number had leaped to 43% of all U.S. households, representing around 90 million individuals, who are mostly between the ages of 35 and 64, the age range in which investing for retirement has been one of the greatest financial goals.
Now coming to the Naga people, investment in mutual funds may be a new concept. But if we are serious about generating more public revenue or making money for our citizens, we need to do two things: First, our government must commit to developing a financial services industry. Second, we as individuals must consider investing in mutual funds, which offer one of the safest ways to generate huge returns on our investments over the long-haul.
