A lot of people have problems programming their VCR.
They can play and rewind a tape, but don’t know what the rest of those buttons on the box do and never make use of what they perceive as complicated programming features.
The same goes for mutual fund investors. Most know how to buy and sell their shares, but don’t pay much attention to other features that can simplify and/or improve money management.
“Fund companies are making things easier on the investor, but most people don’t take advantage of it,” says Michelle A. Smith, managing director of the Kansas City-based Mutual Fund Education Alliance. “You need to know what conveniences your funds offer and how they apply to you.”
Basic services include automatic investment programs, which regularly pluck cash from a bank account and deposit it with a fund. Many funds waive minimum initial investments for investors who take advantage of regular-purchase options.
Similarly, telephone purchases and redemptions, no-cost switching between funds in the same group and the ability to wire money to your bank are among other routine options.
Details about the not-so-obvious fund features may be buried in the prospectus or take up a few lines on an application form. You can call the fund to ask what it offers (and beg for more), but here are a few options that might make your life easier:
– Cross reinvestment. Get your dividend from Fund A, reinvest it in Fund B. It’s a favorite tool of investment pros and a simple way to keep a portfolio balanced when one investment outperforms another, the way stocks have been beating bonds.
– Systematic withdrawals. If you need money on regular intervals–monthly, quarterly or annually–this is an easy way to get it. Not only is it ideal for scheduling annual redemptions from individual retirement and Keogh accounts, but it can be a helpful budgeting tool for people living on fixed amounts, because the money arrives regularly on the chosen day.
In addition, some systematic withdrawal programs are sophisticated enough to act as a bill-paying feature, where the money is sent directly to the mortgage company, the bank or any creditor where the monthly bill is a regular, set amount.
– Check writing. Many people assume they can only write checks from a money market fund, but a lot of fund groups now offer checks on their bond funds. (The privilege that remains exclusive to money market funds–and which is not yet widespread–is debit cards, although they will soon be available on other accounts, too.)
– Direct deposits. So long as your employer allows for direct deposit of your paycheck, you can bypass the bank entirely.
It’s no different than if you were having your entire check deposited to your checking account, with a few dollars pulled out for your savings account. And because the money is set aside from take-home pay–rather than pulled from your bank account as with automatic investment plans–there is no risk of bouncing checks because you forget to reconcile purchases with your bank statements.
– Systematic exchanges. Deposit a lump sum of money into, say, a money market fund and have it pulled at regular intervals into the family’s other funds. This service allows for easy dollar-cost averaging when you have a big chunk of money that you want to move into another mutual fund; in addition, it is an easy portfolio management tool.
– “Householding.” If you, your spouse and children have several accounts with the same fund group, you may want to save a few trees and ease the strain on your mailbox by having all of your statements (and any dividend checks) put in one envelope.
– Powers of attorney. Several fund groups, notably Fidelity and Vanguard, provide power-of-attorney forms so that an investor can grant a relative or loved one control of their assets in case they are incapacitated.
Powers of attorney are a valued estate-planning tool, and frequently are signed in conjunction with a will. People who already have a will may not need a fund’s power of attorney; people without one may be able to get some peace of mind.
If you have taxable and retirement accounts with one fund group, you need more than one power-of-attorney form. And while the forms are free, you may pay a fee to have them notarized.
– Automatic address changes. If you summer on Cape Cod and winter in Florida–or make regular moves between two or more locations–you may want a program that lets your statements follow you, thereby eliminating the hassle of having your mail forwarded or doing a complete change of address every few months. And while you get the statements, the money you receive from the fund through redemptions or systematic withdrawals can either follow you or go to the bank of your choice.
“Not many people use these features, although they are tools that professional money managers are aware of,” says Crissy Snyder of the Denver-based Janus Funds. “Funds keep adding services to make investors’ lives easier; people who don’t know how those features work are missing out.”
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Charles A. Jaffe is mutual funds columnist at The Boston Globe. He can be reached by e-mail at jaffe@globe.com or at The Boston Globe, Box 2378, Boston, Mass. 02107-2378.
