As mentioned earlier today, my last post before I went to Hong Kong covered The Federal Reserve. Prior to that article, we’ve been talking about the most fundamental investment strategies that every investor needs to know in order to have a complete and well rounded portfolio.
While you probably won’t make use of each and every one of these, it still pays to know about them, so that if the opportunity ever arises, you can apply your knowledge in a way that will earn you profit.
Closed End Funds
This time, we’re going to talk about closed end funds. Closed End Funds are essentially investments that are tied to a specific number of shares in a particular security, such as a company or a technology. The shares are traded in the same manner as stocks, but because there is a specific number of shares being dealt with at the same time, and this figure never varies, it also shares some features of the mutual fund.
The point of investing in a closed end fund actually varies from fund to fund, so it’s something you’ll need to pay close attention to. As a general example, some closed end funds are intended to serve as an easy way for one to have Diversification within their portfolio beyond a particular industry or region, while others are set up to profit from dividends rather than actual movements in the value of the underlying security.
Supply And Demand
Whatever the case, if you do decide to engage in Investing in closed end funds, you can do so very easily. Most brokers deal with them, and you can buy and sell them exactly like stocks. In many cases, even the same fees apply.
The only real drawback is that because there are a fixed number of shares, your ability to profit is tied more to the supply and demand of the market as a whole rather than the movement of the security. Keep this in mind and realize that, for all its strengths and low risk, the closed end fund isn’t a get rich quick scheme.
See you next week for part 2 of Investments.
Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 – 2009
{ 1 comment… read it below or add one }
Hi Sean,
I’m not sure that I like the strategy of buying closed end funds. It seems to be a fairly conservative way of investing and I’d rather something a little more versatile.
But, low risk is a good strategy. I guess having a balance in your portfolio is a good thing.