Risk : mutual funds

Many investment vehicles are available in today's market.
Needless to say many of them are very structured in a very complicated way.
There are many ways you can invest.
Investing in mutual funds are what many people do these days.
And as part of the class having diversified portfolio is one way to mitigate our risk.
Mutual funds can be a great benifit that creates return on investment.
And it can simply help us to diversify.
However, what happened during January 2009?
Bernard Madoff has made investros recognized how risky it can be when not knowing how returns are made.

Each day in class we discuss how firms are valued.
And first thing we do is to determine the way that they make money.
By knowing those information, we can then apply the costs assosiated with each of the firms and start a valuable anaysis.

Isn't this similar to what we should do to our investment?
People are investing in something many calls it as a "Black Box".
Should we feel comfortable as long as its giving us the return?
No we shouldn't feel comfortable.
Always know how it is making money.

If investors understands how to manage those risks effectively, the market itself should see an improvement.

http://www.businessweek.com/investor/content/dec2008/pi20081216_994051.htm