Can Mutual Funds Invest In the Start Up Market?
"Bloomberg suggests that two Fidelity funds hold preferred shares of Snapchat Inc.. Preferred shares hold more in common with bonds than with ordinary stock as they pay a fixed dividend, have lower liquidity, and don't have voting rights. Because of this lower liquidity they are not usually offered for sale on the market. Whether these funds are allowed to hold such illiquid assets is more a question for their strategy document than the law; it is completely legal for a company to hold a non-marketable interest in another, even if the company is privately held as Snapchat is. The strategy documents governing what the fund is permitted to hold, however, may restrict ownership either banning non-market holdings or restricting the percentage of assets held in illiquid instruments. Since IPO is very costly, funds like these who look to invest in new companies who have not been through IPO yet are a very good way of taking a diversified position in  start-ups. Since they look to invest directly rather than through the market they are an attractive, low cost way for start-ups to generate funds to grow. The fund deals directly with the owners of the company to buy its shares. The markdown of the stock value reflects the accounting principle of marking to market (MTM) financial assets that do not have a trade price so as to reflect their fair value. This markdown implies that Fidelity believe that the total NPV of the company's net assets is lower than they had previously calculated. This probably reflects a lack of revenue streams coming into the business in the case  of Snapchat. edit: by the way, since there is no market for start-up ""stocks"" pre-IPO my heart sinks a little every time I read the title of this question. I'm going to be sad all day now :(."
How much money do you have in your money market fund and what in your mind is the purpose of this money? If it is your six-months-of-living-expenses emergency fund, then you  might want to consider bank CDs in addition to bond funds as an alternative to  your money-market fund investment. Most (though not necessarily all, so be sure to check) bank CDs can be cashed in at any time with a penalty of three months of interest, and so unless you anticipate being laid off very soon, you might get a slightly better rate of interest, FDIC insurance (which mutual funds do not have), and with any luck you may never have to break a CD and lose the interest. Building a ladder of CDs with one maturing each month might be another way to reduce the risk of loss.  On the other hand, bond mutual funds are a risky bet now because your investment will lose value if interest rate go up, and as JohnFx points out, interest rates have nowhere to go but up.  Finally, the amount of the investment is something that you might want to consider before making changes. If you have $50K put away as your six-month fund, you are talking of $500 versus $350 per annum in changing to a riskier investment with a 1% yield from a safer investment with a 0.7% yield. Whether bragging rights at neighborhood parties are worth the trouble is something for you to decide. "The fund will take a small percentage of its assets to cover the expenses.  Reported returns come after the expense ratio has been factored into things. Money market mutual funds can have a zero yield in some cases though breaking the buck can happen in some cases as noted on Wikipedia: The first money market mutual fund to break the buck was First   Multifund for Daily Income (FMDI) in 1978, liquidating and restating   NAV at 94 cents per share. An argument has been made that FMDI was not   technically a money market fund as at the time of liquidation the   average maturity of securities in its portfolio exceeded two years.[7]   However, prospective investors were informed that FMDI would invest   ""solely in Short-Term (30-90 days) MONEY MARKET obligations.""   Furthermore, the rule, which restricts the maturities which money   market funds are permitted to invest in, Rule 2-a7 of the Investment   Company Act of 1940, was not promulgated until 1983. Prior to the   adoption of this rule, a mutual fund had to do little other than   present itself as a money market fund, which FMDI did. Seeking higher   yield, FMDI had purchased increasingly longer maturity securities and   rising interest rates negatively impacted the value of its portfolio.   In order to meet increasing redemptions the fund was forced to sell a   certificate of deposit at a 3% loss, triggering a restatement of its   NAV and the first instance of a money market fund ""breaking the   buck"". The Community Bankers US Government Fund broke the buck in 1994,   paying investors 96 cents per share. This was only the second failure   in the then 23-year history of money funds and there were no further   failures for 14 years. The fund had invested a large percentage of its   assets into adjustable rate securities. As interest rates increased,   these floating rate securities lost value. This fund was an   institutional money fund, not a retail money fund, thus individuals   were not directly affected. No further failures occurred until September 2008, a month that saw   tumultuous events for money funds. However, as noted above, other   failures were only averted by infusions of capital from the fund   sponsors. Thus consider how likely is Fidelity Investments prepared to have people question how safe is their money with them which is why fund sponsors rarely break the buck." For some ideas on investing priority guidelines, see Oversimplify it for me: the correct order of investing. Congratulations on being debt free!  My advice to you is to do what you can to remain debt free. You could certainly invest the money; it will earn much more over the long-term in a stock mutual fund than it would left in a savings account.  However, if you need any of this money in the next few years, it would be a shame if it lost money in the short-term. How much do you need to finish grad school?  Don't invest that money in the stock market, because you will need it over the next few years. Likewise, think about other expenses that are coming up.  Will your car need to be replaced in the next couple of years?  Will you have enough income to meet your living expenses while you are in grad school, or will you need some of this to money to help with that?   Finally, it would be good to keep some extra as an emergency fund, so you can easily pay for any unexpected expenses that come up. If you can make it through grad school debt free, you will be much better off than if you invest all the money but take out student loans in the process. After you've accounted for all of that, whatever is left of the money could definitely be invested.  If your goal is to start a retirement fund, an index mutual fund invested inside a Roth IRA is a great place to start. No, SPDR ETFs are not a good fit for a novice investor with a low level of financial literacy.  In fact, there is no investment that is safe for an absolute beginner, not even a savings account.  (An absolute beginner could easily overdraw his savings account, leading to fees and collections.) I would say that an investment becomes a good fit for an investor as soon as said investor understands how the investment works.  A savings account at a bank or credit union is fairly easy to understand and is therefore a suitable place to hold money after a few hours to a day of research.  (Even after 0 hours of research, however, a savings account is still better than a sock drawer.) Money market accounts (through a bank), certificates of deposit (through a bank), and money market mutual funds (through a mutual fund provider) are probably the next easiest thing to understand.  This could take a few hours to a few weeks of research depending on the learner. Equities, corporate bonds, and government bonds are another step up in complexity, and could take weeks or months of schooling to understand well enough to try.  Equity or bond mutual funds -- or the ETF versions of those, which is what you asked about -- are another level after that. Also important to understand along the way are the financial institutions and market infrastructure that exist to provide these products:  banks, credit unions, public corporations, brokerages, stock exchanges, bond exchanges, mutual fund providers, ETF providers, etc. "Yes, definitely. Many municipalities and local governments issue bonds to fund various projects (schools, hospitals, infrastructure, etc). You can buy these bonds and in that way invest in these things. In the US these kinds of bonds are tax-free, i.e.: the income they provide is not taxed (by the US government, may be taxed by your State, check local tax laws). There are also dedicated mutual funds that that is all they invest in, if you don't want to deal with picking individual bonds. As to mom-and-pop stores - that would not be as easy, as mom-and-pop stores are by definition family owned and you can invest in them only if you are personally acquainted with them. Instead, you can invest in small regional/local chains, that while not being mom-and-pop, still small enough to be considered ""local"", but are publicly traded so that you can easily invest in them. You'll have to look for these. You can also use social lending platforms, like Lending Club, which I reviewed on my blog, or others, where you can participate in a lending pool to other people. You can invest in a credit union by opening an account there. Credit unions are owned by their account holders." You can set up a Self Managed Super Fund (SMSF) and use it to buy residential investment property, and as Justin has mentioned even borrow to acquire the investment property through the SMSF.  However, you cannot hold your home in the SMSF, as this would be classed as an in-house asset, and you are only allowed to hold a maximum of 5% of the total market value of SMSF as in-house assets. Furthermore, as you already own your house, you are not allowed to transfer residential property into a SMSF from a related party, even if done at current market value (you are allowed to transfer business real property from a related party at current market value). Regarding loans, you are not allowed to lend money from your SMSF to a related party as well. "A growth fund is looking to invest in stocks that will appreciate in stock price over time as the companies grow revenues and market share. A dividend fund is looking to invest in stocks of companies that pay dividends per share.  These may also be called ""income"" funds. In general, growth stocks tend to be younger companies and tend to have a higher volatility - larger up and down swings in stock price as compared to more established companies.  So, growth stocks are a little riskier than stocks of more established/stable companies. Stocks that pay dividends are usually more established companies with a good revenue stream and well established market share who don't expect to grow the company by leaps and bounds.  Having a stable balance sheet over several years and paying dividends to shareholders tends to stabilize the stock price - lower volatility, less speculation, smaller swings in stock price.  So, income stocks are considered lower risk than growth stocks.   Funds that invest in dividend stocks are looking for steady reliable returns - not necessarily the highest possible return. They will favor lower, more reliable returns in order to avoid the drama of high volatility and possible loss of capital. Funds that invest in growth stocks are looking for higher returns, but with that comes a greater risk of losing value.  If the fund manager believes an industry sector is on a growth path, the fund may invest in several small promising companies in the hopes that one or two of them will do very well and make up for lackluster performance by the rest. As with all stock investments, there are no guarantees.  Investing in funds instead of individual stocks allows you invest in multiple companies to ride the average - avoid large losses if a single company takes a sudden downturn.  Dividend funds can lose value if the market in general or the industry sector that the fund focuses on takes a downturn." "As an exercise, I want to give this a shot.  I'm not involved in a firm that cares about liquidity so all this stuff is outside my purview.  As I understand it, it goes something like this: buy side fund puts an order to the market as a whole (all or most possibly exchanges).  HFTs see that order hit the first exchange but have connectivity to exchanges further down the pipe that is faster than the buy side fund.  They immediately send their own order in, which reaches exchanges and executes before the buy side fund's order can.  They immediately put up an ask, and buy side fund's order hits that ask and is filled (I guess I'm assuming the order was a market order from the beginning).  This is in effect the HFT front running the buy side fund.    Is this accurate?  Even if true, whether I have a genuine issue with this... I'm not sure.  Has anyone on the ""pro-HFT"" side written a solid rebuttal to Lewis and Katsuyama that has solid research behind it?"