Although investing in mutual funds isn't the type of subject associated with wild parties and celebrations - it is something the serious investor should consider as a way of increasing their total worth.

"But what EXACTLY is a mutual fund" I hear you ask - "how does it work, who does what and how much do they cost?"

Hang on, slow down - one question at a time please.

What exactly is a mutual fund?

Mutual funds are sold in shares to the public, allowing them to own different percentages of the fund depending on the amount they invest.

Pay more = own more. Own more = get more $$ back again (theoretically)

Simple.

Stocks, bonds, money market securities and the like are purchased through the assets of these mutual funds in the financial markets. Shareholders indirectly own the assets held in the mutual fund, but the fund is guided by the investment company that finds the best way to earn the biggest return. (Indirectly owning the assets through these funds allows them to avoid the big tax hit.)

How does a Mutual Fund work?

Usually, mutual funds are also known as open-ended investment companies. This means that they constantly issue new shares and redeem existing shares, but not all mutual funds are open however. Some mutual funds are ‘locked’ where they no longer will take on new investors.

The fund’s Net Asset Value is the key concept to understanding how a mutual fund operates. By this value you can determine the value of a share of the fund at any time. The market value of the fund’s assets less any liabilities, divided by the number of shares outstanding is the formula to understand Net Asset Value.

If you work through that it will show you exactly how much each share in the fund is worth when you are looking to invest in them. By comparing this number over time you can see the returns earned in a percentage. This is generally all done for you on a funds website or on any of the mutual fund sites that feature stats.

Who does what?

Mutual funds basically take your money, combine it with the money of other investors like you and then invest the total pool of money in investments with the best possible return. The returns from the fund are then split to the accounts that bought in by the amount of shares that each person owns. The fund managers then take their cut based on the fees that they charge you and you get your return. These guys are worth it for the money they make you, so why not let them drive the car for a while and let you get the glory?

Different investment plans are a staple of the field, allowing investors to do so on a regular amount weekly, monthly, or however else you want to set it up. Continuously invested accounts tend to get a higher yield on average, but if you don’t have the ability to do that, you can still make money. Dollar cost averaging should be your goal; it is the strategy of the top investment experts in the country.

What is a Put Option?

In stocks, it's a standardized exchange-traded contract that gives the buyer the right, but not the obligation, to sell a specified amount of stock (quantity), at a specified price (strike price), by a specified date (expiration date), for which the buyer pays a price (premium) to the seller.

Options trade just like stocks until the last trading day which is always the third Friday of the expiration month.

Option prices have two components: Intrinsic value and time value.

Intrinsic value is the amount by which the strike price is in the money. If the strike is out of the money, there is no intrinsic value.

Time value is the amount in excess of the intrinsic value.

Options may, or may not, have intrinsic value but they all have time value.

Comparing the strike price to the market price, options are described as being at-the-money, in-the-money, or out-of-the-money.

Depending on its use, the Put Option can provide protection, trading profits, or income as follows:

(1) As a form of insurance, protecting long positions against loss.

(2) Trading profits, as a substitute vehicle for short sales, in declining markets.

(3) Income, in the form of premiums received, from selling put options.

Examining the use of each in more detail, we find:

First, as a form of insurance, the simultaneous purchase of stock along with the nearest in-the-money Put Option fixes the amount at risk to the options' time value only: Stock price + Put price - Strike price = Risk. If the implied volatility is low, that's a cheap risk!

Kelly Criteria is a money management system used by gamblers that relates, or "sizes", ones' bets to ones' risk capital.

Like all good ideas, Kelly Criteria stands out because, not only is it easy to understand and apply, it is fundamentally sound.

This money management method allows you to stay in the game longer by conserving capital during periods of loss and also increases your positions during periods of profitability. It practically eliminates the "risk of ruin". And it accomplishes all this automatically.

It is the exact opposite of the typical losers' psychological behavior, known as "steaming" or "going off tilt", when attempting to come from behind by risking increasingly larger sums in an effort to get back to "even".

When they get away with it, it only encourages them. Eventually, they dig themselves deeper and deeper in the hole until they go broke.

In applying the Kelly Criteria as a money management tool in a trading situation, determine the percentage of ones' capital to be risked on each trade. After the outcome of a trade, one adds the profit or subtracts the loss from ones' capital account and risks the same percentage of the remaining capital on the next trade.

Do you want a simple high return investment that you can understand, can invest in easily, pay no management fees and have the chance over the next 6 months to make 50 – 100%?

Then this article is for you.

This investment is one a commodity where demand is set to increase dramatically and the commodity is natural gas which we covered here in an article at the weekend.

An investment in gas is environmentally friendly, easy to do, diversifies your portfolio and can produce gains far in excess of your stock or mutual funds.

It’s a simple buy and hold strategy. Here is the background:

High crude oil will drive natural gas prices higher

Crude oil prices are expensive, natural gas prices are cheap.

Many utilities are making the switch now to natural gas. With oil prices high natural gas pick up the slack

Crude oil is affected by geo political concerns and the US is dependant on imports. On the other hand natural gas is produced domestically.

Supply will lag demand

Demand is on the move and at the moment supply exceeds it but not for much longer and this is hat will turn natural gas into a high return investment.

New fields are not coming on quick enough, to replace old fields that are being depleted.

In the short term we have the prospect of a very hot summer and increased demand for air conditioning as a result. We also have forecast one of the most active hurricane seasons on record.

These short term events could make gas a high return investment even quicker than expected.

Finally, this high return investment is ecologically friendly it’s clean and many people like this, so it is the fuel of choice for many.

Investing in gas is easy

At present prices are 50% below their recent highs, a bottom is forming and we expect prices to go higher.

Trading the move

You don’t need a fund manager here; all you need is to get in the market with options to take advantage of this high return investment.

We've all heard the "buzz" word, diversification. "Diversify your portfolio, spread your risks", are the mantra of financial planners, financial consultants, securities sales persons, et al. Nonsense!

It might be necessary after you've achieved your wealth goals and your capital has reached an unwieldy amount, or in a situation where no intelligent supervision is likely to be present. Otherwise, it is an admission of not knowing what to do and an effort to strike an average.

No one ever says, "My goal is to be average." If all you want is "average" results, buy a mutual fund.

If your goal is to accumulate great wealth, that is, "money that counts", the intelligent and safe way to handle capital is to concentrate.

If you don't know what to do, if things are not clear, do nothing.

Always start with a large cash reserve. When an attractive situation appears, act.

Always be prepared to go "all in". If something is not worth going all in, it is not worth going at all; but do it in stages.

Start with a small initial position, at first. If it does not work out the way you expect, close it out and get back to cash. But if it does what is expected of it, expand your position on a scale up.

The greatest safety lies in putting all your eggs in one basket and insuring the basket. By doing so, you will trade with much more deliberation bringing all your faculties to bear. You will also avoid the false sense of security that diversification encourages.

No thinking person will buy more of something than the market will take when he wants to sell. This practical test will force one into broad-based, liquid, market leaders where one belongs.

The perfect investment would be a permanent medium that guarantees safety of principal, steadily increasing income, steady growth, instant liquidity, and protection of purchasing power. Good luck with that.

In the world we inhabit, nothing is safe. Nothing is sure in any field of life. The world is a competitive place. Sorry to be the one to tell you.

In short, it's a jungle out there and the worlds' wealth does not, will not, and can not increase fast enough to allow for the compounding of interest or the pyramiding of profits on everyones' "invested capital" all at the same time. Someone has to lose!

Losses are an economic fact of life. That's why, every so often, adjustments are made through bankruptcies, scaling down of obligations, and currency devaluations.

Thus, in the pursuit of wealth, as the economic pendulum swings back and forth, one finds oneself forced to "speculate".

To speculate, of course, meaning to think about things yet unknown; trying to foresee the changing economic tides and attempting to conserve purchasing power through the retention of cash, money market funds, and bonds during cycles of deflation, and various forms of equity holdings during cycles of inflation.