When people refer to mutual funds they are most often referring to ‘open-end’ mutual funds in which investors buy and sell shares on a regular basis. Most mutual funds have active managers who, with their teams, make decisions as to the fund holdings which correspond to the fund’s stated objectives.

The craze of exchange-traded funds (ETFs) which employ leverage (the use of borrowed capital to increase the potential return of an investment) has been on a tear over the past year.* It makes sense that speculative investors would toy around with such vehicles given the extreme market volatility we’ve been experiencing of late.

Many of my clients and readers understand my general preference for exchange-traded funds (ETFs) over mutual funds.* It isn’t that I doubt the ability of any active mutual fund managers to outperform their benchmarks—plenty of them do.

I had lunch over the weekend with a fellow money manager specializing in municipal bonds. Because of the growing volume of municipal bond business, I like to gather opinions about where the best opportunities are right now in this space.

Even though the stock market has been showing signs of stability over the past few weeks, the recession is ongoing and plenty of investors may remain paralyzed and shocked over the events of the past six months.

The recent recession is somewhat unique in that the credit markets have been dragged through the mud with the equity markets. Bondholders, generally considered to be in a safer position than stockholders, aren’t feeling so at ease.

This post is inspired by the endless string of questions I receive each month regarding “in-service” 401k rollovers. As any competent financial advisor or retirement plan sponsor will reply: in-service rollovers before a qualifying event such as reaching retirement age or separating from service are rare and scarcely permitted.

Twelve months ago, not many people expected 2008 to end in an economic downturn so severe that it would take many of the great 20th century financial institutions with it. Most of us had a basic understanding that a bubble was forming in the housing market, fueled by low interest rates and other pro-growth fiscal and monetary policies.

As you may have imagined, the past few months have been stressful not just for individual investors but for financial advisors as well. Many advisors get paid a percentage of the assets they manage so when asset prices cheapen, as they have recently, it indicates pay cuts for advisors, portfolio managers, insurance professionals, etc.

Volatility is a very important discussion to have with clients before they invest. In many cases clients will choose bonds over stocks because of a perceived lower level of volatility found there.

As many of my clients and readers already know, life as a money manager has been immensely stressful over the past few months. It isn’t that my clients have lost an amount of money beyond recovery, or that my business model has failed: it’s more a feeling of defeat not just as an investor in the market but as a passionate advocate of the free market system.

A good financial advisor will try to explain concepts in such a way that their clients can really grasp the knowledge. As obvious as that may sound, many people who work with financial advisors do not learn much about how to make financial decisions, they merely pay to have those decisions made for them.