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Mutual Funds

Mutual Funds. Chapter Playlist Songs: “Money” by Pink Floyd –Live 8 “Money” by pink Floyd” – original video. Mutual Fund Basics. Mutual fund: investment vehicle Fund manager: The person or people responsible for

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Mutual Funds

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  1. Mutual Funds Chapter Playlist Songs: “Money” by Pink Floyd –Live 8 “Money” by pink Floyd” – original video

  2. Mutual Fund Basics • Mutual fund: investment vehicle • Fund manager: Theperson or people responsible for • Closed-end mutual fund: A publicly traded mutual fund that raises capital • Open-end mutual fund: A mutual fund in which

  3. History of Mutual Funds • 1893 – (closed-end) Boston Property and Trust • 1929 – Stock • 1980s – Open-end mutual funds • 2009 – Median investment in mutual funds by household = • Mutual funds are regulated by the

  4. Costs and Fees of Mutual Funds • Front-end load: • Back-end load: • No-load mutual fund: • Net asset value (NAV): • Expense ratio:

  5. Characteristics of Mutual Fund Investors(May 2009)

  6. Types of Mutual Funds • Actively Managed Mutual Fund • Professional fund managers trying to maximize the return on the fund and finding assets that meet the fund’s objective • Index Market Funds • Not actively managed

  7. Types of Mutual Funds • Exchange-Traded Funds (ETFs) • Can be traded throughout the day on a stock exchange • Equity Mutual Funds • Stock mutual funds • Focus on a specific sector of the economy

  8. Total Net Assets and Number of ETFs

  9. Types of Mutual Funds • Bond Mutual Funds • Bond rating • Money Market Mutual Funds • Consists of short-term investments • Balanced Mutual Funds • Equity, bonds, and cash all in one fund

  10. Benefits of Mutual Funds (Figure 12.3)

  11. Dollar Cost Averaging vs. Continuous Automatic Investing • Specific dollar amount to be invested on a continual basis (e.g. $100/month) • No specified amount or end date • Specific dollar amount to invest (e.g.$10,000) • Divided into equal amounts over a specific time period (e.g. 10 months

  12. Risk of Mutual Funds • Only as secure as the assets they hold • Watch the turnover rate

  13. Costs and Classes of Mutual Funds • Fees • Front-end load (5%, would only have $95 of every $100 put into the fund) • Commissions • Share Classes • Class A, B, & C

  14. Choosing and Buying a Mutual Fund • Know your investment objective • Research the funds • Fund’s investment objective • Principal risks of investing • Past performance

  15. Choosing and Buying a Mutual Fund • If you feel uncomfortable managing your own investments, you might want to talk to a financial planner, financial adviser, stock broker, or local banker

  16. Asset Allocation Balanced Fund Samples

  17. Choosing and Buying a Mutual Fund • Open an account online with mutual find company • Look at requirements to open an account • Age • Discount broker • Scottrade, TD Ameritrade, e-Trade • Banks

  18. Popular Online References • Morningstar (www.morningstar.com) • Yahoo Finance (http://finance.yahoo.com/) • Google Finance (www.google.com/finance) • Value Line (http://www.valueline.com/) • Wall Street Journal (www.wsj.com) • MSN Money (www.money.msn.com) • CNN Money (http://money.cnn.com)

  19. Learn “A public-opinion poll is no substitute for thought.” ~Warren Buffet, Venture Capitalist (1930 -) • LO 12-1 Appreciate the history of mutual funds and understand mutual fund basics. • LO 12-2 Examine the types of mutual funds. • LO 12-3 Assess the benefits and risks of mutual funds. • LO 12-4 Evaluate mutual funds in terms of their class, commission, and fee structure. • LO 12-5 Plan how and where to invest in mutual funds.

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