Investing in Mutual Funds and Real Estate

1. Investing in Mutual Funds and Real Estate #13

2. Mutual Fund: Some Basics • Financial services organization that receives money from shareholders and invests it on their behalf • Investors become part owners in a securities portfolio • More people invest in mutual funds than any other financial product

3. The Mutual Fund Concept Pooled diversification Investors buy into a diversified portfolio of securities for the collective benefit of individual investors

4. Basic Mutual Fund Structure

5. Why Invest in Mutual Funds Diversification Professional Management Financial Returns Convenience But remember - No choice in securities selection No control over sale of securities within fund

6. How Mutual Funds are Organized and Run Each fund is a separate corporation or trust owned by shareholders Management company - runs daily operations Investment advisor - oversees portfolio Distributor - sells fund shares Custodian - safeguards fund’s assets Transfer agent- executes transactions and maintains shareholder records

7. Open-End Investment Companies “Mutual fund”commonly denotes this type of investment company Shares purchased from and sold back to company not traded among individual investors New shares issued as money flows in NAV is usually the quoted price Types of Investment Companies

8. Open-End versus Closed End Open-End Investment Companies “Mutual fund”commonly denotes this type of investment company Shares purchased from and sold back to company New shares issued as money flows in NAV is quoted price Closed-End Investment Companies Fixed number of shares Trading between investors in market Shares are listed and trade at a discount or premium to NAV

9. Net value of all securities held in fund’s portfolio Net Asset Value (NAV) NAV = current price of fund assets - liabilities number of outstanding shares

10. Typically structured as index funds Spiders based on S&P 500 Diamonds based on DJIA Qubes based on Nasdaq 100 Trade on listed exchanges like closed-end funds Numbers of shares change like open-end funds Exchange-Traded Funds (EFT)

11. Important Cost Considerations Load and No-load Funds Load funds charge a commission when purchased (Front-end load) or sold (Back-end load) No-load funds charge no commission

12. Important Cost Considerations 12(b)-1 Fees - annual fees for marketing and promotion Management Fees - annual fees charged by all funds to pay the fund manager

14. Types of Funds Growth Aggressive Growth Value Equity-Income Balanced Growth & Income Bond Money Market Index Sector Socially Responsible International Asset Allocation

15. Bond Funds Government bond funds Mortgage-backed bond funds High-grade corporate bond funds High-yield corporate bond funds Convertible bond funds Municipal bond funds Intermediate-term bond funds

16. Money Market Mutual Funds General-purpose money funds Tax-exempt money funds Government securities money funds All highly liquid, low risk

17. Index Funds Rather than beat the market index funds try to match the market Buy and hold

18. Sector Funds Restricts investments to a particular sector of the market Popular sectors include real estate, technology, financial services, natural resources, electronics, telecommunications, and health care

19. Socially Responsible Funds Invests only in firms meeting certain moral, ethical, or environmental factors Exclude tobacco, alcohol, gambling, weapon contractors, nuclear power plants

20. Other Fund Types International Funds Most or all of its investing is in foreign securities Asset Allocation Funds Spread investor’s money across different market types

21. Automatic Investment Plan - mutual fund periodically drafts money from investor's bank account Automatic Reinvestment Plan - fund earnings and distributions automatically reinvested in additional shares of fund Regular Income - fund automatically pays out predetermined amount to investor Services Offered by Mutual Funds

22. Reinvesting Income

23. Conversion Privileges shareholders easily move from one fund to another within the fund family Services Offered by Mutual Funds Retirement Plans • funds set up and administer retirement plans

24. Making Mutual Fund Investments The Selection Process Decide which funds to buy by assessing your needs Consider your investment objectives What is your intended use of the fund What services are important to you

25. Measuring Fund Performance Returns consist of Dividend income Capital gains distributions Change in fund's share price Past performancedoes not guarantee future returns

26. Measuring Fund Performance Return is made up of net investment income fund earns from dividends and interest realized and unrealized capital gains fund earns Mutual funds provide a standardized format that highlights key income, expense, capital gains information

27. Income and Capital Changes

28. Investing in Real Estate Provides greater diversification than does holding just stocks or bonds Less volatility than stocks Doesn’t move in tandem with stocks

29. Some Basic Considerations Cash flow and taxes Depreciation write-offs reduce taxes Passive investment Appreciation in value Use of leverage Borrowed money magnifies returns

30. Investing in Income Property Commercial property Office buildings, industrial space, warehouses, retail space, hotels Residential property Homes, apartments, small multifamily buildings

31. Real Estate Investment Trusts (REITs) Closed-end investment companies holding real estate Offer diverse, marketable way to invest in real estate Equity REITs invest in properties Mortgage REITs invest in mortgages Hybrid REITs invest in both Real estate limited partnerships (LLCs) Limited liability partnerships Other Ways to Invest in Real Estate