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MUTUAL FUNDS & OTHER INVESTMENTS

MUTUAL FUNDS & OTHER INVESTMENTS. Mutual Fund Facts. Definition : A professionally managed group of investments bought using a pool of money from many investors.

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MUTUAL FUNDS & OTHER INVESTMENTS

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  1. MUTUAL FUNDS & OTHER INVESTMENTS

  2. Mutual Fund Facts • Definition: A professionally managed group of investments bought using a pool of money from many investors. • A family of funds is a variety of funds covering a whole range of investment objectives that you are allowed to move back and forth between.

  3. Fund Facts • Fund Managers may buy stocks, bonds, and other securities that support the fund's stated investment objectives. • Managers buy or sell according to market conditions, the economy, trends and other factors. Investors receive any profits generated by an investment either through dividends or capital gains. • Most funds have an initial purchase price ($500 to $3000). But once you are in the fund you can add money as often as you like or by payroll deposit.

  4. Advantages of Mutual Funds • Convenience of professional management • Liquidity • Diversification • Small minimum investment

  5. Types of Mutual Funds • Growth Fund--a mutual fund whose investment goal is to buy stocks that will increase in value over time. These are companies that do not pay dividends. Investors earn money based on capital gain. If the fund is considered aggressive, it invests in new or out-of-favor companies/industries--higher risk companies. High risk may translate into high gains! • Income Fund--a mutual fund whose investment goal is to buy securities that consistently pay good dividends. They may also invest in bonds that pay regular interest. Moderately risky and less risky than growth funds.

  6. Types of Mutual Funds • Growth & Income Funds--a mutual fund that wants to earn returns from both dividends and capital gains. This is considered moderately risky. • Balanced Funds--a mutual fund that attempts to minimize risk by investing in a mixture of stocks (common & preferred) and bonds (corporate and municipal) to provide current income and growth. Low-risk investments

  7. Types of Mutual Funds • Bond Funds--a mutual fund that invests in bonds to try to achieve stable income with minimal risk. They invest in government, corporate, or tax-exempt bonds with different maturity dates. Low to moderate risk. Junk bonds are bonds with poorer ratings and can be very risky. • Global Funds--a mutual fund that purchases international stocks and bonds as well as US securities. These funds are affected when stock markets are strong, overseas markets are strong, and by currency exchange rates. All levels of risk.

  8. Types of Mutual Funds • Index Funds--a mutual fund that tries to match the performance of a particular index by investing in the companies included in that index. Standard & Poors or the Dow Jones Industrial Average are popular indexes. The NASDAQ Index would be riskier than the DJIA. • Money Market Funds--this mutual fund invests in safe, liquid securities like Treasury Bills and bonds. Preserve principal and maintain high liquidity.

  9. Evaluating Mutual Funds • There are over 13,000 mutual funds. Prioritize your goals: • Do you want/need income from your investments now? • Do you need tax-free or tax-deferred investments? • How much risk are you willing to take? • Do you have tax considerations?

  10. Calculations Net Asset Value (NAV) NAV = Value of Portfolio - Liabilities Number of Shares Over the long run, the success or failure of the investment will depend on sales charges, fees, taxes owed and the age and size of the fund and its volatility.

  11. The Prospectus • A legal document that offers securities or mutual funds for sales. • It must contain certain information required by the SEC. • This document is made available to every shareholder

  12. Costs & Fees • Sales fees are called loads. • A front-endload is a sales charge paid when you buy an investment. • A back-end load is a sales charge paid when you sell an investment . • Loads can range from 2 to 8 percent! • If you buy directly from the investment company, this is a no-load fund. • Annual management/administrative fees are approximately 1 to 1-1/2 percent of fund's total assets. • A 12b-1 fee may also be levied to defray the costs of marketing and distributing a mutual fund.

  13. Mutual Fund References Forbes, Fortune, and Money regularly review and rank mutual funds. • www.morningstar.com • www.investorama.com Mutual fund families like Vanguard, Fidelity, Franklin-Templeton, Dreyfus all have websites. • www.mfea.com • www.mfmag.com • www.quicken.com

  14. Real Estate • Generally appreciates but not very liquid. • Direct Investing Options--you hold legal title. • Vacant Land--is a speculative investment • Detached Houses--rental homes • Duplex (two attached units), Triplex (3 attached units) or Quad (4 units) • Condominium • Recreation and Retirement Property

  15. Real Estate Cont’d • Indirect Investing Options--a trustee holds legal title on behalf of all the investors. • Real Estate Syndicates--pooling money to buy high-priced real estate. Liability limited to original investment • Real Estate Investment Trusts (REITs)--like a real estate mutual fund. • Participation Certificates--investing in a pool of mortgages--Ginnie Mae, Freddie Mac, Fannie Mae

  16. Owning & Managing Rental Property • Positive Cash Flow results when rental income exceeds all out of pocket costs • Negative Cash Flow results when rental expenses exceed rental income and the difference must be made up out of pocket. • www.mrlandlord.com • Depreciation is a decline in the value of property due to normal wear and tear. Some depreciation is deductible on income tax for landlords. But when you sell the property, you have to pay capital gains.

  17. Precious Metals • Gold, silver, platinum. • Very volatile. • Storage can be a problem. • You can buy certificates stating how much you own or invest in stocks or mutual funds that specialize in precious metals.

  18. Gemstones • Diamonds, rubies, sapphires, emeralds. • Very volatile. • Most valuable as jewelry. • Retail markup is typically 50 to 500%. • Difficult to resell and unpredictable and not very liquid.

  19. Collectibles • Collections of valuable or rare items • They are old, no longer made, unusual, irreplaceable or historic. • EX--Coins, stamps, etc. • Nice hobby to many--can start small and buy small—NOT liquid • Ebay has fueled this market

  20. Futures (Commodities) • Wheat, corn, soybeans, cattle, and metals. Very, very volatile because supply and demand unpredictable due to weather and political upheaval. • The futures market was created for those who want to know in advance what they will be paid. Like insurance policies to guard against changes in prices.

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