Mr Sullivan Building Wealth What is a Mutual Fund Mutual Funds offer an alternative to investing in individual stocks What is a Mutual Fund A mutual fund is a collection of shareholders money that is invested by professional fund managers in an assortment of different securities such a ID: 596227
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Slide1
Mutual Funds
Mr. Sullivan
Building WealthSlide2
What is a Mutual Fund?
Mutual Funds offer an alternative to investing in individual stocks.Slide3
What is a Mutual Fund?
A mutual fund is a collection of shareholders’ money that is invested by professional fund managers in an assortment of different securities, such as stocks or bonds.Slide4
Mickey, Donald, and Pluto don’t have the time research investment ideas on their own. They collectively pool their money together and give it to a mutual fund investor. Slide5
What is a Mutual Fund?
This investor (and his team) research various ideas and invest Mickey, Donald, and Pluto’s money.Slide6
Ownership ($10,000 Investment)
Mickey Invests $2,000
Mickey owns 20
%
Donald Invests $5,000Donald owns 50
%Pluto Invests $3,000Pluto owns 30%Slide7
$10,000’s has been invested
The mutual fund company decides that there will be 200 shares, and each share will be worth $50.
This brings the total to $10,000
Mickey owns 40 shares
($2,000 /$50=40 shares)
Donald owns 100 shares
($5,000/$50= 100 shares)
Pluto owns 60 shares
($3,000/$50= 60 shares)Slide8
Investment performance
The mutual fund advisors have done a nice job selecting stocks to invest!
The stocks they selected have increased in value. Slide9
Investment performance
The $10,000 investment has doubled to $20,000.
The value of each share doubled from $50 to $100.Slide10
Investment performance
Mickey 40 shares @ $100 = $4,000
Donald 100 shares @ $100= $10,000
Pluto 60 shares @ $100= $6,000Slide11
Advantages of investing in mutual funds
Professional Management
Instant diversification
Tailored Investment ObjectivesSlide12
Advantages of investing in mutual funds
Liquidity
Minimal Risk
(Highly Regulated)
Easy to track your progress and easy to tradeSlide13
Net Asset Value
The price of a mutual fund’s shares is determined by its NAV, or net asset value.
Total Portfolio Value - Liabilities
Shares = NAVSlide14
Net Asset Value
Lets say you’ve invested in a mutual fund with a total investment portfolio value of $50 million. It’s liabilities are $5 million, and it has issued 9 million shares.
Plug those numbers into the NAV equation to figure out the value of each share:Slide15
Net Asset Value
$50,000,000 (Value) - $5,000,000 (Liabilities)
9,000,000 (Shares)
= $5 per shareSlide16
Net Asset Value
At the end of each business day, mutual fund managers calculate the Net Asset Value of the fund.Slide17
Prospectus
Investing in a mutual fund can help you reach a variety of financial goals.
Each mutual fund has a specific objective, described in its annual
prospectus
.A prospectus is a document containing all vital information about the fund.Slide18
Disadvantages of Mutual Funds
High Fees
Pay taxes on your gains
Thousands of funds to choose fromSlide19
Mutual Fund Activity
Six Mutual Funds
$3,000 to invest
300/$10 per share
Must select 3 of the six fundsMay invest in all 6Calculate your value one year laterSlide20
Mutual Fund Breakdown
Value Blend Growth
Large
Mid
SmallSlide21
Growth Funds
Growth funds- Growth funds invest in stocks that are likely to appreciate in value an pay no dividend.
(
Hewlett-Packard, Microsoft, Apple, Google
)Slide22
American Growth Fund
Fund Size: $146,000,000,000
Expense Ratio x .71%
Annual Fees $1,036,000,000Slide23
Value Funds
Value funds invest in stocks that seem to be undervalued or overlooked. (Toyota?)
These stocks tend to be “good bargains” and sell at low prices.
Ideal for more conservative investors who want to avoid risk.
Warren Buffett uses this investment styleSlide24
Other Stock Funds
Blend Funds- Contain both growth and value stocks
Sector funds- Invest in stocks from one specific industry, such as oil. These funds may be much more risky!!!
International funds- International funds invest in stocks from overseas companies and are often viewed as the highest risk
Political StabilityCurrency Fluctuation
Foreign MarketsSlide25
Target-Date Funds
You select the date which you wish to retire. The fund gradually realigns itself to become more conservative the closer you get to retirement.
Every month you buy shares of a 2055 mutual fund. The closer the fund gets to the year 2055, the more conservative it gets to match your needs.Slide26
Other ways to categorize stock funds
Many times funds are grouped according to size of the companies they invest in.
Large-cap $8 billion
(Exxon Mobile $300 billion)
Mid-cap $1 to $8 billion
(Associated Bank $2 billion)Small-cap Under $1 billion(99 Cent Only Stores $1 Billion)Slide27
Bond Funds
Researching and investing in a variety of bonds takes lots of time and effort.
Bond funds are a great way to invest in bonds.
Bond funds work the same way stock mutual funds do, expect that shareholders’ money is pooled to invest in a variety different bonds, rather than stocks.Slide28
Bond Funds
Charge fees to have investment professionals invest your money.
Provides a steady stream of income for people. (Many retired people like it for this reason)Slide29
Bond Fund Factors
Rate at which your money grows
Average maturity of the bonds in the fund
Credibility ratings of the bonds in the fundSlide30
Bond Fund Category
Short Term- Bonds mature within a year
Intermediate- Bonds mature in 1 to10 years
Long-Term- Bonds mature in 10 to 30 yearsSlide31
Bond Fund Categories
Government Funds
Municipal Funds
Corporate Funds
Junk Bond FundsSlide32
Balanced Funds
Balanced Funds invest in both stocks and bonds.
Combination of stock growth and bond income in one mutual fund.
Lower returns than stock funds
, but “safer”Even though they are balanced, may not be 50/50Slide33
Money Market Mutual Funds
One of the most conservative investments you can make
Fund invests in a variety of securities that offer high returns over the short term
Value of the fund stays at $1
The return is about 1% higher than a savings accountSlide34
Index Funds
Index funds are a unique type of stock mutual fund that copy the performance of a particular stock market index, such as the Standard and Poor’s 500 (S&P 500) or the
Nasdaq
100.
The index fund purchases all the stocks listed on that particular index, in the same percentages as the index.Much cheaper to invest because it takes a much smaller staff to manage an index fund.
Many times its done by a computer. (No research)Slide35
Spiders, Diamonds, and Cubes
Spider SPY
Invests in the 500 stocks of the S&P
Diamond DIA
Invests in the 30 Dow StocksCube QQQQInvests in the
Nasdaq Slide36
Mutual Fund Company’s
Fidelity
T. Rowe Price
VanguardSlide37
Other Places to Invest
Scottrade
Sharebuilder
E*TradeSlide38
Where NOT to trade mutual funds
Bank representatives
Insurance Agents
Financial PlannersSlide39
Why?
Often times they are required to “push” certain funds, regardless of your individual needs.
Get paid a higher commission for selling you certain funds that may not be right for you.Slide40
Load vs. No Load Mutual Funds
Load mutual funds charge 5.75% to invest
If you invest $10,000 in a load mutual fund, they will charge you $575 to invest in this fund.
No-Load Mutual funds charge no fees to get in and out. They simply charge roughly $10 to buy and sell.Slide41
Load Mutual Funds
A Shares
Front End Sales Load
B Shares
Back End Sales LoadC Shares
Level-LoadSlide42
Load Mutual Funds
A Shares- Charge you a fee when you enter the fund.
$10,000 investment $575
You invest $9,425
No sales charge when you exit the fundSlide43
Load Mutual Fund
B Shares- Back End Sales Fee- Pay a fee when you exit the mutual fund.
Buy $10,000 in a mutual fund. All $10,000 is invested. However, when you sell out, they can charge you as much as 8%.
If your mutual fund grows to $12,000, they can charge you $960.Slide44
Load Mutual Funds
C- Shares Level Load
No fee to enter, no fee to exit. However, there are extremely high annual fees!Slide45
Load Mutual Funds
A Shares Like Riding a Bus- Pay when you get on and ride as long as you’d like!
B Shares Like Riding a Taxi- Free to get in, but you pay when you leave.
C Shares Like Hitch-Hiking- Free to get on and free to get off, however, extremely dangerous!Slide46
American Funds WorksheetSlide47
Load vs. No Load
Never, ever, ever
ever
…..
Invest in Load Mutual FundsSlide48
Load vs. No Load
Study after study shows that No-Load Funds perform just as well as load funds.
Why pay the sales fee if you don’t have to?Slide49
Discussion Questions
What does socially responsible investing mean to you?
Would you invest in mutual funds that don’t support the same ideals and principals as you, if there was a greater potential for a higher return?Slide50
Head of the Class
1. Kent wants to learn as much as possible about the mutual fund he’s thinking of investing in. Which of the following is the best place he could go for detailed information?
The Newspaper
A trade magazine
The funds prospectus
The Fund’s web siteSlide51
Head of the Class
2. The price of a mutual fund’s shares is determined by
Net Asset Value
Investment Portfolio Value
Liabilities
Outstanding SharesSlide52
Head of the Class
3. Teri decided to invest in a few different mutual funds rather than put all her investment dollars into one or two individual stocks. A stock in or of her mutual funds went bust, but since her money was spread out, Teri wasn’t significantly affected. What advantage of mutual funds does Teri’s situation illustrate?
Liquidity
Professional Money Management
Convenience
DiversificationSlide53
Head of the Class
4. A mutual fund that has no limit on the number of shares it can issue or the amount of money it can hold is called a(n)
Growth fund
Stock fund
Closed-end fund
Open-end fundSlide54
Head of the Class
5. A fund that invests in stocks that tend to be undervalued or overlooked is called a
Value fund
Growth fund
Blend fund
Sector fundSlide55
Head of the Class
6. Which is the following is
not
an important variable of a bond fund:
The amount of time you spend researching the bonds in the fundThe rate at which your money grows
The average maturity of the bonds in the fundThe credibility ratings of the bonds in the fundSlide56
Head of the Class
7. Mutual funds that contain both stocks and bonds are known as
Exchange-traded funds
Balanced Funds
Money Market FundsBlend FundsSlide57
Head of the Class
8. Which of the following is the best place to buy shares in a mutual fund:
Fidelity Investments
Main Street Local Bank
Good Hands Insurance
Mike Jones, Financial PlannerSlide58
Head of the Class
9. Fees for buying and selling mutual funds are known as
NAV’s
ETF’s
Expense RatioLoadsSlide59
Head of the Class
10. John decides to buy mutual funds through a financial planner. John pays no commission when he enters, but he will pay a commission when he sells the mutual fund. Which fund did John purchase?
A. A Shares
B. B Shares
C. C SharesD. No Load Funds