What is a mutual fund? Investment company that collects money from many people and invests that money in a variety of securities (investments) A fund manager.

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Presentation transcript:

What is a mutual fund? Investment company that collects money from many people and invests that money in a variety of securities (investments) A fund manager manages the money (investments) on an ongoing basis Goal of the fund manager is to pick investments that will go up, so the fund goes up as a whole! Give your money to an investment group, Vanguard, and it is pooled with other people’s money (contribute $100 you could only buy a few cheap stocks or one mid priced) – instead your $100 is put with thousands of people’s money – that pool of money is invested in different investments by a fund manager – can get a piece of lots of different investments

http://www.investopedia.com/terms/m/mutualfund.asp Silly video

Mutual Funds Many different types of funds based on: Risk levels Industries Type of companies (large, small, medium) Type of investments: all stock, all bond, mixed International Et cetera

What are the advantages of mutual funds? Professional Managers Diversification Lower costs due to quantity (meaning you can buy a greater variety of stocks for less money)

What are the disadvantages of Mutual Funds? Fees Load fees like a sales commission Front load, when buy: 0 - 8.5% Back load, when sell: 0 – 6% 12B-1/Marketing Fees: 0-.75% Management fees and expenses: .2-2.5% Look at fee tables More fees, longer should buy/hold ETFs & Mutual Funds with no load

Common Types Money market funds (Safe) Bond/ Fixed Income Funds Equity/Stock Funds (Aggressive) Balanced Funds (stocks and bonds) More even less volatile International Funds Currency risk! Sector Funds Healthcare, technology, finance, previous metals, etc. Index Funds – popular DOW JONES, S & P 500 Fund of funds Longer term of bond more risky – more likely rates change Equity/Stock Funds Not dividends but capital gains – need hold at least 10 years – aggressive Balanced Funds (stocks and bonds) More even less volatile – often go in different directions Green Funds Eco friendly companies

How can you make money on mutual funds? Dividends and Interest Capital Gains: price of securities in the fund may increase. When fund sells security, there is a gain!  Distributed end of year. Net Asset Value (NAV) – fund is not sold right away unrealized capital gains