Personal Finance Garman/Forgue Ninth Edition Chapter 15: Investing Through Mutual Funds PPT slide program prepared by Amy Forgue and Ray Forgue.

Learning Objectives Describe the features, services, and advantages of investing in mutual funds. Differentiate mutual funds by investment objectives, types, and characteristics. Copyright ©Houghton Mifflin Company. All rights reserved.

Learning Objectives Summarize the fees and charges involved in buying and selling mutual funds. Establish strategies to evaluate and select mutual funds that meet your investment goals. Copyright ©Houghton Mifflin Company. All rights reserved.

Why Invest in Mutual Funds? Net Asset Value (or NAV): Per-share value of a mutual fund. Dividend income and capital gains Ordinary income dividend distributions Capital gains distributions Copyright ©Houghton Mifflin Company. All rights reserved.

Advantages of Investing Through Mutual Funds Diversification Random (or nonsystematic) risk Affordability Professional management Fund investment advisers Copyright ©Houghton Mifflin Company. All rights reserved.

Advantages of Investing Through Mutual Funds Liquidity Low transaction costs Uncomplicated investment choices Copyright ©Houghton Mifflin Company. All rights reserved.

Mutual Fund Disadvantages Performance is often lower than the market. Diversification may not really exist. Costs can be high. Copyright ©Houghton Mifflin Company. All rights reserved.

Unique Mutual Fund Services Convenience Ease of buying and selling shares Check writing and electronic transfers Distribution of or automatic reinvestment of income and capital Copyright ©Houghton Mifflin Company. All rights reserved.

Unique Mutual Fund Services Telephone and internet exchange privileges Exchange (or switching, conversion, or transfer) privilege Beneficiary designation Automatic investment Copyright ©Houghton Mifflin Company. All rights reserved.

Unique Mutual Fund Services Effortless establishment of retirement plans Multiple income withdrawal options (or systematic withdrawal plans) Copyright ©Houghton Mifflin Company. All rights reserved.

Types of Investment Companies Closed-End Mutual Fund Real Estate Investment Trust (or REIT) Unit Investment Trust (or UIT) Exchange-Traded Fund (or ETF) Copyright ©Houghton Mifflin Company. All rights reserved.

Fund Objectives, Types, and Characteristics Managed Funds Income Objective Copyright ©Houghton Mifflin Company. All rights reserved.

Fund Objectives, Types, and Characteristics Money Market Funds Tax-exempt money market funds Government securities money market funds Bond funds Bond (or fixed-income) funds Copyright ©Houghton Mifflin Company. All rights reserved.

Fund Objectives, Types, and Characteristics Growth objective Aggressive growth (or maximum capital gains) funds Growth funds Growth and income funds Value funds Sector funds Copyright ©Houghton Mifflin Company. All rights reserved.

Fund Objectives, Types, and Characteristics Index Funds: These funds are unmanaged. Growth and income objective Growth and income funds Equity-income funds Socially conscious funds Asset allocation funds Life-cycle funds Copyright ©Houghton Mifflin Company. All rights reserved.

Fees and Charges of Mutual Fund Investing Shareholder Fees Annual Fund Operating Expenses Copyright ©Houghton Mifflin Company. All rights reserved.

Load and No-Load Funds Load funds always charge transaction fees. Front-end load Stated commission Percentage of the amount invested Some no-load mutual funds assess 12b-1 fees. 12b-1 (or distribution) fee Trailing commissions Copyright ©Houghton Mifflin Company. All rights reserved.

Load and No-Load Funds Some no-load funds assess deferred load and redemption fees. Deferred (or back-end) load Redemption charge (or exit fee) Copyright ©Houghton Mifflin Company. All rights reserved.

Fees and Charges of Mutual Fund Investing Disclosure of fees in standardized expense table What’s best: load or no load? Low fee or high fee? Copyright ©Houghton Mifflin Company. All rights reserved.

Selecting Funds in Which to Invest Review your investment philosophy and investment goals. Eliminate funds inappropriate for your investment goals. Copyright ©Houghton Mifflin Company. All rights reserved.

Selecting Funds in Which to Invest Screen and compare funds that meet your investment criteria. Fund screener (or fund screening tool) Profile prospectus (or fund profile) Monitor your mutual fund portfolio. Copyright ©Houghton Mifflin Company. All rights reserved.

Selecting Funds in Which to Invest Use portfolio monitoring on the ‘Net. Check fund quotations in newspapers. Mutual fund bid price Mutual fund ask price Copyright ©Houghton Mifflin Company. All rights reserved.

The Top 3 Financial Missteps In Mutual Fund Investing People slip up in mutual fund investing when they do the following: 1. Buy funds with high fees and expenses. 2. Withdraw dividends rather than reinvesting. 3. Chase performance by investing in “hot” funds. Copyright ©Houghton Mifflin Company. All rights reserved.

Good Money Habits in Mutual Funds Match your investment philosophy and financial goals to a mutual fund’s objectives. Invest only in no-load mutual funds that have low expenses and have no or a low 12b-1 fee. Copyright ©Houghton Mifflin Company. All rights reserved.

Good Money Habits in Mutual Funds Get the right mix of asset classes in your long-term fund investments and learn to love consistency. Sign up for automatic reinvestment of your mutual fund dividends. Copyright ©Houghton Mifflin Company. All rights reserved.

Good Money Habits in Mutual Funds Invest regularly through your employer’s retirement plan. Rebalance your portfolio at least once a year and dump the slackers. Copyright ©Houghton Mifflin Company. All rights reserved.