L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY W HAT ARE M UTUAL F UNDS ?

L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY How Mutual Funds Work People pool their money to purchase a “portfolio” of different stocks and bonds. The price per share changes every day and depends on the value of the investments. The value of the investments depends on the performance of the stocks or bonds chosen by the fund manager. A mutual fund charges investors for the financial management service the fund manager provides. The investor may also pay brokers’ fees and other costs. The lower these costs, the higher the investor’s returns. Some mutual funds charge a sales commission called a load. The higher the load, the less the actual investment. Lower loads are better for investors. W HAT ARE M UTUAL F UNDS ? S LIDE 6.2

Growth vs Value Stocks Value stocks = stocks in companies trading for less than they are worth. (Look for what companies are paying a high dividend.) Growth stocks = shares in a company whose earnings are expected to grow at an above- average rate (these stocks usually don’t pay dividends—instead they reinvest the profit)

L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY Types of Mutual Funds L ESSON 6 – W HAT ARE M UTUAL F UNDS ? Money market funds (short-term securities) Bond funds (corporate or longer-term government bonds) Income funds (high-yield stocks and bond funds) Growth funds (larger company stocks; long- term capital gains) Aggressive growth funds (smaller company stocks; short- and long- term capital gains) Low Risk and High Risk and Low Potential Reward High Potential Reward S LIDE 6.3

Market Capitalization (“Cap”) Multiply the number of a company’s share by its stock price per share.

Different Types Large cap = Companies market capitalization of over $10 billion. Example: Wal-mart, Microsoft, General Electric Mid cap = market capitalization between $2 and $10 billion Small cap = $300 million to $2 billion

Type of Stock / Bond% of Portfolio International22 Cash0 Emerging Markets5 Reit5 Large Cap Growth16 Large Cap Value16 High Yield0 Long Term Bonds0 Small Cap Growth5 Small Cap Value10 TIPS0 Mid Cap Growth10 Mid Cap Value5 Commodities5 Foreign Bonds1

L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY Practice: Making Investment Choices W HAT ARE M UTUAL F UNDS ? S LIDE 6.2

L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY One Year Later: An Example This is an example of what might have happened to a class investment club’s share of stock. Company Price per Share Number of Shares Owned Amount Invested Investment Value One Year Later American Cellular$8100$500$800 Big Box Retail$2350$1,000$1,150 Biotech Industries$80$0 General Grocery$220$0 Giant Auto$11100$1,000$1,100 Gold Mining Group$4100$500$400 Total Investment Value (add last column)$3,000$3,450 Number of shares 300*Price per share $11.50 *The price per share is the total investment value (one year later) divided by the number of shares. W HAT ARE M UTUAL F UNDS ? S LIDE 6.1