McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. C HAPTER P LAYLIST S ONGS : “MONEY” BY PINK FLOYD“MONEY” BY PINK FLOYD –LIVE 8 “MONEY” BY PINK FLOYD” “MONEY” BY PINK FLOYD” – ORIGINAL VIDEO Mutual Funds
12-2 Mutual Fund Basics Mutual fund: investment vehicle Fund manager: The person or people responsible for Closed-end mutual fund: A publicly traded mutual fund that raises capital Open-end mutual fund: A mutual fund in which
12-3 History of Mutual Funds 1893 – (closed-end) Boston Property and Trust 1929 – Stock 1980s – Open-end mutual funds 2009 – Median investment in mutual funds by household = Mutual funds are regulated by the
12-4 Costs and Fees of Mutual Funds Front-end load: Back-end load: No-load mutual fund: Net asset value (NAV): Expense ratio:
12-5 Characteristics of Mutual Fund Investors (May 2009)
12-6 Types of Mutual Funds Actively Managed Mutual Fund Professional fund managers trying to maximize the return on the fund and finding assets that meet the fund’s objective Index Market Funds Not actively managed
12-7 Types of Mutual Funds Exchange-Traded Funds (ETFs) Can be traded throughout the day on a stock exchange Equity Mutual Funds Stock mutual funds Focus on a specific sector of the economy
12-8 Total Net Assets and Number of ETFs
12-9 Types of Mutual Funds Bond Mutual Funds Bond rating Money Market Mutual Funds Consists of short-term investments Balanced Mutual Funds Equity, bonds, and cash all in one fund
12-10 Benefits of Mutual Funds (Figure 12.3)
12-11 Specific dollar amount to invest (e.g.$10,000) Divided into equal amounts over a specific time period (e.g. 10 months Specific dollar amount to be invested on a continual basis (e.g. $100/month) No specified amount or end date Dollar Cost Averaging vs. Continuous Automatic Investing
12-12 Risk of Mutual Funds Only as secure as the assets they hold Watch the turnover rate
12-13
12-14 Costs and Classes of Mutual Funds Fees Front-end load (5%, would only have $95 of every $100 put into the fund) Commissions Share Classes Class A, B, & C
12-15 Choosing and Buying a Mutual Fund Know your investment objective Research the funds Fund’s investment objective Principal risks of investing Past performance
12-16 Choosing and Buying a Mutual Fund If you feel uncomfortable managing your own investments, you might want to talk to a financial planner, financial adviser, stock broker, or local banker
12-17 Asset Allocation Balanced Fund Samples
12-18 Choosing and Buying a Mutual Fund Open an account online with mutual find company Look at requirements to open an account Age Discount broker Scottrade, TD Ameritrade, e-Trade Banks
12-19 Popular Online References Morningstar ( Yahoo Finance ( Google Finance ( Value Line ( Wall Street Journal ( MSN Money ( CNN Money (
12-20 Learn “A public-opinion poll is no substitute for thought.” ~ Warren Buffet, Venture Capitalist (1930 -) LO 12-1 Appreciate the history of mutual funds and understand mutual fund basics. LO 12-2 Examine the types of mutual funds. LO 12-3 Assess the benefits and risks of mutual funds. LO 12-4 Evaluate mutual funds in terms of their class, commission, and fee structure. LO 12-5 Plan how and where to invest in mutual funds.