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Investing in Mutual Funds Chapter 14
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Goals for Chapter 14.1 Explain why people invest in mutual funds and the types of mutual funds available for investing. Describe how to evaluate mutual funds before buying.
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What are Mutual Funds? A mutual fund is a professionally managed group of investments bought using a pool of money from many investors. Most mutual fund companies offer a family of funds, which is a variety of funds covering a whole range of investment objectives.
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Advantages of Mutual Funds Professionally managed Liquid Diversified Require only a small minimum investment
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Types of Mutual Funds A growth fund is a mutual fund whose investment goal is to buy stocks that will increase in value over time. An income fund is a mutual fund whose investment goal is to buy securities that consistently pay good dividends. A growth and income fund is a mutual fund whose investment goal is to earn returns from both dividends and capital gains.
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A balanced fund is a mutual fund that attempts to minimize risk by investing in a mixture of stocks and bonds. A bond fund is a mutual fund that invests in bonds to try to achieve stable income with minimal risk. A global fund is a mutual fund that purchases international stocks and bonds as well as U.S. securities. An index fund is a mutual fund that tries to match the performance of a particular index by investing in the companies included in that index.
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Evaluating Mutual Funds Net Asset Value (NAV) is the total value of a fund’s investment portfolio minus its liabilities, divided by the number of shares outstanding. The prospectus is a legal document that offers securities or mutual fund shares for sale.
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If you buy a mutual fund through a broker, you will likely have to pay a sales fee, called a load. A front-end load is a sales charge paid when you buy an investment. A back-end load is a sales charge paid when you sell an investment. A no-load fund does not charge a sales fee.
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Goals for Chapter 14.2 Describe direct real estate investments and explain their advantages. List indirect real estate investments and their features. Discuss some of the risks and responsibilities of owning rental property.
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Direct Real Estate Investments Real Estate is land and any building on it. Raw Land Detached Houses A duplex is a building with two separate living quarters. A condominium is an individually owned unit in an apartment-style complex with shared ownership of common areas. Recreation and Retirement Property
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Indirect Real Estate Investments Real estate syndicates is a group of investors who pool their money to buy high-priced real estate. A real estate investment trust (REIT) is similar to a mutual fund. It pools the money of many individuals to invest in real estate. A participation certificate is an investment in a pool of mortgages that have been purchased by a government agency.
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Owning and Managing Rental Property A mortgage is a loan to purchase real estate. Many real estate investors purchase property to rent out and help pay the mortgage on the property. Depreciation is a decline in the value of property due to normal wear and tear.
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