Saving & Investing Mutual Funds

 What are they?  How do they work? individuals buy shares, and the fund uses money to purchase stocks, bonds, and other investments profits are returned to shareholders monthly, quarterly, or semi-annually in the form of dividends

P O W E R  P ________: pool money with other investors and have a professional manage the fund  O ______________: opportunity to choose to loan, own, or both  W __________: make money (net asset value, dividends, capital gains from stocks being sold within the portfolio)  E _________: expert to manage the fund’s portfolio (time, talent, temperament)  R ____________: controls governing the securities industry (SEC)—must provide a prospectus

Types of Mutual Funds  _______________: includes a variety of stocks and bonds  __________________: Has corporate bonds or stocks of companies from around the world  _______________: emphasizes companies that are expected to increase in value; also has higher risk  ______________: features stock and bonds with high dividends and interest

Types of Mutual Funds  ______________: invests in stocks of companies in a single industry (such as technology, health care, banking)  ______________: features debt instruments of state and local governments (tax exempt)  ______________: involves stocks of companies from one geographic region of the world (such as Asia or Latin America)

Mutual Funds  What are the benefits? ______________ – low initial investment and subsequent investments (dollar cost averaging) ____________ – able to redeem shares at current NAV  What are the Disadvantages? _________ (all funds have management fees and some charge extra fees) _________ (not guaranteed money—just like investing in the stock market) _______________ (NAV once a day) _______________ (can’t choose investments other than by fund objective)

Mutual Fund Fees  ____________________ fees to cover the costs of managing the fund typically range from.5% to 2%  ____________________ fees charge to buy or sell fund shares  _________________________________ __________________________________ –_____________: fee charged when _____________ shares (5.75%) –_____________: fee charged when _____________ shares—usually diminishes over a period of time _____________—charge no fees except for management

Diversification – Role Play  5 stock holders  5 mutual fund investors IBM ($20) 3M ($20) Microsoft ($20) GM ($20) Nestle ($20)  Stockholders Invest $1,000 each –50 shares $20  Mutual Fund Investors Pool money together $5,000 –50 shares of mutual fund at $20 NAV –10 shares of each stock What happens if the price of IBM goes down to $15? What happens if the price of GM goes up to $25?

Assignment  Investing in Mutual Funds Worksheet