Oklahoma Securities Commission

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Presentation transcript:

Oklahoma Securities Commission MUTUAL FUNDS and ETFs by Matt Ingram Invest Ed® All Rights Reserved Oklahoma Securities Commission June 2017

What is a Mutual Fund? an investment portfolio that invests its shareholders’ money in a portfolio of securities More mutual funds exist today than stocks listed on the NYSE. Almost half of U.S. households own mutual funds (and most of those are in retirement accounts like 401(k) or IRAs). Over $6 Trillion in assets

Advantages of Owning Diversification Professional management Ability to invest in small amounts Automatic investing and withdrawals Convenience and Liquidity Fund families Please mention documentary: Retirement Gamble.

Drawbacks to Owning Mutual Funds Transaction costs: management fees, loads, 12b-1 fees (Where can I find these?) Professional management can change. 75% of managed funds do not beat “the market.” Hidden use of leverage Sometimes funds close—then what?

Fund Topics Actively Managed Index Sector Funds Asset Class Load/No-load www.morningstar.com

Load vs. No-Load Funds A “load” fund charges a commission upfront to pay the broker who sold you the fund. There are front-load and back-load funds. No-load funds = no sales commissions These funds are cheaper and sold directly by the fund company to customers. If performance is equal, why pay commissions?

Mutual Fund Fees Of course no-load fund companies don’t work for free! Both kinds of funds (load, no-load) charge fees. 12(b)-1 fee covers operating costs of fund company (usually less than 1%) Management fee is usually a percentage of total funds under management. (around 1%) You can shop around for the best (lowest) fees.

Example of a Mutual Fund Fidelity Contra FCNTX Fund information and prospectus Holdings Risk Performance

Exchange Traded Funds (ETFs) A basket of securities designed to track a specific market index Similar to index mutual funds Trades on an exchange (like a closed-end fund) Low management expenses and turnover Famous ETFs: SPY, QQQQ, DIA Use of leverage and access to alternative investments

Example of ETFs SPY (S&P 500 Index) GLD (gold) TLT (long term government bonds) XLF (financial sector) 05-24-17