Solid Finances Sponsors MSU Extension MSU Human Resources This program is made possible by a grant from the FINRA Investor Education Foundation through a partnership with United Way Worldwide. 1

Mutual Funds 2

Question A (Practice): My Age is: 3 1.Under Over 60

Question on Proxy Voting Owners of a company typically have the right to vote on certain issues. – Election of Board of Directors Voting take place in two ways: – Mail ballot – In person vote Proxy voting allow a shareholder to give their right to vote to another person. 4

Question B: Are mutual funds the main investment choices for your employer retirement plan? 5 1.Yes 2.No 3.Not sure

Question C: Do you currently own mutual funds? 6 1.Yes, in an employer sponsored plan 2.Yes, outside of an employer plan 3.Both 1 & 2 4.No

Question D: What was the Top Reason You Invested in Mutual Funds? 7 1.Diversification 2.Professional Management 3.Best Investment Choice 4.Only Option in my Retirement Plan 5.Other

Question E: How many mutual funds are in the U.S.? , , , ,015

What is a Mutual Fund? A Mutual Fund is a large basket that contains other investments. – A fund may contain billions of dollars. – Shares are sold that represent ownership in the fund. A fund manager is hired to research and select investments. 9

Fund Management When the fund was started as set of rules was established that govern how the fund will operate. – Prospectus Summary Prospectus (100 plus pages) – Summary of Additional Information 10

How do I select a Mutual Fund? Asset Allocation Available Options 11

Things to consider Past performance Fees – Types of Fees – Amount of Fees Management Team Customer Service – Features: Internet Access, Local Representative, 24 hour call center, E-statements, planning tools 12

Understanding Past Performance John invest $1,000 on January 1st John earns 23.3% 13

Understanding Past Performance John invest $1,000 on January 1st John earns 30.2% 14

Fees Sales “load” Fee – Front Load: Sales charge when you buy a share (Max of 8.5%) – Back-Load: Sales charge when you sell a share – No-Load: No Sales charge for buying or selling Redemption Fee – Fee for redeeming shares (max of 2%) Exchange Fee – Fee for transferring funds between two funds in the same family. 15

Fees Account Fee – Fee charged for having an account (annual, quarterly, etc.) Management Fee – Fees paid as a percentage of assets to the mutual fund company for “managing” the fund. Shareholder Service Fee (12b-1) – Fees charged to cover cost of customer service. Other Fee – Wire transfer fees, check writing fees, etc. 16

Do fees matter? If you invest $1,000 in two funds – 1% total fees & 0.75% total fees – Both funds have 4% return before fees 17

Question F: Which has lower total fees for a 5 year investment? % Management Fee with no sales charge 2.0.5% Management Fee with 4% Sales Charge

Which has lower fees? 19

Fee Summary Short Term Investments – Transaction Fees are important Sales fees, exchange fees, redemption fees – On-Going Fees are less important Management fees, 12B-1 Long Term Investments – Transaction Fees are less important Sales fees, exchange fees, redemption fees – On-Going Fees are important Management fees, 12B-1 20

Customer Service What is important to you? – Internet Management – Phone Access – Local Representative – Multiple Fund Families Are you willing to pay higher fees to get these features? 21

Management Team Tenure – How long has the manager been with the fund or company? System – One Manager vs. a Team of Managers – Shared or Separate Analysts 22

Finding Fund Information Options, Options, Options – Current Investor: Quarterly & Annual Statements – Prospectus: Legal Rules of how the Fund Operates – Ratings Agency Overview – Fund Company Website – Call the Fund Company – A Local Broker – Other Finance Websites 23

Fund Ratings Compares Fund to other similar funds Ratings Consider: Returns, Fees, Volatility, etc. Morning Star Ratings: Top 10% = 5 stars Next 22.5% = 4 stars Next 35% = 3 stars Next 22.5% = 2 stars Next 10% = 1 star 24

Sector Information – Diversity reduces risk – Compare across funds Bond Holding Information – Bond types by ratings – Average Maturity 25

Current Asset Categories Top Holdings – Company Information – Diversification Information 26

Web Resources Fund Company Sites – Pros: Typically Free, First hand information – Cons: No information on the competition Free Sites – Pros: Great for comparisons – Cons: Features & information vary widely Brokerage Sites – Pros: Often more user friendly tools – Cons: Often must be an account holder 27

Questions 28