2. Investing in Mutual Funds Chapter 14

3. 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.

4. 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.

5. Advantages of Mutual Funds  Professionally managed  Liquid  Diversified  Require only a small minimum investment

6. 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.

7.  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.

8. 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.

9.  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.

10. 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.

11. 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

12. 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.

13. 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.