1. Chapter #14 “Investing in Mutual funds, real Estate, and other choices

2. Day #1 Learning Targets – Mutual Funds
Explain what mutual funds are and their advantages.
Identify different mutual fund categories and their corresponding risk/return.

3. What are Mutual Funds? Mutual Fund -
Professionally managed group of investments bought using a pool of money from many investors
Funds have different stated objectives
Bonds
Stocks
Money Markets
VIDEO

4. What are Mutual Funds? Family of Funds -
A variety of funds covering a whole range of investment objectives
Initial Investment varies:
$500 to $3,000 or more
American Funds
How you earn money?
Capital Gain
Dividend Payments

5. Advantages of Mutual Funds
Convenience of Professional Management
Investment is Liquid
Diversification
Need not a lot of money to invest

6. Mutual Fund Risk/Return Categories
Growth Fund -
Mutual fund whose investment goal is to buy stocks that will increase in value over time
Aggressive Growth Fund -
Invests in stock of new or out-of-favor companies and industries that the fund managers think will achieve above-average increases in value.

7. Mutual Fund Risk/Return Categories
Income Fund -
Mutual fund whose investment goal is to invest in bonds that produce current income in the form of interest
Looking for income now rather than capital gains later
Some specialize in tax-exempt bonds ---- with the goal of tax free income for investors

8. Mutual Fund Risk/Return Categories
Growth and Income Fund -
Mutual fund whose investment goal is to earn returns from both dividends and capital gains.
Balanced Fund -
Mutual fund whose investment goal is to earn returns from both dividends and capital gains.
Invest in a mixture of stocks and bonds rather than just stocks alone

9. Mutual Fund Risk/Return Categories
Money Market Funds -
Invests in safe, liquid securities, such as Treasury Bills and bonds that mature in three weeks to six months
Provides modest current income with little risk.
Preservation of principal and high liquidity.

10. Mutual Funds of Various Risk Categories
Global Funds -
A mutual fund that purchases international stocks and bonds as well as U.S. securities
Varies in risk depending on the goal of the fund
Other factors like currency exchange and political instability make these a slight bit riskier
Often stocks of companies in “Emerging Markets”

11. Mutual Funds of Various Risk Categories
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Mutual Funds of Various Risk Categories
Index Funds -
A mutual fund that tries to match the performance of a particular index by investing in companies included in that index
Matches the risk of that particular index
Examples: Dow Jones or Nasdaq Composite
VIDEO
ETF – Exchange Traded Fund
Like a mutual fund that can be bought and sold in the market place
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12. Day #2 Learning Targets
Students will explain how mutual funds are valued and the different costs and fees that need to be considered.
Students will compute return on investment on a mutual fund.

13. Evaluating Mutual Funds
Net Asset Value (NAV)-
Total value of a fund’s investment portfolio minus its liabilities, divided by the number of outstanding shares of the fund
Unlike stocks, it is not determined by what people are willing to pay for them….it is determined by the value of the assets in the fund.
NAV = Value of the Portfolio – Liabilities / by the Number of Shares
Calculated at the end of each business day
Always examine costs and fees compared to other funds with similar objectives

14. Evaluating Mutual Funds
The Prospectus -
Legal document that offers securities of mutual fund shares for sale.
Contains terms, a summary of the fund’s portfolio of investments, objectives, and financial statements showing past performance

15. Evaluating Mutual Funds
COSTS AND FEES
Load -
Sales fee
Front-end Load -
Sales charge paid when you buy and investment
Back-end Load -
Sales charge paid when you sell the investment
2 – 8 % of the value of the shares purchased

16. Evaluating Mutual Funds
COSTS AND FEES
No-Load Fund -
Does not charge a sales fee when you buy or sell because no salespeople are involved
Companies make money by charging fees for the professional management they provide.
Annual management fee -
1.5 % of the fund’s total assets

17. Evaluating Mutual Funds
COSTS AND FEES
12b-1 fee -
Defrays the cost of marketing and distributing the fund
Expense ratio -
Percentage of assets deducted each year for fund expenses
Published with their fund descriptions
Compare expense ratios when evaluating mutual funds

18. Evaluating Mutual Funds
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Evaluating Mutual Funds
PRINT AND ONLINE SOURCES OF MUTUAL FUND INFORMATION
Publications – Forbes, Fortune, and Money magazines
- issues reports that compare mutual funds
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Vanguard, Fidelity, and Dreyfus

19. Day #3 Learning Target – Real Estate
#5 - Students will explain how real estate is an investment and the various ways to invest in real estate.

20. Investing in Real Estate
3 Main Types:
Direct Real Estate Investment
InDirect Real Estate Investment
Owning and Managing Rental Properties

21. Direct Real Estate Investment
Land and any buildings on it.
Good way to combat inflation
Not very liquid
Can be speculative
VIDEO
Commercial Property -
Land and buildings that produce lease or rental income.

22. Direct Real Estate Investment
Vacant Land
Investors hold property expecting it to go up substantially in value
Single-Family Houses
Purchased and used as rental property
Not owner occupied, banks usually require a larger down payment, or a higher interest rate

23. Direct Real Estate Investment
Duplexes, Apartments, and Condominiums
Duplex -
Building with two separate living quarters
Condominium -
An individually owned unit in an apartment-style complex with shared ownership of common areas.

24. Direct Real Estate Investment
Recreation and Retirement Property
Lake property, mountain cabins, beach houses, and etc.

25. InDirect Real Estate Investment
Trustee -
Individual or institution that manages assets for someone else

26. InDirect Real Estate Investment
Real Estate Investment Trust (REIT) -
Similar to a mutual fund, corporation that pools the money of many individuals to invest in real estate.
Traded over markets
Dividends paid – 90% of profit must be given back to investors
Types of investments include:
Rental Properties
Mortgages
Commercial Property
VIDEO

27. Owning and Managing Rental Properties
Mortgage -
Loan to purchase real estate
Leverage -
Borrowing money to buy and investment
Mortgage is a type of leverage
Equity -
Difference between the sales price and mortgage amount

28. Owning and Managing Rental Properties
Depreciation -
Decline in value of property due to normal wear an tear
Deductible from taxes, helps to offset rental income
- When property is sold you pay taxes on the capital gain

29. Owning and Managing Rental Properties
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Owning and Managing Rental Properties
What are some dangers of rental property?
Damage from renters
Vacancies
Mortgage Calculator

30. Day #4 Learning Target – Speculation
#6 - Identify different speculative investments and understand the risk associated with them.

31. Investing in Metals, Gems, and Collectibles
Precious metals -
Gold, silver, and platinum
Large swings in value, risky
VIDEO
Gems -
Precious stones, diamonds, rubies, sapphires, and emeralds
Jewelry, mark-up of 50 to 500%
Collectibles -
Comic books, baseball cards, stamps
Hard to sell
Tough to locate a buyer who is willing to buy the collection

32. Investing in Metals, Gems, and Collectibles
Speculative Investments
Easy to purchase, tough to sell
No current income

33. Investing in Financial Instruments
Futures -
Contracts to buy and sell commodities or stocks for a specified price on a specified date in the future.
VIDEO
Risky because of unpredictable circumstances
Farmers enter for protection against volatile prices

34. Investing in Financial Instruments
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Investing in Financial Instruments
Options -
The right, but not the obligation, to buy or sell a commodity or stock for a specified price within a specified time period
Call Option -
The right to buy 100 shares of stock at a set price by a certain expiration date.
VIDEO
Put Option -
The right to sell 100 shares of stock at a set price by a certain expiration date.
VIDEO
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