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Types
of Investment Companies
Types of Mutual Funds
Investment Risk
Investment Performance
Fund Fees
Share Pricing
Share Taxation
Fund Regulation
Impact of Compounding
Impact of Inflation |
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Investment
Decisionmaking
Reaction to Market Volatility
Method of Purchase
New Investors
401(k) Investments
Investment Goals |
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Components
of Growth
Stock Fund Holdings
The Global Marketplace
Exchange-Traded Funds |
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Types
of Investment Companies
What is a mutual fund? |
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a
type of investment company whose shares are publicly traded like
stock |
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a
type of investment company that buys and holds a fixed portfolio
of stocks, bonds, or other securities |
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a
type of investment company that pools money from shareholders and
invests in a diversified, professionally managed portfolio of securities |
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Types
of Mutual Funds
Mutual fund investors with long-term investment goals
(such as retirement) most often choose: |
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money
market funds |
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stock
funds |
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bond
funds |
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Investment
Risk
All investments involve a degree of risk, ranging
from minimal to substantial. If you invest in a single stock, for example,
the value of that stock may rise or fall. Most mutual funds try to
reduce your exposure to the risks of individual securities through: |
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diversification |
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compounding |
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dollar-cost
averaging |
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Investment
Performance
For any specific mutual fund, where can you find its
lowest quarterly return (its worst three-month period) during the past
10 years? |
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this
information isn’t available; you'd have to call and ask the fund
or your broker |
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the
fund's prospectus |
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the
Investment Company Institute |
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Fund
Fees
What is a fund’s “expense ratio”? |
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the
sales charge you pay when you buy shares, expressed as a percent
of your investment |
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the
fund's management fee and other operating costs, expressed as a percent
of its assets |
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a
measure of how often securities are bought and sold by a fund |
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Share
Pricing
When you buy mutual fund shares, what price are
you charged? |
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the
price you saw in the morning paper |
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the
price you just looked up on the Internet |
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the
next price the fund calculates after it receives your order |
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Share
Taxation
What are the tax consequences of exchanging shares
from one fund to another within the same fund family? |
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you're
taxed the same as if you had sold the shares and used the proceeds
to buy the new shares |
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there
are no tax consequences—you don't see any money, so it's just
an exchange |
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the
tax treatment varies depending on the type of funds involved in the
exchange |
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Fund
Regulation
What is a hedge fund? |
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a
type of stock mutual fund that uses speculative investing techniques |
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a
private, unregulated investment pool for wealthy investors |
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a
sector fund that invests in gardening services and supplies |
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Impact
of Compounding
Mario and Natalie will be retiring in 30 years.
Natalie starts investing $200 a month now in a tax-deferred account
for the next 30 years (a total investment of $72,000). Mario has other
ideas. He figures he can catch up to Natalie by investing more money
later. He decides to invest $500 a month in a tax-deferred account
for 15 years beginning 15 years from now (a total investment of $90,000).
Both Mario and Natalie earn 8% per year on their investments. How many
years does it take for Mario to catch up to Natalie? |
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8
years |
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13
years |
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He
never catches up |
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Impact
of Inflation
Inflation rates are currently quite low. Even so, inflation
will continue to erode the value of your investments. Assuming a 3% annual
inflation rate, in how many years will the purchasing power of $1,000 be
cut in half? |
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10
years |
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24
years |
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36
years |
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Investment
Decisionmaking
Fund shareholders typically review nine separate
items of information before investing in a fund. The two items most
often reviewed are: |
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the
fund’s performance and fees and expenses |
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the
fund’s
performance and share price |
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the
fund’s portfolio manager and risk |
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Reaction
to Market Volatility
October 19, 1987 was the worst single-day stock market
decline since World War II—the Dow Jones Industrial Average lost about
23% of its value that day. During the second half of that month, mutual
fund shareholders redeemed what percent of total stock fund assets? |
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60% |
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16% |
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4.5% |
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Method
of Purchase
Mutual funds can be purchased directly from the fund
company or indirectly through another party (for example, through a broker,
financial planner, or retirement plan). What portion of mutual fund shareholders
primarily purchase mutual funds directly from fund companies? |
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about
11% |
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about
50% |
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about
80% |
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New
Investors
Nearly half of all mutual fund investors purchased
their first fund: |
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in
1998 or later |
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between
1990 and 1997 |
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in
1990 or earlier |
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401(k)
Investments
What percentage of 401(k) plan balances [based
on the most comprehensive study of 401(k) plans to date] are invested
in equities—stocks and stock funds? |
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about
one-half |
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about
two-thirds |
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Investment
Goals
What is the most common investment goal among mutual
fund shareholders? |
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make
a large purchase, such as a down payment on a home |
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saving
for children’s college educations |
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saving
for retirement |
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Components
of Growth
Assets of mutual funds increased by nearly $4
trillion between 2000 and 2006. This growth occurred because: |
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people
invested roughly $4 trillion in mutual fund shares during this period |
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the
investments held by mutual funds increased in value by roughly $4
trillion during this period |
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the
combination of people buying more shares and asset appreciation were
together responsible for the $4 trillion growth |
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Stock
Fund Holdings
How much U.S. stock do U.S. stock mutual funds hold? |
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about
21% of all publicly traded U.S. stocks |
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about
50% of all publicly traded U.S. stocks |
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about
80% of all publicly traded U.S. stocks |
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The
Global Marketplace
The U.S. has the largest mutual fund industry (measured
in assets). Which country has the next largest? |
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Luxembourg |
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United
Kingdom |
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Japan |
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Exchange-Traded
Funds
Exchange-traded funds are a relatively recent
innovation to the investment company concept, with the first ETF introduced
in 1993, when ETF assets totaled $464 million. By 2006, ETF assets
had reached: |
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$2.4
billion |
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$102
billion |
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$423
billion |
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