COA 4131 1st Edition Lecture 27 Outline of Last Lecture I Bonds and Bondholders II The Role of Bonds in Investment Plan III Definition and Explanations of Corporate Bonds IV Government Bonds V Bond Ratings VI What s Best for Inflation Protection Outline of Current Lecture I Mutual Funds Defined and Explained II III Objectives Summary of Steps to Follow in Selecting Funds IV Purchasing Mutual Funds Current Lecture A Mutual Funds Defined and Explained a How mutual funds work i Load funds 1 There are fees when you buy in when you manage it and when you sell it 2 Can be a very low amount ii No load funds 1 No direct fees 2 No sales charge 3 Usually still a management fee a They need to make money somewhere iii One is not better than the other iv 12b 1 fee 1 Deals with advertising and marketing 2 Advertising fee b Open ended and closed end mutual funds i Open end mutual funds 90 ii Closed end mutual funds 10 iii Index funds 1 Excellent 2 Ex S P 500 B Objectives a Funds objectives i Figure out what s the goal ii Current income iii Capital growth 1 It will be worth more 2 Anticipate how much it is going to grow iv Conservation of principal 1 For the future and future growth b Prospectus i Something untried ii More of a chance and risk c Annual report d Professional advisory services e Size and type of company f Social responsible funds i Cigarette and tobacco going down in U S but increasing in Asia and other places around the world ii Child labor is something that some think of g Summary of mutual fund information i Diversify ii Find out quality of each iii Don t have to go through employer C Summary of Steps to Follow in Selecting Funds a How to read mutual funds section of the newspaper and on online i Some free some cost money 1 Don t buy unless you are heavily invested b Mutual funds for children D Purchasing Mutual Funds a Regular account transactions i Most common ii Can go online or do it direct with broker b Voluntary savings plan c d e f g h i j i T Row price Contractual plans i Can pay it up front or over a few years Reinvestment plans i Put it back in and get more and more shares ii Usually what you want to do Selling or rebalancing mutual funds Taxation and mutual funds i Always ask about this ii Tax implications Funds as a gateway i The competition grows Equity funds i Means the same thing as stocks ii Higher return means higher risk Money market funds i Not guaranteed like money in a bank but pretty close ii Guaranteed because what is behind it iii A little more risk but worth it Hedge funds i For the more sophisticated investor ii Short term iii Hedging whether market is going to go up or down in mutual funds 1 Much more risk
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