Transcript Investing in Mutual Funds, Real Estate and Other Alternatives

Investing in Mutual Funds, Real
Estate and Other Alternatives
Money Management
Chapter 14 Notes
Mutual Funds
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This is the most popular investment alternative out
there! Here are the basics:
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Individual investors from around the world pool their
money together to buy stocks, bonds and other
securities sold by an investment company.
The investment company that manages the fund makes all
the decisions about what to buy and sell. They charge a
management fee for their services.
Professional fund managers buy and sell based on the
goals of that particular fund and their expertise with
the market.
Why Investors Purchase Mutual Funds
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Convenient for the investor!
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Provides Diversification!
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When you invest in funds, you are diversifying
because mutual funds purchase numerous and
diverse stock and bond issues.
High Liquidity!
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You don’t have to worry about following the stock
and bond markets, or about looking for hot new
investments. Professionals are doing the work for
you.
You can turn your money into cash whenever you
need it (unless, of course, the fund is part of some
type of retirement account).
Usually less risky than the stock market!
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You can get a great rate of return without as much
risk as you would have with investing in individual
stocks.
Types of Mutual Funds
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Individual funds have
different investment goals
and strategies. You should
choose funds that have
goals and strategies that
match your own.
There are many different
types of funds to choose
from including: Growth,
income, balanced, bond,
global and index funds.
Growth Funds
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A growth fund invests in the
common stock of established
companies and industries that
are still growing. They are
considered a bit more risky but
can really hit big.
An aggressive growth fund
invests in the common stock of
new companies. These are even
more risky but can lead to
massive returns if they hit.
Examples of some of the top
growth funds can be seen at:
http://www.marketwatch.com/tools/mutualfunds/100ind
ex.asp?tf=9&view=2&siteid=mktw
http://www.marketwatch.com/tools/mutualfunds/overvi
ew.asp?siteid=mktw&symb=FMILX&sid=9964
Income Funds
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An income fund specializes in incomeproducing securities which consistently
pay good dividends.
The goal of these types of funds is current
dividend income. Income funds are
considered to be moderate risk.
Sometimes you see combination funds like
a Growth-income fund. For example, the
managers of this type of fund will be
looking for companies that are growing
AND paying dividends.
For examples of some of the top
performing index funds check out:
http://www.marketwatch.com/tools/mutualf
unds/100index.asp?tf=9&view=37&siteid=
mktw
Balanced Funds
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A balanced fund invests in a mixture
of stocks and bonds. The purpose is
to reduce risk while maintaining
both current income and growth.
Balanced funds are generally
considered low-risk investments.
The goal of the fund is to provide
current income AND long-term
growth with safety.
For an example of a balanced fund
check out:
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http://www.marketwatch.com/tools/mutua
lfunds/overview.asp?siteid=mktw&symb=
VWELX&sid=5376
Index Funds
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An index fund holds stocks or bonds
that react the same as the stock or
bond markets as a whole do.
Many of these funds are tied to a
specific market average such as the
Standard and Poor’s Index of 500 large
company stocks.
The goal of these funds is to mirror the
movements of certain markets, going
up as they go up.
These funds are considered moderately
risky. For an example of this type of
fund check out:
http://www.marketwatch.com/tools/mutualfunds/10
0index.asp?tf=9&view=36&siteid=mktw
Money Market Funds
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Money market funds invest in shortterm corporate obligations and
government securities.
These short-term maturities provided
current income and maximum safety.
The goal for any money market fund
is high liquidity and preservation of
your principal.
For some of the top money market
funds check out:
http://www.ibcdata.com/index.html
Reading a Mutual Fund Quote
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Some of the basics:
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NAV – stands for Net Asset Value. It refers to the
dollar value of one share of the fund.
YTD Return – stand for Year to Date Return.
This tells you how much the fund has made or
lost that year (listed as a percentage).
Fund Obj. – This tells you the objective of the
fund. (Is it a growth, balanced, or income fund
etc…)
Real Estate Investment
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Real estate is considered one of the
safest investments out there! Why?
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Historically, property is the best
defense against inflation. Simply put,
over time property values have risen at
a greater rate than inflation.
In a direct real estate investment,
you buy a home or a piece of land
and you own legal title to the
property.
In an indirect real estate
investment, investors appoint a
trustee to hold legal title to the
property on behalf of all the
investors in the group.
Property Ownership
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When buying real estate, most people make a
down payment and get a loan secured by a
mortgage to pay the balance.
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You borrow money to make the purchase and
you pay the money back, month by month
over time.
Your mortgage stays fixed but the value of the
house goes up over time!
For example, if you buy a $200,000 house and
make a down payment of $40,000 (20% down
payments are usually required), you have to
borrow $160,000 from the bank.
After a five years let’s say the house is now
worth $250,000 and you decide to sell it. You
could pay off the $160,000 you owed on your
mortgage and have $90,000 left.
That extra money is called equity! Equity is
the difference between the sales price and
the amount owed on the mortgage.
Pros and Cons
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Real-estate investment gives
excellent returns if the
property is well-maintained.
Real-estate investment
provides great tax benefits.
However, real-estate is one of
the least liquid investments
you can make. Depending on
the market, it can take months
or even years to sell!