THE STOCK MARKET GAME UNIT 2: Into the Game Lesson 2: What Is a Mutual Fund?
Lesson 1: What is a Mutual Fund? Before you begin, do a “save-as” to your group file.
Background: Mutual fund companies are investment companies that pool savers’ money to invest in a variety of stocks and bonds. Most funds have professional managers who actively buy and sell stocks or bonds based on what they think is best for shareholders. The expenses of managing the fund are subtracted from the fund’s assets (net worth) annually. Investors cannot buy mutual fund shares on margin or sell them short. Investors have many choices of mutual funds. Some invest only in stocks, while others invest only in bonds. Still others mix or balance both stocks and bonds. When selecting a fund, investors can pick among three general types of funds as shown on the next slide.
Exchange TradedMutual Funds Closed-End Funds Funds (ETFs)Most have professional managers ETFs are not actively managed These funds are actively managed, justwho actively buy and sell stocks or but are index funds that closely like most mutual funds.bonds based on what they think is follow indexes of stocks orbest for shareholders. A few are bonds. There are very few bondindex funds, which are not actively ETFs.managed.Investors trade with the fund, not A fixed number of shares are The number of shares issued by the fundwith one another. So the number of issued, which investors trade remains fixed. Investors trade theseshares held by investors is open- with one another, not with the shares with one another, not with the fund.ended, not fixed. fund. However, the fund can increase or decrease this fixed number of shares.Orders can be placed any time Shares trade just like stocks. Shares trade just like stocks. They can beduring the day but are completed They can be traded at any time traded at any time during the market’sonly at closing prices after the during the market’s trading trading hours.market closes at the end of the hours.trading day.A share’s price equals the fund’s net A share’s price rises and falls A share’s price rises and falls accordingasset value (NAV), which is the total according to investors’ supply to investors’ supply and demand.value of the fund’s investments (less and demand.liabilities) divided by the number ofshares investors hold.
Vocabulary: Bonds: An IOU that a company or government sells when it borrows money. Bonds are called fixed-income investments because they pay a fixed amount of interest to the bondholder who purchased this IOU. Diversification: Reducing risk by combining deferent investments whose prices aren’t likely to move in step with one another. Mutual funds: An investment company that pools savers’ money to invest in a variety of stocks and bonds. Professionals who research companies and buy or sell stocks actively manage them based on what they think is best for the shareholder.
Springboard Activity: Look at the items on the table. What do you think would be the easiest way to deliver these items to the class next door? Try to carrying them all in your hands. Now place the items in a bag or basket. Why is that an easier way to carry the items? Sometimes putting things together makes them easier to manage and keep track of. Some investors want to make one purchase but buy several different stocks. Thus you get Mutual Funds.
Springboard activity continued… Like putting the items in a basket makes them easier to carry, purchasing a mutual fund makes buying a variety of stocks easier to purchase and manage, since a professional mutual fund manager actually decides when to buy and sell stocks within the mutual fund for shareholders of the fund. Why should SMG teams consider mutual funds while creating their portfolios and list possible reasons the students might want to include them.
Activities…. All Levels: Read Stock Talk Vol. 15, No. 1: Fund Seekers read the “Seek and Squeak” portion. Why mutual funds might be a good investment? Discuss the question among yourselves. Write the reasons you would consider purchasing mutual funds. Visit http://finance.yahoo.com/funds/ Research the different mutual funds, note the different fund styles or size of the companies, market cap, growth funds, and value funds. Complete Activity sheets 1 & 2
ASSESMENT! **You need tocomplete this individually!!! Read Stock Talk Vol.15, No.2. : Navigator to SMG teams and have them read about mutual fund NAVs. Visit http://finance.yahoo.com/funds Practice looking up the NAV for various funds. If you need assistance choosing a fund, you may locate a list of mutual fund families at: http://biz.yahoo.com/p/fam/a-b.html If you bought the stock how would you want the NAV to change over time? Since you’ve researched mutual funds, write a recommendation for your team
Lesson 3 Activity Sheets &Assessments• Correct Activity Sheets. See me for binder w/answers. Be sure to make any corrections using RED pen.• We’ll meet @ noon to review work