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Feb 2012 Mutual Funds Smart Investing Slides
1. Smart Investing
Emmet O’Neal Library
Mountain Brook, AL
February 2, 2012
MUTUAL FUNDS: MAYBE ALL
YOU’LL EVER NEED
2. Disclaimer
Andreas Rauterkus is not a registered investment
advisor or broker/dealer. Readers are advised that
the material contained herein should be used
solely for informational purposes. Andreas
Rauterkus does not purport to tell or suggest
which investment securities attendants should buy
or sell for themselves. You should always conduct
your own research and due diligence and obtain
professional advice before making any investment
decision.
3. Why Mutual Funds?
Professional Portfolio Management
Automatic Diversification
Easy to Buy and Sell
Net Asset Value (NAV)
Small Minimum Purchases
Automatic Reinvestment of Earnings
Easy Access to Information
Morningstar
4. What’s the Cost?
Front-End Loads
Upfront sales charge
Back-End Loads
Redemption fee
Deferred Loads
Sales fee charged if redeemed too early
Marketing Fees
12b-1 fees
Management Fees
Expense Ratio
Management and and 12b-1 fess as % of the fund’s assets
Does not include load fees
Brokerage Firms usually offer wide array of non-transaction
fee funds
5. Calculation of Mutual Fund Costs
Invest $10,000 in load mutual fund. The load fee is 4%.
Actual investment =
$10,000(1-.04) = $9,600
In addition fund charges .75% management fee and .10% 12b-1 fee.
Fees are charged on average amount invested in the fund and
recorded at the end of the year. Assume that the fund returns 5%
each year.
Avg. investment:
[$9,600 + $9,600(1.05)]/2 =$9,840
Annual costs:
$9,840(.0075+.0010) = $83.64
Value of the investment at year end:
$9,600(1.05) - $83.64 = $9,996.36
6. Which Fund Should I Pick?
Investment Objective?
E.g. growth, aggressive, bonds, etc.
Investment Style
Value stocks vs. growth?
Small vs. Midsize vs. Large Cap
Performance Record
Relative to the market
Relative to funds of its type
Fees
Expense Ratio
7. Funds For Long-Term Investors
Growth Funds
Growth and Income Funds
Balanced Funds
Invest in stocks and bonds
Index Funds
Global Funds
International Funds
Socially Responsible Funds
8. Funds for Income Oriented Investors
Corporate Bond Funds
Global Bond Funds
U.S. Government Bond Funds
Ginnie Mae Funds
Municipal Bond Funds
Generally federal income tax free
9. OtherTypesof Funds
Aggressive-Growth Funds
High Yield (Junk) Bond Funds
Single-Industry Funds
Exchange-traded Funds
Bought and sold like stock
No load fees
Brokerage commission
10. Total Return
Recall previous example:
Initial investment = $10,000
Total return after one year:
($9996.36/$10,000) – 1 = -.000364
Or
-.0364%
Value of the investment at year end:
$9,600(1.05) - $83.64 = $9,996.36