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Basics of Mutual Fund InvestingCatalogue code: B18

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Slide numbers: B18-1 to B18-21

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Basics of Mutual Fund Investing

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Financial Activities

Basics of Mutual Fund Investing

Spending Saving Investing

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Financial Activities

Basics of Mutual Fund Investing

Spending• Daily needs• Things we want

Saving Investing

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Financial Activities

Basics of Mutual Fund Investing

Spending Saving • Storing money away• Used for emergencies and short-term

goals• Concerned with maintaining principal and

avoiding risk Investing

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Financial Activities

Basics of Mutual Fund Investing

Spending Saving Investing• Desire to be more faithful stewards• Used for longer-term goals• Willingness to risk investment principal for

the potential for higher returns

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Investment Asset Classes

Basics of Mutual Fund Investing

Cash equivalents Bonds Stocks

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Cash Equivalents

Basics of Mutual Fund Investing

Short-term debt securities that pay a modest return with an emphasis on maintaining principal

Historically, least volatile investment with lowest returns

Return is predominately from interest

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Cash Equivalents

Basics of Mutual Fund Investing

Factors that impact cash equivalents:• Inflation• Interest rates

Types of cash equivalents:• Bank savings accounts• CDs• U.S. Treasury bills• Money market accounts

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Bonds

Basics of Mutual Fund Investing

Loan that investors make to corporations, governments or government agencies

Historically, not as volatile as stocks but fluctuate more in value than cash equivalents

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Bonds

Basics of Mutual Fund Investing

If held to maturity, return is from interest payments received and payment of face value

If sold before maturity, return is from interest payments received and difference between purchase price and sale price

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Bonds

Basics of Mutual Fund Investing

Factors that impact bonds:• Interest rates• Credit/default risk• Inflation• Market influences

Characteristics of bonds:• Maturity• Yield• Credit quality• Issuer

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Stocks

Basics of Mutual Fund Investing

Represent ownership in a corporation Historically, stocks provide the highest long-

term returns but with the greatest risk Return consists of income (dividends) and

appreciation or depreciation of stock price

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Stocks

Basics of Mutual Fund Investing

Factors that impact stock prices:• News about the company• Economic news and forecasts• Interest rates• Investor confidence

Characteristics of stocks:• Capitalization• Style• Origination

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Mutual Funds

Basics of Mutual Fund Investing

Companies that pool money from investors and invest in a diversified portfolio of securities

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Mutual Funds

Basics of Mutual Fund Investing

Professional management Diversification Affordability Liquidity

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Mutual Funds

Basics of Mutual Fund Investing

Advantages:• Professional management• Diversification• Affordability• Liquidity

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Mutual Funds

Basics of Mutual Fund Investing

Disadvantages:• Lack of control• Price uncertainty• Costs despite negative returns

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Mutual Funds

Basics of Mutual Fund Investing

Categories:• Money market funds• Bond funds• Stock funds

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Mutual Funds

Basics of Mutual Fund Investing

Ways funds earn money:• Dividend payments• Capital gains distributions• Increase in net asset value

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