key concepts
- Mutual fund: investments that pool investors’ money to
- Hire professional investment manager to make decisions
- Provide capital for large investment portfolio to reduce risk
- Diversification: the process of purchasing a variety of different securities
- Actively managed mutual funds: attempt to earn rates of return higher than stock market rate
- Passively managed mutual funds: seek to mirror returns in the stock market
- Value-oriented investors: look for underpriced stocks or bargains
- Growth-oriented investors: seek stocks whose share price is quickly increasing
- Sales load: one-time commission paid to investment salesperson when purchased or sold
- No-load: no sales load
- 12b-1 fee: annual fund marketing expense passed on to shareholders
- Expense ratio: measure of total management fees and expenses charged annually
- Institutional Class shares: lower-cost fee structures than those available to individuals investing on their own
- Asset allocation funds: invest in other mutual funds
- Target date mutual funds: managed based on individual’s expected year of retirement
- Can only sell or buy at the end of the trading day
- Can only sell shares back to original company
notes
- Fees
- Avoid sales-loaded mutual funds
- Avoid 12b-1 fees
- Buy with lowest expense ratio
- Load structures
- Class A shares: front-end sales load with lower 12b-1 fee and annual expense ratio
- Breakpoints: discounts on load as size of investment increases
- Class B shares: no front-end sales load, charge deferred when sold but decreases the longer you own
- Class C shares: low or no front-end or back-end commission, but higher 12b-1 fee and other expenses
- May be required to pay taxes on earnings even in years where no money received