MR ZIRKLE VIDEOS

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Mutual fund is a type of investment that pools together a large number of investors’
investments to purchase a variety of securities such as stocks and bonds.

They can benefit investors in several different ways.

- They provide diversification
- Most are managed by financial professionals
- Offer a wide variety of investment types
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BOOK
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Mutual fund - An investment fund that raises funds from investors, pools the money, and
invests it in stocks, bonds, and other investments.

Advantages of mutual fund investing:

- Diversification: Inexpensive way to diversify
- Professional management: Funds are managed by a professional
- Minimal transactional costs: Pay far less in terms of commissions
- Liquidity: They are easy to buy and sell
- Flexibility: Vast amount of options
- Service: Provides with a number of services that wouldn’t be able to be accessed
individually
- Avoidance of bad brokers: With mutual funds, you can potentially avoid bad
brokers and their advice

Disadvantages of mutual fund investing:

- Underperforming in the market
- Costs can vary dramatically
- Risk, many funds have become segmented or specialized focusing on special
sectors

You can’t diversify a market crash, since it is a systematic risk. Hold stocks for less
taxes.
A mutual fund is owned by a trust or corporation who elects a board of directors. Then
run by a management company. Then each fund made by the company is organized by
an investment advisor who oversees it. The investment advisor gets paid generally 1% of
the fund per year.

A mutual fund is a special type of investment company (a firm that invests the pooled
money of a number of investors for a fee).
Open-end mutual fund - Unlimited amount of ownership shares, anybody can invest
Price you pay when you buy a mutual fund and the price you pay when you sell it is
based upon net asset value.
Net asset value - The dollar value of a share in a mutual fund

Closed-end mutual fund - Can’t issue new shares in response to investor demand, has a
fixed number of shares.
Exchange-traded funds - Hybrid of a mutual fund and an individually traded stock or
bond. They are mutual funds that can be bought and exchanged like individual securities.
Traditionally, they are based upon indexes and certain parts of the market. Because they
are traded throughout the day, their price can vary from NAV since it depends on supply
and demand. However, the differences are small, and at the end of day, new NAV is
calculated.
They charge lower annual expenses than most funds. With ETFs, most trading is
between shareholders making it more tax efficient than regular mutual funds.

Unit investment trust - Fixed pool of securities, generally municipal bonds, with each unit
representing a proportionate ownership in that pool.
- They are not actively managed, but based on passive management
- Purchases a fixed amount of bonds, and holds those bonds until maturity
- Advantages come from diversification they offer, allowing small investors to
diversify with risky municipal bonds

Real estate investment trust - Investment vehicle similar to a mutual fund but specialized
in real estate
- REIT must collect at least 75% of its income from real estate and must distribute
95% of income in the form of dividends
- Equity REIT buys property directly, mortgage REIT is limited to mortgages, and
hybrid is combination of both
- Real estate market is highly volatile, and find an actively traded REIT

Hedge funds are investment pools with few controls, managers can invest wherever they
want to. They charge very high fees, generally taking 2% of assets under management,
along with 20% of the profits.
They won’t give money when you want it, and they won’t tell you what they are doing
with your money.
The only way to invest in hedge funds is if you have 1 million dollars in net worth not
including house (accredited investor).

Load - Sales commission charged on a fund

Load funds - Mutual funds that have load
Front-end load - Fee paid when fund is purchased on (Class A)
Back-end load - Fee that is charged only when investor liquidates their holdings, which
decline after 5-10 years
Class C has both

No-load fund - Doesn’t charge a commission on your ownerships

Expense ratio - Expenses / assets

12b-1 fees - Fees that mutual fund charges its shareholders for marketing purposes

Management fees - Fees paid to fund advisor

A fund must distribute a minimum of 97 percent of the interest and dividends earned and
at least 90 percent of the capital gains income

Money market mutual funds - Invest in Treasury bills, certificates of deposits, and other
short-term investments, usually with maturities of less than 30 days
- Makes them cheaper, but can’t write checks less than 250-500
- A variation is tax-exempt money market mutual funds, which invests only in very
short term municipal debt
- Government securities money market mutual funds - Invest solely on U.S.
government securities
Stock funds or equity funds - Primarily invested in common stocks
Aggressive growth fund - One that tries to maximize capital appreciation and doesn’t
consider income
- Small company growth funds are similar but limit themselves to small companies

Growth funds - Pay attention to strong firms that pay dividends, less risky than
aggressive growth, but still focuses as well on potential for growth
Growth-and-income funds - Tries to invest in a steady stream of income with the potential
of increasing value
Sector funds - Special investment fund that generally invests 65% of its assets into
securities in one specific sector. Riskier because it is less diversified.
ESG Funds - Stock mutual funds that focus on environmental, social, and governance
issues.
Index funds - Funds that try to track a certain market index.
International funds - Concentrates its investments in securities in other countries

It is easy to spot fund characteristics that result in poor performance: high expense
ratios and high turnover ratios resulting from more trading.

Balanced mutual funds - Holds both common stock and bonds, and in many cases
preferred stock
Asset allocation funds - Similar to balanced mutual funds, but try to beat the market by
moving money around stocks and bonds

Life cycle/strategy funds - Asset allocation funds that try to tailor their holdings to
investor’s individual characteristics, such as age and risk tolerance

Target retirement funds - Decision as to how much to invest in stocks, bonds, and money
market instruments are made for you, only decision you make is when you are retiring

Bond funds - Fund that invests primarily in bonds, prefers income over growth.
- US Government Bond Funds - Invests in securities issued by federal government
or its agencies
- Municipal bonds - Invests in municipal bonds which can be tax-efficient or even
tax-free
- Corporate bond funds - Focus mainly on highly-rated corporate bonds, however
some focus on high-yield junk bonds

Mutual fund services that are offered:

- Automatic investment and withdrawal plan - Allows you to make regular deposits
from bank account
- Automatic reinvestment of interest, dividend, and capital gains - You have choice
of receiving dividends and interest or instead having them reinvested
- Wiring and funds express option - Get your returns/money wired directly into your
bank account
- Online and phone switching - Allows you to move money from one fund to another
by making a phone request or request on their website
- Easy establishment plans - Most mutual funds provide services for easy IRS
approved tax-deferred accounts
- Check writing privileges - Access money from a mutual fund to use on a check
fast
- Bookkeeping with help on taxes - Service that actually calculates taxable gains
and losses when you sell shares

Buying mutual funds:

1. Determine your goals
2. Find the perfect fund
3. Select the right fund and internet research
4. Make the purchase