Mutual Funds

You should incorporate topics from the reading material into your answer.  Remember to respond to two other students and you must list the sources you used to support your answer, as references (including the text).

For most individual investors (myself included), retirement investing will be done through mutual funds.  As you read in chapter 17, mutual funds are a combination of stocks, bonds, and sometimes cash (e.g., U.S. Treasury certificates).  You have the ability to purchase small amounts of a wide selection of stocks and bonds.  The main advantage is that you’re diversifying across different companies rather than owning just one.  Even if you can afford to purchase stocks, say Johnson & Johnson or GE, the fees that brokers charge ($7.95+) may not be worthwhile.  In addition, most employer-sponsored retirement plans invest solely in mutual funds.

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The key to owning mutual funds, that many investors do not consider, is to diversify the mutual fund investment objectives themselves.  When I look at my investments (and note that I’ve been actively investing for 20 years), there are a number of growth, growth & income, international equity, bond, and international bond funds.  My investment mix is 70% equity and 30% bond, which means that when you add up the total value (not shown), we have a 70/30 mix of equity mutual funds and bond mutual funds.  Our total financial asset portfolio is 65/25/10 of equity/bond/cash, when we figure in our checking and emergency savings account.  Here is a model portfolio that I found in Benefits magazine:  /content/enforced/267099-001019-01-2182-OL1-6380/Model Portfolios.pptx

As you can probably determine by now, equity type mutual funds, which are primarily invested in stocks, are riskier than bond funds.  However, some bond funds, for example high-yield funds, are very risky because they primarily invest in “junk” bonds, or lower grade bonds.  Here is a visualization of which mutual funds are riskier than others:  /content/enforced/267099-001019-01-2182-OL1-6380/Risk Reward Continuum.pptx

I, like many investors, do an annual review of my investments to determine if I want to make any changes.  There are very few that I’ve held for 10+ years (e.g., Vanguard STAR, Guggenheim SGI Mid-Cap Value, PIMCO Total Return).  I have chosen my investments based on a number of factors, including Money magazine and Kiplinger’s Personal Finance magazine,, “Nightly Business Report” television show, and meeting with a financial advisor who offers his services as part of my supplemental 403(b) defined contribution plan.

Again, the key is to pay attention to what you invest in, and more importantly, why you chose the investment in the first place.  We’ve already started this conversation with some, but let’s bring it out for all – tell me what your mutual fund investments are, why you chose them, and whether you have made adjustments over the past few years.  If you do not invest in mutual funds, develop your own portfolio of mutual funds that you would invest in, if you had those funds to invest.


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