8 Chapter 2: Mutual Funds: Investments for the Masses
“Mutual funds will bore you to wealth.”
— Industry saying
In this chapter, you will
- Be introduced to the definition of a mutual fund, aka an investment company, and review the growth of the mutual fund industry
- Investigate major mutual fund share classes and how mutual funds charge their investors for the services of the mutual funds
- Explore the major mutual fund categories from the most risky to the least risky
- Compare and contrast active versus passive portfolio management of mutual fund assets
- Examine a few mutual fund families and concentrate on a sample mutual fund with decades of investing experience
By the end of this chapter, you should be able to
- Describe the various components, characteristics, benefits, advantages, and disadvantages of mutual funds
- Identify and describe the various ways in which mutual funds charge their investors for their services and explain the actual costs borne by the investor
- Outline the major mutual fund categories and their risk/return profiles
- Discuss the advantages and disadvantages of active versus passive portfolio management of mutual fund assets
- Identify a sampling of mutual fund families and the services available to mutual fund investors
- Describe the benefits of long-term, prudent, consistent mutual fund investing and the pitfalls of short-term, uniformed, impatient mutual fund investing
Mutual funds are truly Investments for the Masses. The probability is very high that at some time in your future, your employer will offer you an employer-sponsored retirement plan. That plan will almost assuredly have mutual funds as their primary investment vehicles. Your friends and family and co-workers will also likely be investing in mutual funds and they will need your help. As the Investment Guru for your family, friends, and colleagues, you need to know and understand mutual funds thoroughly. That includes knowing the major categories of mutual funds and the ways that investors are charged for mutual fund services. As you will see, both are complicated. You will help your family, friends, and colleagues. You will speak with authority. Dear Students, study hard and bring honor and glory to Southwestern Community College when you tell them where you learned everything you know!
