Term
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Definition
Mutual Fund
-Pooling money to buy stocks, bonds, and other financial securities selected by professional managers who work for mutual fund companies |
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Term
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Definition
Value of the fund’s portfolio - Liabilities
divided by
Number of shares outstanding |
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Term
| Offer price = NAV + sales commission |
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Definition
| Offer price = NAV + sales commission |
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Term
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Definition
Closed-end funds
-Shares are issued by an investment company only when the fund is organized
-After all original shares are sold you can only purchase shares from another investor (typically at a price +/- NAV) |
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Term
Actively managed, or
Exchange traded funds (ETF) |
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Definition
-Similar to closed end funds, but invests in index baskets
-Can also buy for commodities
-Rapidly growing in popularity
-Great for large lump sum investments (small commission due at purchase, say $8) |
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Term
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Definition
Open-end funds
-Most mutual funds are open ended
-Shares are issued and redeemed by the investment company at closing
-Actively managed and index funds
-Investors can buy and sell shares at the day end NAV
-Ideal for small, frequent savings |
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Term
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Definition
Load Fund
-Investors pay a commission (sales fee) every time they purchase shares
-Average fee is 3-5% for which an investor can get purchase advice and explanations |
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Term
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Definition
No Load-Fund
-Investors pay no sales fee, because there are no sales people
-You deal directly with the investment company via 800 numbers or web sites |
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Term
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Definition
Management fee
-Charged yearly (.25%-2% average) based on a percentage of the funds asset value |
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Term
| Contingent deferred sales load |
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Definition
Contingent deferred sales load
-Charged upon withdrawal of funds (1-5%)
-Decreases with time held |
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Term
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Definition
12b-1 fees
-Annual fee to defray advertising and marketing costs of the fund |
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Term
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Definition
A, B, or C Shares
-These shares have front end loads, 12b-1 fees, and or deferred sales loads (due at sale) |
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Term
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Definition
D or other letter shares
-Generally no load, no 12b-1 fees or deferred sales loads |
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Term
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Definition
Aggressive growth
Equity income
Global (inc. US)
Growth
Growth and income
Index
International
Large cap.
Regional
Sector
Small cap.
Utility
Mid cap |
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Term
| Bond or fixed income funds |
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Definition
High-yield (junk) bonds
Insured municipal bonds
Intermediate U. S. & corporate bonds
Long-term U. S. & corporate bonds
Municipal bonds (ST,Int., LT)
Short-term U.S. & corp. bonds
Short-term corporate bonds
TIPS
Ginnie Mae
World bond (various) |
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Term
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Definition
-Balanced funds
-Invest in both stocks and bonds with the purpose of conserving capital
-Stock and bond blend funds
-Multipurpose objectives including flexible income, flexible portfolios, global securities, and convertible securities |
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Term
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Definition
| A family of funds exists when one investment company manages a group of mutual funds |
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Term
| Steps to Evaluate Mutual Funds |
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Definition
1. Perform a financial checkup; have you set up your emergency fund first?
2. Determine your investment objectives
3. Find a fund with an objective that matches your objective, watch for fund name “traps”
4. Carefully evaluate any mutual fund before buying or selling |
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Term
| Other Sources of Fund Information |
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Definition
-Mutual fund prospectus
-Mutual fund annual report |
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Term
| Money Principle: Taxes/Inflation |
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Definition
| It’s after tax and after inflation returns that count. |
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Term
| Mutual Fund Returns:total return |
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Definition
| A fund’s performance best measured by total return (not yield, not income, not cap gain |
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Term
| average cost or specific identification |
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Definition
| Cost basis for mutual funds is average cost or specific identification |
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Term
| Income Taxes: Mutual Funds |
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Definition
-Long term capital gains and dividend income from corporations will be taxed at favorable 15% rate
-Tax is still due if taxable distributions of income and capital gains are reinvested (year end tax surprise) |
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Term
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Definition
| For taxable accounts, don’t buy funds at year end with large capital gain distributions pending, wait until after distribution. Dollar cost averaging also mitigates this problem since you enjoy benefits of appreciation |
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Term
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Definition
| Always calculate after tax returns on corporate and treasury bond funds vs. municipal bond funds based on your marginal tax rate |
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Term
| Seven Essential Facts on Indexing |
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Definition
1. Wall Street doesn’t want you to index
2. Index funds are pretty much guaranteed to win
3. Owning only the S&P 500 index isn’t enough diversification (it’s a large cap index)
4. Indexing wins even in inefficient markets
5. Indexing really shines on an after tax basis
6. Bond index funds provide similar stellar results
7. Once you decide on your index funds, cost is key consideration |
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Term
| ETFs vs. Open Ended Index Funds 1 |
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Definition
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Term
| ETFs vs. Open Ended Index Funds 2 |
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Definition
-ETFs require a brokerage fee to buy and sell
-Open ended index funds can be bought directly from the fund family with no commission |
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Term
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Definition
-Understand the yield vs. return issue
-Higher yields do not necessarily mean higher return
-The value of higher risk bonds (with high yields) falls if the company or economy experiences problems
-Thus high yields go to zero in bankruptcy
-The value of higher risk bonds improves with improving economy (credit play vs. interest play) |
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