Mutual Funds and The Stock Market Game

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Mutual Fundsand TheStock Market Game
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What is a Mutual Fund?

• A mutual fund is a collection of stocks, bonds
  and other securities owned by a group of
  investors and managed by a professional
  investment advisory firm. This investment
  advisor (also called the mutual funds manager)
  collects money from many investors and invests
  the pool of money for all of them.

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Mutual Fund Ownership in the U.S.

• 96 million individual investors own mutual funds,
  and held 87 of the total mutual fund assets at
  year-end 2006.
• 55 million households (about half of all US
  households) owned mutual funds at year-end 2006.

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What Advantages Are There to Investing in Mutual
Funds?

• Mutual funds provide professional management. The
  funds manager makes the buy and sell decisions,
  based on the funds management philosophy.
• Mutual funds offer diversification. A mutual fund
  often invests in one hundred or more securities.

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What Types of Funds are Available?

• Mutual funds are also called open-end funds. This
  means that the fund will usually sell as many
  shares as investors want to buy.
• Closed-end funds, like mutual funds, are
  collections of securities managed by a
  professional investment advisor. But unlike
  mutual funds, there are a fixed number of shares
  available and these shares are traded on the
  stock exchange.
• Exchange-traded funds, are also like mutual funds
  in that they are collections of securities
  managed by a professional advisor, and like
  closed-end funds are traded on the stock exchange.

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What Types of Mutual Funds are Available?

• There are many types of mutual funds
• Stock funds
• Bond funds
• Sector funds
• International Funds
• Money market funds
• Hybrid funds (also known as balanced and life
  cycle funds)

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How Do You Make Money on a Mutual Fund?

• A mutual fund investor can make money in several
  ways
• The fund earns income from interest or
  dividends on its investments which it
  distributes to its investors.
• The fund produces capital gains by selling
  securities at a profit and distributes those
  gains to its investors.
• You sell your shares of the mutual fund at a
  higher price than you paid for them.

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Why Should Mutual Funds be a Part of The Stock
Market Game?

• Investment companies as a whole are the largest
  investor in U.S. corporate stock, holding 25 of
  the outstanding stock of U.S. companies at the
  end of 2006.
• The number of defined benefit plans has decreased
  to 42 thousand in 2006 from 170 thousand in 1985.
  Conversely, the number of defined contribution
  plans has increased to 450 thousand in 2006, up
  from 30 thousand in 1985.

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Incorporating Mutual Funds Into The Stock Market
Game

• Teachers can incorporate mutual funds into The
  Stock Market Game by talking about two important
  goals
• Saving for college
• Saving for retirement

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Mutual Funds Role in Education Savings

• Mutual funds accounted for 96 of the 90.1
  billion invested in Section 529 Plans at year-end
  2006.
• Mutual Funds managed 5 billion in Coverdell ESAs
  (formally the Education IRA).

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Mutual Funds Role in Retirement Savings

• U.S. Retirement Assets Year-End 2006
• 4.2 trillion in IRAs
• 4.1 trillion in defined contribution plans
  (e.g., 401(k), 403(b), 457, and Keoghs)
• 2.3 trillion in defined benefit plans
• 3.0 trillion in state and local government
  employee retirement plans
• 1.1 trillion in federal government defined
  benefit and Thrift Savings Plans
• 1.6 trillion in annuity reserves

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Mutual Funds Role in Retirement Savings

• Of the 4.2 trillion invested in IRAs at year-end
  2006, about half (2 trillion) was invested in
  mutual funds.
• Of the 4.1 trillion invested in defined
  contributions plans at year-end 2006, half (2.1
  trillion) was invested in mutual funds.

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Mutual Fundsand TheStock Market Game