TOPIC 4 mutual funds

professor penny

The largest single mutual fund is Vanguard’s 500 Index Fund (Admiral shares). The Fund seeks to track the performance of its benchmark index, the S&P 500. The Fund employs an indexing investment approach.

Learning goals

By the end of this topic, you should be able to:

List the types of mutual funds
Explain how to purchase and sell mutual funds
Describe common mutual fund investment strategies
Explain how to analyze a mutual fund

section outline

Topic 4 Mutual Funds

4.1 Types of Mutual Funds

4.2 Purchasing and Selling Mutual Funds

4.3 Analyzing and Selecting Mutual Funds

Content Videos

The Gus A. Stavros Center for the Advancement of Free Enterprise and Economic Education at Florida State University is pleased to offer these resources. They were created by Teaching Professor Joe Calhoun.

The captions were created by a computer program so sometimes they may be inaccurate or contain spelling or grammatical errors.

You may alternate the views by clicking on the white icon on the top-right corner of the screen.

The videos should not be downloaded or distributed beyond this site.

Part a

Part b

key point

A mutual fund is a portfolio of stocks or bonds (and sometimes both) that give the investor access to many assets instead of just one.

Certified peer mentors

Mentors give presentations to groups about our topics. They also assist other students in personal finance matters and answer questions during individual meetings. To schedule a presentation or an appointment to discuss your situation email coss-financialpeermentor@fsu.edu or visit the Stavros Center financial wellness page.

a topical story

Diego, Isabella, and Madison crowded into the corner booth at the cafe and began unloading their bags. As Diego sprawled his notebooks out on the table, a brochure flipped open about mutual funds.

“What’s this, Diego?” Madison started. “Looking to invest?”

“I’ve been thinking about it.” He responded. “I’m kind of new to it all though, so it can be a little confusing.”

“It is at first.” Isabella chimed in. “I was just talking to Ethan about investing the other day. A mutual fund would be good for you. It’s a good initial investment because exchange traded funds have a good return for little work.” She said.

“Okay, that’s what I’d kind of gathered in my research too.”

“Yeah since they require less research, it’s a good way to spread out your assets while you have less money. But one day…”

“Woah, let’s focus on now. This stuff is hard enough to digest on its own.”

“Haha okay. Mutual funds are a good way to diversify and typically the name of it describes it’s goal.” Isabella explained. “There’s a couple different kinds of stock funds; growth and capital. And there’s a few different kinds of bond funds too--treasury, ginnie mae, corporate, and high yield are a few.”

“Wow Izzy, you’re really into this stuff, huh?” Madison asked.

“Yeah, it’s pretty interesting to me honestly. Can’t wait to get into the real nitty gritty in my classes next semester.”

“Are there other important distinctions when it comes to mutual funds?” Diego asked, knowing he had to make the most of having an investment wizard on his hands.

“Yeah, there’s managed and indexed funds. Basically, a managed fund is one where the returns from the fund are directly influenced by the decisions of the manager.”

“And I assume the manager is the person that is like, in charge of your fund?”

“Exactly!”

“Seems easy enough,” Diego said, confidently.

“Just remember, you have to think about what kind of risk you can handle and when you need the money. I told Ethan the same thing.”

“Thank you Professor Sanchez,” Diego said with a bow attempting to hold back his laughter. He had always been quiet, but also the snarkiest of the bunch.

“Whatever. Get back to work.”

(Story created by Jasmine George, Ana Siqueira, Courtney Swanson and Alex Thompson)

related books

These books have a chapter directly related to this topic. Please read them for more details.

Chapter 2: Kiyosaki, Robert. Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not! Plata Publishing, 2017.

Chapter 9: Ramsey, Dave. Dave Ramsey's Complete Guide To Money. Ramsey Press, 2012.

Chapter 6: Hogan, Chris. Retire Inspired: It's Not an Age, It's a Financial Number. Ramsey Press, 2016.

Chapter 4: Bach, David. The Automatic Millionaire, Expanded and Updated: A Powerful One-Step Plan to Live and Finish Rich. Crown Publishing Group, 2016.

Principles 56 & 57: Siegel, Cary. Why Didn't They Teach Me This in School?: 99 Personal Money Management Principles to Live By. CreateSpace Publishing, 2013.

Chapter 8: Orman, Suze. The Road to Wealth. Penguin Publishing Group, 2010.

Chapter 11: Ramsey, Dave. The Total Money Makeover. Nelson, Thomas, Inc. 2013.

Chapter 15: Lowry, Erin. Broke Millennial: Stop Scraping By And Get Your Financial Life Together. Penguin Publishing Group, 2017.

Five From the Field

Travis Hadwin is a founding partner, senior vice president, and wealth manager for Steward Partners Global Advisory. Based in Clearwater, FL, you can learn more about Travis and his company here: https://www.stewardpartners.com/index.html

In this video interview, Travis answers the following five questions:

Is the recent performance of a fund a good indicator of future returns?
Are managed funds worth the extra expenses?
What are two key items to consider when selecting a mutual fund company?
What are two key items to consider when selecting a specific mutual fund?
What are the tax consequences of owning mutual funds versus individual stocks?

additional resources

https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/mutual-funds

https://www.daveramsey.com/blog/how-mutual-funds-work

https://www.youtube.com/watch?v=-bLeRnOHq-8

https://www.youtube.com/watch?v=TPS22HRRY1k

https://www.annuity.org/financial-literacy/

other books

Malkiel, Burton. A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing. W. W. Norton & Company, 2020.

Wood, William. Getting a Grip on Your Money: A Plain & Simple Christian Guide to Managing Personal Finances, Eliminating Debt, Spending, Saving & Giving, Investing for the Future. Intervarsity Press, 2002.

Bach, David. Smart Women Finish Rich, Expanded and Updated. Currency, 2018.

Bogle, John. The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns. Wiley, 2017.

Clason, George. The Richest man in Babylon. Dauphin Publications Inc., 2018.

Hill, Napoleon; Arthur R. Pell. Think and Grow Rich: The Landmark Bestseller Now Revised and Updated for the 21st Century. TarcherPerigee, 2005.

Lynch, Peter; John Rothchild. Beating the street. Simon & Schuster, 1994.

Kobliner, Beth. Get a Financial Life: Personal Finance in Your Twenties and Thirties. Simon & Schuster, 2017.

Orman, Suze. The 9 Steps to Financial Freedom: Practical and Spiritual Steps So You Can Stop Worrying. Currency, 2006.

Bach, David; John David Mann. The Latte Factor: Why You Don't Have to Be Rich to Live Rich. Atria Books, 2019.

Hogan, Chris. Everyday Millionaires: How Ordinary People Built Extraordinary Wealth―and How You Can Too. Ramsey Press, 2019.

important government sites

Economy:

Bureau of Economic Analysis reports GDP, Income, International Trade, and many others (Links to an external site.)

Bureau of Labor Statistics reports Unemployment, Prices, Productivity, and many others (Links to an external site.)

The U.S. Department of the Treasury's mission is to maintain a strong economy and create economic and job opportunities (Links to an external site.)

The U.S. Small Business Administration (SBA) continues to help small business owners and entrepreneurs pursue the American dream (Links to an external site.)

Banking:

The Federal Reserve System performs five functions to promote the effective operation of the U.S. economy (Links to an external site.)

The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by Congress to maintain stability and public confidence in the nation's financial system (Links to an external site.)

The National Credit Union Administration is an independent federal agency that insures deposits at federally insured credit unions (Links to an external site.)

Federal Regulation:

The Internal Revenue Service is the nation's tax collection agency and administers the Internal Revenue Code enacted by Congress (Links to an external site.)

The Federal Trade Commission protects consumers and competition by preventing anticompetitive, deceptive, and unfair business practices (Links to an external site.)

The mission of the SEC is to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation (Links to an external site.)

The CFPB is committed to providing consumers with up-to-date information and resources to protect and manage their finances (Links to an external site.)

(Links to an external site.)Other:

Social Security Administration (Links to an external site.)

Department of Education (Links to an external site.)

State of Florida

ECO 3041

ECO 3041 Personal Finance is a 3 credit hour course offered in-person and online each fall and spring semester. The purpose of the course is to provide you with the specific content knowledge of personal finance and to give you opportunities to start using that knowledge to create good habits, make better financial choices, and live a more fulfilling life. It covers material for all 33 topics listed here. See Professor Calhoun's most recent syllabus here. ECO_3041_SP21.pdf

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To schedule a presentation or an appointment with a certified peer mentor to discuss your situation email coss-financialpeermentor@fsu.edu or visit the Stavros Center financial wellness page.