Mutual Funds
What is an expense ratio?
The amount, or fee, the investor pays each year for investing into the fund
A bond is more similar to what?
What does ETF stand for?
Exchange Traded Fund
Describe 'Diversification'
The ability to spread your money throughout different sectors/industries, vehicles to reduce overall risk
Name a PRO and a CON of a mutual fund?
PRO: Low risk, fund manager, more aggressive than ETF
CON: Minimum investment, bought only before/after market, low reward
Accurately describe 'Face Value', 'Maturity', and 'Coupon Rate'.
Face Value = Original Amount of Money Lent
Maturity = The length the time the money is borrowed
Coupon Rate = AKA Interest, Cost of Money Borrowed
When can an ETF be bought?
Anytime throughout the day (similar to a stock)
The Environmental Protection Agency (EPA) is dealing with an oil spill in the Gulf of Mexico. They are trying to raise money for the families along the Gulf coast. What type of bond would this be?
Federal Government Agency Bond
Explain why an investor may find a higher expense ratio in a MUTUAL FUND compared to an ETF (hint: the primary different between the two)
A Mutual Fund typically includes a fund manager or team, which makes it actively managed
What is a Federal Government Bond?
When the United States Federal Government is asking to borrow money for a particular project or venture
What is an Exchange?
The place where stocks can be bought and sold
Name one PRO and one CON of investing in a bond
PROS: Low risk, passive income, alternative to savings
CONS: Low reward, default risk, interest rate risk
Name at least three things you may find on a mutual fund prospectus
Risk level, fund composition, Morningstar Box, Hypothetical Growth, expense ratio, fund summary, fund manager, fund history
What is the difference between compound and simple interest? Which does as bond have?
Compound interest grows on top of itself
Simple interest is the same each payment, does not grow on top of itself (bonds carry this)
Name one PRO and one CON for ETFs
PRO = Low risk, no minimum to invest, similar to a stock
CON = Low reward, less aggressive, long-term growth
Julia is deciding between investing in an ETF or MUTUAL FUND. She considers herself an experience investor and would rather implement as much of her own strategy than someone else. Which should she go with?
ETF because they do not have a fund manager. Also, ETFs are traded and priced similar to stocks, therefore, Julia can craft her own strategy easier.
Describe the difference between Growth, Blend, and Value
Growth = funds that comprise stocks focused on growth
Value = funds that comprise stocks focused on offering a good price currently (on sale)
Blend = mixture of the two
What does it mean to 'default'?
The lendee is not able to pay back the person they borrowed money from.
ETF will often try to mimic, or replicate, an _____. What is an ________?
An Index is a collection of stocks that an investor can look at to predict the performance of the entire market. Acts as a measuring stick.
Connect bonds and inflation
When you have cash sitting around, it loses value to inflation. Investors may try to invest in bonds so they can match/meet or exceed inflation levels to maximize their equity.