Category Chapter_16

Nov 15 2014

3 Simple Steps to Check Up on Your Mutual Funds

By using three simple steps, you can evaluate when to buy, and when to sell mutual fund shares.

This short article describes three simple steps that investors can use to monitor the value of their fund investments.

Step 1:  Go to www.morningstar.com or look up funds via the Kiplinger fund finder tool at www.kiplinger.com, and check out 1-year, 5-year, and 10-year returns.

Step 2:  Compare your fund’s performance with the average returns for similar funds or with an appropriate benchmark like the Russell 2000 index for small company stock funds.

Step 3:  If your fund’s performance doesn’t match up with similar funds or with a specific fund benchmark, dig deeper to see if the fund managers have changed their strategy or if there are reasons why the fund is a poor performer.

While the above steps can identify funds that you may want to sell, the same three steps can also help you identify funds that you want to hold or even buy more shares in a top performing fund.

For more information go to http://www.kiplinger.com/article/investing/T041-C009-S002-3-simple-steps-to-check-up-on-mutual-funds.html

Teaching Suggestions

You may want to use the information in this blog post and the original article to:

  • Explain how easy it is to use the Internet to obtain information from Morningstar, Kiplinger, and other sources that can help investors evaluate a fund’s performance.
  • Discuss ways investors can monitor the value of fund investments.

Discussion Questions

  1. How can a fund’s performance help you determine if you want to sell shares or buy more shares in a fund?
  2. Why should investors examine a fund’s performance over different time periods?
  3. In addition to performance, what other factors should be considered when evaluating a fund investment?
Oct 22 2014

The SEC Mutual Fund Cost Calculator: A Tool for Comparing Mutual Funds

“Fees and expenses are an important consideration in selecting a mutual fund because these charges lower your returns.”

One of the common complaints from fund investors is that they don’t understand the different types of mutual fund fees.  And they are often surprised how fees can substantially lower their returns on fund investments.

This article provides basic information on fund fees and how they lower returns.  It also provides a link to the FINRA (Financial Industry Regulatory Authority) Mutual Fund Expense Analyzer.  By entering a fund’s ticker symbol, you can compare fees and performance for different funds.  And if you don’t know the fund’s ticker symbol, you can also search by using the fund name or key words.

For more information go to http://www.sec.gov/investor/tools/mfcc/mfcc-int.htm

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Stress how fees and charges lower an investor’s return on a fund investment.
  • Illustrate how to use FINRA’s Mutual Fund Expense Analyzer.

Discussion Questions

  1. Why should load charges, management fees, and other charges be considered when evaluating a mutual fund?
  2. Use FINRA’s Mutual Fund Expense Analyzer to evaluate the Fidelity Small Cap Growth Fund (Symbol – FCPGX) and the Vanguard 500 Index Fund (Symbol – VFINX). Which fund had the highest fees and sales charges?  Which fund had the highest return over the 10-year period?  Note:  You will need to access the Mutual Fund Expense Analyzer through the SEC link at  http://www.sec.gov/investor/tools/mfcc/mfcc-int.htm.
Aug 20 2014

Brokerage Services Buying Guide

“Whether you’re a seasoned investor, a newbie, or someone retesting the waters after a scary loss, financial services companies want your business.”

In this article, Consumer Reports evaluates a number of factors that investors should consider when choosing a brokerage firm to help them achieve their financial and investment goals.  Brokerage firms were rated for customer satisfaction.  (FYI, USAA was number 1 and Scottrade and Vanguard tied for second place.)  In addition to customer satisfaction ratings, other factors discussed in this article include

  • The amount of professional advice and if there were costs or requirements for free advice.
  • A discussion of retirement plans offered by various brokerage firms.
  • Steps you should take when choosing a brokerage firm.
  • Questions you should ask when choosing a brokerage firm.
  • Sales tactics that raise a “red” flag when choosing a brokerage firm.

For more information go to http://www.consumerreports.org/cro/brokerage-services/buying-guide.htm

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Point out to students that not all brokerage firms are the same and that the information in this article can help them choose the firm that can “best” help them obtain their investment goals.
  • Because this is a lengthy article, you may want to assign this as a homework assignment with students answering the questions below.

Discussion Questions

  1. What types of advice were offered by different brokerage firms?
  2. Did the information in the article help you understand the advantages and disadvantages of retirement plans?
  3. What specific steps should you take before choosing an advisor or a brokerage firms.
  4. What were some of the “red” flags you should watch for when choosing a brokerage firm?
Aug 13 2014

Survey Says: Investors Are Getting Scared

“As world unrest surges and the stock market wobbles, investors have gotten nervous.”

At least three separate sentiment polls indicate stock investors are worried about the trouble in Ukraine, the Middle East violence, continuing projections for a long-overdue correction or worse in the financial markets, and frustration with Washington politics.

For example, respondents to the weekly American Association of Individual Investors survey indicated their strongest levels of pessimism in almost a year.  A survey by Investors Intelligence (which polls investor newsletter editors) indicates a drop in investor bullishness compared to the previous survey.  And, a Bank of America/Merrill Lynch survey of investment strategists indicated heavy bearishness on Wall Street.

For more information go to http://t.money.msn.com/top-stocks/survey-says-investors-are-getting-scared-1

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Reinforce the relationship between world affairs, the economy, and the financial markets.

Discussion Questions

  1. At the time of this post, the world situation is troublesome to say the least. What is the relationship between world events, the economy, and the financial markets?
  2. These three recent sentiment surveys indicate that there are more bears than bulls? How would you define a bear?  A bull?
  3. Even though the sentiment surveys indicate investors are pessimistic about the market, some analysts view the market’s bearishness as a buying opportunity. Why could pessimism in the financial markets signal a time for investors to purchase stocks or mutual funds that invest in stocks?
Jul 23 2014

7 Smart Investing Tips from Kiplinger Readers

7 Smart Investing Tips from Kiplinger Readers

Each of the seven tips described below can help both experienced and beginning investors improve their investment skills.

  1. Invest in what you understand. To avoid getting caught in a stock-market bubble and to remain calm during an economic downturn, you should know something about a company’s true worth.
  2. Less debt means less risk. Look closely at a company’s balance sheet to determine if a company has too much debt that could hamper the company’s growth or ability to weather an economic storm.
  3. Use dividends to diversify your stock holdings. Instead of reinvesting dividends in the same stock, take cash dividends and use the money to buy stocks in different companies in which you have few holdings.
  4. If you use funds, look under the hood. To diversify your investments, make sure your existing funds don’t own the same stocks in the same companies.
  5. The right stock can replace a bond. Look for high-yield, dividend stocks to replace all or a portion of your bond holdings.
  6. Cash isn’t trash. Cash can be used to take advantage of stock-market downturns or corrections.
  7. Patience is a virtue. Sometimes it just takes time for a stock to increase in value.

For more information go to http://kiplinger.com/printstory.php?pid=12565

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Encourage students to evaluate all potential stock or mutual fund investments.
  • Stress the importance of patience and the value of a long-term investment program.

Discussion Questions

  1. How can these seven tips improve your investment decisions?
Jun 18 2014

The Kiplinger Mutual Fund Screener

A mutual fund screener that is free and easy to use!

To use the mutual fund screener:

http://kiplinger.com/tool/investing/T041-S001-mutual-fund-finder/index.php

  1. Students begin by using a pull-down menu to select the type of fund they want (any fund, U.S. stock funds, international stock funds, taxable bond funds, or municipal bond funds).
  2. They refine their choice by choosing a fund style (large cap, emerging markets, high yield bond, etc.)
  3. Next, students select performance and fee and management criteria, (total return for different time periods, risk, load charges, if any, expense ratio, etc).
  4. The last step is to click the “Find Fund” button at the bottom of the screen.

Teaching Suggestions

You may want to use the information in this blog post to:

  • Help students realize that a fund screener can be a logical first step in finding the right fund for their investment portfolio.
  • Demonstrate how the Kiplinger Mutual Fund Screener works or create a homework assignment where students use the Kiplinger Mutual Fund Screener.
  • Remind students that while a fund screener can identify funds that meet the investment criteria they have provided, there is a very real need to complete a more in-depth evaluation before investing their money.

Discussion Questions

1. What are the benefits of using the Kiplinger Mutual Fund Screener?

2. In addition to the information provided by the Kiplinger Mutual Fund Screener, what other types of information would you want before investing your money? Where would you obtain this information?

May 31 2014

The Mutual Fund Education Alliance

Since 1971, the Mutual Fund Education Alliance (MFEA) has been dedicated to informing and educating the investing public about how they can use mutual funds to achieve important lifetime goals.

The website for the MFEA provides both beginning and experienced investors with a wealth of information that can be used to become a more informed mutual fund investor.  For example, the MFEA website provides information about

  • The power of investing
  • Understanding risk
  • Why mutual funds?
  • The importance of performance,
  • Fund costs, fees, and expenses
  • Taxation

For more information go to

http://www.mfea.com

Teaching Suggestions

You may want to use the information in this blog post and information on this website to

  • Supplement the material you present in your classroom lecture or online course.
  • Create an assignment designed to strengthen a student’s basic understanding of mutual fund investments.
  • Create an assignment where students use the MFEA fund screener to evaluate one or more mutual funds.

Discussion Questions

  1. Often beginning mutual fund investors, just invest their money without really learning about mutual fund investments or specific funds?  Why is this a flawed approach?
  2. There are many investment websites that will help you learn about mutual funds and also evaluate different funds.  What factors make one website better than another website?
May 28 2014

Zacks #1 Ranked Healthcare Mutual Funds

When markets are passing though choppy waters, investors often rely on the healthcare sector to safeguard their investments.

Healthcare funds are often considered a safe investment because the demand for healthcare services does not vary with market conditions or upturns or downturns in the economy.  Many of the companies in the healthcare industry, often found in healthcare funds, also pay regular dividends which can help offset a decline in a fund’s share price or increase total return for this type of fund investment.

In this article, Zacks Investment Research, provides a brief description of the five top rated funds listed below

  • Fidelity Select Biotechnology (Symbol FBIOX)
  • Prudential Jennision Health Sciences A (Symbol PHLAX)
  • T.Rowe Price Health Sciences (Symbol PRHSX)
  • Fidelity Select Pharmaceuticals (Symbol FPHAX)
  • ProFunds Biotechnology UltraSector (Symbol BIPSX)

For more information go to

http://finance.yahoo.com/news/zacks-1-ranked-healthcare-mutual-221117226.html

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Discuss the types of research provided by professional advisory services for fund investors.
  • Help students understand why the healthcare industry may be a safe haven in troubled economic times.
  • Assign one or more of the funds described in this article for more in-depth student research.

Discussion Questions

  1. Why would the healthcare industry be considered a safe haven in troubled economic times?
  2. Do you think this type of fund could help you obtain your personal investment goals?
  3. How would you research one of the specific healthcare funds described in this article?