Category Mutual Funds

Jan 15 2022

Environmental, Social and Governance (ESG) Investing

An increasing number of investors are seeking a more ethical portfolio with an emphasis on socially responsible and sustainable investing. An emerging trend is environmental, social and governance (ESG) investing, with these factors used to evaluate the financial return and overall impact. 

The ESG score measures how investments and companies perform in these categories:

  • Environmental – carbon emissions, air and water pollution, deforestation, green energy initiatives, waste management, water usage
  • Social – employee gender and diversity, data security, customer satisfaction, company sexual harassment policies, human rights at home and around the world, fair labor practices
  • Governance – diversity of board members, political contributions, executive pay, large-scale lawsuits, internal corruption, lobbying

Many view “sustainable” investing as very vague. The ESG criteria hopes to provide a grading of investments that clarifies what sustainable involves. ESG scores are calculated using different methods. Some ratings are created by using data collected from company disclosures and government, academic and NGO databases. Other scores are developed with self-reported data from participating companies.

Recent benefits of ESG investing include higher returns and a lower downside risk than traditional funds and conventional investments.  To start investing, you can search on your own to identify an ESG fund or an individual stock with a high ESG score that fits your investment beliefs and goals.  Investors can also use a robo-advisor to guide their ESG investment choices.

For additional information on ESG investing, click on the following links:

Article #1

Article #2

Article #3

Teaching Suggestions

  • Have students search online to identify ESG funds or companies they might consider for their investment portfolio.
  • Have students talk with others to obtain the level of interest for ESG investing among potential investors of various ages.

Discussion Questions 

  1. What aspects of ESG investing do you find attractive?  What are your concerns?
  2. What concerns might be associated with methods used to create ESG scores?
May 13 2017

Active Management. Good or Bad?

“Advisors and investors are increasingly focused more on lower fee products amid expectations that finding consistently strong performing active funds is hard.”

Passive investing (index funds and exchange traded funds) has been a trend on Wall Street for years.  So, what’s different?  The answer:  The trend is increasing at an alarming rate and investors are now retreating from actively managed funds that are beating their benchmark index.  According to data from Morningstar, investors pulled $99 billion from the actively managed funds that beat their benchmarks over a 12-month period ending January 31, 2017.  This is a remarkable trend given that most investors typically chase funds with high performance and high returns.

The reasons are many, and certainly lower fees is part of the reason, but not the only factor for this dramatic trend.  Another very important factor is that the number of managed funds that consistently beat the index over a long period of time is small.  According to data from Charles Schwab, the number of funds that score in the top 25% for at least two years is 1,098.  The number of funds drops to 702 at the end of three years, and to 33 funds at six years.  Only 4 funds score in the top 25% for at least seven years, and none stay in the top 25% for eight years.

The article goes on to say that this trend may encourage more actively managed funds to focus on bringing down the fees for their investment products in order to compete with the expense ratios for index funds and exchange traded funds.

For more information, click here.

Teaching Suggestions

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

  • Discuss the difference between index funds, ETFs, and managed funds.
  • Reinforce how important fees and performance are when choosing a mutual fund.

Discussion Questions

  1. What is the difference between a managed fund, an index fund, and an exchange traded fund?
  2. Which type of fund do you think could help you obtain your investment goals? Why?
Feb 13 2016

Robo Investment Advice

Automated investment services are expanding.  Many financial service companies are offering “robo advice,” in which investors complete an online questionnaire and a computer program generates and monitors a portfolio of funds.  Robo-advisers are also designed to automatically rebalance a portfolio based on changes in the market as well as any changes in the amounts allocated to certain investments.

With many investors already making their own trades online, investment companies believe that robo advisors have these additional benefits:

  • lower costs for obtaining advice and conducting transactions.
  • an ability to adjust the portfolio for tax purposes by selling shares that have declined to offset gains.
  • an easier investment approach for younger clients with less-complicated financial lives.

 

Some will be concerned about automated portfolio management.  Human advisors will still be available to address issues about mortgages, insurance, estate planning, retirement income, and other topics that robo-advisers are not yet equipped to answer.

For additional information on robo advice, click on the following articles:

Article #1
Article #2
Article #3

Teaching Suggestions

  • Have students ask people to describe the process they use to select investments.
  • Have students create a framework to analyze when using robo advice might be appropriate for an investor.

Discussion Questions 

  1. What are benefits and drawbacks of robo advice?
  2. What factors might be considered when using robo advice for investment decisions?

 

Jul 22 2015

How to Open a Mutual Fund Account at a Brokerage Firm

“It’s easy to figure out the right type of account—just start with what you’re saving for.”

Too often, investors want to invest, but they don’t know where to start.  While most investment companies and brokerage firms make it as easy as possible to open an account and begin investing, for many would-be investors opening an account is confusing and often traumatic.

The link below describes a practical approach that helps would-be investors to begin investing at Vanguard—one of the largest and most successful companies in the investment world.  Note:  The link below provides information for Vanguard, but other investment companies and brokerage firms provide similar information on their websites.  At the Vanguard site, there is basic information about mutual funds.  Then specific information about fees and no-load funds is included in the section “Discover Vanguard’s Advantages.”  Next, there is a section on choosing the right fund.  Then, information about different types of investment accounts is provided.  Finally, there is a 3-step process that can be used to open an account.

For more information, click here.

Teaching Suggestions

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

  • Remind students of the advantages of beginning to invest sooner rather than later.
  • Visit the Vanguard (or other investment or brokerage firm websites) for more information.
  • Encourage students to open a mutual fund investment account when they have saved the money needed to begin an investment program.

Discussion Questions

  1. Why do you think people are reluctant to begin investing?
  2. Even though investment companies and brokerage firms make the process as easy as possible, people are often “afraid” to open an account and begin investing. How can you overcome this fear?
Jun 13 2015

Basics of Investing in Mutual Funds

“. . . Learn how to invest in mutual funds with these informative tips.”

This Money/CNN article provides the following 10 statements along with a brief explanation of each statement to help beginning investors learn about fund investing.

  1. What exactly is a mutual fund?
  2. Mutual funds make it easy to diversify.
  3. There are many kinds of stock funds.
  4. Bond funds come in many different flavors too.
  5. Returns aren’t everything – also consider the risk taken to achieve those returns.
  6. Low expenses are crucial.
  7. Taxes take a big bite out of performance.
  8. Don’t chase winners.
  9. Index funds should be a core component of your portfolio.
  10. Don’t be too quick to dump a fund.

For more information, click here. 

Teaching Suggestions

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

  • Provide an introduction to the “basics” of mutual fund investing.
  • Point out that this is just one article in the Money/CNN series. By clicking on the next button at the bottom of this article, students can access more articles and obtain more in-depth information about fund investing.

Discussion Questions

  1. Based on the information in this article, why do you think investors choose mutual funds?
  2. The article mentions that there are both stock and bond funds. What is the difference between these two types of funds?  Which type of funds do you think could help you achieve your financial goals?
  3. Why are taxes and expenses important when you choose a mutual fund?
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.
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?