Ann Wolfson Associates - White House, 7030 E. Genesee St. - Fayetteville, NY 13066 - 315-449-4730
Understanding Mutual Funds
By investing in mutual funds, expert money managers work to help you achieve your financial goals. Alhough mutual funds make sense for most investors, it is important the you understand the basics of mutual funds. What are Mutual Funds? A mutual fund company is one that makes investments on behalf of its shareholders. A mutual fund pools your money with money from many other investors who have similar investment objectives. Professional money managers for the mutual fund company then take the pool of money and invests it in securities such as stocks, bonds and money-market instruments. Mutual funds can make money for you in two ways. One, they can pay dividends earned from the funds' investments. And two, if a security held by a fund is sold at a profit, the fund can pay capital gains. As a shareholder, you own a proportionate share of the fund. Each share represents ownership in all the fund's underlying securities. Funds pay dividends and capital gains in proportion to the number of fund shares owned. Thus, if you invest $1,000, you'll get the rate of return as if you invest $10,000.
Mutual Funds Provide the Basics for Smart Investing
Diversification Your best protection against risk is diversification—spreading your investment across dozens of securities instead of just one. Mutual funds provide an assortment of investment options. They offer growth, income, or both, and the opportunity to invest in international markets, as well as the U.S. A fund's portfolio managers typically invest in as many as 50 to 200 or more different securities. In effect, they put your money in many baskets instead of just one. Only the most affluent investors can attain the diversification on their own that mutual funds can for their shareholders. Professional Management With mutual funds, you have built-in professional money managers who base their buying and selling decisions on extensive, ongoing economic research. After analyzing stock market conditions, interest rates, inflation and the financial performances of individual companies, these managers select investments that best match the fund's objectives. Professional money management has long been available to large institutions and wealthy investors. Mutual funds make this type of financial expertise accessible to everyone. Growth Potential Mutual funds create possibility of higher long-term returns than conventional savings. Today, mutual funds manage more than 171.3 million shareholder accounts valued at about $4.5 trillion. They have become the nation's third largest financial intermediary—behind commercial banks and life insurance companies.
Ann Wolfson Associates - White House, 7030 E. Genesee St. - Fayetteville, NY 13066 - 315-449-4730
One reason for mutual fund growth is their performance record in relation to what individuals might expect by investing on their own. Of course, performance varies from fund to fund, but on average and over the long run, the growth of stock funds has paralleled the growth in the U.S. economy. Past performance cannot guarantee comparable future results. In addition, bond and money market funds have reflected the long-term movements in their respective markets.
Source: Investment Company Institute. Data as of 12/31/97.
Investing Can Be Easy
Convenience Mutual funds are easy to buy. As your professional investment representative, we can analyze your financial needs and objectives and recommend appropriate funds for you to purchase. You also have easy access to your money, making your investment a liquid asset. You can redeem all or part of your shares any day the New York Stock Exchange is open and receive the current value of the investment, which may be more or less than the original cost. Payment for redeemed shares will generally be made within seven days. Flexibility Mutual funds offer various features that allow you to stay in control of your investments. Automatic Reinvestment of Dividends and/or Capital Gains Most mutual funds allow you to automatically reinvest your dividends and capital gains to purchase additional fund shares at no extra cost. Over time, the power of compounding may significantly increase the value of your assets. Exchange Privilege Within a fund family, you can generally exchange portions of your investment into other funds with different objectives as your financial situation changes.
What are the Different Types of Securities Owned in a Mutual Fund?
Stocks A stock is an equity security that represents part ownership in a corporation. Stocks are sold in shares and their prices will fluctuate. The Standard & Poor's Composite Index of 500 Stocks (S&P 500) measures the general price movement of a group of unmanaged securities. It is widely regarded by investors to be representative of the stock market in general. Bonds A bond is essentially a security or IOU, usually issued by a corporation, government or government agency. Most bonds pay interest, which is distributed to the bondholder at specific intervals. Bond prices vary, and their price movements are strongly affected by changes in interest rates. Money Market Instruments In many ways, most money-market securities are just short-term versions of bonds. They're considered short-term investments because the debt that they represent must be paid back within a relatively brief period of time, no more than one year. With such short maturity periods, the prices of money-market instruments are generally more stable than prices of longer-term debt securities. However, money-market securities usually pay less interest than long-term bonds.
Ann Wolfson Associates - White House, 7030 E. Genesee St. - Fayetteville, NY 13066 - 315-449-4730
Treasury bills and certificates of deposit (CDs) are two examples of commonly issued moneymarket instruments. In addition, CDs are insured by the FDIC for up to $100,000, and Treasury bills offer a government guarantee of repayment of principal and interest if held to maturity.
What are the Different Types of Mutual Funds?
There are funds that fit just about any investment need: Growth Funds typically invest in stocks and seek capital growth through price appreciation of the securities held in their portfolios. Their primary aim is to produce an increase in the value of their investments rather than a flow of dividends. Growth funds with a more aggressive focus seek maximum capital gains as their investment objective. These funds may invest in stocks that are somewhat out of mainstream—such as smaller, lesser-known companies that managers believe possess dynamic potential. Growth and Income Funds invest primarily in the common stocks of companies with longer track records. These funds seek equities with a higher share value that also maintain a solid record of paying dividends. International Funds seek growth in their investments and invest primarily in stocks of companies located outside the U.S. Global Funds typically seek growth in the value of their investments and generally invest in stocks and/or bonds traded worldwide, including the U.S. Sector or Theme Funds seek to capitalize on the return potential provided by investing primarily in a particular industry or sector of the economy. Balanced Funds invest in both stocks and bonds. They emphasize the growth potential of stocks as well as the relative stability of income from bonds. Income Funds seek a high level of current income, is often achieved by investing in common stocks of companies with good dividend-paying records. They may invest in such fixed-income securities as corporate and government bonds. Some income funds maintain more aggressive objectives than others. International investing presents certain risks not associated with investing solely in the U.S. These include, for instance, risks related to fluctuations in the value of the U.S. dollar relative to the value of other currencies, the custody arrangements made for the Fund's foreign holdings, political risks, differences in accounting procedures, and the lesser degree of public information required to be provided by non-U.S. companies. Investing in a single-sector mutual fund may involve greater risk potential reward than investing in a more diversified fund. High Yield Funds seek a very high yield, but carry a greater degree of risk than corporate bond funds. In turn, high-yield corporate bonds have the potential to produce greater income than government bonds. The majority of their portfolios is invested in lower-rated corporate bonds. Municipal Bond Funds invest in bonds issued by local governments, such as cities and states, which use the money to build such public entities as schools, highways, public hospitals, bridges and other municipal works. Income earned from these securities is usually federally tax-exempt for most shareholders. Money Market Funds participate in short-term investment instruments that are considered the safest, most stable types of securities available. By investing in such funds, shareholders can earn
Ann Wolfson Associates - White House, 7030 E. Genesee St. - Fayetteville, NY 13066 - 315-449-4730
current money-market interest rates and maintain asset liquidity. In addition, these may specialize by investing in tax-exempt money-market securities. Investing in higher-yielding, lower-rated corporate bonds, commonly known as "junk bonds," has a greater risk of price fluctuation and loss of principal and income than U.S. government securities, such as U.S.Treasury bonds and bills. Treasuries are guaranteed by the government for repayment of principal and interest if held to maturity. Investors should carefully assess the risk associated with an investment in this type of fund. Ann Wolfson Associates White House, 7030 E. Genesee St Fayetteville, NY 13066 315-449-4730 Securities offered through Cadaret Grant & Co. Inc. Member NASD/SIPC 4769 Buckley Road Liverpool, NY (315) 451-5885