A mutual fund is an investment vehicle in which investor’s pool their resources together to invest in multiple different debt and equity instruments. They are operated by mutual fund managers who attempt to create a diversified portfolio, while still trying to achieve capital gains on the assets in the fund, paying close attention to the investors’ appetites for risk. The goal of a mutual fund is to pool multiple investor’s funds together so they can be invested at a level higher than any one investor could achieve on their own, with the end game being returns that can be enjoyed by all in a “mutual” benefit system. A mutual fund aims to create an optimally diversified portfolio. Diversification is the process of splitting up the funds through …show more content…
The managers are typically compensated on a salary plus performance basis. This usually comes in the form of a management fee, or a very small percentage of total AUM, assets under management, that is given to the managers as compensation for this perceived “expertise” in the area of picking stocks and bonds. For example, a mutual fund may have a management fee of .49%, so for every $10,000 invested, the manager would receive $49 toward their salary. To give an example of how massive this number can become, the tenth largest mutual fund trading right now is Vanguard’s Total International Stock Index (Ticker: VGTSX), and that has about $68 billion in assets. A little quick math with that .49% fee comes out to about $333 million. Of course not all of that goes to the manager, and this is a particularly large fund (although not the largest out there), that number is staggering to say the …show more content…
When you’re making that much money, and more importantly handling that much of other people’s money, it is sure to raise the eye of the SEC, the Securities and Exchange Commission. This group is in charge of overseeing and regulating the financial industry to make sure the everyday investor isn’t exploited or taken advantage of when it comes to investing their money. “The SEC monitors the [mutual] fund’s compliance with the Investment Company Act of 1940, as well as its adherence to other federal rules and regulations.” (The Balance) Part of these other rules and regulations is the Dodd-Frank Act passed and signed into Federal Law in 2010. This Act has been hemorrhaging the financial industry in terms of regulations and rules that must be followed. Dodd-Frank, coupled with the Investment Company Act, has made the industry and a regulatory nightmare and simple tasks have been wrapped and rewrapped with political red tape that makes even the most mundane tasks complicated and tedious. The financial industry, specifically mutual funds, is a prosperous industry that helps out ordinary investors with trivial sums of money generate large returns on their investments, and the managers, along with their clients, are rewarded
Student Answer: Professional management and diversification are the major reasons investors purchase mutual funds, as well as they are easy to invest in for beginning investors or those who lack large amount of money as required by other types of investments. Investment companies are employed with experienced and profession fund managers who research and devote a lot of time to finding the perfect securities for their investment portfolios. The diversification allows for gains, even in a loss, because one investment in a mutual fund can offset the loss of another by it’s gains. Basically, your investments are scattered around and offer somewhat of a safety net for your
These laws allow prosecution of people who manage other people’s money, they are the Investment Advisors Act of 1940 and the Investment Company Act of 1940. These two laws monitor and regulate the activities of investment advisors and regulates and impacts the operations of hedge funds, mutual funds, private equity funds and the holding companies. Some people have speculated that the SEC is overworked and underfunded, while others think there is corruption or that the SEC is ineffective, inefficient and just missed all the “Red Flags”. While a conclusion will not be drawn here, many of these ideas can apply as the information is laid out within the time line of investigations.
A major example in recent news is the settlement made by Lockheed Martin giving 61 million dollars back to their employee’s 401(k) plans. Lockheed Martin was charged with “imprudently managing employee retirement savings in funds that charged high fees, allowing a high level of employee savings to be held in low-yielding money-market funds,
Ross, S.A., Westerfield, R.W., Jaffe, J. and Jordan, B.D., 2008. Modern Financial Management: International Student Edition. 8th Edition. New York: McGraw-Hill Companies.
William Sharpe, Gordon J. Alexander, Jeffrey W Bailey. Investments. Prentice Hall; 6 edition, October 20, 1998
As an investor with several types of securities, I am looking for long-term stability towards a retirement fund. The combination of several different stocks and mutual funds allows for the safety of the investments. By investing long-term in different accounts, I have the ability to gain more in the long-run with less risk of not lose all my savings on one investment.
To maximize optimum performance of our investment portfolio, we placed a certain percentage of equity in different sectors of the stock market.
According to Investopedia (Asset Allocation Definition, 2013), asset allocation is an investment strategy that aims to balance risk and reward by distributing a portfolio’s assets according to an individual’s goals, risk tolerance and investment horizon. There are three main asset classes: equities, fixed-income, cash and cash equivalents; but they all have different levels of risk and return. A prudent investor should be careful in allocating each asset class to his portfolio. Proper asset allocation is a highly debatable subject and is not designed equally for everybody, but is rather based on the desires and needs of the individual investor. This paper discusses the importance of asset allocation, the differences and the proper diversification within the portfolio.
A market economy is a society that is industrialized. For example, there are factories and workers that make goods. But a society does not need capitalism to be industrialized. A market economy is where there are people who compete. They try to get money by themselves and only for them. They are money greedy and the want it all. This is a goal and this is what a market economy focuses on. But even though society is industrialized, they have limits. They are controlled by the government. For example, Social Security is controlled by the government. When the government controls, institutions do not have many rights. For social security, there are qualifications and these qualifications are made by the government. But the poor face more problems than the rich. For example, the rich have more power and control the ways there
Durke Asset Management SA (nd), The benefit of diversification, Management Mandate Philosophy, viewed 24/1/2012, < http://www.dukre.com/media/en/E5A1BF79-2F6A-4377-8566-316F1634D738/Benefits%20of%20diversification.pdf >
University of Phoenix.(Ed.). (2005). Foundations of Financial Management, 11e [University Phoenix Custom Edition]. The McGraw-Hill Companies.
Mutual funds will let small investors have more choices than they would have when investing on an individual level. The money from several investors is invested in different companies so that the risk is minimized. The strategy in this type of investment is to assure that a profit is made from some of the businesses so that if one should fail, others will still do well. You should really research where your money will be going and what kind of track record the businesses have had in terms of gains before investing.
Risk taking is considered an everyday staple of life and a major part of growing up. When we limit the risks we take in our lives we also limit the capabilities those risks present, such as encountering new experiences and situations that improve us as human beings. Risk taking is imperative to personal growth and when discussed in good context it seems harmless, however that is only a half truth. To say risk taking is always safe is completely incorrect and sometimes these risks are often unsafe and not thought out. This essay addresses the following question, why do teenagers engage in this form of unhealthy risk taking? I will also be discussing whether or not certain groups are more at risk and any known strategies to make teenagers aware
Economies of scale are the advantages that accrue as organizations become bigger and expand their activities. The firm that I chose is McDonalds. It is one of the world’s largest fast food restaurant chains. McDonald’s economies of scale allow for bulk purchase of products, faster growth, specialized management, and franchise support. Additionally, profits received and significant cost savings are a big part of McDonald 's economies of scale.
The Modern portfolio theory {MPT}, "proposes how rational investors will use diversification to optimize their portfolios, and how an asset should be priced given its risk relative to the market as a whole. The basic concepts of the theory are the efficient frontier, Capital Asset Pricing Model and beta coefficient, the Capital Market Line and the Securities Market Line. MPT models the return of an asset as a random variable and a portfolio as a weighted combination of assets; the return of a portfolio is thus also a random variable and consequently has an expected value and a variance.