For what type of mutual fund discussed in Chapter 3 could you expect to find complete diversification?
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For what type of mutual fund discussed in Chapter 3 could you expect to find complete diversification?
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The following facts about mutual funds illustrate their importance to investors: Approximately 57 million U.S. households own mutual funds. The growth in mutual fund investment across households has been tremendous. In 2014, more than 46 percent of households in the United States owned mutual funds, whereas in 1980 it was only 1 in 20. Mutual funds owned approximately 29 percent of U.S. stocks at the end of 2013, and since they are simply intermediaries between households and equities, this represents a significant household investment in equities. Approximately 40 percent of U.S. households hold mutual funds in employer-spon- sored retirement plans. The 401(k) plan is a popular type of defined contribution (DC) plan, and mutual funds managed approximately 60 percent of the assets in 401(k) and DC plans in 2014. Mutual funds managed about 46 percent of the total assets in IRAs in 2014. Cost Services provided Diversification Professional management Convenience Mutual funds provide professional managers to handle investor portfolios. It seems logi- cal that they are able to effectively manage portfolios since that is their full time focus. Whether in fact active managers perform all that well is considered later. Convenience refers to the fact that the investor does not have to perform the analysis and work involved in managing a portfolio. The investor is, in effect, hiring someone to do this, thereby saving the investor a lot of time and effort. Mutual funds provide a number of services, including limited checkwriting, record keeping, preparing tax information, wiring money as directed, serving as the fiduciary for retirement accounts, and so forth. They strive to serve their shareholders. The cost involved spans a range, but in general, buying a no-load mutual fund with a low expense ratio is very cost-effective. Defining a Mutual Fund Technically, a mutual fund is an open-end investment company, which is the most familiar type of investment company. Unlike closed-end funds and ETFs, mutual funds do not trade on stock exchanges. Investors buy mutual fund shares from investment companies and sell their shares back to the companies.
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Investments Analysis And Management
ISBN: 9781118975589
13th Edition
Authors: Charles P. Jones, Gerald R. Jensen
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