Personal finance chapter 19

A mutual fund that seeks both growth and income while minimizing risk is called a(n) _________ fund.

balanced

When you pay a sales fee at the time you buy a mutual fund, you are paying a

front end load

What are diamonds, rubies, and sapphires called?

gems

e. Indirect Investing

i. A 3rd person does there actual buying and selling ii. Trustee 1. Manages assets for someone else 2. Holds the title 3. Trusts, syndicates, mortgage pools are examples

c. Costs and Fees

i. Buy from broker ii. Buy directly through the fund company iii. Load 1. Fee paid if you go through a broker 2. Front-end-fee paid when you buy 3. Back-end-fee paid when you sell 4. Usually range from 2 to 8 percent value 5. No-load-pay no fee because you buy directly from company

a. The Mutual Fund Company

i. Choose the right company 1. Business for 20 years or more 2. Good track record 3. Large company with millions of customers 4. Well-known with great managers 5. Online access

e. Global Funds

i. Goal is to purchase international stocks and bonds ii. Can also include some U.S. securities iii. All different risk levels

d. Money Market Funds

i. Invest in safe, liquid securities ii. Mostly bonds that pay interest iii. Little risk iv.Popular when the stock market is not doing well

c. Direct Investing

i. Investors holds legal title to the property and manages ii. You buy yourself iii. Vacant land 1. Nothing on it 2. Banks don't like to lend money for this

a. Metals, Gems, and Collectibles

i. Produce no income while you own them

f. Index Funds

i. Tries to match performance of a particular index ii. Buy stocks that make up index such as the DOW iii. Risk level is tied to the index

Mutual Fund Companies

i. Usually offer a family of funds ii. Variety of different funds with different objectives g. Profits comes in dividends, capital gains, interest, etc.

Liquidity

i. You can sell your shares at any time d. Small initial and ongoing purchases i. Buy more shares at any time

What type of mutual fund reacts in the same way the stock or bond markets do as a whole?

index

A call option is the right to sell stock at a fixed price until the expiration date.

false

A limited partner organizes a real estate syndicate.

false

An option obligates the investor to buy or sell a commodity for a specified price on a specified future date.

false

Collectibles are considered a safe and relatively risk-free investment, both short- and long-term.

false

When money is left over after expenses are paid, a negative cash flow exists.

false

iv. Most funds charge an annual management fee

1. 1 to 1.5 percent of total assets

v. Certificates of Participation

1. An investment in mortgages that have been purchased by a government agency 2. Ginnie Mae 3. Freddie Mac 4. Fannie Mae

v. Rental Properties

1. Apartment complex 2. Condominium 3. Duplex, triple, quad vi. Vacation Homes 1.Rent when you are not using it

iii. Real Estate Investment Trusts

1. Corporation that pools money from many people to buy properties 2. Similar to a mutual fund 3. Sometimes buy mortgage from banks 4. You can buy shares (more liquid)

v. Risks

1. Damage from renters 2. Vacancies 3. Zoning laws

iv. Tax Advantages

1. Depreciation 2. Property taxes 3. Maintenance 4. Interest on mortgage

i. Mortgage

1. Loan to buy real estate 2. Also a form of leverage ii. Monthly payments iii. Manage the property 1. Residential landlord 2. Property manager

b. Sources of Information

1. Morningstar 2. Yahoo finance ii. Dreyfus and Vanguard iii. Prospectus 1.Legal document that provides details about mutual funds

iv. Real Estate Syndicates

1. Pooling of money to buy high-priced real estate 2. Usually short term 3. You don't make money until real estate is sold 4. The organizer is the general partner 5. People who contribute are limited partners

i. Net Asset Value

1. The market price for a share pf a mutual fund 2. NAV= value of portfolio-liabilities / # of shares 3. Calculated at the end of each business

Growth and Income fund

a mutual fund whose investment goal is to earn returns from both dividends and capital gains

Growth fund

a. Growth Fund i. The goal is to buy stocks that will increase in value over time ii. Capital gain is the goal iii. Risk is fairly high

5. Real Estate Investing

a. Land and buildings b. Commercial Property i. Land and buildings that produce income ii. Office buildings, stores, hotels, duplexes, apartments iii.Least

2. Advantages of Mutual Funds

a. Professionally managed b. Diversification i. Variety of stocks and bonds

Evaluating Mutual Funds

a. Professionally managed group of investment b. Money is pooled from many investors c. You buy shares of the fund (share price) d. Made up of stocks, bonds, and other securities e. Every mutual fund has states investment objectives

Which of the following is considered an individually owned apartment?

c. condominium

The most popular collectibles are

coins

Which of the following is a type of direct investment in real estate?

duplex

What is an example of an indirect investment?

limited partnership

With leverage, the homebuyer makes a down payment and then assumes a

mortgage

A building with three separate living units is a

triplex

An investment in real estate is generally considered a good way to combat inflation but illiquid.

true

Commodities are considered a risky investment.

true

Diversification is an advantage of mutual funds.

true

Prices of gems are high and subject to drastic change.

true

The owner of rental property can deduct depreciation expenses when filing a tax return.

true