
6bec57062afb76dbda4d96fe25ea3997.ppt
- Количество слайдов: 35
Mutual Funds for Long Term Goals (IRAs) Financial Planning for Women Jean Lown, FCHD Dept. , USU Power. Point by Tiffany Smith Students from Advanced Family Finance Carrie Baugh, Jenny Olsen, Sarah Doxey, Daneal Francisco, & Natalie Nesbit
Overview • • • Invest in stocks for the long run IRA review What is a mutual fund? How to choose a mutual fund Specific MF recommendations based on students’ research 2
Why Stocks for the Long Run? • Higher risk = higher potential returns – Risk = volatility (annual returns = -50%-+50%) • Historic average annual rates of return – Stocks 10% – Bonds 6% – Cash equivalents (CDs) 3% • Inflation averages 3. 1%/year 3
Individual Retirement Accounts • Tax-advantaged investing – the account is not taxed while it is growing for retirement – When withdrawn, $ may or may not be taxed depending on whether it is a Traditional or Roth IRA 4
Traditional Vs. Roth IRA • Contributions may be taxdeductible – Depends on income & employer sponsored plan • $ is taxed when withdrawn at retirement • Must start withdrawals at 70 ½ (spend during lifetime) • Contributions are not taxdeductible • $ is not taxed when withdrawn at retirement • Do not have to start withdrawals at age 70 ½ • Can bequeath to heirs 5
Questions? 6
What is a Mutual Fund? • A company that pools money from many investors to buy a variety of different securities (stocks, bonds, etc. ) • Automatic diversification – Each investor owns a pro-rata share of all investments in the portfolio • Professional management 7
Why Mutual Funds? • Diversification – Own a piece of many companies – For a small $ amount you gain a great deal of diversification. • Easy to match your investment objective • Convenient to purchase and sell 8
Load vs. No-Load • Load funds are sold by financial sales people who charge commissions – ~5% of every $, every time you invest • No-load (no commission) funds – Sold directly to investor (no salesperson) • web sites • 800 phone number • mail 9
Index vs. Actively Managed Funds Index Actively Managed • Tracks a market index • Higher management fees – S&P 500 – DJ Wilshire 5000 • Higher turnover rate • Fees are lower • Rate of return can be higher but it is • Low turnover rate uncommon for it to be • Investment returns higher than an index for mirror the index long periods of time 10
Criteria for Choosing a Mutual Fund • • • Investment Objective Diversification: more is better No-Loads Low expense ratio Minimum Initial/Subsequent Investment – Automatic investment plan • Independent ratings 11
Initial/Subsequent Investment • Most funds require a large initial investment (i. e. , $1, 000 – 3, 000) • Lower subsequent minimum investments once in the fund ($50 -250) • A few funds allow you to bypass initial investment if you set up automatic investment plan (AIP) 12
Expenses/Custodial Fees • Funds charge investors fees and expenses. • A fund with high costs must perform better than a low-cost fund to generate the same returns. • Small differences in fees can translate into large differences in returns over time. 13
MF Expense Analyzer • Compares cost of owning a fund over time based on the fund’s expense ratio • National Association of Securities Dealers (NASD) • http: //apps. nasd. com/investor_Information/ ea/nasd/mfetf. aspx 14
Expense Example • Invest $10, 000 for 20 years in a fund w/ 10% annual return – 0. 5% expense ratio; grows to $60, 858 – 1. 5% expense ratio; grows to $49, 725 • 18% more! – Average expense ratio for stock MFs = 1. 5% 15
Focus on the Future • “Past performance is no guarantee of future returns. ” • It’s very difficult to beat “the market” (represented by an index such as S&P 500) in any one year and even harder to do this consistently. • The only thing you know about the future is the fund’s expense ratio. 16
Questions? 17
Funds Chosen by Adv. FF Class • Index – Vanguard Total Stock Market Index • Actively managed – Meridian Value – T. Rowe Price Blue Chip Growth • Target Retirement Date – Vanguard 2045 Fund 18
Blue Chip Growth Fund TRBCX Money Magazine 65 Best Funds 19
TRBCX Asset Allocation • Stocks 99. 4% • Cash 0. 6% 20
T. Rowe Price Blue Chip Growth Fund • Objective: Growth • IRA AIP: Sign up for $50/month & waive the $1, 000 initial minimum • 0. 61% Expense Ratio • 8. 84% average return for past 10 years 21
TRBCX Ratings • High ranking among independent raters – Morningstar – Kiplinger's: – Forbes Rating: B – Money Magazine: Top 65 Funds 22
Meridian Value Fund (1994) • • • Seeks long-term growth of capital Mid-cap blend Minimum Initial: $1, 000 Subsequent: $50 Expense Ratio: 1. 08% 18% return average over 10 years 23
Meridian Value Fund 24
Meridian Value Fund (MVALX) Morningstar Rated #1 for past 10 years by Lipper Equity Fund Analysis (through Dec. 2005) Business Week + Money 65 low-cost, well-managed, diversified funds 25
Vanguard Total Stock Market Index • Objective – Track the MSCI index of all U. S. stocks • Minimum initial investment = $3, 000 • Minimum Subsequent =$100 /$50 (AIP) • 0. 19% Expense Ratio • 8. 92% Average return for 10 years 26
Vanguard Total Stock Market Index • Asset Allocation of VTSMX – Stocks 98. 3% – Cash 1. 0% – Other 0. 7% • Suitable for long term investors seeking maximum returns & willing to endure market volatility – Remember 2000 -2003? 27
Vanguard Target Retirement Date Funds • Objective: seek capital appreciation through diversification – managed according to your stage in life – become more conservative over time • Automatic rebalancing • Invest in existing Vanguard funds – U. S. stocks, bonds & international stocks 28
Vanguard Target Retirement 29
Vanguard Target Retirement Inception date: 2003 – underlying funds have much longer track record • Expense Ratio: 0. 21% • 12. 87% return sinception 30
Underlying Vanguard Funds (asset allocation) 2045 Fund • Stocks – Total Stock Market Index Fund 70. 7% – European Stock Index Fund 11. 8% – Pacific Stock Index Fund 11. 6% • Bonds Total Bond Market Index Fund 5. 9% 31
Target Retirement Funds • 2045: For people in their 20 s who plan to retire between 2040 & 2049 – 94% invested in U. S. & international stocks • Other funds for earlier retirement dates: – – 2035: 77% stocks/23% bonds 2025: 59% stocks/41% bonds 2015: 49% stocks/48% bonds/3% inflation-protected 2005: 33% stocks/49% bonds/18% inflation-protected 32
Vanguard Target Retirement • Initial Investment: $3, 000 in IRA or non-IRA • Subsequent Investment: $100 or $50 w/ AIP 33
How to Choose? • If you can afford $3, 000 investment – Vanguard Total Stock Market Index • Own a representative sample of all publicly traded U. S. stocks (with low expenses) – Vanguard Target Retirement Fund • Widely diversified investment classes (stocks & bonds) • Less volatile than 100% stocks • Rebalances automatically as you approach retirement • To start with low initial investment $50 AIP – T. Rowe Price Blue Chip Growth 34
It’s not magic, just do your homework 35