Mutual Funds
and The
Stock Market Game
What is a Mutual Fund?
A mutual fund is a collection of stocks, bonds and
other securities owned by a group of investors and
managed by a professional investment advisory
firm. This investment advisor (also called the mutual
fund’s manager) collects money from many investors
and invests the pool of money for all of them.
Mutual Fund Ownership
in the U.S.
• 96 million individual investors own mutual funds,
and held 87% of the total mutual fund assets at
year-end 2006.
• 55 million households (about half of all US
households) owned mutual funds at year-end
2006.
What Advantages Are There to
Investing in Mutual Funds?
• Mutual funds provide professional management.
The fund’s manager makes the buy and sell
decisions, based on the fund’s management
philosophy.
• Mutual funds offer diversification. A mutual fund
often invests in one hundred or more securities.
What Types of Funds are
Available?
• Mutual funds are also called open-end funds. This
means that the fund will usually sell as many
shares as investors want to buy.
• Closed-end funds, like mutual funds, are
collections of securities managed by a professional
investment advisor. But unlike mutual funds, there
are a fixed number of shares available and these
shares are traded on the stock exchange.
• Exchange-traded funds, are also like mutual funds
in that they are collections of securities managed
by a professional advisor, and like closed-end
funds are traded on the stock exchange.
What Types of Mutual Funds
are Available?
There are many types of mutual funds:
• Stock funds
• Bond funds
• Sector funds
• International Funds
• Money market funds
• Hybrid funds (also known as balanced and
life cycle funds)
How Do You Make Money
on a Mutual Fund?
A mutual fund investor can make money in several
ways:
1. The fund earns income from interest or dividends
on its investments which it distributes to its
investors.
2. The fund produces capital gains by selling
securities at a profit and distributes those gains
to its investors.
3. You sell your shares of the mutual fund at a
higher price than you paid for them.
Why Should Mutual Funds be a
Part of The Stock Market Game?
• Investment companies as a whole are the largest
investor in U.S. corporate stock, holding 25% of
the outstanding stock of U.S. companies at the end
of 2006.
• The number of defined benefit plans has decreased
to 42 thousand in 2006 from 170 thousand in
1985. Conversely, the number of defined
contribution plans has increased to 450 thousand
in 2006, up from 30 thousand in 1985.
Incorporating Mutual Funds
Into The Stock Market Game
Teachers can incorporate mutual funds into The
Stock Market Game by talking about two important
goals:
1. Saving for college
2. Saving for retirement
Mutual Funds’ Role in
Education Savings
• Mutual funds accounted for 96 % of the $90.1
billion invested in Section 529 Plans at year-end
2006.
• Mutual Funds managed $5 billion in Coverdell ESAs
(formally the Education IRA).
Mutual Funds’ Role in
Retirement Savings
U.S. Retirement Assets Year-End 2006:
• $4.2 trillion in IRAs
• $4.1 trillion in defined contribution plans (e.g., 401(k),
403(b), 457, and Keoghs)
• $2.3 trillion in defined benefit plans
• $3.0 trillion in state and local government employee
retirement plans
• $1.1 trillion in federal government defined benefit and
Thrift Savings Plans
• $1.6 trillion in annuity reserves
Mutual Funds’ Role in
Retirement Savings
• Of the $4.2 trillion invested in IRAs at year-end
2006, about half ($2 trillion) was invested in
mutual funds.
• Of the $4.1 trillion invested in defined
contributions plans at year-end 2006, half
($2.1 trillion) was invested in mutual funds.
Mutual Funds
and The
Stock Market Game