What Do You Know about Mutual Funds?

You can invest directly in mutual funds through your 403(b)(7) custodial account or 457 plan. These four questions will test your knowledge of mutual fund basics.

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A mutual fund:

Mutual funds pool money from many investors to purchase stocks, bonds, cash equivalents or a mix of assets, depending on the investment objectives of the fund. Mutual funds are not guaranteed or insured, and it is possible to lose money, including the principal amount invested. Mutual funds can be purchased by individual investors as well as retirement plan participants.



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The net asset value (NAV) of a mutual fund is:

The net asset value is calculated as the total value of the underlying shares of the fund, minus liabilities, divided by the total number of shares outstanding. It is calculated at the end of each business day.



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The expense ratio of a mutual fund is:

The expense ratio is the percentage of the fund's assets used to operate the fund. The true cost of the fund may include the expense ratio plus any sales charges, brokerage costs and transaction fees.



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True or false: A target-date fund guarantees that you will have enough money to retire by the target date.

False. A target-date fund is set up to change its asset allocation from more aggressive to more conservative as the target date nears, eliminating the need for the individual investor to rebalance or reallocate his or her investments. A target-date fund is designed as a simple, all-in-one solution to retirement investing. It does not guarantee that an investor will have enough money to retire at the target date. The amount of money accumulated in the fund will depend on how much is contributed and the performance of the fund over time. Like all mutual funds, target-date funds are neither guaranteed nor insured.