Mutual fund companies often advertise the records of

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: t he or she thinks is best to maximize the overall returns from the fund. As a buyer of the fund, you put your money in the fund manager’s hands. Mutual fund companies often advertise the records of their fund managers. They might say, “Our fund managers have the best record on Wall Street. Invest with us and get the highest returns you can.” You may be prompted to put your money in the hands of the “experts” because you feel they know better than you what stocks to buy and sell and when to do each. Buying the Market You could use another strategy, though, and buy the stocks that make up a stock index. An index is basically a portfolio of 438 Chapter 16 Stocks and Bonds stocks that represent a particular market or a portion of it, used to measure changes in a market or an economy. Earlier, we discussed the DJIA. The DJIA is a stock index. It gives us information on the performance of the 30 stocks that make up the Dow. Another index is the Standard & Poor’s 500. This index is a broad index of stock market activity because it is made up of 500 of the largest U.S. companies. Another broad-based stock index is the Wilshire 5000, which consists of the stocks of about 6,500 firms. A particularly easy way to get a composite type of fund is to buy what are called “Spyders.” The term Spyders, or SPDRs, which stands for “Standard & Poor’s Depository Receipts,” are securities representing ownership in the SPDR Trust. The SPDR Trust buys the stocks that make up the Standard & Poor’s (S&P) 500 index. Spyders are traded under the symbol SPY. When this book was being written, Spyders were selling for about $120 a share. Spyders cost one-tenth of the S&P index (total of the share prices of the stocks in the S&P). For example, if the S&P index is 1,200, then a Spyder will sell for $120. When you buy Spyders, you are buying the stock of 500 companies. Because you are buying the stock of so many companies, you are said to be “buying the market.” Jack decides...
View Full Document

This document was uploaded on 01/16/2014.

Ask a homework question - tutors are online