QUESTIONS:
“ What advantages/disadvantages do the mutual fund offer compared to company stock for your retirement investing?”
Response
Mutual funds are considered total returns’ weighted average on assets that are possessed by funds following expense deductions (Otten & Bams, 2002). It often offers constant adverse and could have an impact on the company stock. Mutual funds have an advantage on low expenses compared to those incurred by the company stock. The disadvantage is that the expense is charged at 20%.
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2.
“ Notice that, for every dollar you invest, S&S Air also invests a dollar. What return on your investment does this represent? What does your answer suggest about matching programs?”
Response
For every dollar an individual invests, the company (S&S Air) also does an investment of a dollar represents the return represents assets’ weighted average which are owned by the given fund. There is infinite earnings from the effective annual rate. The case means that there would be an infinite annual percentage rate. The answer suggests that there is an instantaneous match which can also mean an infinite number of periods in one given year. Notably, double returns are guaranteed due to the top up by the company (S&S Air). Thus, employees are motivated towards having retirement investment plan.
3.
“ Assume you decide you should invest at least part of your money in large capitalization stocks of companies based in the United States. What are the advantages and disadvantages of choosing the Arias Large-Company Stock Fund compared to the Arias S&P 500 Index Fund?”
Response
The primary merit of selecting the “Arias Large-Company Stock Fund” is about the company’s stability and the evidence of proven records. Also, the fund is considered more diversified. Hence, there is a reduced unsystematic risk. One demerit of selecting the “Arias Large-Company Stock Fund” is that it would not perform in the market- underperformance. Another disadvantage is that there is limited growth potential which is a hindrance to the stocks. Furthermore, “Arias Large-Company Stock Fund” is low risk meaning low returns as well as compared to the “Arias S&P 500 Index Fund” which is in the middle risk zone.
4.
“ The returns of the Arias Small-Cap Fund are the most volatile of all the mutual funds offered in the 401(k) plan. Why would you ever want to invest in this fund? When you examine the expenses of the mutual funds, you will notice that this fund also has the highest expenses. Will this affect your decision to invest in this fund?”
Response
The choice of such a fund would be beneficial if the correct stocks are selected. The choice can outperform growth thereby leading to good returns of the index. Selecting the correct stocks is imperative for the cap index which makes it be reliant to the fund managers’ experience and expertise. The charges or expenses should not affect the investment since higher returns are guaranteed.
Reference
Otten, R., & Bams, D. (2002). European mutual fund performance. European financial management , 8 (1), 75-101.
