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Infographic: What is a Mutual Fund?

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Infographic: What is a Mutual Fund?

What is a Mutual Fund?

The birth of the mutual fund goes all the way back to 1774, when Dutch merchant Adriaan van Ketwich first pooled the resources from a number of small investors to form a trust.

This was during a time of extreme uncertainty in the markets, and the world’s first mutual fund allowed this pool of investors to diversify across a number of European countries and American colonies. Like most other early mutual funds, it was a closed-end fund – meaning that after the first 2,000 units were purchased, participation could only occur from buying or selling shares on the secondary market.

This first fund, called “Eendragt Maakt Magt” (“unity creates strength”), lasted for 50 years and set the stage for what is now a $40.4 trillion industry globally.

The Modern Mutual Fund

Today’s infographic comes to us from StocksToTrade and it showcases the basics around mutual funds, including their history, typical structures, why people invest in them, and how fees usually break down.

A mutual fund is defined as an investment vehicle made up of a pool of money collected from many investors. A professional manager for the fund invests this capital in stocks, bonds, commodities, real estate, and other assets based on the objectives stated in the fund’s prospectus.

Unlike the very first mutual fund created in the 18th century, the most common funds today are open-ended. These funds buy back or sell their shares at the end of each day based on the net asset value (NAV) of securities, and open-end funds accounted for $16.3 trillion of assets under management (AUM) in the U.S. at the end of 2016.

Type of Mutual FundNumber of FundsAUM (U.S.)% of U.S. Industry
Open-end funds8,066$16.3 trillion86.0%
Closed-end funds530$0.3 trillion1.0%
Unit investment trusts5,103$0.1 trillion0.3%

Closed-end funds and unit investment trusts (UITs) make up the rest of the mutual fund market, and of course the fast-growing ETF sector makes up a growing piece of the wider U.S. fund industry as well.

Why Do People Invest?

As the world’s investment industry grew and matured in the 20th century, a few different factors led to people investing more in mutual funds.

Over time, investors realized they wanted easy access to diverse portfolios, daily liquidity, as well as the world’s top portfolio managers – and mutual funds can offer all of these advantages to the average investor.

Here are the basic guidelines for choosing a mutual fund:

  • Use a mutual fund cost calculator to compare how fees from various funds will impact returns
  • Evaluate portfolio managers based on their results over time
  • Comparing fund returns across a number of metrics can be important. Look at historical results, benchmark comparisons, and other funds in the peer group
  • Use online services like MorningStar to do thorough research before investing
  • Look at how well a fund is positioned for future successes
  • Read the fund’s prospectus and shareholder reports for further information

Want to learn more on different types of assets and investments?

See infographics on hedge funds, ETFs, dividend stocks, or even microcap stocks.

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Demographics

How Different Generations Think About Investing

Each generation was shaped by unique circumstances, and these differences translate directly to the investing world as well.

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How Different Generations Think About Investing

View the full-size version of the infographic by clicking here

Every generation thinks about investing a little differently.

This is partially due to the fact that each cohort finds itself on a distinct leg of life’s journey. While boomers focus on retirement, Gen Zers are thinking about education and careers. As a result, it’s not surprising to find that investment objectives can differ by age group.

However, there are other major reasons that contribute to each unique generational view. For example, what major world events shaped the mindset of each generation? Also, what role did culture play, and how do things like economic cycles factor in?

Finding Generational Discrepancies

Today’s infographic comes to us from Raconteur, and it showcases some of the most significant differences in how generations think about investing.

Let’s dive into some of the most interesting data:

1. Investment Outlook

The majority of millennials (66%) are confident about investment opportunities in the next 12 months. This drops down to 49% when boomers are asked the same question.

2. Volatility

How did different generations of investors react to recent bouts of volatility in the market?

  • 82% of millennials made changes to their portfolios
  • 69% of Gen X made changes
  • 47% of boomers made changes
  • 32% of the Silent Generation made changes

3. Knowledge and Ability

In terms of investment knowledge, 42% of millennials considered themselves to be experts in the field. On the same question, only 23% of boomers could say the same.

4. Financial Goals

Back when they were 27 years old, 45% of Gen Xers said their primary goal was to buy a home. Compare this to just 23% of millennials that consider a home to be their primary investment objective today.

5. Managing Investments

The majority of millennials (66%) saw the ability to manage all aspects of personal finance, including investments, in the same app as being important. Only 35% of boomers agreed.

Similarly, 67% of millennials saw recommendations made by artificial intelligence as being a basic part of any investment platform. Both Gen Xers and Baby Boomers were more hesitant, with 30% seeing computer-based recommendations as being integral.

6. Impact Investing

Millennials are twice as interested in ESG (environmental, social, and governance) investing, compared to their boomer counterparts. In fact, the majority of millennials (66%) choose funds according to ESG considerations.

Reasons for Not Investing

While generations may have varying investment philosophies, they seem a little more in sync when it comes to having reasons not to invest.

StatementMillennialsGen XBoomers
Recognize future outlook would be better if they start investing72%73%57%
Want to try out investing with a low money commitment35%31%25%
Afraid of losing everything42%29%28%
Too worried about current financial situation to think about future49%46%32%
Find information about investing difficult to understand63%59%55%
Don't have enough money to start investing55%59%56%

There are some similarities in the data here – for example, non-investors of all generations seem to have an equally tough time learning about investing, and similar proportions do not believe they have the funds to start investing.

On the flipside, it seems that millennials are more worried about their financial future, while simultaneously seeing a risk of “losing everything” stemming from investing.

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Business

Here’s How Much the Top CEOs of S&P 500 Companies Get Paid

Does high pay for CEOs translate into company performance? See for yourself in this visualization featuring the top CEOs of companies on the S&P 500.

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How Much the Top CEOs of S&P 500 Companies Get Paid

How much do the CEOs from some of the world’s most important companies get paid, and do these top CEOs deliver commensurate returns to shareholders?

Today’s infographic comes to us from HowMuch.net and it visualizes data on S&P 500 companies to see if there is any relationship between CEO pay and stock performance.

For Richer or Poorer

To begin, let’s look at the highest and lowest paid CEOs on the S&P 500, and their associated performance levels. Data here comes from a report by the Wall Street Journal.

Below are the five CEOs with the most pay in 2018:

RankCEOCompanyPay (2018)Shareholder Return
#1David ZaslavDiscovery, Inc.$129.4 million10.5%
#2Stephen AngelLinde$66.1 million3.1%
#3Bob IgerDisney$65.6 million20.4%
#4Richard HandlerJefferies$44.7 million-14.9%
#5Stephen MacMillanHologic$42.0 million11.7%

Last year, David Zaslav led top CEOs by taking home $129.4 million from Discovery, Inc., the parent company of various TV properties such as the Discovery Channel, Animal Planet, HGTV, Food Network, and other non-fiction focused programming. He delivered a 10.4% shareholder return, when the S&P 500 itself finished in negative territory in 2018.

Of the mix of highest-paid CEOs, Bob Iger of Disney may be able to claim the biggest impact. He helped close a $71.3 billion acquisition of 21st Century Fox, while also leading Disney’s efforts to launch a streaming service to compete with Netflix. The market rewarded Disney with a 20.4% shareholder return, while Iger received a paycheck of $65.6 million.

Now, let’s look at the lowest paid CEOs in 2018:

RankCEOCompanyPay (2018)Shareholder Return
#1Larry PageAlphabet$1-0.8%
#2Jack DorseyTwitter$119.7%
#3A. Jayson AdairCopart$203,00082.2%
#4Warren BuffettBerkshire Hathaway$398,0003.0%
#5Valentin GapontsevIPG Photonics$1.7 million-47.1%

On the list of lowest paid CEOs, we see two tech titans (Larry Page and Jack Dorsey) that have each opted for $1 salaries. Of course, they are both billionaires that own large amounts of shares in their respective companies, so they are not particularly worried about annual paychecks.

Also appearing here is Warren Buffett, who is technically paid $100,000 per year by Berkshire Hathaway plus an amount of “other compensation” that fluctuates annually. While this is indeed a modest salary, the Warren Buffett Empire is anything but modest in size – and the legendary value investor currently holds a net worth of $84.3 billion.

Finally, it’s worth noting that while J. Jayson Adair of Copart was one of the lowest paid CEOs at $203,000 in 2018, the company had the best return on the S&P 500 at 82.2%. Today, the company’s stock price still sits near all-time highs.

Maxing Returns

Finally, let’s take a peek at the CEOs that received the highest shareholder returns, and if they seem to correlate with compensation at all.

RankCEOCompanyPay (2018)Shareholder Return
#1A. Jayson AdairCopart$203,00082.2%
#2Lisa SuAMD$13.4 million79.6%
#3François Locoh-DonouF5 Networks$6.9 million65.4%
#4Sanjay MehrotraMicron Technology$14.2 million64.3%
#5Ken XieFortinet$6.8 million61.2%

Interestingly, three of highest performing CEOs – in terms of shareholder returns – actually took home smaller amounts than the median S&P 500 annual paycheck of $12.4 million. This includes the aforementioned A. Jayson Adair, who raked in only $203,000 in 2018.

That said, there is a good counterpoint to this as well.

Of the five CEOs who had the worst returns, four of them made less than the median value of $12.4 million, while one remaining CEO took home slightly more. In other words, both the best and worst performing CEOs skew towards lower-than-average pay to some degree.

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