Snappy and the Mutual Fund
Snappy has learned that the price of the shares of one company can rise and fall, but thinks that if business is good in the forest, most stock prices should go up.
Snappy and the Mutual Fund
He talked to Owl, owner of Owl’s Bank, and learned that he could buy a share in several companies at once.
Snappy and the Mutual Fund
Owl had bought some of almost every stock available in the forest and created a pool of these shares.
Snappy and the Mutual Fund
Owl offered to sell Snappy a share in the whole pool, which Owl called a ‘Mutual Fund’.
Snappy and the Mutual Fund
Owl explained that even if the profit from the whole fund is less than the profit from one well-performing stock, there is less chance that the fund price will go down due to a stock’s sales going down.
Snappy and the Mutual Fund
Owl explained a bit more. There are funds representing the whole market, that is, every company in the forest. These are called ‘index funds’ because they include a complete listing, or ‘index’, of the market.
Snappy and the Mutual Fund
Another type of fund represents only some types of companies. For example, the ‘Engineering Sector’ of funds included Beaver’s Dam-building Company and Otter’s Mudslide Play-Spaces.
Snappy and the Mutual Fund
The ‘Excavation Sector’ type of funds included Mrs. Mole’s Underground Storage company, Earthworm’s Casing Casting Company, and Gopher’s Lawn-Aeration Co-op.
Snappy and the Mutual Fund
These specialty funds, while appealing, seemed a little more specialized than an index fund. Which one should Snappy buy?
Snappy and the Mutual Fund
Snappy was willing to accept a little less profit to reduce the chance of a loss, and decided to buy some of Owl’s Index Mutual Fund.