3.1 Ray’s Dilemma: Common Stocks or Mutual Funds?

Ray Sutton has worked in the management services division of Strategic Consultants for the past 5 years. He currently earns a n annual salary of about %95,000. At 33, he’s still a bachelor and has accumulated about $60,000 in savings over the past few years. He keeps his savings in a money market account, where it earns about 3% interest. Ray wants to get “a bigger bang for his buck” and so has considered withdrawing $50,000 from his money market account and investing it I the stock market. He feels that such an investment can easily earn more than 3%. Cheryl Dodd, a close friend, suggest that he invest in mutual fund shares. Ray has approached you, his broker for advice.

1. Explain to Ray the key reasons for purchasing mutual fund shares.

2. What special fund features might help Ray achieve his investment objectives?

3. What types of mutual funds would you recommend to Ray?

4. What recommendations would you make regarding Ray’s dilemma about whether to go into stocks or mutual funds? Explain.