Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (4) | Ignore Thread Prev | Next
Author: clufool Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 39301  
Subject: Re: vtsmx/vfinx Date: 7/30/2000 1:09 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 3
I am not clear on why VTSMX has a lower share price than VFINX (higher), if they perform basically the same. Which is better: for instance, $2,000 of VTSMX or $2,000 VFINX?

The question, relative to an "open end" mutal fund, is kind of like asking "Which is better, $2000 worth of $20.00 dollar bills or $2000 worth of $100 dollar bills. Both of the above funds are "open end" mutual funds. That means that the firm continually creates new shares on demand. In a "no load" fund like the ones above, shareholders buy the shares at "net asset value" and can redeem them at anytime at the prevailing market price or "net asset value". Sometimes people tend to confuse the way common stocks value is determined with the way the NAV of a mutual fund is determined. The value of common stock is determined by trading on and exchange. The NAV (net asset value) of an "open end" mutual fund is calculated by most funds after the close of the exchanges each day by adding up the market value of all the securities owned plus all other assets suchas cash, subtracting all liabilities and expenses. They then divide this result (total net assets) by the number of shares outstanding. The number of shares outstanding can vary each day depending on the number of purchases and redemptions.

The market value of each share of stock owned by the fund affects the price of each share when its value goes up or down. In other words if Bill Gates came along and put another billion dollars into either of the funds above and the value of the stocks and bonds stayed exactly the same at the end of the next days trading, their would be no difference in the share value of either fund at the end of that trading day. There would be more shares outstanding and of course an extra billion of cash.

I hope that I made myself clear.

cf

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (4) | Ignore Thread Prev | Next

Announcements

Post of the Day:
Value Hounds

Medallion Financial: TAXI!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement