Kyle Watkins has worked in the management services division of Niche Consultants for the past 5 years. He currently earns an annual salary of about $120,000. At 33, he’s still a bachelor and has accumulated about $100,000 in savings over the past few years. He keeps his savings in a money market account, where it earns about 3 percent interest. Damon wants to get “a bigger bang for his buck,” so he has considered withdrawing $50,000 from his money market account and investing it in the stock market. He feels that such an investment can easily earn more than 3 percent. Andrea Berry, a close friend, suggests that he invest in mutual fund shares. Kyle has approached you, his broker, for advice.

1. Explain to Kyle the key reasons for purchasing mutual fund or ETF shares.

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

3. What types of mutual funds or ETFs would you recommend to Kyle?

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

5. Explain to Kyle the rationale for choosing ETFs over mutual funds.