Transcript Slide 1
+ Mutual Funds and
Stock Brokers
October , 2009
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This Week: Getting Started
Choosing a Broker
Account Types
Investing in Funds
Club Portfolio
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Choosing a Broker
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What to Look For
Stockbroker - is a regulated professional broker who buys
and sells shares and other securities
Acts as the middle man
(Hidden) Fees
Commission Rates
Branch Offices vs. Online
Customer Service
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Broker Comparison
Scot
Trade
TD
E*Trade
Ameritrade
Trade
King
Charles
Schwab
Commission $7.00
$9.99
$7.99 $12.99
$4.95
$12.95
Minimum
$500
$2,000
$1,000
None
$1,000
Branches
Yes
Yes
Yes
No
Yes
Pay Attention to Other Miscellaneous Fees
Pay attention to miscellaneous fees, especially those that you are likely to incur
Buying over the phone vs. online
International orders etc.
Pick a broker that fits your needs
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Scottrade
$7 Trades
No inactivity fees
Basic functional interface
Branch offices
Excellent customer service
Used by many CCIG members
Three free trades for recommendations
Help with referrals, questions
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Types of Orders
Market – brokers buys/sells for the current market price
Limit –an order to buy or sell a set number of shares at a
specified price or better
Stop-Loss – similar to limit, buy or sell at a certain price
Limit downside of short sell
Protect existing profits
Stop Limit – combines stop order (1) w/ limit order (2)
A Limit Order guarantees price, but not an execution
Control when the trade takes place
Trailing Stop – parameter w/ trailing feature
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Placing a Trade
Entry Form
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Account Types
Brokerage
Basic Buying and Selling Stocks, Funds, etc.
Margin, Options
Roth IRA
Post-Tax Retirement Account
Pay Tax Now Instead of Later
Contribute up to $5,000 of Earned Income
IRA
Pre-Tax Retirement Account
Pay Tax on Withdrawal (during retirement)
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Investing in Funds
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Types of Funds
Money Market Fund
Equity Fund
Bond Fund
Balanced Fund
Income Fund: NSBAX
Growth Fund
Value Fund
Indexed Fund
Emerging Market Fund
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What to Look For in Actively Managed
Funds
Expense Ratio
Tax Efficiency (Redistribution of 90%)
Investing Goals and Style
Management Incentives and Interests
Ownership
Fee Structure
Historical Returns
But be careful because historical returns often aren’t indicative of
future returns!
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Examples of Value-Oriented Funds
Artisan Midcap Value (ARTQX)
Longleaf Partners (LLPFX)
Heartland Value (HRTVX)
-market cap <1.5 bill
Periods of underperformance when value is out of favor
Relying on the decisions of management
In the U.S., starting to fall out of favor…
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Exchange Traded Funds (ETFs)
If the ETF tracks an index, you don’t have to worry about tax
efficiency, evaluating a manager, but do pay attention to
expenses!
Low cost, tax efficient, stock-like
“A security that tracks an index, a commodity, or a basket of
stocks like an index fund, but trades like a stock on an
exchange.”
Pay same commission as a regular trade ($7 at Scottrade,
remember to use limit orders)
Buy and sell anytime markets are open (liquidity)
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Keeping ETFs Fairly Priced: Arbitrage
ETFs have an underlying net asset value (NAV)
Depending on supply and demand, the price of an ETF may
deviate from its NAV
When trading at a discount, authorized arbitragers can buy
ETF shares and exchange those shares for the underlying
securities and sell those securities, or vise-versa if the ETF is
trading at a premium
This keeps the price of the ETF close to its NAV, and thus
fairly valued
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Examples of ETFs
Sector-Specific
Currency-specific
Commodity-specific
Country-Specific: EWZ, EWY, FXI
Index Funds: VTI, VEU, VNQ, VWO, IVV, SPY, SPDR
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Simple Indexed ETF Portfolio
60% VTI – Vanguard Total Stock Market Index, ER 0.07%
40% VEU – Vanguard FTSE All World Ex-US Index, ER 0.25%
Add bonds later
Weighted ER of 0.14%
Holds Over 5,000 Stocks
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Index Mutual Funds
Higher minimums
Better for small, frequent purchases (DCA)
Avoid trading costs by buying directly
Only priced and traded at the close of the day
Available via OSU libraries and ccig.osu.edu:
http://proxy.lib.ohio-state.edu/login?url=http://library.morningstar.com
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Morningstar
Aggregates Fund Data
Expenses
Historical Returns
After-Tax Returns
Holdings
Also Rating System and Analyst Reports
Portfolio X-Ray
Displays data for a portfolio of funds
Sometimes more data than you really need…
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Some Related Reading
A Random Walk Down Wall Street by Burton Malkiel
Common Sense on Mutual Funds by Jack Bogle
The Bogleheads’ Guide to Investing
Morningstar’s Guide to Mutual Funds
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Summary
Do some research, read one or two books and you will be set
THING TO REMEMBER: the fund is only as good as the
manager
Weigh the pros and cons of investing in active versus passive
funds
CCIG generally is not focused on investing in funds, but we
can point you in the right direction
Remember that enterprising investors may still choose ETFs
for easy and inexpensive exposure to specific industries,
countries, etc
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Questions?
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Club Portfolio
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Goals
Show by realistic example how to choose investments
Provide a sample portfolio of value investments for a collegeaged investor
Learn about different stocks and companies and what makes
them attractive investment opportunities
Encourage discussion and debate
Maintain records of the portfolio to learn from mistakes and
successes
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Parameters
Start with $5,000 cash
Trades cost $7 (Scottrade pricing)
Placing a trade requires that a majority of present and voting
members approve the transaction
Provide rationale and analysis (as well as continuing
discussion) for each investment on the appropriate forum
page
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Analysis
Reason for Buying
Selling Strategy / Expected Duration
Reason for Selling
Analysis of our performance
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Individual Portfolio
KaChing
Numerous online sites
Sign up! And Play!
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For Next Week
Accounting
Financial Statements
Basic Valuation
Stocks:
Darling International (DAR)
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ccig.osu.edu
October, 2009