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