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It’s Your Money!

It’s Your Money!. Week 6: Equity Investing. What are Equities?. Equities represent ownership in a company Traded on an Exchange: NYSE, NASDAQ How do we own them? Individually  stocks, brokerage account Diversified baskets  Mutual Funds, ETFs Why do we own them? Grow our nest egg

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It’s Your Money!

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  1. It’s Your Money! Week 6: Equity Investing

  2. What are Equities? Equities represent ownership in a company • Traded on an Exchange: NYSE, NASDAQ How do we own them? • Individually stocks, brokerage account • Diversified baskets  Mutual Funds, ETFs Why do we own them? • Grow our nest egg • Outpace inflation

  3. The Stock Market: Zoo Analogy • The zoo is the market • Each animal represents a company or stock • Some carry more value than others • Value(s) fluctuate • New animal introduced = IPO • Owner(s) can buy or sell

  4. Types of Investments Stocks – represents ownership in a company Mutual Funds – a basket of stocks professionally managed Indexes – Replicate the returns of a basket of stocks Exchange Traded Funds (ETFs) – A basket of stocks which trade like a stock rather than a fund

  5. Costs Involved Stocks – $$ per trade Mutual Funds • Load/ No Load • Expense Ratio • Transaction fee • Redemption fee • 12b-1 fee Indexes – like no load funds ETFs – $$ per trade Know all of the costs involved before purchasing securities!!!

  6. Professional Management Mutual Fund Managers • Avoid funds with higher than average expense ratios What do you get for the expense ratio? • Trading costs (commissions) • Admin/reporting costs • Manager/analyst salaries • Security selection and management

  7. Mutual Fund Selection Process • Morningstar rating • Assets Under Management (AUM) • Manager Tenure • Expense Ratio • Historical performance • Tax efficiency • Load or No-Load

  8. Asset Allocation What is it? • Percentage of your portfolio devoted to specific asset classes Stock and Bond Portfolios • 80/20 ? 70/30 ? 60/40 ? Asset Classes • Large, mid, & small cap; growth and value Sectors • Consumer Discretionary, Consumer Staples, Industrial, Materials, Energy, Information Tech, Telecom, Healthcare, Financials, & Utilities

  9. DosandDon’ts DO... Don’t... Use active management Use rating services Use manager selection services • Remember that risk and return are related • Remember that returns are random • take the long term view – be diversified • Keep your expenses LOW Examples...

  10. Diversification • Method to reduce risk by spreading investments across multiple asset classes • Positions you to participate in upside while protecting yourself on the downside • Does not insure profit or prevent loss • Does not always work in a financial crisis • 20 Stock minimum – 50 max?? • Spread holding across all 10 S&P sectors

  11. How Am I Doing? • Performance measurement • Different methods of reporting • Time weighted – used to compare managers • Dollar weighted – shows the cash effect • None – most poplar! • Benchmarks – show comparisons to an index • Net of management fees (after fees deducted) • Consider deposits/withdrawals

  12. The Ultimate Goal Consistent Risk-Adjusted Investment Returns Portfolio Monitoring & Reporting Stock and Fund Selection Asset Allocation

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