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Starting Your Investment Journey: Broker Selection & Fund Insights

dunne avatar
dunne
27 diapositives · 428 Views · Jul 11, 2014

Investment journey with our comprehensive guide on choosing the right broker and understanding account types. Learn what to look for, including fees, commission rates, and customer service. Gain insights into different account types like brokerage, Roth IRA, and taxable accounts. Explore funds and ETFs, focusing on expense ratios, management incentives, and tax efficiency. Our sample portfolio for college-aged investors demonstrates how to make informed investment choices. Equip yourself with the knowledge to thrive in the investment landscape.

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  1. Getting Started October 13, 2008

  2. This Week: Getting Started Choosing a Broker Account Types Investing in Funds Club Portfolio A Look at Core-Mark

  3. Choosing a Broker

  4. What to Look For • (Hidden) Fees • Commission Rates • Branch Offices vs. Online • Customer Service

  5. Broker Comparison • Pay attention to miscellaneous fees, especially those that you are likely to incur. • Pick a broker that fits your needs.

  6. Scottrade • $7 Trades • No inactivity fees • Basic functional interface • Branch offices • Used by many CCIG members • Help with referrals, questions

  7. Placing a Trade • Limit Orders • “This is an order to buy or sell a set number of shares at a specified price or better. A Limit Order guarantees price, but not an execution.”

  8. 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)

  9. Questions / Comments

  10. Investing in Funds

  11. What to Look For in Actively Managed Funds • Expense Ratio • Tax Efficiency • 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!

  12. Examples of Value-Oriented Funds • Fairholme (FAIRX) • Longleaf Partners (LLPFX) • Sequoia Fund (SEQUX) • Periods of underperformance when value is out of favor. • Relying on the decisions of management.

  13. 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! • “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.

  14. 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.

  15. Examples of ETFs • Sector-Specific • Country-Specific: EWZ, EWY, FXI • Commodities, Dynamic Indexes • Index Funds: VTI, VEU, VNQ, VWO, IVV, SPY

  16. 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

  17. 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. • Vanguard (generally $3,000 minimum).

  18. Morningstar Available via OSU libraries and ccig.osu.edu: http://proxy.lib.ohio-state.edu/login?url=http://library.morningstar.com

  19. 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…

  20. 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

  21. Summary • Do some research, read one or two books and you will be set. • 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.

  22. Questions?

  23. Club Portfolio

  24. Goals • Show by realistic example how to choose investments. • Provide a sample portfolio of value investments for a college-aged 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.

  25. Parameters • Start with $20,000 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.

  26. Analysis • Reason for Buying • Selling Strategy / Expected Duration • Reason for Selling • Analysis (what went well, what didn’t)

  27. ccig.osu.edu October 13, 2008