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It’s Your Money!

In this guide, we uncover the essentials of equity investing and what equities are. Equities represent ownership in companies traded on exchanges like NYSE and NASDAQ. You can own shares individually through stocks or diversify with mutual funds and ETFs. We will explain the costs involved, the importance of professional management, and the asset allocation strategies for your portfolio. Learn the dos and don’ts of investing, the analogy of the stock market as a zoo, and how to measure your portfolio's performance for consistent returns.

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It’s Your Money!

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Presentation Transcript

  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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