+Mutual Funds and Stock BrokersOctober , 2009

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This Week: Getting StartedChoosing a BrokerAccount TypesInvesting in FundsClub Portfolio

+Choosing a Broker

+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

+Broker Comparison

Scot Trade

TD Ameritrade

E*Trade 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

+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

+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 A Limit Order guarantees price, but not an execution

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) Control when the trade takes place

Trailing Stop – parameter w/ trailing feature

+Placing a Trade

Entry Form

+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)

+Investing in Funds

+Types of Funds

Money Market Fund

Equity Fund

Bond Fund

Balanced Fund

Income Fund: NSBAX

Growth Fund

Value Fund

Indexed Fund

Emerging Market Fund

+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!

+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…

+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)

+

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

+Examples of ETFs

Sector-Specific

Currency-specific

Commodity-specific

Country-Specific: EWZ, EWY, FXI

Index Funds: VTI, VEU, VNQ, VWO, IVV, SPY, SPDR

+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

+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

+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…

+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

+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

+Questions?

+Club Portfolio

+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

+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

+Analysis

Reason for Buying

Selling Strategy / Expected Duration

Reason for Selling

Analysis of our performance

+Individual Portfolio

KaChing

Numerous online sites

Sign up! And Play!

+For Next Week

Accounting Financial Statements

Basic Valuation

Stocks: Darling International (DAR)

+ccig.osu.edu

October, 2009