Account Types, Investment Strategy & Fee Minimization Brokerage Accounts Account Types, Investment Strategy & Fee Minimization

Brokerage Accounts Brokerage accounts allow you to invest in stocks, bonds, mutual funds, commodities, etc…. many brokerage firms have high/hidden fees Fees can reduce your savings by 40%-70% over 40 years!

Many Brokerage Firms Encourage Trading! Offer trading platforms: Have low trade commissions Offer trading “education” tools Sell “their own” high cost mutual funds Bottom line: all designed to make money for the brokerage firm => NOT YOU! https://www.youtube.com/watch?v=EbnWbdR9wSY

Mutual Funds Professionally managed collective investment vehicle that pools money from investors to purchase securities You pay a yearly management fee (can be high or low) (some fees/loads are “hidden”) Funds buy stocks, bonds, commodities, etc… or a combination of different asset classes Funds do not trade during the day (buy/sell only at mkt close) Key advantages: Instant diversification & can easily re-invest stock dividends & bond interest Money flows into fund $$$$$$

Exchange Traded Funds (ETF’s) ETF’s = Similar to mutual funds, except they trade in the form of a stock. Examples: SPY (sp500), XLK (technology), GLD (gold) ETF’s vs. Mutual funds Positives: Fees can be lower than some mutual funds Many are diversified Can trade throughout trading day (very liquid) Negatives: Encourage “trading” Not efficient for dollar cost averaging Hard/impossible to re-invest dividends Many dangerous (leveraged) funds => 2:1 or 3:1 ratio funds

Types of Brokerage Accounts IRA Roth IRA 1) Retirement: Tax Deferred or Tax Free 401-K => company sponsored plan, (some match your contribution) ($19K limit) IRA => put money in “before taxes” => pay taxes in future ($6K limit) Roth IRA => put money in “after taxes” => tax free in future ($6K limit) college savings plan with many tax benefits 2) 529 Plan Regular taxable brokerage account Must use “tax strategies” in this account 3) Taxable

Researching Mutual Funds Get a Chromebook Go to my website => hit Vanguard Link Find 5 Mutual Funds: Money Market Mutual Fund Bond Mutual Fund Stock Mutual Fund

Continued: Retirement Gamble PBS Video 2013 PBS special on retirement investment dangers…. http://video.pbs.org/video/2365000843/?starttime=3131000 Play part 1: 1-16 minutes Play part 2: 17-32 mintues

End Day 1 (Block Period)

Dollar Cost Averaging Add $500 per month 20% 80% $100 $400

Strategy/Risks of the Bond Bucket Credit Risk Price Risk Longer maturity = ↑ Price Risk

Strategy of the Stock Bucket? SP500 INDEX YOUR PORTFOLIO OF STOCKS

Stock Investment Philosophy Buy & Hold Investing Active Investing Actively manage stock portfolio Goal: to “beat market” (SP 500) Often “market time” (get in, get out) Pay higher fees, taxes, trading costs Take more risk, usually underperform market Passively manage stocks Buy index funds Never “market time” (get in, get out) Pay lower fees, taxes, trading costs Take less risk, match market return Goal: Match SP500 Return

Why investors underperform the market Investors trade “too much” & buy high (greed) sell low (fear) Take money out for life expenses Mutual funds underperform: 92.2% of large-cap funds lagged S&P 500 index fund Investors pay high fees ---lose 63% of potential return over time Some 401-K plans have poor choices

Continued: Retirement Gamble PBS Video PART 2 http://video.pbs.org/video/2365000843/?starttime=3131000 Play part 2: 17-32 mintues