Passive Money Management By Dylan Guss Finance Club

Why bother? The Intelligent Asset Allocator by William J. Bernstein With minimal effort, you can take advantage of the market in the long run Risk and return Standard Deviation  A measure of fluctuation

Standard Deviation Standard Deviations (of annual returns) (6)  Domestic stocks (conservative), 10%- 14%  Domestic stocks (aggressive), 15%-25%  Emerging market stocks, 25%-35% Ex. A fund with an expected return of 15% and a Standard Deviation of 35% (8)  So, there is a statistically expected loss of 20% or worse every 6 years, a loss worse than 55% every 44 years, and a loss of 90% or worse every 740 years

Diversification By diversifying, you can lower the SD of your portfolio (or increase it) By country/region Sectors  ex. Financials, Commodities Asset Classes  ex. Small Cap (Value & Growth), Large Cap (Value & Growth), Corporate Bonds

Why passive management? Passive versus active management performance A portfolio of 25% U.S. Large cap, 25% U.S. Small cap, 25% Foreign stocks, 25% Bonds (short term) beat 75% of all actively managed funds in a 20 year period (roughly ) (Preface ix) Little effort for a large, positive impact on your finances in the long run

Who are the major players? Charles Schwab Fidelity Vanguard E*Trade Scottrade

How to pick? Account minimums  Sometimes minimum is waived if you deposit consistently Costs  ex. Inactivity fee Products and features  ex. Bonds, Financial planning Reputation Accessibility of information online

Where to start? What is an index?  ex. S&P 500 An index fund? Why trade your own broker's funds?  Lower costs

ETFs....Why are they popular? Low expense ratios Passive and active varieties Trade like stocks Very particular exposure  Usually indexed Tax friendly