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

2. 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!

3. 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!

4. 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
$$$$$$

5. 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

6. 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

7. 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

8. Continued: Retirement Gamble PBS Video
2013 PBS special on retirement investment dangers….
Play part 1: minutes
Play part 2: mintues

9. End Day 1 (Block Period)

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

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

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

13. 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

14. 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

15. Continued: Retirement Gamble PBS Video
PART 2
Play part 2: mintues