1. Buying Mutual Funds Titling fund ownership Individual Joint Tenants with Right of Survivorship Equal owners Tenants in Common Can be unequal ownership Assets don’t transfer automatically at death

2. Gifts or Transfers to Minors UGMA or UTMA (TN - both) http://www.finaid.org/savings/ugma.phtml UTMA is more flexible Adult owner or custodian minors do not have contract rights fiduciary responsibility Transfers at majority (TN: UGMA – 18; UTMA – 21) $14,000 per year Taxes – First $850 tax free, next $850 at child’s rate, anything more at parent’s rate

3. Trust Trustee and beneficiary Living Trust Corporation, partnership, or other legal entity

4. What to Look For Retirement plans Automatic Investment Plans Automatic Reinvestment Transaction Phone or computer Website Exchange privileges Check writing Withdrawals

5. What You Get Trade confirmation (email) Account statements (monthly, quarterly or annual, or a combination) Form 1099-DIV Form 1099-B: sales reported to IRS Form 1099-R: IRA or annuity distributions Shareholder reports (annual and semiannual)

6. Fund Supermarkets Basically a brokerage account May just be for mutual funds Consolidated record keeping Lower custodial fees Easier to switch families (tax-loss harvesting) Margin - maybe

7. Financial Advisors BEWARE!!! DO YOUR HOMEWORK Ask about fees Ask for references Check arbitrations – NASD CFA CFP CLU and ChFC – life insurance Personal Financial Specialist – CPA with financial planning training

8. Asset Allocation Individual decision Income or growth Rebalancing tax implications 90% of portfolio performance is asset allocation, not security selection

9. Asset Allocation Risk and Return Questions Age Objectives - time Risk tolerance Investment size How much are you involved? Taxes

10. Life Cycle 100 to 120 minus age Blah, blah, blah Life cycle funds

11. Fund Types Stock Bond International Global Country specific Index Money market

12. Stock Funds Aggressive growth Growth Equity income Growth & Income International Global

13. Stock funds Market capitalization Growth or value P/E, P/CF/ P/B Dividend yield Cyclical or defensive Fundamental or technical Concentrated or not

14. International (volatile) Exchange rate risk Sector (volatile) Derivatives Fund size

15. Morningstar Fidelity Low-Priced Stock Fund

16. Small Fund Advantages Maneuverability Large – Closet indexing Focus Can outperform the market

17. Large Fund Advantages Lower expenses Better management talent Lower trading costs

18. Bond Funds Why invest in bonds funds: Liquidity Capital preservation – less volatile Income Diversification

19. Bond Type U.S. Government MBS Corporate Municipal Convertible Foreign government Foreign corporate

20. Bond Funds What to Look For Credit quality Maturity – duration Taxability Type of bond Government, corporate, asset backed, convertible Country of origin Indexing – probably not

21. Taxability Taxable fund – 8% Tax rate – 39% Equivalent aftertax return R = R pretax (1 – t) R = 8%(1 -.39) R = 4.88% State vs. Federal

22. Bond Fund Risks Market risk – Price vs. yield Reinvestment risk Credit risk Call risk

23. Management Tenure Background Team?

24. Market Indices DJIA S&P 500 Wilshire 5000 (actually more >7,000) Wilshire 4500 (Wilshire 5000 – S&P500) Russell 3000 (98% of market value) Russell 1000 (largest 1,000) Russell 2000 (1,001 to 3,000)

25. Mutual Fund Risk Beta Standard deviation Bear market decile (Morningstar) Sector risk

26. Mutual Fund Performance E(R) – R f =  + β[E(R M ) – R f ] Sharpe ratio = (R – R f ) /  Sortino = (R – Target) /  (downside)

27. Morningstar http://www.morningstar.com

28. More Performance Evaluation S&P or appropriate index Peers

29. What to Look For Fees & Expenses!!!! Turnover Closet Indexing

30. Performance Persistence Pretax alpha

31. Repeat Winners – above median performance

32. Deciles