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36 Cards in this Set
- Front
- Back
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mutual fund |
co-mingled money "manager" paid by expense ratio benefit based on what happens to fund; each investor gets share of the fund funds have families |
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classes of funds |
open-ended closed exchange traded ETF |
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open-ended funds |
doesn't trade on stock mkt only public mkt original kind: diverse, largest type must stand ready to share/redeem on any day most actively managed heavily regulated by the securities & exchange commission how they market themselves |
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net asset value NAV |
when fund adds up value of total stocks & divide by number of shares to get worth of each share (4pm daily) |
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load vs. no load |
very high commission (how brokers get paid) you want NO load |
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morning star came up with a way to classify mutual funds (tic-tac-toe looking diagram) |
average market capitalization low, medium, or small cap value investing- look for stocks on sale, temporarily undervalue growth investing- look for company that is growing very rapidly, despite cost of stock -- willing to pay $$$ investors use value, growth or a blend or both techniques |
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closed-ended funds |
limited amount of money in them shares trade on stock exchange actively managed complicated, not appropriate for beginner |
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exchange traded ETF |
creative companies dev to avoid regulation trades on stock exchange passive -- not actively managed index fund vice index fund (gambling, cigarettes, etc) |
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different ways to invest in funds |
employer sponsored plan (open-ended; list from employers where you can select) self-owned brokerage account (you can chose any type of fund almost w/o limit) |
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indexes/index funds |
basically unmanaged |
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advantages of funds |
diversification reduces risk of investing professional management -- ordinary ppl utilize this to help decide where to put $ ***track record -- past performance cannot be used to predict future (past performance is no guarantee of future performance) convenience, specifically for mutual funds -- you literally put any small amount of money & invest it automatically |
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disadvantages of funds |
costs are primary disadvantage of mutual funds (open-end) expense ratio (.12%) almost impossible for manager to out perform a consist index for any length of time |
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current institutions supporting retirement |
1) social security
2) traditional (defined benefit pension) 3)inheritance |
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retirement in terms of social security |
"insolvent as it stands" aka broke don't rely on having this when you're 75 works so that younger generations pay currently pay older generations benefits (6.25% of 1st $118,000) |
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retirement in terms of traditional (defined benefit pension) |
private sector - thing of past public sector - fed/state gov't cutting back don't rely on this being here for long either |
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retirement in terms of inheritance |
don't rely on this -- unlikely |
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defined contribution plans |
created by congress thru tax $ participation is voluntary automatically taken out of salary (max 15% this money not considered income for tax purposes (gov’t gives you a subsidy/incentive to put $ in this plan) |
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types of defined contribution plans |
employer-sponsored individual |
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employer-sponsored defined contribution plan |
based on contribution YOU put in 401(k) - profit busin 403(b) non-profit employer gives you list of open-end mutual funds where you can choose where to put $ (you'll make more if theres no tax-drag) & some provide "matching contribution" DO NOT take out $ before 59 1/2 yrs old (10% additional penalty on taxes) bad part: always considered tax for income purposes when taken out ****ROTH 401(k) -- use if available (tax-free benefit later) |
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employer-sponsored defined contribution plan -- what to do if you change jobs |
DO NOT leave money in employer sponsored plan (escheat or steal your money) DO NOT take it all out in cash (you should use your emergency fund) DO transfer to your new employer’s plan ***if changing jobs from non-profit to profit, transfer rollover through IRA (just a container that can hold stocks/bonds/anything you want) |
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individual defined contribution plan |
one that allows tax-free income later on: ROTH IRA: put up to 55% of your salary into this you don't get pre-tax dollars, but it calculates post-tax dollars aka taxed along the way, but no income for tax purposes (tax free) when you take it out ***superior plan in the long-run |
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principles of retirement saving |
contribute AMAP (as much as possible), especially at the beginning at least contribute enough to get any employer match (aka free money) if ROTH 401()k, use it if employer match, any additional saving put towards ROTH IRA if you have more money, open up an individual account & save there how do you invest? depends how you want to invest you will be passive in your employer sponsored plans. if you open up a ROTH IRA in an individual account, you can chose to be active or passive in those accounts inside employer sponsored plan only index funds if possible suppose there is no employer match available first $5,500 -- ROTH IRA & additional saving -- employer plan |
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financial independence review |
decide what age you want to be financially free calc how much you need to save each month & see if it’s realistic & if not, adjust invest intelligently don’t let your emotions affect your investments (passive component even to active investments) |
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steps of investing |
STEPS: 1) KNOW YOUR GOALS & time frame associate w/ them 2) choose asset allocation longer time frame, more important stocks become shorter time frame, more important money assets & bonds become 3) choose kind of investment strategy active/passive 4) choose specific investments ***point of investing is NOT to “win the game” but “SURVIVE” |
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investment mistakes |
1) ppl confuse gambling & investing **stocks AREN’T about picking big winner short term (6 mo - 2 yrs) 2) chasing returns (price changes) seeing a stock has increased 60% & then picking that stock to invest in & then the stock decreases because it already had its streak 3) reacting overly emotionally buy stock when it sells low & then you sell it high -- they get scared when stock prices go far down & sell, but then naturally the value of that stock will go back up 4) don’t understand how important costs are |
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kinds of strategies you need for investments |
successful, easy to execute, low cost, least risk necessary, & potentially gives best returns **doesn’t matter what you look like in this game do what yields best results |
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successful passive investing |
using 1 or a combo of broad based index funds (unmanaged, designed to mimic some type of index, an intellectual construct ie: S&P500 index fund) once you choose your investment, do NOTHING ELSE but add $ to it **do NOT react to economy, stock market, gov’t policy, pres, congress, war, etc **be emotionless |
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why does passive investing work so well |
CHEAPER index mutual funds have very low tax costs (they don’t trade) not a lot of capital gains adequate diversification done for you you get elite dividend stocks S&P500 -- cross section that includes this as a subset |
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successful active investing |
companies that pay dividends/increase them tend to do better long term SOOO: look for company that paid dividends yearly for last 10 yrs & not only paid, but increased the % of the dividends each yr at least 7, 8, 9% increase each yr "buy the best, ignore the rest" strongest brands, that dominate their industries (ie: coca cola, walmart, etc) look for companies with a wide moat (competitive advantage - keeps invaders ahead) & habit forming companies (coca cola -- sugar; pharmaceuticals -- addictive drugs like cigs) |
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goals for successful active investing |
build up a portfolio of 20-25 “world dominating dividend growing companies” w/ diversification best deal: when the stock market crashes hold these stocks potentially forever once you’re 75, have dividends paid to you in cash each month (closest thing to a pension in world of finance) sell if it reduces or cuts its dividend |
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payout ratio |
% of earnings comps pay in dividends they want this to be less than 60% |
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dividend achievers // dividend aristocrats |
comps that increased their dividends for past 10 // 25 yrs 10 yrs is better, since it includes small comps with potential to keep growing |
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fish CCC list |
list of researched dividend investing done for you for free |
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how to invest based on how much $ you have to give |
$1000 -- buy stock in 1 company $1000-5000 -- 2 co $5000-10,000 -- 3 co $10000-20000 -- 5 co $20,000+ -- $5,000 each |
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KNOW THIS LIST: why don't more ppl invest smartly |
1) brokerage industry doesn’t want you to do this bc you aren’t making a lot of transactions & they don’t get paid if you don’t use them their interests & yours are NOT in alignment 2) most books focus on picking winners that’s based -- it’s impossible to always consistently choose winners “fool’s game” 3) it’s boring/dull -- you cannot boast about this 4) requires patience & self-discipline, which most ppl don’t have & you have to learn them |
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where to invest & the appropriate strategy |
1) employer sponsored plan (hopefully S&P500) -- you MUST be passive (don’t have choice) 2) individually owned retirement/any account -- passive or active |
