+ Mutual Funds and Stock Brokers October, 2009

+ This Week: Getting Started Choosing a Broker Account Types Investing in Funds Club Portfolio

+ Choosing a Broker

+ What to Look For Stockbroker - is a regulated professional broker who buys and sells shares and other securities Acts as the middle man (Hidden) Fees Commission Rates Branch Offices vs. Online Customer Service

+ Broker Comparison Scot Trade TD Ameritrade E*TradeTrade King Charles Schwab Commission$7.00$9.99$ $12.99 $4.95$12.95 Minimum$500$2,000$1,000None$1,000 BranchesYes NoYes Pay Attention to Other Miscellaneous Fees  Pay attention to miscellaneous fees, especially those that you are likely to incur  Buying over the phone vs. online  International orders etc.  Pick a broker that fits your needs

+ Scottrade $7 Trades No inactivity fees Basic functional interface Branch offices Excellent customer service Used by many CCIG members Three free trades for recommendations Help with referrals, questions

+ Types of Orders Market – brokers buys/sells for the current market price Limit –an order to buy or sell a set number of shares at a specified price or better A Limit Order guarantees price, but not an execution Stop-Loss – similar to limit, buy or sell at a certain price Limit downside of short sell Protect existing profits Stop Limit – combines stop order (1) w/ limit order (2) Control when the trade takes place Trailing Stop – parameter w/ trailing feature

+ Placing a Trade Entry Form

+ Account Types Brokerage Basic Buying and Selling Stocks, Funds, etc. Margin, Options Roth IRA Post-Tax Retirement Account Pay Tax Now Instead of Later Contribute up to $5,000 of Earned Income IRA Pre-Tax Retirement Account Pay Tax on Withdrawal (during retirement)

+ Investing in Funds

+ Types of Funds Money Market Fund Equity Fund Bond Fund Balanced Fund Income Fund: NSBAX Growth Fund Value Fund Indexed Fund Emerging Market Fund

+ What to Look For in Actively Managed Funds Expense Ratio Tax Efficiency (Redistribution of 90%) Investing Goals and Style Management Incentives and Interests Ownership Fee Structure Historical Returns But be careful because historical returns often aren’t indicative of future returns!

+ Examples of Value-Oriented Funds Artisan Midcap Value (ARTQX) Longleaf Partners (LLPFX) Heartland Value (HRTVX) -market cap <1.5 bill Periods of underperformance when value is out of favor Relying on the decisions of management In the U.S., starting to fall out of favor…

+ Exchange Traded Funds (ETFs) If the ETF tracks an index, you don’t have to worry about tax efficiency, evaluating a manager, but do pay attention to expenses! Low cost, tax efficient, stock-like “A security that tracks an index, a commodity, or a basket of stocks like an index fund, but trades like a stock on an exchange.” Pay same commission as a regular trade ($7 at Scottrade, remember to use limit orders) Buy and sell anytime markets are open (liquidity)

+ Keeping ETFs Fairly Priced: Arbitrage ETFs have an underlying net asset value (NAV) Depending on supply and demand, the price of an ETF may deviate from its NAV When trading at a discount, authorized arbitragers can buy ETF shares and exchange those shares for the underlying securities and sell those securities, or vise-versa if the ETF is trading at a premium This keeps the price of the ETF close to its NAV, and thus fairly valued

+ Examples of ETFs Sector-Specific Currency-specific Commodity-specific Country-Specific: EWZ, EWY, FXI Index Funds: VTI, VEU, VNQ, VWO, IVV, SPY, SPDR

+ Simple Indexed ETF Portfolio 60% VTI – Vanguard Total Stock Market Index, ER 0.07% 40% VEU – Vanguard FTSE All World Ex-US Index, ER 0.25% Add bonds later Weighted ER of 0.14% Holds Over 5,000 Stocks

+ Index Mutual Funds Higher minimums Better for small, frequent purchases (DCA) Avoid trading costs by buying directly Only priced and traded at the close of the day

Available via OSU libraries and ccig.osu.edu:

+ Morningstar Aggregates Fund Data Expenses Historical Returns After-Tax Returns Holdings Also Rating System and Analyst Reports Portfolio X-Ray Displays data for a portfolio of funds Sometimes more data than you really need…

+ Some Related Reading A Random Walk Down Wall Street by Burton Malkiel Common Sense on Mutual Funds by Jack Bogle The Bogleheads’ Guide to Investing Morningstar’s Guide to Mutual Funds

+ Summary Do some research, read one or two books and you will be set THING TO REMEMBER: the fund is only as good as the manager Weigh the pros and cons of investing in active versus passive funds CCIG generally is not focused on investing in funds, but we can point you in the right direction Remember that enterprising investors may still choose ETFs for easy and inexpensive exposure to specific industries, countries, etc

+ Questions?

+ Club Portfolio

+ Goals Show by realistic example how to choose investments Provide a sample portfolio of value investments for a college- aged investor Learn about different stocks and companies and what makes them attractive investment opportunities Encourage discussion and debate Maintain records of the portfolio to learn from mistakes and successes

+ Parameters Start with $5,000 cash Trades cost $7 (Scottrade pricing) Placing a trade requires that a majority of present and voting members approve the transaction Provide rationale and analysis (as well as continuing discussion) for each investment on the appropriate forum page

+ Analysis Reason for Buying Selling Strategy / Expected Duration Reason for Selling Analysis of our performance

+ Individual Portfolio KaChing Numerous online sites Sign up! And Play!

+ For Next Week Accounting Financial Statements Basic Valuation Stocks: Darling International (DAR)

+ ccig.osu.edu October, 2009