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Brokerage Accounts

Brokerage Accounts. Account Types , Investment Strategy & Fee Minimization. Brokerage Accounts. Brokerage accounts allow you to invest in stocks , bonds , mutual funds , commodities , etc…. many brokerage firms have high/hidden fees

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Brokerage Accounts

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  1. 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! https://www.youtube.com/watch?v=EbnWbdR9wSY

  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… ora 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 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) 1) Retirement: Tax Deferred or Tax Free 2) 529 Plan 3) Taxable Regular taxable brokerage account Must use “tax strategies” in this account college savings plan with many tax benefits 401-K IRA Roth IRA

  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…. http://video.pbs.org/video/2365000843/?starttime=3131000 Play part 1: 1-16 minutes Play part 2: 17-32 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 Price Risk Credit Risk Longer maturity = ↑ Price Risk

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

  13. Stock Investment Philosophy Active Investing Buy & Hold 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 http://video.pbs.org/video/2365000843/?starttime=3131000 Play part 2: 17-32 mintues

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