Individual Stocks, Stock Mutual Funds, ETF

Question 1

What are the advantages & disadvantages of individual stocks?

Answer 1

• You get more control (you decide when to sell)
• You don’t pay taxes on the stock until you sell the stock
• More targeted
• Less Diversified
• More Hands On

Question 2

How should you diversify stocks?

Answer 2

• 20 - 30 for diversification
• To be more diversified look at a variety of companies
• Industry’s
• Size
• Style (Growth/Value/Income)

Question 3

What is a decent strategy for mutual fund or ETF Core?

Answer 3

80%+ in core mutual funds (so)
- Total Stock Market
- S&P 500
- International
Add individual stocks around core
- Pull out extra return
- Varied holdings (Advantages of Individuals)
- Tax reasons (Mutual Fund Distribution)
- Challenging and fun (Boring Wins)

Question 4

What is a Mutual Fund really?

Answer 4

Pool of Investors
- Sharing Risk and Reward
Diversified holdings
- Sometime Assets Classes
Professional Management
-Active vs Index
Liquidity
-Easy to buy and sell

So essentially you pool resources together and then buy a bunch of stocks. A manager most likely manages it for us. This would be called an active mutual fund

Question 5

What is an Index Fund?

Answer 5

Index Fund means you are trying to match the market that the index follows

Ex, Vanguard S&P 500 Index Fund, Russell 2000

Index’s can track virtually anything, just as you can have variety of mutual funds as well

Question 6

What are advantages and disadvantages of index funds?

Answer 6

Advantages
- Lower cost (Fund Manager caretaker-less turnover costs)
- Potential for more diversification
Disadvantages
- No Fund Manager with vested interest
- Index down as a whole
- Can be less diversified
- Can be heavy weighted in a few positions (Ex, S&P 500)

Question 7

What are Exchange Traded Funds (ETF)?

Answer 7

• Kind of like a hybrid
• Hold basket of underlying asses (Ex, Stocks, Bonds, etc.) - great for diversification
• Typically track an index
• Low expenses ratio
• Trade on market like a stock
• Price changes during the day
• Liquidity like a stock (No NAV)
• Pay commission to a broker like a stock
• Can buy 1 share (No minimum like mutual fund)

Question 8

What is the Mutual Fund Style Box?

Answer 8

Is a matrix that has caps to one side and then the value, blend, or growth parameters on the other side

Question 9

What are Sales Charges (Load)?

Answer 9

A fund may be a load fund or a no load fund