Week 6 - Trading & Market Returns

Question 1

What should you do when you get a job?

Answer 1

• immediately sign up for employer’s 401(k) plan
• always save enough to get employer’s entire matching contribution
• save as much at first as you can reasonably afford
• commit to increasing your savings by 1/2 every raise until you hit your target rate
• invest mostly in equities in retirement account when young
• buy low cost index funds or low cost target date funds

Question 2

Describe how a Target Date Fund differs from say, a total market index fund such as VTSAX

Answer 2

Target Date Funds follow a glidepath, meaning they will get more conservative over time. VTSAX is all-equity all the time

Question 3

(T/F): All target date funds are inexpensive

Answer 3

False; always check the fees. Ensure it says INDEX

Question 4

To get exposure to the S&P 500, one could purchase an Index Fund or an ETF. When might each be used/better?

Answer 4

• An index fund trades once a day at the end of the day
• An ETF is more liquid, basket of securities that trades intraday

Question 5

What is the Chaos Theory?

Answer 5

Impossible to predict the future, don’t try to pick stocks. Too much randomness in there!

Question 6

Where should I invest?

Answer 6

• Discount brokerages (Fidelity, Vanguard, Schwab)
• Day Trading Platforms (avoid!)
• Robo-advisors

Question 7

What are the two primary models for advisor fees?

Answer 7

1) Assets Under Management (AUM) - represented as % of investments
2) Hourly model - not as common, typical for financial planning

Question 8

What are expense ratios?

Answer 8

The internal cost to operate the fund. Pay fund managers, make transactions, legal fees, compliance

Question 9

How can you calculate how much you pay the fund family per year?

Answer 9

Multiply the amount you have invested in the fund by the expense ratio

Question 10

(T/F) Taxes count as fees

Answer 10

False

Question 11

What should you keep your average expense ratio below?

Answer 11

Below 0.25%

Question 12

What are your options for a prior employer 401(k)?

Answer 12

• cash it out (bad usually bc taxes)
• leave where it is (if you like fund options)
• move to current 401(k) (if you like new one)
• rollover to an IRA

Question 13

What are mutual fund loads?

Answer 13

A load is a one-time fee paid every time you invest in the fund. AVOID LIKE THE PLAGUE

Question 14

What are the 4 things to look for in hiring a financial planner or CPA?

Answer 14

• Fiduciary
• Credentials
• Expertise
• Fees

Question 15

What are the 4 things Robos is very good at?

Answer 15

1) Rebalancing
2) Asset location
3) Investing cash
4) Offering low-cost services (0.25%)

Question 16

What are the three things that Robos are not that great at?

Answer 16

1) Assessing risk
2) Financial planning
3) Talking you through a scary market