the clairvoyant society of wall street will not meet tuesday because of unforeseen circumstances
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From last week 7. You are your own worst enemy, beware.TRANSCRIPT
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The clairvoyant society of Wall Street will not meet Tuesday because of unforeseen circumstances.
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No matter how cynical you become, it’s never enough to keep up.
Lily Thomlin
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From last week
7. You are your own worst enemy, beware.
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8. Costs Kill
• Fiduciary: a person with a legal obligation to place your interest above his own.
• Your broker is not a fiduciary…
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8. Costs Kill
• Equity mutual funds lose your money…’
• Do not outperform index funds…• Does not apply to bond funds…
• ETFs??? Indexed Equity ETFs are fine• Market Capitalization determines index
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Mutual Funds
• All hold underlying investments • Charge management fees (expense ratios) • May distribute income and capital gains
• NAV = Net Asset Value = the market value of the securities held by the fund per unit
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OPEN ENDED aka MUTUAL FUND• Bought and sold from the fund company • Holdings are selected by the fund manager• Buys or sells holdings daily as funds flow in or
out and issues or redeems units at the end of the day with a NAV calculated at the close of the market
• The price of a unit always = NAV
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CLOSE ENDED OR CEF
• Trades like a stock on a market exchange• Holdings are selected by the fund manager• The price of a unit is determined by the
market and is seldom = NAV• May be leveraged
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INDEXED FUND
• Trades like a stock on a market exchange• Holdings equate to an index or asset class• Holding change with a creation/redemption
feature• The price of a unit is determined by the
market but = NAV, very closely• May not be leveraged• Does not distribute capital gains
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“Mutual Funds”
• True Mutual Funds
• Exchange Traded Funds (ETFs)– Close Ended Fund (CEF)– Indexed Fund
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8. COSTS KILL
LARGE CAP
SMALL CAP and FOREIGN
EMERGING MARKETS
Expense Ratio
1.3 1.6 2.0
Commissions 0.3 0.5 1.0
Bid/Ask Spread
0.3 1.0 3.0
Impact Cost 0.3 1.0 3.0
Total 2.2 4.1 9.0
Index Funds 0.23 0.6 1.47
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CEFs and ETFs
• To learn more:
• http://www.cefconnect.com/Education/EducationCEF.aspx
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Why I trade with Schwab
• Personal service • Indexed ETF funds with low operating costs • Can Buy funds from many companies
including Vanguard and Fidelity (iShares)
• (An excellent debit card for travel)
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Next Week’s Key Points • Text Chapter 6 Pages 143-177• You may skip his long examples since they don’t
apply to us…pages 154 - 166• Save your whole life long• Saving, spending in retirement and Social Security
deferment (I will disagree next week)• Dollar and value cost averaging – key tools in
executing an investment plan.• Rebalancing
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Municipal Bonds
• Municipal bonds are federal tax exempt (Alternate Minimum Tax) • North Carolina municipal bonds are state
income tax exempt as well, perhaps.
• Many municipal bond funds are leveraged.
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Leverage
• Increases income and hence returns• Have higher expense ratios - pay loan interest• By Rule #1 – they must be more risky
– In terms of return variability and price– Not in terms of default
• Muni’s can default under Chapter 9; but• At the rate of 1/10 of 1% over the past 40
years.
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Handouts
• Illustrations
• NOT RECOMMENDATIONS
• Numbers NOT current
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Munis
Company Fund Exp Rat.
Distribution
Duration/ Ave.Maturity
Vanguard VWITX pg150
0.20% 2.99% 4.81/5
Fidelity FLTMX 0.37% 2.67% 4.73/5
Nuveen NQS (lev) 1.04% 5.73% 8.75/?
Pimco PMX (lev) 1.28% 6.66% 12.55/11.21
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NC Munis
SYMBOL COMPANY EXP. RATIO
MINIMUM DISTRIB. Duration/ Ave.Maturity
NTFIX Dupree 0.72 $2,500 3.09% 4.86/4.88 No AMT
NTSMX Dupree 0.81 $2,500 1.74% 2.8/2.81 No AMT
NNC Nuveen 1.01 ETF 4.50% 8.35/NA Leveraged
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Loads? 12b-1 ?
FUND EXP RAT. DISTRIB. LOAD 12B-1
NNC 1.01 4.50% 0 0
FLNCX 0.80 3.26% 4.20% 0.20%
ENCMX 0.85 3.03 4.50% 0
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