Category Archives: Mutual Funds

Audio Resource: What’s a Stock, Bond and Mutual Fund?

This fifteen minute podcast from Motley Fool (start at 1:00 and finish around 16:00) is a good homework assignment prior to your unit on investing.  The three personal finance experts answer a listener’s question (Ok, it’s really not a question):

When my friends start talking about investing, I just sort of nod my head and pretend to know what they’re talking about. I have been doing this for so long I’m too embarrassed to admit that I don’t know the difference between a stock, a bond, and a mutual fund. Help me sound smart.

As students listen, have them key in on the following questions: Continue reading

What Mutual Fund Type Is Taking Over 401(k) Plans?

From Bloomberg:

Their name:  Target Date funds.
Their share of 401(k) contributions in 2015:  More than half expected in 2015.
Their appeal: Simplicity (“the only fund that you will need”) and low fees.
Selection process: Choose target-date fund close to your retirement. If you are starting to work now and expect to retire in 40 years, then choose Target Date Fund 2055.
Composition: Mix of Stock/Bond funds (index funds preferred) that adjusts; as investor gets closer to retirement, moves more into bonds.
Fees: Average of 0.78%.  Vanguard as low as 0.17%

One way to deepen students understanding of this product is to compare two of the larger offerings: Vanguard and Fidelity.  Have them compare these funds across the following dimensions: Continue reading

What’s The Catch?: Investment Costs

Hat Tip to Alpha Architect.

When teaching investing to my students, I always emphasize the importance of fees.  While it is almost impossible to predict how my stocks/funds will perform in the future, it is very possible to know what fees will be this year if you read the prospectus. Oh, and they won’t change much in the future either.  This focus on fees usually takes me down the path of describing the advantages of passive investing (i.e., index funds) vs. active investing (i.e., picking a manager who you think can beat the  market).  See posts here and here, if you are interested in learning more about differences between active vs. passive investing.

So, what’s the catch?  Listed below is a fact sheet about the MainStay S&P500 Fund, which currently has over $2 billion in assets, not a trivial amount.  You might ask your students what stands out about this fund.  Ok, it is made simpler by the red boxes, which indicate a Sales Charge of 3% and Annual Operating Expenses of 0.60%.  Your student’s reaction might be “So what?”   Continue reading

What’s Wrong With This 401(k) Enrollment Form?

I was searching for a 401(k) form to include in a lesson that I am developing when I found this 401K Enrollment Form.

Before diving into the nitty-gritty of this form, let’s take a step back and look at what we know about choices.  For those familiar with Barry Schwartz (TED talk here with over 6 million views), who wrote the Paradox of Choice, he found that too many choices tend to make most of us miserable (from interview with Barry Schwartz): Continue reading

Question of the Day: When It Comes To Investing, Active or Passive?

Once an investor has decided 1) how much to invest and 2) how to split their investments between stocks, bonds and cash, the next decision is whether to invest in active (think mutual funds) or passive managers (think index funds) to get exposure to stocks and bonds.  It’s too bad that this has become the terminology to describe these two different approaches to investing.  When given a choice between being active or passive, I think most people would chose “active.”  However, when it comes to investing, many would argue that passive is better.  I have blogged about this topic before (problems with stock market game, mutual fund advertising, problem with predictions)

I met a teacher at the JUMPStart conference who had a great idea to show students first-hand how difficult it is to beat the stock market.  He plays the stock market game with his class and then compares their individual results with the market return over that period.  The results:  With 150 data points per year, the results tend to fall in the 10-20% of his students outperform the market during this short-term game.   Continue reading