Posts Tagged With: Investing

Active Management. Good or Bad?

“Advisors and investors are increasingly focused more on lower fee products amid expectations that finding consistently strong performing active funds is hard.”

Passive investing (index funds and exchange traded funds) has been a trend on Wall Street for years.  So, what’s different?  The answer:  The trend is increasing at an alarming rate and investors are now retreating from actively managed funds that are beating their benchmark index.  According to data from Morningstar, investors pulled $99 billion from the actively managed funds that beat their benchmarks over a 12-month period ending January 31, 2017.  This is a remarkable trend given that most investors typically chase funds with high performance and high returns.

The reasons are many, and certainly lower fees is part of the reason, but not the only factor for this dramatic trend.  Another very important factor is that the number of managed funds that consistently beat the index over a long period of time is small.  According to data from Charles Schwab, the number of funds that score in the top 25% for at least two years is 1,098.  The number of funds drops to 702 at the end of three years, and to 33 funds at six years.  Only 4 funds score in the top 25% for at least seven years, and none stay in the top 25% for eight years.

The article goes on to say that this trend may encourage more actively managed funds to focus on bringing down the fees for their investment products in order to compete with the expense ratios for index funds and exchange traded funds.

For more information, click here.

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Discuss the difference between index funds, ETFs, and managed funds.
  • Reinforce how important fees and performance are when choosing a mutual fund.

Discussion Questions

  1. What is the difference between a managed fund, an index fund, and an exchange traded fund?
  2. Which type of fund do you think could help you obtain your investment goals? Why?
Categories: Chapter_13 | Tags: , | Leave a comment

The 1-Page Financial Plan: 10 Tips for getting what you want from Life

Carl Richards, author of The One Page Financial Plan, knows the financial mistakes–including the ones he has made–that people make.  Based on his experience as a financial planner, he provides 10 tips to help people get what they want from life.  Note:  An explanation and examples to illustrate each tip are provided in this article.  His tips are:

  1. Ask why money is important to you.
  2. Guess where you want to go.
  3. Know your starting point.
  4. Think of budgeting as a tool for awareness.
  5. Save as much as you reasonably can.
  6. Buy just enough insurance today.
  7. Remember that paying off debt can be a great investment.
  8. Invest like a scientist.
  9. Hire a real financial advisor.
  10. Behave for a really long time.

For more information, click here. 

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Illustrate how each tip provided in this article could affect an individual’s financial plan.
  • Encourage students to read the entire article to help determine what’s really important in their life.

Discussion Questions

  1. It’s often hard (or maybe close to impossible) to determine what you value and where you want to go in the next 20 to 30 years with perfect accuracy. Still, experts recommend that you establish a long-term financial plan.  What steps can you take to make sure your plan will meet your future needs?
  2. Why is it important to evaluate your plan on a regular basis and make changes if necessary?
Categories: Chapter 1, Chapter_14, Financial Planning, insurance, Retirement Planning | Tags: , , , | Leave a comment

Bonds and Interest Rates

“Interest rate changes are among the most significant factors affecting bond return.”

When it comes to how interest rates affect bond prices, there are three cardinal rules.

  1. When interest rates rise–bond prices generally fall.
  2. When interest rates fall–bond prices generally rise.
  3. Every bond carries interest rate risk.

This article describes how each of the “3 cardinal rules” described above affects a bond investment.  It also explains the role the Federal Reserve plays in determining interest rates in the economy.  Specifically it describes the federal funds rate, the discount rate, and basis points for bond investments.

Finally, this article provides information on where to find economic indicators that measure not only changes in interest rates but also other economic indicators for the nation’s economy.

For more information, click here. 

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Review why investors choose bonds for their investment portfolio.
  • Explain how the three cardinal rules described in this article affect a bond’s value.

Discussion Questions

  1. Assume you are 35 years old, married, and earn $85,000 a year. In what circumstances would bonds be a good choice for your investment portfolio?  In what circumstances would bonds be a poor choice?
  2. What happens to a bond’s price if interest rates in the economy increase? If interest rates in the economy decrease?
  3. In addition to interest rates, what other factors that could affect the value of a bond?
Categories: Bonds, Chapter_11, Economy, Investments | Tags: , , , | Leave a comment

How to Invest in Stocks

“Before you buy your first stock, you should master the basics of stock investing.”

This article provides basic information that you can use to help students learn more about investing.  For example, there are over 25 different links to more detailed information including:

  • Basic Stock Terms for Beginners
  • What Is a Balance Sheet?
  • What Is an Income Statement?
  • What Is Investment Risk?
  • How to Buy Your First Stock
  • How to Value Stocks
  • How to Analyze Stock Fundamentals

For more information, click here. 

Teaching Suggestions

You may want to use the information in this blog post and the original article to:

  • Stress the importance of learning about stocks before making a stock investment.
  • Use a specific link(s) and show how students can use detailed information to become a better stock investor.

Discussion Questions

  1. Assume you are 35 years old and have $40,000 for investment purposes. Would you choose stocks or some other investment alternative?  Explain your answer.
  2. Access one or two of the links listed in this article. How could the information in this link help you evaluate a possible stock investment?
Categories: Chapter_12, Investments, Stocks | Tags: , | Leave a comment

Robo Investment Advice

With many investors already making their own trades online, investment companies believe that robo advisors have these additional benefits:

  • lower costs for obtaining advice and conducting transactions.
  • an ability to adjust the portfolio for tax purposes by selling shares that have declined to offset gains.
  • an easier investment approach for younger clients with less-complicated financial lives.

Some will be concerned about automated portfolio management.  Human advisors will still be available to address issues about mortgages, insurance, estate planning, retirement income, and other topics that robo-advisers are not yet equipped to answer.

For additional information on robo advice, click on the following articles:

Article #1
Article #2
Article #3

Teaching Suggestions

  • Have students ask people to describe the process they use to select investments.
  • Have students create a framework to analyze when using robo advice might be appropriate for an investor.

Discussion Questions 

  1. What are benefits and drawbacks of robo advice?
  2. What factors might be considered when using robo advice for investment decisions?
Categories: Bonds, Chapter_11, Chapter_12, Chapter_13, Financial Services, Investments, Mutual Funds, Stocks | Tags: , , , , | Leave a comment

Mutual Fund Rankings, 2015

“If a bull market must continually climb a wall of worry, then the current bull, which started more than six years ago, should be on the brink of exhaustion.”

As a preamble to Kiplinger’s 2015 Mutual Fund Rankings, this article describes the concerns that investors have about interest rates, corporate earnings, the economy, political upheaval, and other factors that could impact not only mutual fund investments, but all investments and the U.S. and the world economy.

In addition the article also provides links to Kiplinger’s Mutual Fund Finder tool and specific information about the top-performing mutual funds including large-company stock funds, midsize-company stock funds, small-company stock funds, hybrid funds, large-company foreign stock funds, small- and midsize foreign stock funds, global stock funds, diversified emerging-market funds, regional and single-country funds, sector funds, and alternative funds.

For more information, click here.  

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Remind students that there are many factors that can affect mutual fund investments.
  • Show students how to use the link to the Kiplinger Mutual Fund Finder tool that is described in the article.
  • Stress the importance of a long-term investment program–especially when planning for retirement.

Discussion Questions

  1. Assuming you believe there is a strong possibility the value of your mutual funds will decrease over the next 12 months, would you sell your funds or would you hold them? Explain your answer.
  2. Depending on your answer to the above question, what factors did you consider to help make your decision?
  3. Pick one fund you believe could help obtain your investment goals. Then use the Kiplinger Mutual Fund Finder to research the fund. Based on the information, would you still want to invest in this fund.
Categories: Chapter_13, Investments, Mutual Funds, Retirement Planning, Savings | Tags: , , | Leave a comment

Steps in Choosing an Investment Advisor

The investment professional (or team of professionals) you decide to work with will depend largely on your investing goals and the types of products and services that can help you meet those goals.  Your financial needs, and the professionals you work with, are likely to change over your lifetime.  The amount of money you have to invest and your investing priorities also will likely change.  What doesn’t change, though, is the best way to find help.   FINRA (Financial Industry Regulatory Authority), an independent not-for-profit organization authorized by Congress to protect Americans’ investors, offers the following key steps for choosing financial professionals:

  1. Identify your financial needs, starting with your goals.
  2. Understand the different types of people or firms you could work with, and what each can (and cannot) offer.
  3. Search for possible candidates.
  4. Check the work background and disciplinary history of your finalists.
  5. Make sure you read and understand any paperwork you’re asked to fill out or sign.

Searching for Possible Candidates

One place to start is by talking with your friends, neighbors, relatives, and colleagues—especially those who have some experience as individual investors.  Here’s what to ask:

  • What are the names of the investment professionals you have used?
  • How long have you done business with those individuals?
  • How much or how little have you relied on their advice?
  • Have you ever had a problem with that professional? And, if so, how well and how quickly was the matter resolved?
  • How often does your investment professional contact you? Different people like to interact in different ways and on different schedules, so this question can help assess whether the relationship would work for you.

For more information, click here.

Teaching Suggestions

  • Ask students if they are working with an investment advisor. And if so, what is their experience with him/her.
  • Did students check if their investment advisor is registered with a state, the SEC, or FINRA? If so, in what capacity?

Discussion Questions

  1. Does it matter if a professional investment advisor holds relevant professional designations? Why or why not?
  2. How are the investment advisors compensated? Should you choose a fee-only advisor?  Why or why not?
  3. Is it important to ask your investment advisor for a list of clients you can contact as references?
Categories: Chapter_10, Financial Planning, Investments | Tags: , , | Leave a comment

A Sick Market Is Set to Be Tested Further

“Even after bouncing hard off last week’s lows, the stock market has appeared unwell.”

Based on current information from August 2015, Michael Santoli, the author of this article, explains some of the “big” problems that are affecting the stock market and the nation’s economy.  He cites the following major factors that account for the current downward spiral of the U.S. financial markets.

  • Economic slowdown in China
  • More realistic expectations for future economic growth
  • Lower forecasts for corporate earnings growth
  • Uncertainty about the Federal Reserve’s decisions that could impact interest rates
  • The political climate leading up to the 2016 presidential election

One final point:  The month of September is typically the worst month of the year for stocks.  September 2015 should be an interesting month to say the least–get ready and hang on for what promises to be a rough ride.

For more information, click here.

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Point out that economic growth and the financial markets can go up or go down depending on factors like those described in this article. If you sell, what would you do with your money?
  • Stress that a long-term investment program that can even out the ups and downs in the market.

Discussion Questions

Although the stock market has been on the upswing for the last few years, the summer of 2015 has been a rough “ride” for most investors.

  1. If you are an investor and expect that it is time for a correction or downturn in the market, what would you sell some or all of your investments? If you sell, what would you do with the money?
  2. Some financial experts argue that a correction can be a buying opportunity to purchase quality stocks at lower prices. Do you agree?  Explain your answer.
Categories: Chapter_12, Investments, Stocks | Tags: , | Leave a comment

Defrauding Investors

On May 28, 2015, the Securities and Exchange Commission announced fraud charges against William Quigley.  He is accused of creating a scheme to steal from investors and from a brokerage firm where he worked as the director of compliance.

The SEC’s Enforcement Division alleges that was involved in a scheme to solicit investors to buy stock in well-known companies or supposed start-ups on the verge of going public.  The SEC alleges that:

  • The securities were never purchased for the investors.
  • Quigley wired the money out of the country or he withdrew it from ATM’s near his home.
  • he had accomplices, two brothers who live in the Philippines.

For more information, click here.

Teaching Suggestions

  • Have students prepare a position paper on how to protect themselves from investment fraud.
  • Have students go to the Securities and Exchange Commission website (sec.gov) to learn how SEC protects investors and maintains fair, orderly and efficient markets.

Discussion Questions

  1. How can federal, state, and local governmental agencies protect investors from investment fraud?
  2. What punishment should be meted out to investment fraudsters?
Categories: Chapter_11, Frauds and Scams, Investments | Tags: , | Leave a comment

Basics of Investing in Mutual Funds

“. . . Learn how to invest in mutual funds with these informative tips.”

This Money/CNN article provides the following 10 statements along with a brief explanation of each statement to help beginning investors learn about fund investing.

  1. What exactly is a mutual fund?
  2. Mutual funds make it easy to diversify.
  3. There are many kinds of stock funds.
  4. Bond funds come in many different flavors too.
  5. Returns aren’t everything – also consider the risk taken to achieve those returns.
  6. Low expenses are crucial.
  7. Taxes take a big bite out of performance.
  8. Don’t chase winners.
  9. Index funds should be a core component of your portfolio.
  10. Don’t be too quick to dump a fund.

For more information, click here. 

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Provide an introduction to the “basics” of mutual fund investing.
  • Point out that this is just one article in the Money/CNN series. By clicking on the next button at the bottom of this article, students can access more articles and obtain more in-depth information about fund investing.

Discussion Questions

  1. Based on the information in this article, why do you think investors choose mutual funds?
  2. The article mentions that there are both stock and bond funds. What is the difference between these two types of funds?  Which type of funds do you think could help you achieve your financial goals?
  3. Why are taxes and expenses important when you choose a mutual fund?
Categories: Chapter_13, Investments, Mutual Funds | Tags: , | Leave a comment

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