Personal Finance: a Gospel Perspective. Investments 8: Picking Financial Assets. Objectives. A. Understand why you shouldn’t be picking stocks until Phase IV when your assets have grown B. Understand where to find important information on mutual funds and stocks
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Investments 8: Picking Financial Assets
What makes a good mutual fund?
Low un-invested Cash
No manager style drift
Small tracking error
7A Using Morningstar to Select Mutual Funds using the HBL Library
7B Using Morningstar to Select Mutual Funds using the Internet
Investor return for calendar years 1993 to 2002; largest funds as of year-end 1992
Average mutual fund return: 8.14%
Vanguard 500 Index fund return: 9.27%
Funds outperforming the index: 12 out of 30 (40%)
Correlation to prior decade return: -.181
1. Most actively managed funds and brokerage accounts will generally under-perform index funds in the long run after all taxes, costs and fees
2. The competition in stock-market research is intense and will get more competitive going forward, making markets more efficient and indexing even more attractive
3. Market indexing or “passive investing” is a free-ride on the competition and it takes very little time
Suggestion: For broader diversification, choose an index fund that has more members or a “total market” index fundInsights on Indexing?
Any questions on indexing and why it is important?
1. Have your priorities in order and are “square” with the Lord
2. Have adequate life and health insurance
3. Be out of major credit card and
4. Know your personal goals, budget,
and have an investment plan
If you can answer these affirmatively, you are ready to invest!
4. Opportunistic: Individual Stocks and Sector Funds
3. Diversify: Broaden and Deepen your Asset Classes
2. Core: Broad Market Index or Core Mutual Funds
1. Basics: Emergency Fund and Food Storage