Getting started - Choosing a Broker
• Full Service Broker– ex. AG Edwards, Meryll Lynch, Edward D. Jones
• Gives advice, makes trades, account maintenance
• Discount Broker-– ex. Charles Schwab, Fidelity Brokerage
• Provides some advice, account maintenance
• Deep Discount Broker– ex. E-Trade
• No advice, order execution via email or phone
5 steps to portfolio evaluation
• Assess your financial situation
• Define your goals
• Determine the amount of investment capital required to meet your goals
• Implement the changes necessary to achieve your objectives
• Monitor your portfolio
Reward/Risk Rule
Bigger the reward - higher the risk
Safer the money - less return
Mutual Funds
Pooling the investments of many small investors and putting that money to work in a a variety of ways
Why mutual funds?
•Managed by professional money managers
•Diversifies investments•Cost may be lower
Fundamentals of Mutual Fund Investing
•Talk to a professional•Invest for the long term•Invest on a regular basis•Diversify-
– Don’t put all your eggs in one basket
Dollar Cost Averaging
•Easiest/Safest method of investing• Invest a fixed amount in the same
investment•Buy more shares when the price is
low/fewer shares when price is high•Reduces errors
Factors to consider
• Performance
• Liquidity
• Safety
• Minimum deposit
• Convenience
• Charges
Factors to consider cont.
• Other services
• Fund objectives
• Expenses– Sales load
• No load funds
• Front end load funds
• Back end load funds
– Ongoing expenses• Management fee
• Rule 12b-1 fee
Mutual Fund Mistakes
• Does not know how much of investment will go toward the selling commission
• Does not know how much money will be invested
• Does not keep close account of the monthly statement
Mutual Fund Checklist
• NOT guaranteed or insured• AWLAYS carry investment risks• Higher rate of return involves higher risk
of loss• Past performance not a reliable indicator
of future performance• all mutual funds have costs that lower
investment returns• Can buy some mutual funds directly
IRA’s
• Traditional IRA - tax deferred• Roth IRA - tax free
IRA Contributions
Year Limit
2002-2004 $3,000
2005-2007 $4,000
2008 – 2010 $5,000
The 2001 Tax Law changed contribution amount
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