After missing our class on Thursday because I was at OAE, I felt like I had a lot to catch up on. My group, "Broker 1", had already started their research on what stocks where best to invest in, but I felt as though we had to refocus our idea. We had immediately jumped to the conclusion that investing in stocks was the best choice, yet hadn't stopped to consider mutual funds or ETFS.
And at this point, I still had no clue what a mutual fund or an ETF was.
I was frustrated.
I thought we needed some guidance and couldn't think of anyone better than my Uncle Johnny, a financial adviser and the author of Monkey Business: Swinging Through the Wall Street Jungle.
My uncle basically lives for the stock market. Mutual Funds, ETFS, IPO's, thats his language. He's admitted to me that sitting on his computer and watching stocks go up and down enthralls him because he invests other people's money in those stocks. That's quite intense!
Anyways, he taught my group and I so much in no more than an hour. He explained that a mutual fund was a form of investment where investors put their money together into a professionally managed portfolio holding up to dozens or hundreds of stocks, bonds, cash, and/or other assets. He explained that investors don’t actually own the holdings, they own a share of the holding. He explained that a stock is the share of an ownership of a company--the more stocks owned by a stockholder, the greater the stockholders ownership in the company. And he explained that an ETF is similar to a mutual fund. Instead of having a portfolio manager, however, and ETF simply invests in a predetermined set of stocks and doesn’t try to pick the winners or losers.
"Your best bet is going to be to build a portfolio that is made up of some ETFS and some mutual funds" suggested my Uncle. And because our customer is young, we want to be somewhat aggressive with his portfolio. The rule of thumb is that you take your age and that is the percentage of your money you invest on risky stocks (Large Value), and the remaining percentage should be invested in safe stocks (Small Growth).
I could probably go on for 30 more minutes just writing about what I learned, but I'd probably bore you.
The point is that after my group and I talked with my Uncle, we finally felt as though our project had a sense of direction, and that is where the enlightenment tagged along.
I never thought that I would actually be able to understand what financial reporters say on the news, and nonetheless speak like them!