In my Sharebuilder IRA:

Your 7-day Portfolio Performance, as of 06/26/2009

Best holding:

% gain/loss                       Last close

LVLT ,                       +16.83%                            $1.40

Worst holding:

GT ,                            -8.12%                              $11.22

Largest holding:

GHQTX ,                       +0.88%                             $10.27

Spongetech Stock Quote Ticker: SPNG Last: 0.17 High: 0.17 Low: 0.15 Volume: 55819656

Danilo Quinonez What I Learned in the Stock Market Today: investing in Penny Stocks is like High School - lots of drama and He said, She said; 1000%+ gains are plausible, but unreasonable - take incremental profits. If it is evident that irrational exhuberance has unduly escalted a company’s value - get the hell out! If you don’t want to do proper due diligence - buy scratch tickets instead.

Mutual Fund Fees for Beginners - Loads, Expense Ratios, and Share Classes

Mutual funds are one of the most common investment tools for the average investor. You’ll find them in your 401(k) plan, in your IRA, and everywhere in-between. Mutual funds are popular for good reason. They provide instant diversification without a lot of money. Instead of having to pick all of the individual stocks you want to own and buy them yourself, you can simply purchase a share of a mutual or index fund and automatically get pieces of all the underlying companies.

Like anything, this convenience comes at a cost. Whether you’re investing in an actively managed mutual fund or an index fund, it costs money to run these investments. Some funds charge up-front fees and recurring expenses, others charge a back-end fee, and some just charge a regular recurring fee. It can get confusing for a new investor but with a little help you can learn how to spot what type of fees you’ll be paying and how to minimize those fees. After all, the less you pay in fees the greater your overall returns will be.

Load vs. No-Load

A load is one of the most important fees to watch out for. A load just means it’s an expense in addition to the underlying fund expenses. Typically these come in the form of front-end loads. You pay the load up-front when you purchase the shares. Loads can vary greatly between fund companies, how much money you’re investing, and more. But it isn’t uncommon to see equity funds with a front load as high as 5.75%. To put that into perspective, if you wanted to invest $10,000 in ABC fund with a 5.75% load, you’d immediately lose $575 to the front-load fee. Ouch!

The good news is that you don’t have to use loaded funds. While nobody will stop you from purchasing shares in a fund with a front-load, you’re typically going to be presented these funds by someone in the financial industry who works on commission. That’s because most of that load is a salesperson’s commission. So if you think about it, it’s no wonder they might try to steer you to a fund with a high load since they are going to instantly put a few hundred bucks in their own pocket. So you have to ask yourself whether the advice they gave you was worth that fee. In most cases, probably not. A fee-only financial planner won’t steer you into loaded funds since they aren’t earning a commission based on how much money you invest and where.

What about if you’re investing on your own? Obviously, you want to stay far away from front-load funds if you’re investing on your own. There’s no need to throw money away to a one-time fee just for purchasing the fund. So, how do you spot funds with fees? Morningstar is my favorite tool for this task. It packages all of the important information on an easy to use page that highlights everything from return, fees, yield, and more. Here is an example of using Morningstar to pull a quote on the Franklin Income Fund (FKINX):

You can easily see the front load listed on the first page. This fund has a 4.25% front load. If you had typed in a no-load fund it would show 0.00%.

Stick to No-Load Funds

It’s probably quite obvious, but you should stick to no-load funds. There’s almost never a situation where it’s worth losing a few percentage points off each investment just by investing in a load fund. Not sure where to start with no-load funds? While there are many options available you’ll probably end up with one of the four main no-load fund providers: Vanguard, T. Rowe Price, Fidelity, and Schwab.

If you’re looking for a more comprehensive search, I’ll again have to refer you to Morningstar and their Fund Screener. Here, you can easily select to only search no-load funds and then further narrow down your search by other criteria. You’ll probably be amazed at how many no-load funds there actually are to choose from.

Expense Ratios

You’ve found a no-load fund so that means you’re all set, right? Not so fast. Loads are only one of the fees to look out for. While not all funds have loads, all funds do have expenses. These expenses are expressed in the form of an expense ratio. This makes it easy to compare apples to apples when looking at multiple funds since the fee is shown as a percentage. Looking at the example above with the Franklin Income Fund you’ll see the expense ratio is 0.62%. That means if you had $10,000 invested in this fund for a year it would basically cost you $62.

Unlike a front load you don’t see this expense deducted directly from your account. Instead, the expenses are built into the fund’s overall return. So if you pull up your account statement and it shows that your fund had a 4.3% return, that is your net return after expenses already. You won’t have a quarterly or annual fee deducted from your account. That’s why these expenses can be tricky because they are almost hidden and people don’t really consider the effect they have on returns.

So, make sure you’re also looking at a fund’s expense ratio before making an investment. The lower the expense the better. If you’re looking for the absolute lowest fees you should probably stick to index funds. Since these aren’t actively managed and simply track an index they can keep costs down. This means you’re looking at usually only 0.10-0.25% expense ratios on index funds. Once you get into actively managed funds it’s a different story. You might find one fund charging 0.3% and another charging 1.3%.

Share Classes

While this won’t apply to most of you simply investing in no-load funds, it is important to be aware of the different fund classes in the event you find yourself talking to a financial advisor or otherwise who might bring them up. While not as common today as they were, there are three main types of share classes. Each share class invests in the same assets, but the difference lies in how the load is applied.

• Class A - Your standard front-end load funds as discussed above.
• Class B - Deferred sales load. No up-front load, but if you sell prior a predetermined holding period you’re charged a back-end load.
• Class C - A fixed load applied every year.

Thankfully, class B and C shares are heading the way of the dinosaurs, but that doesn’t mean they aren’t still used by some financial salesmen. They are often used to encourage an investment where they can still earn a commission by putting you into something that doesn’t appear to have a big front load like A shares. While none of these share classes are good, you most certainly want to stay away from B and C.

In addition to these primary share classes you may also stumble across other odd share classes in your research. You might see something like R shares or Z shares. These are typically special share classes offered by a fund company to be used in employer-sponsored retirement plans, sold by advisors, or to institutions. You may not be eligible to invest in these classes, so make sure you check the details and investment requirements.

Recap

As you can see, understanding the fees associated with your funds isn’t all that difficult, but you can probably also see how it’s easy to underestimate the impact the fees can actually have on your returns. An expense ratio of 0.6% might not sound like much, but when you’re talking about tens or hundreds of thousands of dollars over 30+ years that can significantly eat away at your return. And with the different share classes, loads, and no-load funds available you can see how some people, namely commission brokers, will steer you into a fund that could end up costing you.

Hopefully now that you’re armed with the basics you can make sure you’re getting the most out of your funds, both with new purchases and existing holdings. Now would be a good time to dig into the details of your current investments and see how much they are costing you. If it seems high, you can always use something like Morningstar to explore your other options.

Mutual Fund Fees for Beginners - Loads, Expense Ratios, and Share Classes : Generation X Finance

Understanding Stock Quotes

Open: The US stock markets are officially ‘open’ for trade from 9:30 AM to 4:00 PM EST Monday through Friday on most days. Open is the price of the stock at 9:30 AM on an open trading day. In between the close and open are ‘after hours’ (4:00 - 6:30 PM EST) and ‘pre-market’ (8:00 - 9:30 AM EST) trading. Trading that goes on during these times often will impact the open price.

Prior Day’s Close: The price of a stock at the close (4:00 PM EST) of the previous trading day. Note that the prior day’s closing price may not necessarily equal the next day’s open price, as there is after hours and pre-market trading in between the two.

High: The highest price that the stock has traded for during the most recent trading day.

Low: The lowest price that the stock has traded for during the most recent trading day.

Volume: The number of shares of that stock that have traded hands during the most recent trading day. This is an important metric that measures how easily (liquidity) a stock is traded. If volume is high, it is easy to trade shares. If volume is very low for a stock, it may be much harder to buy and sell a specific amount of shares at exactly the price you would like.

Avg. Volume: This is a measure of volume over an extended time period - usually one year. This metric is used to compare to volume in a given day. If volume is relatively high versus the average volume, it may indicate noteworthy news regarding the company that would result in a higher level of trading.

Market Cap (Capitalization): A dollar amount that equals the share price multiplied by the number of outstanding shares. Relatively, stocks are considered large cap if they have a market cap of $10-200 billion, mid if their market cap is between $2-10 billion, and small if the cap is between $500 million and $2 billion.

52 Week High: The highest price that the stock has traded for over the last 52 weeks (1 year).

52 Week Low: The lowest price that the stock has traded for over the last 52 weeks (1 year).

P/E: P/E (Price-to-earnings ratio) is a mathematical computation that takes a stock’s current stock price and divides it by its previous annual earnings per share. A stock that sells for $40 dollars per share that earned $4 per share over the previous year would have a P/E of 10. P/E’s can be an indicator of value relative to other similar stocks when taking growth rates into consideration.

F P/E: Forward P/E’s calculate a stock’s current price divided by expected earnings for the following year. For instance, a stock that sells for $50 per share that was expected to earn $5 per share would have a F P/E of 10.

Beta: Beta is a measure of a stock’s trading volatility level in comparison to the entire market. A beta of 1 means that the stock tends to trade with the market. A beta of less than 1 means that the stock’s price tends to be less volatile than the market. A beta of greater than 1 means that the stock’s price will be more volatile than the market. If a stock has a beta of 1.4, in theory it is 40% more volatile than the rest of the market.

EPS (Earnings Per Share): A company’s profit, or earnings, divided by the number of outstanding shares. For instance, if a company earned $60 million in a year and had 6 million outstanding shares, the company’s earnings per share (EPS) would be $10.

Dividend: A cash reward given by companies to shareholders of stock, typically on a quarterly basis as determined by the company. Dividends are most often given by very profitable or mature companies as an incentive for owning and holding shares. The ‘dividend’ metric in a stock quote is the actual cash reward per share given to shareholders in the most recent quarter.

Yield: Yield is a percentage that reflects the return received from dividends paid on stocks over the most recent quarter (multiplied out over a year) relative to its current price. For instance, a stock that is priced at $80 that most recently paid a quarterly dividend $2 of of  would have a yield of 10% ($2 x 4 quarters/$80 = 0.10 = 10%).

Shares: The total number of outstanding shares that the company has issued for public trading.

Institutionally Own: The percentage of outstanding shares of the stock that are owned by financial institutions (mutual funds, pension funds, etc.).

For more common investing terminology, check out the Mint’s financial term glossary.
For more of GE Miller’s writing, visit personal finance blog 20somethingfinance.com.

Investing 101: Common Stock Quote Metrics Defined | Mint.com Blog | Personal Finance News & Advice

I found this fascinating quote today from Fred Wilson.  I tumbled about Second Market here:

Entrepreneurs won’t start companies and investors won’t invest in them if there is no path to liquidity on the company stock. A secondary market for private company stock can fill the gap that the lack of an I.P.O. market has created.A VC, Apr 2009

You should read the whole article.

I’m creating a Guatemala portfolio made up of individual stocks, ETFs, and ADRs. We’ll see how a Narco-Economy performs.

What is Market Capitalization?

Market capitalization or “Market cap” refers to the total market value of all the publicly traded shares of that company.  Basically you take the number of shares available for a company, multiply by the stock price and that gives you the market capitalization.  For example if a company has 5,000 outstanding shares that are worth $40 each - the total value of the shares of $200,000 which is also the market capitalization.

It’s important to note that market capitalization doesn’t necessarily have anything to do with the actual value of the company assets – but rather the value of ownership which includes all the assets of the company plus any future expectations of profits.

It’s possible to have a company that doesn’t own any assets but has a great idea for making money – investors might value this company highly.  Google is a good example of a company that has a market cap far higher than its assets because its investors are assuming the company will be able to increase its profits at a rapid pace.

Small cap vs Large cap

The capitalization of a company is most often used when grouping companies by size.  A mutual fund or ETF might specialize in large cap companies or small cap companies.  The general thought is that smaller companies (measured by market cap) are riskier investments but might perform better over the long term.  Larger companies are not as risky but also might not go up in value as much as the smaller cap companies.

Market Capitalization

What You Need to Know About Bond Funds - A 101 Guide

While a bond is a debt security that represents the authorized issuer’s obligation to repay the principal plus interest of the debt, a bond fund is a pool of money that invests in bonds. Most bond funds pay higher dividends than CDs or money market funds, and are considered less risky than stocks. That’s why many financial planners recommend having these types of bond funds within investment portfolio, especially as we age.

Types of Bond Funds
When we classify bond funds, there are generally 4 main types:

• Government/Treasury - Essentially comprised of all securities from the government. As they are backed by the credit of the country, they are generally considered to be extremely safe. The cost of less risk is the low yield so no surprise there.
• Municipal - Even states and local governments can issue bonds, which municipal bond funds invests in. The advantage of these funds are that they are exempt from federal taxes, while some are even exempt from state and local taxes. Since there’s no free lunch in this world, don’t expect a high yield on these either.
• Mortgage - These bond funds invests in mortgage loans back by the government (think Ginnie Mae, Freddie Mac and Fannie Mae). Traditionally, these are very safe investments but people who’ve lived through 2008 know that there’s nothing is ever risk free.
• Corporate - Generally the highest risk of the four, these funds invests in bonds that are issued by corporations. Therefore, the risks are measured by the corporations’ ability to repay the bonds that the fund owns. The risk on these types of funds are higher, so the potential payout is greater.There are even high risk corporate bond funds that invests in junk bonds (bonds with higher risk of defaulting). Be careful with these types of bond funds because while payout may seem high, chances of losing your investments are higher too.

Benefits of Bond Funds
As briefly touched at the beginning of the article, bond funds offer many advantages:

1. Reduced Volatility - Even though the prices of bond funds changes, they are generally much less voltatile than stocks or stock funds. Therefore, a portfolio with a bond fund can help balance the wild swings of a stock only portfolio.
2. Income - Since bond funds usually pay a monthly dividend from the interest payments of the bond, investors looking for income welcome these types of funds.

Associated Risks
A common misconception of bond funds is that you don’t lose money. Unfortunately, that’s simply not true. As with any investments, there are risks, so consider the following before investing in a bond fund.

• Interest Rate Risks - In general, the prices of bond funds and interest rate go in opposite direction (ie when interest rate rises, bond fund prices fall and vice versa). In addition, market risks also play a role in the fluctuations of the value of these funds.
• Prepayment Risks - Some bonds can be prepaid by the issuer when interest rates have declined. If the bond fund invests the proceeds at this time, it will most likely invest in bonds with lower interest rates, which will reduce the fund’s return.
• Credit Risks - Any bond (even US treasuries) can default. So bond funds rely on credit rating agencies to grade the bonds based on the potential risks of defaulting. The two best known credit rating agencies (Moody’s and Standard & Poor’s) periodically update the credit ratings based on the credit worthiness of the bond issuers. If you see a credit rating of AAA or Aaa, they are considered the highest quality while a credit rating of Caa or CC is considered highly speculative.

What This Means to You
As circumstances differ case by case, it’s best to consult with someone who understands your situation and can offer suggestions that best suits you. Having said that, most people will tell you that any portfolio can use a bit of allocation to bond funds, because of its relative stability and its income generating abilities.

Many people also believe that stocks funds always outperform bond funds, which is again untrue. So if you have never invested in bond funds before, now is the time to take a serious look at it.

What You Need to Know About Bond Funds - A 101 Guide | Investing School

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