Team Awesome Solari Circle, Part I

“Finance has a fascination for many bright young people with limited means. They would like to be both intelligent and enterprising in the placement of their savings, even though investment income is much less important to them than their salaries. This attitude is all to the good. There is a great advantage for the young capitalist to begin his financial education and experience early.” ~Benjamin Graham

By Catherine Austin Fitts

The Solari Report team has created a new Solari Circle. We are meeting by phone every other Monday night. Our first phase is education.

I will be briefing the Circle about questions members have regarding securities and investments. Our goal is to integrate the knowledge we work with through the Solari Report and apply it to our investments; and to use understanding of the financial markets to build a richer, deeper insight about what is happening around us.

We opened a Yahoo Finance account to simulate a $1 million portfolio. If the simulation goes well, we will start a Solari Circle Investment Club to proceed to invest a portion of our savings together.

For the team members who are new to securities investing, I encourage learning the basic definitions commonly used in the securities investment world. A good place to begin is to invest $ .01 plus shipping for The Wall Street Journal Guide to Understanding Money & Investing as well as reviewing basic terms at Wikipedia and Investopedia.

To continue reading Catherine’s commentary on current events subscribe to The Solari Report here. Subscribers can log in to finish reading here.

Our curriculum is driven by the questions members want addressed. I and other Circle members will post a description of what we are reading and learning as we go along.

Tonight’s discussion includes an introduction to Mutual Funds & Exchange Traded Funds (ETFs). The outline and links I have prepared for the Circle are below.

Suggestions welcome!

I. Mutual Funds

Definition of ‘Mutual Fund’

An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. Mutual funds are operated by money managers, who invest the fund’s capital and attempt to produce capital gains and income for the fund’s investors. A mutual fund’s portfolio is structured and maintained to match the investment objectives stated in its prospectus.

Investopedia explains ‘Mutual Fund’

One of the main advantages of mutual funds is that they give small investors access to professionally managed, diversified portfolios of equities, bonds and other securities, which would be quite difficult (if not impossible) to create with a small amount of capital. Each shareholder participates proportionally in the gain or loss of the fund. Mutual fund units, or shares, are issued and can typically be purchased or redeemed as needed at the fund’s current net asset value (NAV) per share, which is sometimes expressed as NAVPS.

Wikipedia Definition of Mutual Fund

Structure:

• Open-End
• Unit Investment Trust
• Closed-End

Holdings:

• Stock Fund

– Sector: Energy, Consumer Staples, Real Estate, etc.
– Market Cap: Large, Medium, Small, Micro-Cap

– Geography: Emerging Markets, Europe, Asia, US, International

• Bond Fund

– Type of Issuer: Government, Municipal, Corporate, “Go-anywhere”
– Duration/Maturity: Short, Intermediate, Long

• Money Market Fund
• Hybrid or Balanced Fund

What It’s Not:

• Hedge Fund

Type of Management:

• Active Management
• Index Fund/Passive Management

Information Sources for Mutual Funds:

• Mutual Fund Center at Yahoo Finance
• Morningstar – Funds
• Recent Trends in Mutual Funds; 2014 Investment Company Fact Book – As of 12/31/13, US open-end funds held $15.0 trillion, closed-end held $279 billion, and UITS held $87 billion. Total mutual funds world wide held $30 trillion.
• Largest Mutual Fund Companies

II. Exchange Traded Funds

Definition of ‘Exchange-Traded Fund – ETF’

A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throughout the day as they are bought and sold.

Investopedia explains ‘Exchange-Traded Fund – ETF’

Because it trades like a stock, an ETF does not have its net asset value (NAV) calculated every day like a mutual fund does.

By owning an ETF, you get the diversification of an index fund as well as the ability to sell short, buy on margin and purchase as little as one share. Another advantage is that the expense ratios for most ETFs are lower than those of the average mutual fund. When buying and selling ETFs, you have to pay the same commission to your broker that you’d pay on any regular order.

Exchange-Traded Fund – ETF Wikipedia Definition

ETFs section from 2014 Investment Company Fact Book – as of 12/31/13, ETF’s held $1.675 trillion.

• IMF and Regulatory Warnings
• No Redemption Fees
• Index vs. Active

Available through ETFS Limited or Not Available in Mutual Funds

• Trading Places
• Commodities
• Currencies
• Inverse

– Leveraged

Yahoo Finance: ETF Center

Morningstar: ETF Center

III. US Regulatory & Industry Information

Overview of US Registered Investment Companies

US Securities and Exchange Commission

The Investment Company Act of 1940

IV. Other Issues

Liquid vs. Illiquid Assets