Welcome to Peoria Illinois' premiere financial podcast! On the show, CERTIFIED FINANCIAL PLANNER™ and author, Rockie Zeigler III, discusses investing and personal finance in a fun and easy to understand manner. We will also dig into topics such as taxes, the stock markets, debt pay-down strategies, how to increase your credit score, college savings accounts, how to protect your money from economic downturns and much more!
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Mutual Fund Fees [Mutual Fund FUNdamentals Part II]
Today is part II of my latest Making Finance Fun series: mutual fund FUNdamentals. In this episode, I’m going to talk about US stock fund fees. Believe it or not, there is generally more than one fee involved. We will talk about active and passive domestic stock mutual funds, the two main types you can purchase, and the four kinds of fees that you may pay to own a mutual fund. Don’t miss it!
Outline of This Episode [3:23] The two main types of stock funds [5:09] Fee #1: the expense ratio [9:00] Fee#2: Transaction Cost [12:55] Fee #3: Cash Drag [15:50] Fee #4: Taxes [19:38] Interesting nuggets of information [26:05] Check out my book! Fee #1: The Expense Ratio The expense ratio is basically a management fee. If you go online and type in the name of the mutual fund, you’ll find the expense ratio easily. So what is it? An expense ratio measures the operational costs of the mutual fund relative to the fund’s average net assets. It’s usually a percentage. It pays for the costs the fund incurs, fund managers’ salaries, advertising, and promotional activities, etc.
According to Morningstar, the average expense ratio is 1.1% annually for an actively managed fund. You are paying roughly 1.1% of whatever is in your mutual fund to the mutual fund company for their services. Yours may charge more or less. For an index fund, the average expense ratio cost is 0.49% per year.
Fee #2: Transaction Cost I’ve found that most people aren’t aware they’re being charged transaction costs. You generally see them in actively managed funds. Why? Mutual funds cannot buy or sell stocks themselves, they have to go through a broker. No one on wall street is running a nonprofit—so the broker charges fees. It’s really difficult to find what the transaction costs are. I’ve only found one average number (study done in 2007 linked below). The average cost is 1.44% per year. Woof. Transaction costs are likely lower on an index fund because they aren’t doing as much trading. Why? Because they’re copying other indexes.
Fee #3: Cash Drag According to another study, cash drag costs you 0.15% a year. What is it? Whatever mutual fund you own keeps a certain amount of cash in the fund itself. Why? If they feel like the market is too high, they might put half the mutual fund in cash and wait for the stock market to drop. I’ve seen less than 1% all the way up to 80% in cash. They do this if they feel like there’s a pullback coming. If you’ve got $100 invested in the mutual fund and $5 is cash, you’re paying the fee on the whole $100—not just the $5. There is also cash drag in passively managed funds. But again, it depends on your specific mutual fund(s).
Fee #4: Taxes We aren’t talking about ordinary income tax. I’m talking about capital gains tax. If you buy something for $50 and you sell it for $70, you might have to pay the capital gains tax on the $20.
The average tax that you’ll pay for an active fund is 1% per year. If you have $100 in a mutual fund, you can expect to pay $1 worth of capital gains each year. The fund manager might be buying and selling throughout the time you own the mutual fund. Most years—all of the buying end selling—generates capital gains for you. You may or may not have to pay capital gains taxes, but it varies depending on your situation and even the tax bracket that you’re in.
Index funds are well-known for being very tax efficient. They can pass on capital gains but it is rare. I don’t have an average cost. NOTE: If you have mutual funds in a 401k or a Roth IRA, this doesn’t apply.
I share a few other interesting nuggets of information you’ll WANT to know if you’re going to invest in mutual funds. Listen to learn more!
Resources & People Mentioned What are Transaction Costs? The Mutual Fund Fees We Don't Talk About 4 Lessons From Another Year of Falling Fund Fee
WMBD TV's Rebecca Brumfield
On this episode, I have a very special guest on the show: WMBD TV Anchor & Television Producer Rebecca Brumfield!
We discuss her recent wedding, her day to day life as a local news anchor/producer, as well as a look behind the scenes on what it's like to be a news anchor.
Connect With Rockie
Website On Twitter: @AnxiousAdvisor On LinkedIn Subscribe to the show on the app of your choice
Mutual Fund FUNdamentals [Part I]
What are mutual funds? Why would you want to buy them? How can you buy them? These are just a few of the questions I’m going to answer in—drumroll please—a whole series about mutual funds. In this episode of Making Finance Fun, I’ll cover the mutual fund fundamentals: what they are, their history, why they were created, and more. If you’re interested in investing in mutual funds, do not miss this series!
Outline of This Episode [3:11] What are mutual funds? [8:52] The history of mutual funds [11:02] Why mutual funds were created [15:13] The lowdown on modern Mutual Funds What are mutual funds? According to Fidelity, Mutual Funds are “Investment strategies that allow you to pool your money together with other investors to purchase a collection of stocks, bonds, or other securities that might be difficult to recreate on your own.” It’s often referred to as a portfolio. The decisions to buy or sell funds are made by managers. It’s a gigantic pot of investments that someone manages that you can purchase. Why would you want to do this?
I don’t know how many publicly traded stocks are out there—but there are a lot. Trying to own a chunk to get a diversified portfolio is difficult. Even deciding what qualifies as “diversified” is difficult. Then you have to manage that portfolio. That’s a lot of time and mental energy. Mutual funds are a one-stop-shop for stocks, bonds, and other types of investments. You can buy one investment that does the work for you.
Think of your mutual fund as a public pool with lifeguards monitoring the pool. The people swimming in the pool are your investments. The lifeguards are the mutual fund portfolio managers. They watch over the investments and decide what to buy and sell.
What is their common purpose? And what is a prospectus? Listen to learn more!
The history of mutual funds The first mutual fund was invented in 1924 and is still around today: the Massachusetts Investors Trust. It’s a stock mutual fund with 71 holdings in it (things like Microsoft, Google, Medtronic, J.P. Morgan, Apple, etc.) that includes a broad range of investments. It’s 26% technology, 18% healthcare companies, 11% communication, and 10% financials with a few other smaller categories. There are just under $6 billion in the fund with 3 portfolio managers.
WHY were mutual funds created? There are a few different reasons mutual funds were created:
It’s an easy way to diversify your investments in one fell swoop. You can get everything you’re interested in buying in one order. It’s convenient. They offer professional management. They’re the lifeguards at the pool. They have access to resources and research to make decisions on what to buy, hold, or sell. You unload the decision-making to someone else. A mutual fund offers liquidity and convenience. It’s easy to buy and sell online. I haven’t heard of anyone who couldn’t sell their mutual funds. What Modern Mutual Funds look like As of right now, there are approximately 7,945 mutual funds to choose from in the United States alone. The total investment in mutual funds in the US is over $21 trillion (as of the end of 2019). To put that into perspective, the entire US economy is somewhere around $20 trillion. There’s more money sitting in mutual funds than the US economy. It’s mind-boggling.
What can a mutual fund look like? There are stock mutual funds, bond mutual funds, real estate mutual funds, alternative investment funds, sector mutual funds (i.e. technology or consumer staples), and much more. There’s probably a mutual fund for any sector you can think of.
Should you buy mutual funds? How do you choose a mutual fund? Which one is best for you? What are the common fees? To learn more, listen to the whole episode. You can also learn more by subscribing and follow along through this special series o
My 3-Step Guide to Start Investing
Are you new to the investment game? Do you know how to get started? If you’re a beginner looking for a simple guide to get on your feet, this episode of Making Finance Fun is for you. I’ll help you define why you’re investing, how you’re going to invest, and what you’re going to invest in. My 3-step guide to get started is so easy, a caveman could do it. (But really, who else remembers those hilarious commercials?)
Outline of This Episode [3:23] #1: WHY are you investing? [7:09] #2: HOW are you going to invest? [8:58] Pros and cons of the Roth IRA [12:52] Pros and cons of the Traditional IRA [16:27] The lowdown on the 529 account [20:27] All about your 401k options [23:55] #3: WHAT could you invest in? #1: WHY are you investing? You need to define why you’re investing. Here are some reasons I often come across:
You’re investing for retirement Saving for your kid’s college fund You’re focused on wealth-building You want to increase your net worth To fulfill some short-term goals (i.e. a new car) Why do you need to define your why you’re investing? To determine how you’re going to invest.
#2: HOW are you going to invest? What vehicle are you going to use for your investment? If your goal is to save for retirement you can open a Roth IRA, Traditional IRA, 401k, 403B, a Simple IRA, or a SEP IRA. If you’re saving for college for a child, you can open a 529 account. But what do I get asked about the most? Roth IRAs, Traditional IRAs, 401ks, and 529 accounts. So I’ll briefly talk about each of these options.
Roth IRA vs a Traditional IRA The Roth IRA is a great account for saving for retirement. If you’re under 50, you can contribute up to $6,000 per year (as of 2020). If you’re over 50, you can contribute $7,000 a year. You do not get federal or state tax deductions. The plus side? You don’t owe taxes on the gains. Whatever you withdraw after turning 59 ½ will be withdrawn tax-free and penalty-free. However, if you withdraw the gains before 59 ½ you can be assessed taxes AND a 10% penalty.
With a Traditional IRA, you DO get a federal income tax deduction for what you do contribute. You also get tax-deferred growth. But you have to pay taxes when you withdraw money. If you need an immediate tax deduction, this may be the way to go.
What are your options if you make above the tax-deduction threshold? Listen to learn more!
The lowdown on the 529 account A 529 account is the first thing people think of when they want to save money for a child or grandchild for college. Some states even give you a tax deduction. For example, Illinois allows you to receive a deduction for up to $10,000 individually or $20,000 in a joint account. To find out which state does (or doesn’t) offer deductions, see the chart linked in the resources.
What if your kid doesn’t go to college? What if they want to start a business instead? The worst case scenario is that you pay income taxes and a 10% penalty on the earnings if the child decides not to go to college. Or, you can transfer the ownership. Are there other college savings options? Listen to find out! Plus, I share some details on 401k plans.
#3: What could you invest in? There are many investment options: ETFs, stocks, mutual funds, bonds, money market funds, CDs, brokerage CDs, bank CD’s, hedge funds, etc. That isn’t even an exhaustive list. However, inside a 401k you are limited to the choices they give you.
Sometimes, a brokerage window can open up that allows you to invest in whatever you want (not just the options they normally allow). But this can be dangerous if you aren’t an experienced investor.
Within an IRA you can virtually invest in anything you’d like. The only three things you can’t own includes life insurance, collectibles, or—generally speaking—physical precious metals. You can even own real estate in an
Do Elections Impact the Stock Market?
It seems like it’s been an insanely nasty election season, doesn’t it? Many people are left wondering how it’s impacting the stock market—and your investments. An election season riding the wake of the Coronavirus pandemic leaves everyone with a lot of uncertainty. So what should you do with your current investments?
In this episode of Making Finance Fun, I talk about the historical impact of elections on the stock markets. I also share a few things I’d recommend NOT doing with your investments, along with a few things you might consider. Check it out!
Outline of This Episode [3:35] The average election-year stock market return [5:29] The misconception that stocks get volatile [9:00] How stocks perform during election years [11:27] The market performs well under both parties [14:49] The economy is never radically changed [17:47] The historical narrative is not how you remember it [21:00] Why it’s okay if you don’t like the president [23:25] This isn’t the nastiest election cycle that we’ve had [26:20] Market predictions tend to be wrong [28:32] What should you do with your money? The misconception: stock market volatility Vanguard wrote a piece called “Elections matter, but not so much to clients' investments.” In the article, they share some research starting from the 1860s. They found that the average return during election years has been 8.9% (of a 60/40 stock/bond portfolio). The average return during non-election years? 8.1%. Stocks—historically—do better during election years.
According to the same article, from 1/1/1964 to 12/31/2019 the S&P 500’s annualized volatility was 13.8% the 100 days before and after the presidential election. That’s lower than normal volatility levels. Plus, volatility doesn’t always have negative connotations. It can simply mean a move up or a move down.
Since 1980—in my lifetime—we’ve had 10 election years. 8 out of the 10 years, The S&P 500 went up. On average, it’s averaged a 7.89% return during elections. The 2008 global crisis likely even skews the average a little.
10 Truths No Matter Who Wins In the article, “10 Truths No Matter Who Wins” Brian Levitt shares 10 points related to elections. I think a few of them were on-point and needed to be shared with you:
Markets perform well under both parties. Since 1860, a 60/40 portfolio has averaged 8.2% under Republican presidents and 8.4% under Democrat presidents. No matter who wins the economy isn’t radically changed. While presidents can have signature pieces of legislation pass, they haven’t significantly impacted the stock market. The historical narrative is never how you remember it. I’ve heard “this is the most important election of our lifetime” every election. It’s ridiculous. Listen to hear why. Markets don’t care if you don’t like the president. Some of the best returns came with low presidential approval ratings (36-50%). Stocks still averaged over 15% during that time. This isn’t the nastiest election cycle that we’ve had. I share an insane story you’ve probably never heard about political candidates—listen to hear what it is. Market predictions are usually wrong. No one knows when the market will tank. So don’t pay attention to predictions and take them with a grain of salt. I discuss each one of these points in-depth and share some supporting information that you’ll definitely find interesting. Listen to learn more!
What should you do with your money? Election years are tricky for investors, especially as you edge closer to election day. Politics are emotional and it’s hard not to make some emotional decisions with your money. That being said, there are some things you shouldn’t do:
Don’t try to time the market. You might get lucky but then you have to decide when to buy back in—and most people don’t do it at the
My Top 40 Investment Tips
In honor of my upcoming 40th birthday (which may or may not be on October 3rd), this episode of Making Finance Fun is a special edition. In this episode, I share my top 40 investment tips, personal finance tips, and observations from my 13-year career as a financial advisor. I share ten tips in this post. But if you want to hear ALL of the wisdom I’ve learned throughout the years, give the whole episode a listen!
Outline of This Episode [1:56] My top 40 investment tips [2:29] Investment tips #1–10 [14:24] Investment tips #11–20 [23:31] Investment tips #21–30 [30:38] Investment tips #30–40 Tip #2: Have a reason you’re investing Too many people buy an investment without thinking through the WHY. Is it for a short-term gain? Do you want to own it for the long-haul? Do you want to make 25% and move on? Do you like what the company is doing? It doesn’t necessarily matter the reason—but you NEED to have one.
Tip #5: Turn OFF the financial media 2020 has been hard on everyone. The market took a steep drop but has steadily come back to new highs. But the worst thing you can do is bombard yourself with the financial networks that speculate 24/7. They rotate guests who all have different opinions on the market. It’s all about driving dear, and fear leads to poor decision-making.
Tip #8: Remove as much emotion as possible When stocks go up people get crazy excited—but it’s even harder on the downside. I’ve lived through multiple market downturns. It’s HARD not to get emotional. When you have a plan and a strategy for your long-term investments, it’s easier to let go of the emotion and stick to the plan.
Tip #9: Rental properties CAN be good investments Many financial advisors disagree with me, but I believe a rental property can be a good source of income. While real estate can be a good investment, it’s also far more hands-on then buying stocks. I talked about it at length with “Money Honey” Rachel Richards in episode #39.
#13: The ups and downs are accelerated High-frequency trading, hedge funds, large banks, etc. trade quickly. This means drops in the market are accelerated—but so are upswings. We had a huge downturn of 35% in three weeks, followed by 6 months of near constant market increase. Things turn quickly.
#18: Don’t put too much stock into savings projections Everyone has heard financial advisors say “You have to save this much by this age” in order to retire by 65. The truth is, those projections don’t necessarily tell the whole story. Maybe the people that have $2 million saved by 40 invested in a startup. Maybe their grandparents left them money. The amount of money needed for retirement depends on a LOT of variables. Don’t compare yourself to where others are at—and talk to a financial planner who can help you implement realistic goals.
#27: Performance numbers can be easily manipulated There are a lot of ways performance data can be manipulated to tell a story. It’s like comparing MPG on a Ford F150 versus a Prius. You can’t compare. They’re two very different things. Time-frames can easily be manipulated to frame it in a way someone wants you to see it. Fees can often be hidden as well—so keep a close watch.
#29: When someone gives you financial advice, take it in context The best example I can think of is when the CEO of a bond-mutual fund says the market will drop, take it in context. That dude is selling what people buy when they’re freaking out about stocks. When anyone—from friends and family to trusted businessmen—give financial advice, question their motivations or outside influences.
#35: Evaluate your 401k twice a year I think you should check out your 401k at least twice a year. How is it performing? How is the allocation? Are you comfortable with how much you have in stocks versus bonds? Are you comfortable with what the stoc
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He makes finance fun and understandable
How do you make finance fun? With Rockie Zeigler III (RZ3) of course! He spices things up. He makes learning about personal finance and investing, interesting and entertaining. Subscribe and get your fun dose of personal finance.
Personal finance and investing can be a boring subject, but Rockie does a great job keeping things fun and interesting. Definitely worth a listen!
Rockie does an amazing job breaking down complex financial topics into easy to understand lingo. Very informative!