Final Exam Preperation

1. Whats the difference between an IRA and a 401K
IRA- A retirement account with large tax breaks 
401K- 
2. What annual percentage of return did the S and P 500 make between May 22, 2009-> May 22, 2013

19.2%
3. What’s the most important consideration when choosing to buy a fund of any kind? Is it the turnover, commisiion or expense ratio?

Expense Ratio
4. If a fund has a frontend load, who gets it?

Broker, advisors
5. If a fund has a turnover of 50% what does that mean
6. Is it more important to pay off credit card debt, or start investing as early as possible

Pay off credit card, because high interest rate
7. What did the average US millionaires pay for their last car

30,000

8. Whats the most popular ca among US millionaires

Toyota
9. If laruen invested 200/month from age 18 to age 55, how much would she have if she earned 9% per year

675,911.48
10. The Dalbow Study shows that most investors earn large returns. Whats the biggest culprit

By high, selling low
11. When a fund charges a commission who gets that money

Stock broker/ sales agent
12. As an investor ages what asset do they usually increase in their portfolio

Bonds
13. What do 12B1 fees pay for in a actively managed fund?

Advertising
14. Since 1985 which markets have earned higher stock market returns? Fast growing economies like China? Or slow gorwing economies like the US?

Slow growing economies like the US

Investing in Virginia

First Step: Deciding on Virginia

• Virginia has quite cheap houses
• Quite Low Taxes
• My university is located in Charlottseville, Virginia

Second Step: Figuring out my Income

• http://business-schools.findthebest.com/d/a/Virginia
• according to this website the average graduate from the University of Virginia Business School is 100,839
• however this is before taxes 
• 
  

Investing in Real Estate

Class Notes:

• target retirement fund 2060:diversified portfolio within a single fund that adjusts its underlying asset mix over time

• cash flow positive real estate: two homes under one roof
• same amount of maintenance, but two sources of revenue derived from two tenants 
• finds duplex for $170,000, bank will loan 80% of the home but most provide downpayment of 20%
• 20% 170,00 = $34,000
• must pay $650 a month for 25 years
• charge renters $600 per month each, use extra money to pay a property manager
• property manager: deals with the problems that occur in the house
• Rental yield= yearly income from rent/price of property (should be 10%)

Connection with Family:

     Today we learned how financially viable buying & leasing homes are.  The important thing to do is make the renters pay more than you have to pay for the loan.  I thought this would we a awesome idea for my parents to do, and I was pleasantly surprised to find out that in fact parents were doing it!  My parents own a home in Vienna, Virginia and are renting it out. However, due to the financial crisis my parents are unable to charge the renters more than they have owe the bank.  Thus the renters are not paying for the house completely, but they are lowering the prices substantially.  I then recommended that my parents raise the price slightly so that we are paying even less, or hopefully none of our own money to the bank.  

Project:

http://charlottesville.backpage.com/HomesForSale/
According to this website Charlottesville, where my college is located, is a quite good place to invest.  This is where I am trying to buy a duplex, possibly a quadplex.  Since Charlottesville is a big college town I am looking for a cheaper place because college students will not have large incomes to spend on fancy houses.  Joshua Dawe and I are planning on hypothetically investing in a large, off campus, house that will be able to house several people.  Thus we will have several renters and several sources of revenue.  Rather than just one family, like my family is doing.

US market vs. International market

Class Notes/Questions:
1). Over the past 12 months what percentage gain did the U.S. markets make?

• Ticker:
• S&P 500: VFINX
• Total US market: VTSMX

2). Over the past 12 months what percentage gain did the International market make?

• Ticker
• International market: VGTSX

Finance Questions we Should all know the Answers to

1.  Why am I hoping the stock markets fall, rather than rise?  See Warren Buffett's quote about this, on page 77 of my book.  If you don't have your book with you, please ask the teacher to provide you one.  There are eight copies on my desk.

     Warren Buffet's quote is basically an extended version of another of his famous quotes, "be greedy when others are fearful and fearful when others are greedy.  In other words you want the stock markets to fall because then so will stock prices, allowing you to buy more individual stocks.  Such as with the hamburger metaphor, you should want to buy your hamburger, and stock, at a lower price rather than at a higher one.  Thus if the stock market would crash tomorrow many intelligent investors would rejoice because the overall price of stocks would be cheaper and then they could buy them at a lower price to see them rise later.

2.  How have I personally determined my bond allocation?  If I wanted to take more risk with my money, what might my bond allocation be?

Mr. Hallam has determined his bond allocation by his age, so it is 38%.  Bond produce lower returns, but they act as a parachute when the stock market crashes and you end up losing less money.  After the stock prices have lowered you will be able to quickly take money out of your bond index and invest in the stock index when it is at a lower price.  And if you wanted to be riskier you would have less bonds and more stocks.  Thus your portfolio would have a higher potential for earning profit, however there is also a greater possibility that you can lose money.

3.  Why am I buying bonds right now, instead of stocks?  Hint.. it has nothing to do with my "predictions" about the stock market's short term direction, nor anything to do with current PE ratios.

Because the price of the stock index he is invested in is rising he is rebalancing to to keep his money balanced.  As his stock index increases the overall percentage of his money in the stock will increase past to what he has previously allocated.  The value of his stock will increase so that more than 62% of his money is in stocks, both international and Canadian.  Thus, to reallocate his funds he must sell some of his stocks and invest in bonds to keep his percentage at his set percentage.  This keeps him true to buying when others are selling and selling when other are buying.

4.  Why don't I invest in actively managed funds?

Actively managed funds have much higher expense costs than passively managed funds.  The best predictor of the success of a fund is how low it's expense ratio is, and passively managed index's cost less than actively managed funds.  Also, those who try to predict the future and beat the system often actually perform worse than an index fund.

5.  What is the typical expense ratio for the average actively managed mutual fund in the U.S.?  (See table 3.2 on page 54).

The average expense ratio for the typical actively managed mutual fund in the U.S is 1.53%.

6.  Notice my two stock market holdings:

VTI:  U.S. total stock market index (purchased as an ETF)

VEA:  The international stock market index (purchased as an ETF)

Within each of these indexes, there are thousands of individual stocks.  What is the average expense ratio for each of these exchange traded funds? 

The average expense ratio for the U.S. total stock market index is only 0.06% and the international stock market index is a bit higher at 1.2%.  However both of these index's are significantly lower than the U.S. actively managed stock market mutual funds.

Choosing a Fund to Invest in

Class Notes:

• time and preparation is key when it comes to investing
• as Warren Buffet says "Noah did not start building the ark when it was raining"
• noah principle: start early
• compound effect: how your investment increases with each year and is able to produce even more returns
• snowball effect: your money slowly builds up and is able to collect even more snow
• best way to invest your money is to take an allotted amount out of your earnings as soon as you receive it rather than after you've spent money
• this allowing to stick to your budget and will end my making you invest more
• DO NOT invest if you have credit card debt
• most credit card companies charge around 18-20 percent while the average stock will only provide you with a 10% return.  Thus you are simply losing 8%
• margin  accounts: when you borrow money to invest

Home Discussion/ Project Research:

    After further discussing I have decided not to take my one thousand dollars out of gift account and I will only invest the four hundred and thirty five dollars I made over summer.  And since I do not have the thousand dollars minimum required for the Roth IRA vanguard stock index I will have to research another source of investment where the minimum is lower; possibly a passively managed stock index.  I might, however invest in the Vanguard Windsor II, and even though this is actively managed the expense ratio is very low.  

Roth IRA

Class Notes

• Good Time to buy stocks:
• when economy is doing poor-share prices are low
• when a overall strong company has a temporary setback
• when others are fearful- others are selling
• asbestos in wall boards caused cancer: found out in 80's & 90's
• Americans sued the companies, companies lost money, share price dropped
• perfect time to invest in the company
• Bill Miller: one of greatest fund manager of all time
• had beaten S&P 500 15 times in a row
• Best way to predict success of actively managed funds
• the ones with the lowest expense ratios-costs
• bond index are useful because you can sell them at any time
• you can re-balance and sell bonds to buy into stocks

Further Research:

Project/Home Discussion:

      I am still unable to decide which type of fund to invest in because almost all the investment funds need a minimum of $1,000.  And because I actually want to start investing rather than simply pretending to, I need to find a investment fund that has a much lower minimum.  Preferably around $400.  If, however, I am unable to find one with such a low minimum,  I might have to borrow from the $10,000 that I will earn once I turn 18.  I have offered the idea to my parents that instead of earning the $10,00 when I turn 18, I will take out $1,000 now to invest in a stock index Roth IRA and then only receive $9,000 once I turn 18.  I have decided to invest in Vanguard Windsor II Fund because not only does it have the highest return but also because it is the same one my parents invest in.

ETF's

Class Notes

• custodial account: co-owned stocks for minors
• Exchange traded funds (ETF's): trade on a stock and can be purchased or sold mutiple times on any given day.  There's usually a commission to buy or sell ($9.99).  However with Vanguard ETF's, purchased through a vanguard account there's no commission. 
•  Index funds = no commissions and you can't trade them multiple times within a day
• with these indexes (via vanguard) you need $3,000 for a standard index (for a minimal initial purchase) or $1,000 for a target retirement fund - a combination of US Index, International Index and Bond Index
• vanguard S+P 500 index fund ticker = VFINX
• same thing as ETF form = SPY
• vanguard total stock market index = VTSHX
• ETF equivalent = VTI
• lower the fees= the higher the probability of the fund doing well in the future
• World Stock Index: 
• 45% US stocks
• 45% 1st world international developed markets
• 10% emerging markets

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 funds (ETFs) offer investors the ability to diversify over an entire sector or market segment in a single investment.

Exchange traded funds (ETFs) are open-ended investment funds listed and traded on a stock exchange. Your money is pooled with money from other investors and invested according to the ETF’s stated investment objective.

An ETF’s objective is to produce a return that tracks or replicates a specific index such as a stock or commodity index. ETFs are passively managed by ETF managers and do not try to outperform the underlying index. Hence, ETFs have fees and charges that are usually lower than those of actively managed investment funds. 

Types of ETF's:

Home Discussion:

After discussing my future project, my parents are excited and hopeful that I will start my own fund and be able to learn the tricks of the trade on my own.  However they are still unsure on which stock fund I should invest in, as am I.  They have actively managed stocks in Vanguard and my current plan is to invest in passively managed Vanguard stocks.  Now I just need to look into actually starting the investment, and setting up an account.   My finances are also still coming along as planned, but should spike shortly as I input my spring break costs into the formula.  

Dog & Leash/ PE Ratio

Class Notes:

• Dog and the Leash: comparison between price levels and profit levels
• Dog: run ahead or trails behind the owner - represents price levels
• Owner: steadily walks onward - represents profit return, always brings the dog back 
• the further the dog gets away from the owner, the longer it takes to recover
• eg. Japan's dog (the prices) increased rapidly but earnings didn't, now their economy is taking a long time to recover
• Peak: price level of the stocks is high
• to figure out how the stocks are doing you must compare the price to the profits

• Market Capitalization: share price X total number of shares that exist = total price of the company 
• Johnson & Johnson: $210 billion

• PE Ratio: price to earnings ratio is a more accurate measure of how expensive a stock is than it's price
• divide price of the company by it's previous year's profit
• for J&J: $210 billion / $14.3 billion = 14.8
• J&J is currently 14.8 more times more expensive than the profit they made in 2012
• this is happening because the earnings have caught up with the price
• on average the DOW trades at 14.5 times earnings
• DOW half as expensive as it was in 2,000

• Shorting Stocks: borrowing stocks and promising to pay it back
• if the fund does bad you make money but if the fund does well you lose money
• very risky: either gain big or lose big

Further Research:

       After class when I went home I was realized I was still not 100% on how to define the P/E ratio and thus I decided to research it more.  What I found out was that the P/E ratio is only one component in determining the health in the stock.  Or according to Ken Little "The P/E is the most popular metric of stock analysis, although it is far from the only one you should consider".  I also learned that the definition of the P/E ratio is that company's stock price divided by it's earning per share (EPS).  For example, a company with a share price of $40 and an EPS of 8 would have a P/E of 5 ($40 / 8 = 5).  A key paragraph that made understanding P/E ratio came from the same author, Ken Little.  In it he said "What does P/E tell you? The P/E gives you an idea of what the market is willing to pay for the company’s earnings. The higher the P/E the more the market is willing to pay for the company’s earnings. Some investors read a high P/E as an overpriced stock and that may be the case, however it can also indicate the market has high hopes for this stock’s future and has bid up the price" 

Finance check:
      My finances are still coming along steadily, they haven't increased to greatly since the last big spending: interim.  However, with spring break coming up I anticipate a large increase on my tracking chart.  Which could raise my bills to an astonishing level.  

Passive Investing/ Class Discussion

The Evidence the Fund Management Industry Would Prefer You Not to See

• industry has more than 4 trillion pounds in its management
• only 2% of actively managed beat index funds for a sustain period of time
• most fund managers are simply gambling when they are investing your stocks
• 10 billion pounds in "dog funds" under performing their benchmark number for the past 3 years
• fund managers regularly under-perform
• has become harder to outperform index
• fund managers make around 10 billion pounds overall, whether or not they make their investors any money
• TER: total expense ratio
• excludes extra costs that can seriously erode your finances
• charges for fund managers in the UK have steadily raised over recent years
• Canada: charges 2.5% per year of everything you have invested
• US: charges 1.5%
• people are petitioning for the government to step in and create laws to lower these fund

Class Discussion Notes:

• elephantitis: if a fund does really well than many people will start investing in it, and that fund will have too much money to smartly invest
• that fund will have to be less picky about which stocks they invest in
• fund managers don't want to close the funds to stop elephantitis because they earn less money if they close 
• broker dealer: sale advisers, make money according to fees
• financial advisers: charge by the hour, don't make commissions on products
• short term government bonds are best
• short terms are unaffected by inflation
• first world government bonds are safer than infesting in companies
• couch potato: rebalancing 
• low cost
• diversified: safer

Further Research:

One of the most important decisions investors will ever make is their asset allocation—the percentage of stocks, bonds, cash and other asset classes in their portfolio. For example, a mix of 60% stocks and 40% bonds is common in a balanced portfolio.

The problem is that asset allocations don’t stay constant. As the markets move month by month, your portfolio’s stock-bond mix will change, sometimes dramatically. If you had a 60-40 portfolio in mid-2008, the stock portion fell to about 45% by March 2009. If you were at 60-40 when the market bottomed, then your mix would be close to 80% equities today.

That’s why investors should occasionally adjust their portfolio to get it back to its target. You can do this by adding new money to the underperforming asset classes, or by selling off some of the outperforming funds and using the proceeds to prop up the laggards. In either case, the idea is to “reset” your portfolio to its original asset allocation.

          

Finance Tracking:

     At the moment the most costly thing I am spending money on is taxi's.  This is because not only are they expensive but I use them too frequently.  After recording how much money I spend on taxi's I can confidently say that I would save substantial amounts of money if I either walked or took public transport.  I am able to cut down on food expenses because it is a lot cheaper to buy groceries and make the food myself or eat leftovers from dinner than it is to buy food from the school cafeteria.  

Class Discussion/ Chapter 5

Class Discussion Notes

• statistics show that actively managed funds have less a chance of being successful
• Morning star 5 star funds: top 5 actively managed funds based on their performance over the last 5 years
• elephantiasis: when funds have too much money and not enough ideas, has to become less picky in order to invest all the money flowing in
• lower the cost associated with an actively managed funds, the higher rate of success it has
• but financial investors will push for higher cost funds because they earn more money
• average fund manager has barely more financial education than I do know
• No scholarly argument against index funds
• however there are several fund managers that are able to beat the market and earn more money than the index funds

• Rear-view mirror revelation: It's easy to comment on something that has happened but very hard to predict what will occur

• Couch Potato Portfolio Concept: 
• when you buy or sell your stocks to keep your index at a set percentatge
• be greedy when others are fearful and fearful when others are greedy
• Eg. Scott Burns- 1991
• a portfolio comprised of 50% US stock index & 50% US Bond Index

Chapter notes:

• total stock market index funds are good, but it doesn't represent a balanced portfolio
• bonds act as parachutes when the stock market does poorly
• Bonds:
  ·        Don’t make as much money as stocks
  Types:

  ·     Safest are the first world bonds

  
  

  ·    In short-term Gov Bonds

  
  

  ·    In short-term Corporate Bond

  
  

  ·    Short term- because inflation can eat away at your money 

  
  Bond allocation that is roughly equivalent to your age your age – 10
  
  
  
  
  
  
  
  

  ·        Riskier Bonds pay higher interest, but they could forfeit on the loan 

  
  

  ·       If you go the full duration of the bond (lets say five years)

  
  

  ·       Gov guarantees your money back with a fixed interest rate    

  
  

Home Discussion:

       Tonight we discussed how most of my parents portfolio is in bonds, rather than stocks.  I learned because my parents would rather have a stable amount of money to fall back on than earn a lot of money.  And my funds have been invested in actively managed funds, and we agreed that after learning that index funds have a higher probability of earning me more money, that is it time to switch to index funds. 

small percentages pack big punches

Chapter Notes:

• with just three index funds your money can be spread over nearly every available global money basket
1. a home country stock market index
2. an international stock market index
3. a government bond market index

• Paul Samuelson: "the most efficient way to diversify a stock portfolio is with a low fee index fund"

• How actively managed funds work
1. your adviser takes your money and sends it to a fund company
2. that fund company combines your money with those of other investors into an active mutual fund
3. the fund company has a fund manager who buys and sells stocks within that fund hoping that their buying and selling will result in profits for investors

• 5 factors dragging down returns of actively managed US mutual funds
1. expense ratios
2. 12B1 fees
3. trading costs
4. sales commissions
5. taxes

Discussion with parents:
           After last class when we learned about the benefits of an index fund I really got thinking about active versus passive investing.  I talked with my parents about my funds and learned that I have a actively managed funds for when I turn 21.  And since my mom has also read "A Millionaire Teacher" she was of like-mind when I discussed what I learned with her from chapter three.  Thus we both agreed that we should convert my actively managed bonds into passively managed bonds, however we were both unsure on how to convert our funds from actively managed funds to index funds.
This Article: http://knowledge.wharton.upenn.edu/article.cfm?articleid=2702 further enforces what I learned in chapter three.  About how financial advisers will advise investors to buy actively managed funds even though index funds often perform better.  They do this because index funds will allow them to earn more profit.

Finance Tracking:
    I have finally finished converting my finance tracking from my journal to excel.  I was surprised to see how much my total was, an astonishing $5,000.  Besides my interim costs, what added mostly to my monthly costs was my groceries cost.  It far outweighed my personal spending at school or on the weekends.

the blog after interim

If someone invested $10,000 in the US stock index in January 1990 they would earn roughly 65,000

• you search vfinx on morning star and change the dates to start from 1990 and end in the present day

If someone invested $10,000 in the US bond market in January 1990 they would earn roughly 44,000

• you search vbmfx on morning star and change the dates to start from 1990 and end in the present day

Average return on investment markets vs. individual investors 

dollar cost averaging: investing a constant sum into an investment every single month

• When the market is high it buys you less units
• When the market is high it buys you more units

           We learned that on average an investor will only make about a third of what the market makes on their return  of investments.  This is because many investors feel the need to buy stocks when the prices are high and rising because they believe the stocks will continue to increase.  However what usually happens is that investors spend more money on a single unit than they need to and that bond loses value and in the end the person will either lose money or not make as much money as they should. To combat this, many knowledge investors will use the dollar cost averaging technique.  This is when a person invests a constant sum into an investment every single month.  Thus it ensures that you buy more units when the prices are low and fewer units when the prices are high even though you are investing the same amount every month.

Most people invest in the stock market through one of four vehicles

1. actively managed mutual funds
• most commonly used the stock market
• a collection of stocks that a fund manager trades on behalf of the funds' investors 
• a fund manager watches the economy and interest rates and tries to find the best stocks for his or her fund
• regulated by the securities and exchange commissions 
2. passively managed mutual funds
• these funds don't have fund managers that choose stocks based on forecasts or quality
• they own all of the stocks in a given market: the good and the bad
3. individual stock purchases
4. hedge funds
• 
  

Which performs better: passively managed or actively managed

1. After all fees and taxes, it is easy to find actively managed mutual funds that beat index fund over times 
• not by looking for past performers but by predicting future performers
2. After all fees and taxes, is is hard to find actively managed funds that beat indexed passive funds 
• not by the past performers but by the odds of future performers 

http://money.usnews.com/money/personal-finance/mutual-funds/articles/2012/10/12/study-active-funds-consistently-fail-to-beat-benchmarks 

According to these websites it is actually better, or there is a higher chance of success, to use passively managed funds than actively managed funds.  However, surprisingly more people are investing in actively managed funds.  I was curious to as why this is, and what I found out is that financial advisers earn substantially more when their client choose actively managed funds.  And after reading this I decided to discuss what types of funds we have with my parents.  And, unfortunately, I found out that we too have actively managed funds.  And again, it was because my parents were advised to do this by their financial advisers.  We then discussed the possibility of switching from actively to passively managed funds, and my parents said they would think it over but it was a definite possibility.  

The finance tracker is coming along well, but since I do not have an I-phone, I have to simply plug in my expenses on my desktop at home.  Thus my list is not as accurate as I would have hoped.  The groceries cost coupled with interim expenses have added up to a surprisingly large amount of money.       

Opportunity Cost

• According to Morning Star, the code for the average international market stock is VGTSX, which stands for Vanguard Toral Intl Stock Index Inv 

• warren buffet's montra: be greedy when others are fearful, and be fearful when others are greedy.

• re-balancing: keeping your stocks at an allocated percent: buying low, selling high
• eg. having 50% in US market and 50% in international market, when US markets grow so the percentage is more similar to 55% in the US market and 45% in the international market.  Then you sell the 5% extra in the US market and invest it in the international market.  Thus your portfolio should continually grow.

• endowment fund: a large, safe amount of money that is safe yet grows slowly: for colleges/ rich high school only

• opportunity cost: 
• eg. if you watch TV instead of movies, you can invest that money in the stock
• eg. instead of buying $300 cleats, buy only $100 cleats and investing the $200 you saved
• eg. instead of buying lunch at school everyday, bring your lunch from home and invest the saved money
• eg. instead of going to a prestigious, top university, attend a cheaper, less well known college.  And invest the money you save from tuition costs
• Opportunity cost: By taking the money you would have spent and saving it, you create more money for future use

• Family Discussion:   
• My parents whole heartily  agree with opportunity cost, especially with college 
• My parents would rather me go to a slightly less well-known college than graduate from a expensive college with thousands of dollars in student debt
• We talked about a family friend and her son
• He graduated from Duke, with some obscure major
• Thus he had thousands of dollars in student debt and couldn't find a job 
• It is all too common for college graduates to have spent so much money on their education and then end up living in their parent's basement

Conclusion:

        Opportunity cost is important in weighing the advantages and disadvantages of a decision.  The question people should ask themselves when buying or investing in something is "do I really need this? Could I be using this money more effectively some other way?"  Instead of buying a 300 dollar pair of cleats, why not simply buy a slightly cheaper pair that has the same durability.  And taking the money you would have saved and either spend it on something more worthy, or invest that money.  This applies to college in the sense that a student could save heaps of money if they attend a slightly less prestigious college rather than an expensive Ivy-League school.  We also learned about endowment funds and how the technique many colleges use when re-balancing their funds can apply to our savings.  The key to re-balancing is keeping your stocks at an allocated percentage by buying low and selling high.  Whenever one group, such as international markets or the US market, does better than the other, you should sell those stocks and buy into the other group when it is cheaper.  One problem with this technique is that it is hard for many people to sell their stocks when they are increasing in value and buying when they are decreasing.  Another problem is that it takes more upkeep than other techniques for managing stocks, but the yield can be often much higher.  

Time is your Best Friend when Investing

1. If somebody invested $10,000 in the US market 25 years ago, what would it be worth today?
       If a person invested $10,000 in the S&P 25 years ago, their money would be worth about $102,000      today.

2. What annual rate of return would they have earned during the past 25 years?

3. If somebody invested $2,000 per year at this rate of return, from the time they were 18 until they were 65, how much money would they have?

4. If somebody invested $10,000 per year at this rate of return from the time they were 40 until they were 65, how much money would they have?

Commentary:

     Overall, these examples show us how important it is to invest early.  No matter how much money you invest, you make more money if you invest early.  If you invest early, you end up not having to put as much money in, yet still earning more money overall.  

Links:

How to calculate the rate of exchange:

http://www.moneychimp.com/calculator/compound_interest_calculator.htm

How to find the growth of the S&P 500:

http://quote.morningstar.com/fund/chart.aspx?t=VFINX&region=USA&culture=en-US

8/10

Class Notes: January 21st

• DOW: top 30 businesses in the United States
• named after John Dow, who created the list
• Old boys game: hard to get into it
• S&P 500: top 500 largest companies in the United States
• S&P: standard and pores
• past 10 years, stock market hasn't doesn't well overall
• if I invested 10,000 dollars in 2003, how much would it be worth today
• my guess: $25,000
• actual: $19,490
• if I invested 10,000 dollars in 1993, how much would it be worth today
• my guess: $30,000
• actual: $49,000
• http://quote.morningstar.com/fund/f.aspx?t=vfinx 
• What was the US market's average annual return for the last decade
• last 10 years: 6.9%
• last 20 years: 8.2%
• investing $5 a day, $150 per month, $1,800/year for 47 years will make 84,600
• but with an interest rate of 8.5 it will have increases to 1,039,895
• investing 25 a day, 750 per month, 9,000 a year for 25 years will make 225,000
• but with interest: 768, 190

First Blog - the Value of College

Today we learned about the several advantages and disadvantages of attending an Ivy League university.  While there is great name recognition for the Ivy League schools, we learned today that name recognition is not always worth the thousands of dollars the Ivy League school are charging.   If a student has the funds to afford the college, then by all means he should attend an Ivy League school if possible.  However, for those whose parents are unable to pay for the full ride of these expensive universities, it is better to go to a slightly less prestigious college.  According to the articles we read in class, what university you attend to matters less than the fact that you attend college.  The line between a top-notch universities and second tier schools has blurred; the less prestigious, but also less expensive second and third tier schools often offer just as valuable education.  It is better for a student to graduate from a less well-known college without student debt, than have gone to a school such as Harvard but have thousands of dollars of student loans.  After reading the articles, we found out that graduates from Ivy League schools and less known schools had approximately the same average income later in life.  It is the student, not the college, which determines how successful that person will be in life.  After discussing this topic with my parents, they whole-heartedly agreed.  And it is for these reasons why they decided not to pay full ride for college.  We read an article that described how people whose college is fully paid for tend to earn lower grades.  It is because for those people who how fewer funds, that they tend to value money, and their college education more than those who have everything given to them. 

College students whose parents foot more of bill for college get lower GPAs:

http://finance.yahoo.com/news/study-parental-support-sends-down-145802985.html

The Disadvantages of an Elite Education:

http://theamericanscholar.org/the-disadvantages-of-an-elite-education/