investment

Mutual Funds 101: What they are and how to use them

A mutual fund is an investment vehicle in which multiple investors pool their money into one account to be managed by a professional investor. From a money making standpoint, the benefits of using a mutual fund are pretty clear. For one, if you've got extra cash lying around but don't know how to invest it, it pays to hand your money to someone who knows what they're doing. Secondly, mutual funds are heavily regulated by the government, so it's definitely a more secure way to invest. Finally, the primary benefit of investing a mutual fund is the diversification. Mutual funds typically hold many different securities and this diversification is a great way to mitigate risk. It isn't all sunshine and rainbows, however. Investors in a mutual fund have to pay various fees and expenses, and since they're part of group, each investor must sacrifice his/her ability to invest individually.

How do they work?

From a functional standpoint, mutual funds are simultaneously an investment portfolio and, because of their size, a full fledged company. A mutual fund, day-to-day, works much like any other company. A fund manager is elected by the board of directors and is legally obligated to make decisions that benefit the fund's shareholders. Most mutual funds exist as part of a larger investment corporation, with some companies containing hundreds of funds.

Mutual funds invest in multiple securities at once in order to hedge their bets.

What's the difference between a mutual fund and a hedge fund?

Mutual funds are not to be confused with their risk-taking, coke-addled cousin, the hedge fund. The fundamental difference between the two is that a hedge fund's leverages (bets made with borrowed cash or prospective earnings) aren't regulated. While both mutual funds and hedge funds lack a certain level of transparency, investors in a mutual fund can rest a little easier, knowing that the company they're invested is relatively safe (in theory). While the SEC doesn't have the jurisdiction to supervise a mutual fund's investments, it does require these funds to publicly report their earnings. The biggest safety net in the world of hedge funds is its barriers to entry. You must have a net worth of at least $1 million to ride that ride. That said, if you're trying to bet the minimum, you might be better off at a casino.

Are there different types of mutual funds?

Since there are different types of securities (bonds, stocks, derivatives etc.), naturally there are different types of mutual funds. One of the more prominent types is based on fixed income and the collecting of government and corporate bonds. Fixed income funds generate their income via interest. Another type of fund is based around market indexes. These funds are predicated on the belief that the stock market is too hard to judge. Instead of trying to beat the market, investors buy into specific indexes (i.e. Dow Jones, S&P, NASDAQ). The advantage of these funds is twofold. Investing this way is extremely risk averse and feels significantly safer than the other mutual funds out there. On top of this, betting on an index isn't rocket science, so there are way less fees involved with this type of fund. Another relatively secure option is a money market fund, in which the objective is to keep the fund's share price at $1 and to turn a profit on short term investments. These funds move quickly but are a comparatively safe way to invest one's money. There's also no fee associated with entering and exiting a money market fund. There are also sector funds (funds based on specific industries), balanced funds (funds that hold both stocks and bonds), and too many other variants and combinations to mention here. This is the 101 course for God's sake. If you've read this and thought "gee, I didn't know what mutual funds were, but now I'm itching to get involved," I recommend talking to a financial advisor.

Index Funds are the safest way to play

Aren't all funds just scams?

Yes. Invest in real estate you idiot. Sorry, I got ahead of myself there. What I meant to say was:

Yes and no. Where mutual funds come up short, is in the idea that picking a company with a star investor or manager is going to to yield better results. An investor's success rate is not predictive of future success. According Henry Blodget and David Swensen the only thing that's predictive of a mutual fund's success is the cost it takes to run it. This is why index funds, with their lower operating costs, always seem to beat out other funds in revenue. So yes, funds that claim to have "inside knowledge" about the stock market and investing, are lying to you. Investing at that level tends to be little more than educated guessing. That said, these funds exist and have been legitimized in the American financial space. The amount of money tied up in US-based mutual funds is about the same as our GDP. So, if you have the money, and are looking to bet it, a mutual fund is closer to blackjack than roulette. Still, unless you're counting cards (or insider trading) it's pretty much all luck.
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What is the national debt and does it really matter?

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During almost any discussion of legislation in Congress, the national debt will reliably be introduced into the debate. This topic is unavoidable when allocating federal funds for any reason, but especially during budget proceedings. Usually, Republicans voice their concerns over excessive national spending and the effect that it would have on the federal deficit. But what exactly is the national debt and should we be concerned about it?

Essentially, the federal deficit is the amount of debt the United States has — or the amount of money it owes to other entities. These include U.S. federal agencies, state and local governments, foreign governments, and investors. The total national debt as of February 2018 totals to over $20 trillion. Needless to say, this is the highest amount of debt the country has ever had.

Why is the federal deficit so large? The simplest explanation is that the government has spent many years and decades spending more money that it collects in revenue from taxes. But the federal government is very large and has many, many working parts. Contrary to popular belief, China does not own most of the national debt. That title actually belongs to the Social Security Trust Fund — where your retirement checks come from. In fact, about 30 percent of the national debt is owed to 230 federal agencies. Or the United States owes this money to itself. This situation is a result of shifting money around to different parts of the government through the purchase and sale of U.S. Treasury bonds.

The federal deficit matters because of its potential impact on the economy. With higher debt burdens, economic growth slows. This is a side effect of governmental actions typically taken to deal with the deficit. As interest rises, the government is likely to raise taxes or increase inflation to handle it. Both have a negative impact on investors' willingness to invest. A higher inflation rate will often result in a higher interest rate, which discourages borrowing. Additionally, high levels of public debt cause concerns over whether the debt could actually be repaid in the future. However, the United States has so far been reliable in paying its bills. In fact, part of the reason America is the country with the highest foreign debt is because U.S. Treasury bonds are seen as the safest investment safest investment. But running up the debt even more puts the country more at risk for not making good on its promises.

An increasing national debt seems to be bad for the national economy, yet fiscal policies do not seem to be changing to resolve the situation. The new tax law implemented in 2018 cuts taxes across the board, but most steeply for businesses and wealthier individuals. Lowering the tax base will further contribute to the national deficit as there will be less money to make interest payments. The pattern continues with the 2018 fiscal year budget proposal from President Trump, which totals to about $4.4 trillion. The proposed programs and spending would add almost $10 billion to the deficit this year and $7 trillion over the next 10 years. This budget size is about the same as the total 2017 fiscal year budget under Obama, but it is an unusual proposal coming from a Republican president. Conservatives have long worked to maintain an image as the party of fiscal responsibility. Increasing the deficit with a big budget like this one does not fit that image.

So, should you be concerned about the national debt? Over the long-term, everyone should be concerned. Slower growth will affect every aspect of the economy. A booming economy encourages investment, which then creates economic opportunities. Lowered incentive from investors can spell trouble. Slower growth can also lead to wage stagnation and fewer jobs being created. To keep the unemployment figure low, America will need more economic growth as more young people enter the workforce.

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How Shapr is changing the way we network

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Sometimes it feels like it's impossible to meet new people and make real connections. Everyone is busy with the hustle and bustle of everyday life and where are you supposed to meet people anyway? In college, you could meet in classes and connect through mutual interests or assignments. But once you've entered into the workplace, that all seems to change and become much more difficult. There's a new free app called Shapr that recognized this problem and attempted to fix it, or at least make it much easier to network.

Shapr is kind of like a mashup between a dating app and LinkedIn. Once you've signed up for the app and filled out your profile, it suggests people in your area based on your interests, location and professional experience. Just like Tinder or Bumble, you swipe (anonymously) and will be notified of a match when the algorithm matches your shared interests, but rather than a romantic match you'll meet your professional match. According to their site, some of the top things people are seeking through networking is ideas and inspiration, funding, potential investment, mentorship, new talent, freelance projects, and meeting new friends.

Shapr

Rather than continuing the fruitless attempt at making virtual "connections," the Shapr app helps to match you with people who have similar values and goals. With this app, you can be matched with 10-15 new people a day and meet up in person to talk about your next big idea or even collaborate on a project together. The Shapr blog lists success stories from people finding new jobs to helping people chase their passions and overcome their fears. Shapr is quickly becoming an app that's not only important for networking but also an excellent resource for people of all ages and at all experience levels.

Shapr

According to their site, "Networking should be a joyful experience, because It's about meeting new people. It's not just a trick to generate more sales or find some humdrum job – we see it as a lifestyle. Connecting regularly with inspiring individuals is the key to a more meaningful, fulfilling, healthy existence. And that's why we made an app."

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Perhaps you're looking for friends with shared interests, a mentor in your chosen field, or someone to collaborate with, but no matter the reason, Shapr is sure to have someone (or many) for you to connect with. And in this busy world that may be just what you need.

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Urban Investor's Dictionary: ETFs

ETFs debuted in 1993 and their combination of diversification, tax efficiency, and low transaction costs have made them popular since the start. From 1993 to 2015 over $2 trillion USD has been invested in ETFs in the United States alone.

So what is an ETF? How does it work?

ETF stands for Exchange Traded Fund. These types of funds are considered marketable securities - they are very liquid and can be converted into cash quickly and at a reasonable price. An ETF fund owns underlying assets such as bonds, stock shares, gold bars, foreign currencies, oil futures, etc. ETFs take a bunch of profitable goodies and put them all into one basket.

You as the shareholder own an indirect portion of the fund, equivalent to your investment. Pretty much you lay claim to a piece of all the ingredients that make up this glorious money pie. You as shareholder are then entitled to a corresponding piece of the profits. Profits appear as earned interest, dividends paid, and/or residual value if the fund is liquidated.

Because ETFs are traded on public stock exchanges, they are easy to buy, sell, or transfer - just like stocks.

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