Q1. Which age group do you belong to? Which age group do your Parents belong to? Hint for Q1: Demographic on ages: Silent Generation (1928-45), Baby-boomers (1946-64), Generation X (1965-80), Millennials (1981-96). Q2. What forces are changing the way millennials invest (as compare to how their Parents invest)? Hint for Q2: It is a mistake to assume that millennials will invest as their parents did. Two forces will lead them to seek more control over their assets: changes to pensions, and advances in technology. Q3. Changes to pensions also change the way workers invest. What are the main differences between defined-benefit (db) and defined-contribution (dc)? Hint for Q3: Consider pensions first. In the 1970s most schemes were defined-benefit (db). Beneficiaries were paid a fixed income based on their final salary and had no say in how their pots were invested. Then in 1978 the Revenue Act created the 401(k) plan in Americaa defined-contribution scheme where savers have more control over where their cash goes. Assets held in such pensions have exceeded those in db [defined-benefit] schemes since 1995. Where investment firms used to compete to win the mandate for a companys pension pot, today they are likely to be one of many managers that staff can choose from.

12.2 The Marker Portfolio 405 INTERVIEW WITHI Michael A. Latham Michael A. Latham is currently chairman of Shares, a unit of BlackRock, Shores is a global exchange-traded funds business that has more than $645 billion in assets under management in over 500 funds. Prior to assuming his current role in 2011, he held a variety of senior executive positions within the Shares business their own shares or if the ETF changes the holdings in its underlying index, Mutual funds distribute realized capi- tal gains and losses pro rata to share holders more frequently than ETFs. Investors buy and sell ETF shares through any broker for a standard brokerage commission. Mutual find fees vary based on the fund and often include sales and redemption fees that are a percentage of the transaction, QUESTION: Forty years ago, the only way for an individual to hold a well- diversified portfolio like the market portfolio was to buy all the stockerbim self. How have inwestor options changed since then ANSWE Two major innovations the passive mutual fund and the exchange-traded fund-have given investors easier access to a well- diversified portfolio. In a traditional (active) mutual fund, the fund has discretion to select investments. In contrast, the primary objective of the passive mutual fund, also known as an index fund, is to replicate holdings in an index that is generally intended to represent "the market"-for example, the S&P 500. Lik actively managed mutual funds, investors transact exclu- sively with the passive mutual fund manager only once a day at a calculated Net Asset Value (NAV). The next evolution in index investing, the exchange traded fund (ETF), was introduced approximately 20 years ago and has shown rapid adoption in the past decade. Like index mutual funds, ETFs are a fully diver- sified basket of securities that typically track a market index. ETFs trade on stock exchanges, experiencing price changes throughout the day, so there is no reliance on a single fund provider for both trading and investment management QUESTION: When cresting Shares you bet that ETFs were going to be very popular in retrospect we were right Why have ETFs growt so fast? ANSWER: ETFs appeal to a wide variety of client types, from the most sophisticated institutional investors to the broad retail market. Investors recognize the immense benefits of ETEs: easy access, transparency, and flexibility. ETFs give anyone who can buy stocks instant access to well-diversified portfolios that meer a variety of investment needswhether plain and simple like the S&P 500 or hard-to-access asset classes such as com modities, bonds emerging markets, or stocks in specific countries, size categories, or industries. Ultimately its a better, more cost-effective structure chan the alternatives: annual ETF fees are typically much lower than compa rable mutual funds. QUESTION: How does ax ETF differ from a mutsal fund ANSWER: The ETF structure provides more liquidity because it rrades at market prices that change throughout the day. Mutual fund NAVs are set once a day and may require fair value estimations that are subject to pricing inaccuracies, ETFs offer daily disclosure of holdings versus mutual funds typical quarterly or semi-annual disdosure Another major difference is ETFs greater tax efficiency: Investors typically only realize capital gains when selling QUESTION: In the long run, do you expect ETFs and Index Find sa coexist? If so, what kinds of inestars might be better served with each wider ANSWER: While traditional index mutual funds are cur- rendy entrenched in certain markets like pension funds and 401(k)s, I believe that ETFs will continue their phe nomenal growth and continue to take share from index mutual funds, ETFs provide virtually all the benefits of index mutual funds, with greater trading and tax efficiency. Many investors still do not understand ETFs, so education remains a primary focus and will fuel growth going for ward. In addition, as 401(k) technology platforms evolve to account seamlessly for traded securities, more investors will have access to ETFs. Index mutual funds will continue to fill a need with small investors who employ dollar cost averaging (small dollar repetitive investments), where fre- quent trading commissions could be cost prohibitive FIGURE 4.7 Exchange-Traded Funds I ETF Gainers, Deciners, 6 Moist Activos Top Gainers JP MORGAN ETF TRUST DIVERSIFIED RETURN EMERGING (JPEMITC 28,66278 Symbo Last Change Change Volume 52-wk TE 25852784 mms 100,000,000 345 102 863070 Change Orange Volume 52. 30.000 COO ng SUS 1090 3270 USL 42 10 2475 400 PHORGANETTRIT OVERSEED RETURN ENERGING DREXION SHARES TAUSTDAL NAT GA5 RESTED BULL DREXION SHARED TRUST DAZY SPOLE GAS EXPEP DIREXION SHARES TERUS DALY RUSIA BULL 3X35 INVESCO EXCHANGE PRADESH BAR BERATEGIC DEVELOPED BY EHNA LEADERS DIREXIONESHARES ET TRUST DA VSI BEXICO BUENOS DREXION SHARES TE FRUSTOALYSTS CHINA AGH BU DREXION SHARES ET BRAZIL BULL DIREXION SHARES RUSTIDA LYLA NAMER PULL 3X SH KEYP 2820 4129 71 VEX 20.000 4028 Go to Internative Charting CHAL $24 2003556 B20 3683 2377940 -3045 LE 27 23 11514 3433 Last Change Change 2055 219 -5,35% Volume 32-wk 15.00 DER -8.04 3.927 25000 75 Top Decliners DIREXION SHARES ETF TRUST DAILY REGIONAL ENKS BAR 3X WORW) 28 45 18 day 100 30.5 Change 300 * Change 22.5 volume 1500 29.0 28.5 22. 29.0 27.5 27.0 26.5 26.0 Go to interactive Charting 1871 092 229 5978 1977 705 SEC 21 32 -113 3.90 388 Symbol DIREZION SHARES TRUST DALY NAGAS GES RELATED BEAR DREXION SHARES SIE TRUSY DALYS POLSOAS EXP DREXION SHARES TE TRUST DREXION DAILY RUSSIA BERH SUSS PROSHARES TEST UL APRO SHORTAN SEL DREXION SHARES TE FRUS DALY REGIONAL DREXION SHARES RUSTOLY UNROLO MINAS INOX EOL PRO SHARES TRUSTO ULTRA SHORT BLOOMBERG NATURA GIREXION SHARES RUST BALY ENERGY BEAR ER: DIREXION SHARES ETF TNSDALYSE CHINA VANG BEARIPOST PROSHARES TRUST ULTRA SHORT BRAZIL ERO CAPP 10.11 -040 321 7200.542 18.70 -027 01721 30.03 -156 221 303 -3.73% 244 2685 Most Actives SPOR S&P500 ETF TRUST UNITS SER 1 S&P SPY) 52 w F 280 22 18 de 2144 Pn -584 Last Change Change Volume 282 -1138 DES 34421 049 20: 200 Symbol SPOR 5PSOETA TRUST UNTS SERP Enca Select Sector SPOR E MERENGARKE FUND EV NESCO 000 RUS OG 05503 SHARES TRUT CHA LARGE CAPETE EX SHARES TRUST MSCI EAFE ET SHARES INC MSCI BRAZIL ETF ENZ PROSHARES TRUST TOGO US HAPRO 099 PROSHARE TRUST FARO SHORT OG NEW 3000 Vice Vectors Gold Mines EF SOY Last Change Change Volume 29222 2501 5 29.335 69 4353 1764 GOES 23370 337 44.98 22330 19743224 4439 18 332 000 5883 DN 15.792 821 1044 010 1,005 15 225 542 2207 023 -9,34% 14 280.62 504 270 273 2 275 -3000 TWTFBORTHTEEN o te interactive Charting www.wsj.com March 19, 2018 The Wall Street Journal town Direxion Investments, for example, offers many of these leveraged funds. A couple of examples would be the Daily S&P 500 Bull 3X Shares (symbol SPXL) and the Daily S&P 500 Bear 3X Shares (symbol SPXS). The first fund (SPXL) is designed to provide three times the return of the S&P 500. In other words, if the S&P 500 return on a given day is 1 percent, S&1 122 Part 1 Introduction INVESTMENT UPDATES MUTUAL FUNDS VS. ETFs Across a crowded room. index funds and exchange-traded funds (ETFs) are pretty good lookers. Both have low costs diversification, and approval from Mom and Dad. But it's what's on the inside that counts. So let's take a deeper look at these two worthy contend- ers for our investment dollars The Business of Buying That's the birds and the bees of ETFs and mutual funds Now let's take 'em for a spin and see how they handle our money How They Work Mutual Funds Traditional actively managed mutual funds usually begin with a load of cash and a fund management team. Investors send their c-notes to the fund, are issued shares, and the Porsche piloting team of investment managers figures out what to buy. Some of these stock pickers are very good at this. The other 80% of them, not so much. Index mutual funds work similarly to traditional ones except that the managers ride the bus and eat sack lunches Actually, there are rarely human managers. Most index funds are computer driven) More importantly, index mutual funds put money into stocks that as a whole track a chosen bench mark. Because there's less "research to pay for-like trips to California to visit that refinery's headquarters (and a little wine tasting I mean, we're in the neighborhood index mutual funds generally have lower expenses If the fund is popular or its salesmen make it so yes funds often have a sales force), it attracts gobs of money The more money that comes in the more shares must be created, and the more stocks investment managers (or Hal the index robot) must go out and buy for the fund, Timing Trades With traditional mutual funds, you order your shares and buy them for the NAV (net asset value) at the end of the day Period. (Unless you're a favored client engaged in illegal after-hours trading, but that's another story. Since ETFs trade like stocks, you can buy and sell them all day long. Though doing that like any day trading, will likely land you in the gutter searching for loose change.it does have some advantage for the Foolish investor, Limit orders are one. You can tell your broker (or the computer- ized lackey) to purchase your ETF shares only at a certain price. If the market jumps 3% with excitement over some major world event-like a peace pact between Britney and Christina--you can use a limit order to make sure you don't pick up your shares at the top of the soon-to-be-crashing wave of misguided enthusiasm Shorting is another possibility Yes, you black turtleneck- wearing world-weary pessimists out there can bet against the index with ETFs, and profit if and when it falls in value Making the Minimum If you've ever visited our table of no-load index funds, you might have sprinted away from the computer shrieking Under the column titled "account minimum." you see num- bers as high as $50,000. That's the price of entry for some index mutual funds. Got less than that? Take your money elsewhere. Or rifle the couch cushions for loose change Or open an IRA, where minimums are generally much lower ETFs, on the other hand, have no minimums. You can purchase as few shares as you like. Want one lonely little share? You can get it. Just make sure that you choose your broker wisely so that you don't shell out too much in com- missions for your purchases. ETFS ETFs work almost in reverse. They begin with an dea- tracking an index-and are born of stocks instead of money, What does that mean? Major investing institutions like Fidelity Investments or the Vanguard Group already con trol billions of shares. To create an ETF, they simply peel a aw million shares off the top of the pile, putting together a basket of stocks to represent the appropriate index. They deposit the shares with a holder and receive a number of creation units in return. (In effect they're trading stocks for creation units, or buying their way into the fund using equi tes instead of money) A creation unit is a large block perhaps 50,000 shares of the ETF. These creation units are then split up by the recipients into the individual shares that are traded on the market. More creation units (and mare market shares) can be made if institutional investors deposit more shares into the underlying hopper. Similarly, the pool of outstanding ETF shares can be dried up if one of the fat cats swaps Sack creation units for underlying shares in the basket The variation in the fund structures means subtle but mportant differences at the end of the chain for individual vestors Averaging, Joe? A few years back, it might not have made sense to dollar cost-average into ETFs. If you were trying to buy a few hundred dollars worth of a fund once a month, the bro kerage fees would have taken a big bite of your nest egg and made a no-load index mutual fund a much better bet because mutual funds do not generally charge transaction fees But with the advent of ultra low-cost, or even no-cost brokerages, it's now cost-efficient to make small, frequent purchases of ETF shares. Of course, you'll have to put in the buy orders yourself, as you would to purchase a regular stock Chapter 4 Mutual Funds and Other Investment Companies 123 (continued) Options for Experts Though we don't recommend them for beginning Fools, ETFs offer advanced trading possibilities. Options are one. These complex little investments give you the right to "call" or "put (buy or sell shares of the ETF at some point in the future for some specific price. Theres no calling and putting when it comes to mutual funds Dividend Differences Most mutual fund investors take advantage of their fund's automatic dividend reinvestment feature. That saves them the hassle of deciding what to do with the cash that comes their way periodically. If and when the mutual fund pays out a cash dividend, your cut of the dough is automatically rein- vested in shares or partial shares of the fund. With dividend paying ETFs, that moolah winds up in your brokerage account instead just like the dividend on a regu lar stock. If you want to reinvest that cash, you have to make another purchase-and you'll get smacked with your usual trading fee unless your broker allows you to reinvest divi- dends for no extra cost. Many do Uncle Sam and the Fund: Beginning investors often do not realize that funds themselves incur capital gains taxes, the cost of which is borne (big shocker) by you, the fund holder even if you don't sell a single share. The topic is com plex and boring enough to spawn entire books, so here are the Cliffs Notes . In general, the structure of ETFs tends to avoid the kind of outright selling that would trigger undis- tributed capital gains and other IRS nightmares. To understand why think back to the ETF structure. For every ETF seller, there's a buyer. . On the other hand, if a flood of investors decide to dump a mutual fund, the fund may need to sell the underlying holdings in order to raise the cash to pay out and that would bring Uncle Sam with hat in hand. ETFs may also have to drop a few schillings into the taxman's cap, for instance, when the underlying index is changed Keep in mind that the traditional fund industry and the ETF industry disagree on the extent of the ETF's advantage. Of course, they're competing for your investment dollar. so you should expect squabbles. Still, according to published reports, the Barclays iShares S&P 500 ETF made capital gains distributions while the Vanguard 500 mutual fund did not There you have it: Funds v. ETFs. Which one are you going to put in your little black book? If you think ETFs could put a kick in your portfolio. read on for some investing strategies. Tax Tales You hear a lot about tax advantages with ETFs. Treat it like bar room gossip: exciting to hear, but probably an exaggeration Inevitable, like death: Don't be fooled by vague talk of ETFs freedom from Uncle Sam. You still need to pay taxes on your own capital gains-should you be fortunate enough to buy low and sell high-as well as any dividends you receive. Of course, if your funds are in an IRA or employer-sponsored retire- ment plan, your gains are tax-free until you start collecting, if they're in a muy Foolish Roth IRA, everything is tax-free.) Source: The Motley Fool October 21, 2015. Copyright 2015 by The Motley Fool. All rights reserved. Used with permission expect the SPXL should provide a return of 3 percent. Terrific! What's the danger? Well, leverage works both ways. Lesses are also magnified by a factor of 3. The second fund (SPXS) is designed to move in three times the direction opposite the return of the S&P 500 index. If the S&P 500 gains 1 percent. then SPXS should lose 3 percent. You can see that SPXS provides a way for investors to go (triple) short on the S&P 500. These leveraged ETFs seem to track their underlying indexes on a short-term basis, that is. day by day. Over longer periods of time, however, their performance is probably not what you would The Direxion Bull fund, for example, began trading in November 2008 Over the next two years, the S&P 500 gained about 33 percent. Given its objective, the SPXL fund should have gained 99 percent, which is three times the return of the S&P 500. Over this two-year period, however, the long fund (SPXL) gained only 50 percent. How this possible? The answer does not lie with Direxion Investments. Instead, the answer depends on arith- metic versus geometric averages that we discuss elsewhere. Recall that geometric (or com- pounded) returns are lower than arithmetic returns, with volatility fueling the difference. In the Direxion example, the leveraged fund adds extra volatility to the series of S&P 500 index returns. As a result, returns from any leveraged funds will be less than expected. 124 Part 1. Introduction Nasuaq HOLLYWOCD CDN