Medicus Wealth Planning
Kevin enjoys helping clients from all stages in life with sound financial planning. Kevin has especially found a niche in advising small business owners who’d like to create or improve upon their existing company retirement plan.
Kevin got his start in the financial planning industry by going to work for one of the largest discount brokerage and mutual fund companies in the world, Fidelity Investments. While at Fidelity, Kevin held his Series 7 and 63 Licenses which allowed him to work as a trader, completing transactions in stocks, mutual funds, and options. After being promoted to a department that focused on helping clients with their company retirement plans, Kevin found what he had a passion for, helping small business owners and their employees successfully prepare for retirement.
Kevin left Fidelity to come work with David Luke as a partner in Medicus Wealth Planning. Having the opportunity to work with clients on a fee-only basis allows Kevin to give objective and sound financial planning advice that is never tainted by a hidden agenda.
Kevin graduated from Utah Valley University with a degree in Personal Financial Planning. Utah Valley University’s Financial Planning Program has been recognized on numerous occasions as a top 10 Financial Planning Program in the country.
Shortly after graduating with a degree in Personal Financial Planning, Kevin became a Certified Financial Planner™ (CFP®).
Kevin lives in Riverton, Utah with his wife Lauren, and their two children. Kevin spends much of his free time with his family outdoors, playing sports, and watching Jazz games. Kevin and Lauren enjoy living close to both of their families and spending time with them.
Personal Financial Planning, Utah Valley University
Assets Under Management:
The actual stock price of a company has nothing to do with how profitable or valuable the company is. In very simple terms, the value of a public company is determined by the stock price multiplied by the number of outstanding shares. So in theory, you could have a company that is trading at $1,000 per share and have 100 outstanding shares for a total market capitalization of $100,000. Compare this to a company that is trading for $10 per share and has 100,000 outstanding shares for a total market capitalization of $1,000,000.
Back in 2014, Apple was trading around $700 per share and did a stock split of 7-1. When this took place, shareholders shares were multiplied sevenfold, but the price of Apple was reduced sevenfold. So if you owned 100 shares of Apple at $700, your total investment was worth $70,000. When Apple split 7-1, you would have owned 700 shares at $100 per share for a total investment of $70,000.
In some cases, the price of a stock appreciates so much that it makes it hard for everyday investors to buy shares. The volume of trading is reduced and the stock is harder to buy or sell. This could increase spreads (the difference between the buy and sell price). By doing a stock split, the price is reduced and it allows for more investors to begin buying/selling the stock.
Great question. The stock market, as measured by the S&P 500 Index, has had an average annual return of 10.31% from 1970 - 2016. The real estate market has had an average annual return of 11.42%. That is measured by the publicly traded REITS (the NAREIT Equity REIT Index from 1970-1977 and the DJ Wilshire REIT from 1978-2016). To put this into dollar terms, if you would have invested $10,000 in the S&P 500 in 1970, by the end of 2016, your investment would have grown to $1,005,588. If you would have invested $10,000 into the DJ Wilshire REIT index, your investment would have grown to $1,609,932. The Real Estate market is a little bit more volatile than the stock market, but not by much. The standard deviation for the S&P 500 is 17.12% which means there is a 95% chance that your return in any given year will fall between -23.93% and 44.55%. The standard deviation of the Real Estate market is 18.92% which means there is a 95% chance that your return in any given year will fall between -26.42% and 49.26%. The worst 1 year return for the stock market was in 2008, it dropped 37%. The worst 1 year return for the Real Estate market was also in 2008, it dropped 46.49%.
The spot price is simply the price the commodity could be bought for today, while the futures price is the agreed on price that the commodity will be bought for in the future.
With $5,000, it would be hard to diversify your portfolio if you were only investing in individual stocks and bonds. The best thing to do would be to start with some ETFs. Most mutual funds have minimum investments of at least $1,000 - $2,500, but not ETFs. Find a broad range of low-cost ETFs that cover different asset classes (large cap, mid cap, small cap, international, emerging market, bonds) and start investing in those. As you begin building up capital to invest, you can replace an ETF that represents an asset class with a few stocks. For example, you could sell your large cap ETF and replace it with a few large cap individual stocks that you like.
For now, until you have more experience and more capital, I would go with some ETFs.
Let's first talk about how mutual funds and ETFs are the same and how they are different, and then we can get into the pros and cons of each.
The idea behind both mutual funds and ETFs are that they provide instant diversification regardless of how much money you have to invest. When you invest in a mutual fund or ETF, you are investing in a basket of stocks and/or bonds that represent a certain market such as large US companies, small US companies, international companies, etc. There are mutual funds and ETFs that cover basically every type of market you could think of.
The two biggest differences between mutual funds and ETFs are how they are traded, valued, and what their investment philosophy is. Mutual funds are traded only one time per day at market close. At the end of market close the mutual fund takes all the sell and buy orders that were placed and they calculate the NAV (net asset value) which is essentially the price or value per one share of the mutual fund. This is calculated by simply taking all the assets of the fund (securities held) and dividing it by the number of shares outstanding. ETFs are traded throughout the day, just like stocks, and the price you pay for an ETF could and most likely will be different than the NAV of the ETV. This price of the ETF like a stock is determined by demand and the future outlook of the securities the ETF owns. You can buy and sell an ETF at any time while the market is open.
Although its important to understand how mutual funds and ETFs are valued and traded, it is more important to understand the investment philosophy each vehicle represents.
Generally, mutual funds are actively-managed investments (but not in all cases). Actively-managed investments mean you pay a premium to have a mutual fund manager actively picking the stocks and/or bonds in your mutual fund. heir objective is to outperform a certain benchmark. For example, an actively managed mutual fund that invests in large US companies would most likely benchmark themselves against the S&P 500. The objective of this mutual fund would be to try and outperform the S&P 500 for any given time period. The managers do this by employing fundamental analysis and other techniques.
Generally, ETFs are passively-managed investments. Instead of trying to outperform a benchmark, an ETF simply tries to mirror the return of the benchmark. They do this by simply holding the exact same securities that their underlying benchmark holds. An ETF that represents large US companies would simply hold all 500 stocks of the S&P 500. Since there is no need for a manager to pick and choose the stocks, the expense to invest in an ETF is very low compared to mutual funds.
Now to the pros and cons:
The pros and cons of each investment are very subjective and mostly depend on your take of the stock market. If you believe that the stock market is inefficient and that a mutual fund manager can consistently outperform its benchmark then you'd invest in actively managed mutual funds. If you believe the market is efficient then you would invest in low cost ETFs.
In addition to the investment philosophies, mutual funds are generally less tax-efficient than ETFs. Since managers are actively trying to find the best stock picks, mutual funds usually have higher turnover and, therefore, more capital gains. Since ETFs simply hold the same stocks that are represented in the benchmark, there is less turnover and less capital gains generated.
Mutual Fund Pros
- The chance to outperform the stock market
Mutual Fund Cons
- Expense to invest is generally higher
- Shares only trade once a day
- Less tax-efficient
- Expense to invest is generally lower
- Your return will match the ETFs benchmark return (could be considered a con)
- Shares trade throughout the day
- More tax-efficient
- No chance of outperforming the respective benchmark