ETFs 101: Investing Made Easy

The following blog was written by Kaitlyn Dortch, Client Service Associate.

If you are new to investing and don’t know where to start, check out ETFs! 

What is an ETF? 

An ETF is an exchange traded fund that like a mutual fund holds a collection of assets such as stocks, bonds, or other securities. While both ETFs and mutual funds provide diversified exposure through pooled investments, ETFs offer several advantages that have made them increasingly popular among investors.

Source: https://www.westernsouthern.com/investments/types-of-etfs

What are the advantages of investing in ETFs? 

1. Instant Diversification 

ETFs can be designed to track: 

· Broad market indexes like the S&P 500, NASDAQ Composite, Dow Jones Industrial Average, or Russell 2000 

· Fixed Income, including U.S. Treasury, corporate, municipal, and international bonds 

· Specific industries such as technology, healthcare, energy, or financial services 

· Commodities like gold, oil, and timber 

· Investment styles for high growth or value stocks 

· Different company sizes, including small-cap, mid-cap, and large-cap stocks 

Because this collection or portfolio of securities can include a wide range of investments, one of the biggest advantages of ETFs is diversification. Imagine investing all of your money in a single company. If that company’s stock price declines, your investment could suffer significantly. An ETF spreads your investment across many companies or assets, helping reduce the impact of any one security performing poorly. With a single purchase, you can own a small piece of a broad section of the market instead of relying on the success of one company. 

2. Low-Cost Investment 

ETFs generally have lower expense ratios than many mutual funds. The expense ratio represents the annual cost of managing the fund. For example, SPYM has an expense ratio of approximately 0.02%, and QQQM has an expense ratio of approximately 0.15%. While these percentages seem small, investment costs can add up over time. Lower fees mean more of your money stays invested, which could mean more portfolio gains in the long run. 

3. Flexibility 

ETFs trade differently than mutual funds. Because they are actively traded on exchanges, many ETFs offer ample liquidity, making transactions straightforward and efficient for most investors. Buying and selling ETFs is often as simple as trading a stock through a brokerage account. Mutual funds, on the other hand, are priced only once at the end of each trading day. Regardless of when an order is placed, all investors receive the same end-of-day price. This flexibility from trading ETFs gives investors greater control over when they enter or exit positions. 

4. Passive Investment 

Instead of purchasing individual securities one at a time, an investor can buy a single ETF and gain exposure to dozens or hundreds of underlying holdings. Some ETFs achieve this exposure by tracking broad market indexes. Rather than trying to beat the market by picking the "perfect" combination of stocks, some passive ETFs aim to capture the entire market. This approach involves less trading of the underlying securities, lower fees, and more diversification than actively managed ETFs and mutual funds. Automating deposits to buy and hold passive ETFs can help investors build a strong portfolio with low costs and little to no effort. 

5. Tax Efficiency 

ETFs are often considered more tax-efficient than traditional mutual funds. Unlike mutual funds, you have more control on declaring capital gains. Unexpected capital gains may increase income for investors and cause them to pay additional taxes even if they never sold any shares of the mutual fund. While tax implications vary by individual circumstances, many investors appreciate the potential to reduce unexpected taxable income that ETFs offer. 

What should you consider when buying ETFs? 

Although ETFs provide convenient diversification, it is important to figure out what you want in your portfolio before purchasing one. Two ETFs may have similar names but very different investment objectives and risk levels. Some may focus on large, established companies, while others concentrate on emerging industries, small businesses, or international markets. Before investing, take time to review the fund's objective, top holdings, industries/sectors represented, expense ratio, and overall risk level. Morningstar.com is a great resource to use when researching ETFs. Once you’ve narrowed down the securities 

that align with your financial goals, risk tolerance, and investment timeline, look for the low-cost ETF alternative. 

Investing doesn't have to be complicated. For many people, ETFs offer a simple, affordable, and effective way to start building wealth while maintaining diversification. Successful investing is less about finding the perfect stock and more about consistently investing in a diversified portfolio over time. 

Sources:

https://www.ici.org/faqs/faqs_etfs

https://www.fidelity.com/learning-center/smart-money/what-are-etfs

https://investor.vanguard.com/investor-resources-education/taxes/tax-saving-investments

Driving Economic Development the Tate Reeves Way

There are differing schools of thought on how a State Government can best to drive economic development. One way is to put together incentive packages to attract specific businesses. These make great headlines and fill everyone with excitement over the future. It is fun to add incremental revenue to GDP projections and make graphs point more skyward than they did before! This requires the government to select projects to invest in and offer enough to industries to come make an investment. The downsides have been apparent through the years as companies structure themselves to take advantage of the incentives without committing to permanent presence and investment. Secondary and tertiary benefits do not always appear as advertised. Lieutenant Governor Reeves admitted that this was a common "done" approach around the country, but was not the ideal approach. It appears that for the country, this is partly a zero sum game as states compete against each other for the same companies.

Our Lieutenant Governor Tate Reeves belongs to a different school of thought on economic development. In his words:

Our number one priority is job creation, bringing better and higher paying jobs to our state. But I also  have a political philosophy which says Government does not create jobs. Government's role is to create an environment which encourages those of you in the private sector to invest capital and create jobs.

Mr Reeves believes that a fiscally conservative government is the first step to increasing economic growth in our state. The idea is that a fiscally irresponsible government now means a higher taxes in the future to pay for current mistakes. This is fairly uncontroversial, but of course, the implementation is where philosophies can differ again.


The second thing that he addressed was having a tax code that is fair, flat and encourages economic development, not discourage. he spoke about eliminating taxes like the inventory taxes and corporate franchise tax. He believes that this will reduce costs to business owners thereby making Mississippi a more attractive environment for businesses and making our existing business more competitive in the region.

He did note that Mississippi will eliminate the lowest tax bracket, effectively saving all Mississippi taxpayers $150 if they had more than $5,000 in income.


Thirdly, we must improve the educational attainment level of citizens of the state of Mississippi. Whatever your political beliefs, you must agree with this point. While there are many approaches to HOW to improve attainment, the great thing is that education is a fairly rigorously measured thing anywhere, so it should not be difficult to tell if we are making progress or not. Here  Lieutenant Governor Reeves and I agree fairly well at the top level. He repeated that one of the core functions of government is to provide public infrastructure, and I believe that education is one of the most important public infrastructures that a government can help provide.

There are a few methods that the state is currently using to improve education in our state. He spoke most proudly about the requirement for students to be able to read on a 3rd grade reading level before passing third grade. The importance of this should not be understated. Third grade was selected as one should be functionally literate for the classes beyond that grade. If a student cannot read at a third grade level, they will struggle in all other classes beyond that point. This was not an unfunded mandate, he pointed out, as the state spent $50 Million dollars on reading coaches and other resources for teachers and students alike. To back this up he also spoke of the Early Learning Collaborative programs that the state provided $9 Million of matching funds for local early learning solutions.

Without citing how many students were able to read on a third grade level before the act, he said that 95% of Mississippi students were passed this new level in the second year that the requirement was in place. It is impressive what the state can accomplish in education when they dedicate the resources to a specific goal.

He also mentioned school choice and the introduction of charter schools, but again, it is too soon to have enough data to talk about.

In his tenure as Lieutenant Governor the state has eliminated 13 school districts through consolidation. In one extreme case, a school district with only 120 students had a superintendent that was paid $128,000. With consolidating school districts, schools get access to a bigger pool of resources and hopefully can reduce administrative costs overall. While consolidation clearly has limits as the public school board movies further from the community, there may be some benefits. It is too soon, he said, to have data here. Again, there is clear potential for growth in achievement here, but it depends on what actually gets done in the classroom.

One important theme with improving results while not spending more is spending resources in a more creative way. One example is career track education. More career track education has helped improve graduation rates from 72% to 80%.


Overall it was fairly positive being able to listen to the Lieutenant Governor speak. While he did not really reveal anything groundbreaking, he was very clear and positive on progress made and being made. Reeves has had 13 years in public service since first becoming Treasurer and there is always speculation that he is aiming higher. To that - a couple of people did keep calling him "Governor Reeves" an amusing slip of the tongue that may presage more.

Check out the full audio of his statement on our Soundcloud below!