So many meme stocks we could make an ETF

The educational portion of this week’s newsletter focuses on the difference between mutual funds and ETFs

How non-meme stocks have felt all year (Source: Giphy)

In 3:32 seconds, you will learn:

  • 5 headlines that pretty much sum up the week
  • Jeff’s upcoming trip to space
  • The difference between mutual funds and ETFs
  • Our rec of the week

Five headlines that sum up the week

1. Elon Musk’s Las Vegas tunnel loop underwhelms but cities still want in

Source: Observer

The Boring Company’s $52.5 million project, which took 18 months to complete and covered less than 2 miles, was not exactly what people had imagined – nor was it for the man with the vision. But, if you have done the 45-minute walk across the Las Vegas Convention Center, you’d never want to make that walk again if you had the option to trim that time down to 2-minutes, while being transported in one of 62 Teslas. That’s a total of 4,400 passengers a day. These numbers are still impressive enough to make other cities like Los Angeles, Chicago, Miami to want tunnels of their own.

2. Starbucks is strapped for key ingredients

Source: Twitter

As Starbucks hustles to reopen in the U.S., shortages across its entire menu have plagued the company from fully returning to normalcy. From cup stoppers to cake pops to oat milk, customers now find themselves having to consider supporting local businesses buying coffee elsewhere. These shortages are so severe, Starbucks has completely removed several items that frequently go out of stock, such as non-dairy creamers. A Starbucks spokesperson clarified that pricing will remain the same.

3. Coinbase and ForUsAll have partnered to bring cryptocurrencies to 401k

Source: Business Insider

ForUsAll, a small 401k provider, has partnered with Coinbase to bring cypto investments to your retirement savings. A first of its kind, plan participants now have the option to invest up to 5% of their accounts in several cryptos. Those in support of this move point out that this only further diversifies retirement accounts and does so with minimal risk. However, given the recent volatility with the digital currency, not everyone is on board. This is yet another example of crypto nudging its way into mainstream finance. 

4. 7-Eleven is still giving out free Slurpees this year

Source: Giphy

A drink that costs almost nothing but still attracts lines of people every July 11th (7/11), Slurpees will be free again this year to celebrate 7-Eleven’s birthday. This time, however, there’s a catch. In order to obtain a free Slurpee, you now need to be a member of the 7Rewards loyalty program. It might not be as impressive as being a Delta Medallion Member – or even Chipotle – but it will get you additional perks like free delivery, $1 roll grill items and colorful birthday cake donuts. 

5. Berkshire Hathaway Invests $500 million in NuBank

Source: Business Insider

Berkshire Hathaway is buying up $500 million in shares of Nubank, the largest fintech player in Latin America. This deal – which is the biggest in the Brazilian company’s history – boosts it valuation to $30 billion. Nubank is also selling $250 shares to another group of investors. Founder and Chief Executive David Vélez shares that the company has no plans for an IPO or additional funding, though he hints it’s something investors can expect down the line.

ICYMI: Jeff Bezos is going to space next month

Jeff Bezos isn’t going to the moon, but he will finally fulfill his lifelong dream of being sent up to space. Granted, it is only for a few minutes, but considering he is not an actual astronaut, it’s pretty cool for a guy who used to sell books online. 

This experience will soon become more common. Blue Origin, his rocket company, has a simple business model. It will send up tourists into space for “the ride of their lives.”

Passengers won’t orbit the earth, but they’ll spend 3 minutes in space, passing the Kármán line. They will briefly exit the earth’s atmosphere and experience the feeling of “weightlessness” while looking out of the largest windows ever built on a spaceship.

Source: Business Insider

Bezos will be traveling with his brother and the highest bidder for the third seat. The whole 11-minute journey won’t take you to the moon, but it will certainly make it more difficult to argue that the earth is indeed flat. 

The difference between ETFs and mutual funds

Source: Personal Fi Guy

TL;DR

ETFs are exchange-listed securities that track an index (which makes many ETFs a type of index fund by definition). These funds trade like stocks and carry many of the freedoms of stock market investing, as well as a few risks. However, ETFs are more cost-effective and liquid than many other types of funds, and usually lower risk than picking securities by hand.

Mutual funds are professionally managed portfolios that trade once per day based on the Net Asset Value of the fund as a whole. Their limited trading window makes them a good choice for skittish investors; however, in the case of a major market crash, it may be too late to back out before the damage is done. Furthermore, because many mutual funds are managed hands-on, they come with higher expense ratios that eat into profits.

What is an ETF?

An ETF is an exchange-listed security that tracks an index comprised of individual securities, such as the S&P 500 or the Nasdaq. Some ETFs also follow particular strategies, such as growth or value investing, by choosing a sampling of an index to follow.

ETFs can own thousands of stocks in a single fund, or they can limit to a few dozen within a given sector or industry. In the United States, most ETFs are set up as an open-end fund, which means that the number of investors is not limited.

Source: Next Level Finance

What are the main types of ETFs?

There are several types of ETFs on the market with each based around different goals. Some intend to turn a profit through capital gains, while others are based around supplying dividends to investors. Still others are designed to hedge against various risks in investors’ portfolios.

A few of the most common ETFs include:

  • Bond ETFs focus on investing in various types of bonds across or within certain sectors
  • Industry ETFs track a stated industry – financial, technology, etc.
  • Currency ETFs put their funds into foreign (non-USD, for our purposes) currencies
  • Commodity ETFs invest in various physical commodities, such as gold or oil

Source: MarketWatch

What are mutual funds?

The purpose of a mutual fund is to give individual investors access to professionally managed portfolio of securities, rather than throwing them to the wolves (or into a pit of hungry financial advisors).

 It’s possible for a mutual fund to contain hundreds of individual securities at once or only a few dozen. The makeup of a mutual fund means that every shareholder has a stake in the fund’s performance (losses and gains) in the same proportion they’re invested.

Typically, mutual funds invest in more than one type of security at a time. Therefore, a mutual fund’s performance is marked by calculating the performance of each underlying investment.

Source: Twitter

What are the main types of mutual funds?

Mutual funds come in three basic flavors:

  • Open-end funds generate and remove shares due to investor demand
  • Closed-end funds maintain a fixed number of shares that trade only as available
  • Unit Investment Trusts (UTIs) are static portfolios with no management

 What is the difference between ETFs and mutual funds?

Source: MarketWatch

ETFs

  • List on exchanges and trade intraday, like stocks
  • Tend to be more cost-effective and liquid than many other funds on the market due to different capital gains regulations
  • Passively managed and cost less tax-wise in a given year than many mutual funds 
  • Often carry a smaller expense ratio

Mutual Funds

  • Change price – and hands – only once per day
  • Trade at the end of the trading day based on the NAV (Net Asset Value) – the share price of the fund is calculated according to the NAV after markets have closed.

The bottom line

As with an ETF, the portfolio of a mutual fund should match the investment objectives – read: which indices, assets, or sectors make up the portfolio, and in what percentages.

It’s important to note here that in an actively managed mutual fund, the manager(s) can trade assets within the fund intraday. However, you cannot make money trading shares of the whole fund throughout the day.

As a result, mutual funds are usually poor investments for day traders, but like ETFs, they are popular with many retirement funds, as they tend to generate average to generous returns on investment over a period of years.

Read the full “Investing 101” resource on mutual funds & ETFs

At 26, Tori Dunlap is poised to retire with $6 million invested in the stock market. She currently has more saved than people twice her age and could technically retire next year if she wanted to. In this article, Tori talks about her personal finance journey and highlights the biggest mistakes to avoid when investing your money.