Medical Droid

medical-droid

Price: $95,000

Medical droids, also known as med droids or surgical droids, were a type of droid designed to heal living beings. The 2-1B surgical droid was a popular model during the Clone Wars.  Specializes in paternally removed appendages.

B-1 Battle Droid

b-1-battle-droid

Price: $60,000

The B1 battle droid, sometimes referred to as the standard battle droids, are a model of battle droid manufactured by Baktoid Combat Automata and Baktoid Armor Workshop. B1 battle droids saw extensive service during the Trade Federation’s invasion of Naboo and the Clone Wars.

What Does Your Fund Yield?

Some investors buy mutual funds and exchange-traded funds (ETFs) to help generate income—which typically comes from either stock dividends or bond interest payments. But how do you measure income or “yield” on these investments?

Most funds display two measures of yield, which can help investors understand a fund’s yield story.

30-day SEC yield

In an effort to standardize yield reporting, the Securities and Exchange Commission (SEC) developed the 30-day yield metric, which must be displayed by any fund that reports its yield. To calculate it, a fund divides its net income per share (dividends plus interest) during the 30-day period by the best price per share on the last day of that same period. This metric doesn’t reflect what a fund distributed to fund shareholders over the prior year, so it’s most helpful when considering funds with monthly income payments, like bond funds.

Distribution yield

Also called the “trailing 12-month yield” or “TTM,” this metric is calculated by dividing a fund’s cumulative distributions over the previous 12 months by its net asset value (NAV) at the end of the period. Because this indicator is backward-looking, it doesn’t reflect recent portfolio adjustments or price changes that could affect the fund’s future yield. As a result the TTM yield is usually considered an estimate.

Both metrics help you measure a fund’s income—but both have limitations. Many investors consider the backward-looking TTM an estimate and the SEC yield more current and a stronger indicator of what to expect in the near future.

Important Disclosures

Investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges and expenses. You can request a prospectus by calling Schwab at 800-435-4000. Please read the prospectus carefully before investing.

Some specialized exchange-traded funds can be subject to additional market risks. Investment returns will fluctuate and are subject to market volatility, so that an investor’s shares, when redeemed or sold, may be worth more or less than their original cost.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

Charles Schwab Investment Advisory, Inc., is an affiliate of Charles Schwab & Co., Inc.

Schwab Intelligent Portfolios® is made available through Charles Schwab and Co., Inc. (“Schwab”) a dually registered investment adviser and broker dealer. Portfolio management services are provided by Charles Schwab Investment Advisory, Inc. (“CSIA”). Schwab and CSIA are affiliates and subsidiaries of The Charles Schwab Corporation.

Please read the Schwab Intelligent Portfolios disclosure brochure for important information.

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ETF vs. Mutual Fund: It Depends on Your Strategy

By MICHAEL IACHINI

NOVEMBER 08, 2016

Investors looking to diversify their stock and bond holdings at relatively low cost often turn to the world of funds. Exchange-traded funds (ETFs), index mutual funds and actively managed mutual funds can provide broad, diversified exposure to an asset class or region or a specific market niche, without having to buy scores of individual securities.

The challenge, however, lies in narrowing down the type of investment best suited to help you achieve your goals. A classic ETF that tracks an index—or a low-cost index mutual fund that does the same? Or perhaps the newer breed of ETF called a fundamentally weighted index ETF that may improve a portfolio’s overall risk-adjusted performance? Or maybe an actively managed mutual fund?

There may not be a single answer: Chances are you may benefit from owning a mix of these funds. For example, if you want the flexibility to trade based on the latest market trends, ETFs make sense—prices change throughout the trading day to reflect current market values. Traditional mutual funds, on the other hand, are priced just once daily, at the close of the trading day.

But if you’re making frequent investments into a college fund or IRA account, a no-load mutual fund can be the way to go. It could help you avoid the trading commission you may be charged when buying and selling ETF shares.

And while ETFs and index funds are smart options for your core portfolio, fundamentally weighted index ETFs and actively managed funds can be valuable complements for certain segments of the market.

Before you decide on the mix that’s right for you, let’s look at the benefits of each type of investment.

ETFs

ETFs have been around for a little more than 20 years and have become extremely popular. As of mid-2016, assets have grown to more than $2.2 trillion, according to the Investment Company Institute (ICI), an industry association.

ETFs trade like stocks and are primarily passive investments that seek to replicate the performance of a particular index. This is the source of one of their key strengths: Passively managed funds tend to have lower costs than actively managed ones. ETFs generally have low annual operating expenses. Some charge as little as 0.03%. That’s a sizable advantage over actively managed funds that charge an average of 0.78%, according to Morningstar. ETFs are also generally more tax efficient because they tend not to distribute a lot of capital gains, as tracking an index usually doesn’t require frequent trading. ETFs may involve trading commissions, but some brokerages offer commission-free ETFs.

Consider investing in an ETF if:

  • You trade actively. Intraday trades, stop orders, limit orders, options and short selling are all possible with ETFs, but not with mutual funds.
  • You want niche exposure. ETFs focused on specific industries or commodities can give you exposure to particular market niches. Niche investing often isn’t possible with index mutual funds, though some actively managed niche funds might be available.
  • You’re tax sensitive. Both ETFs and index mutual funds are more tax efficient than actively managed funds. And, in general, ETFs can be even more tax efficient than index funds.

Mutual funds

Mutual funds are very popular among investors, with U.S. assets totaling nearly $16 trillion as of mid-2016, according to the ICI—in large part because most workplace retirement plans, such as 401(k)s, offer mutual funds and not ETFs. Mutual funds are generally bought directly from investment companies instead of from other investors on an exchange. Unlike ETFs, they don’t have trading commissions, but they do carry an expense ratio and potentially other sales fees (or “loads”).

Index funds

Like ETFs, index mutual funds are considered passive investments because they mirror an index. That means they can also be a low-cost way to invest—many have annual expenses of less than 0.10%.

A few scenarios where an index fund may be a better option than an ETF:

  • You invest on a frequent schedule. If you make monthly or quarterly IRA deposits or use dollar-cost averaging—a strategy in which you manage risk by investing fixed sums of money at regular intervals—a no-load fund can be more cost-effective. Using ETFs could cause you to incur a trading commission every time you make a periodic investment.
  • You can buy an index mutual fund that has lower annual operating expenses. Don’t assume ETFs are always going to be the lowest-cost option. You may be able to find an index fund with lower costs than a comparable ETF, and spare yourself the potential trading costs.
  • The ETF is thinly traded. When you purchase or sell ETF shares, the price you are given may be less than the underlying value of the ETF’s holdings (the net asset value, or NAV). This discrepancy—called the bid/ask spread—is often minuscule, but for ETFs that don’t get a lot of trading activity, the spread can be wide at times. Mutual funds, by contrast, always trade at NAV without any bid-ask spreads.

Actively managed mutual funds

The investments in an actively managed mutual fund are selected and managed by a portfolio manager (or multiple managers), who are often supported by a team of research analysts. Active managers build a portfolio that reflects their strategy and outlook. For example, in rough markets, active managers can play defense by selling more speculative or risky assets and adding more conservative investments. Actively managed funds are typically more expensive than ETFs or index funds—in large part, to compensate management.

Consider investing in an actively managed mutual fund if:

  • You want a fund that potentially could beat the market. The main reason people invest in actively managed funds is the potential that they might beat their benchmarks (though most aren’t able to do so consistently). Additionally, active management with a specific strategy may complement index funds in a portfolio. For example, some managers aim to reduce downside risk and volatility.
  • You are investing in a less efficient part of the market. Some markets are considered to be highly “efficient,” meaning the businesses or markets are so popular and information is so quickly and widely distributed that there isn’t much opportunity for active managers to add value. Large-cap U.S. stocks are an example of an efficient market segment. Emerging market stocks or high-yield bonds are less efficient markets where deep research and a proven strategy can pay off.

    Important Disclosures

Investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges and expenses. You can request a prospectus by calling Schwab at 800-435-4000. Please read the prospectus carefully before investing.

Past performance is no guarantee of future results.

Some specialized or “niche” exchange-traded funds can be subject to additional market risks. Investment returns will fluctuate and are subject to market volatility, so that an investor’s shares, when redeemed or sold, may be worth more or less than their original cost. Unlike mutual funds, shares of ETFs are not individually redeemable directly with the ETF. Shares are bought and sold at market price, which may be higher or lower than the net asset value.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

Charles Schwab Investment Advisory, Inc., is an affiliate of Charles Schwab & Co., Inc.

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