Todd’s Dilemma: Common Stocks, Mutual Funds, or ETFs? Todd O’Hanlon has worked i
ID: 2715109 • Letter: T
Question
Todd’s Dilemma: Common Stocks, Mutual Funds, or ETFs?
Todd O’Hanlon has worked in the management services division of Focus Consultants for the past five years. He currently earns an annual salary of about $120,000. At 33, he’s still a bachelor and has accumulated about $100,000 in savings over the past few years. He keeps his savings in a money market account, where it earns about 3 percent interest. Todd wants to get “a bigger bang for his buck,” so he has considered withdrawing $50,000 from his money market account and investing it in the stock market. He feels that such an investment can easily earn more than 3 percent. Heidi Jackson, a close friend, suggests that he invest in mutual fund shares. Todd has approached you, his broker, for advice.
Critical Thinking Questions
Explain to Todd the key reasons for purchasing mutual fund or ETF shares.
What special fund features might help Todd achieve his investment objectives?
What types of mutual funds or ETFs would you recommend to Todd?
What recommendations would you make regarding Todd’s dilemma about whether to go into stocks, mutual funds, or ETFs? Explain.
Explain to Todd the rationale for choosing ETFs over mutual funds
Explanation / Answer
Key reasons for purchasing mutual fund or ETF shares:
Holding variety of investments may help to offset the poor performance of the stocks.
When you do not get the skills and knowledge to manage your own investments or want to spend the time.
It allows for easy buying and selling.
Mutual funds can be used to meet a variety of financial goals