“On June 12, 2020, Alexander E. Kearns, a 20-year-old student at the University of Nebraska, took his own life after believing he had lost over $730,000 trading options.”
While home from college and living with his parents because of the Coronavirus, Kearns opened an account with Robinhood—an online brokerage firm that uses technology to encourage everyone to begin investing and participate in the U.S. financial system. As stocks experienced huge price swings during spring 2020, Kearns began experimenting with trading options.
After using a speculative technique that involved put options, Kearns believed that he had lost over $730,000. In reality, his negative balance may not have represented a negative balance at all, but rather a temporary balance until the stocks underlying his option investments were posted to his account. And yet, because of a timing and reporting issue, he became despondent and took his own life.
Because of privacy issues, Robinhood won’t provide details of Kearns’ account, but the brokerage firm is making major changes to their trading platform—especially for option trades.
You may want to use the information in this blog post and the original article to
Stress the importance of learning all you can about any investment before you begin an investment program.
Review the risks involved in the more short-term speculative techniques of day trading, investments that use margin, selling short, and options.
Robinhood, like many financial service firms including E-Trade, TD Ameritrade, Charles Schwab, Fidelity, and Merrill Lynch now allow investors to open an account with no initial investment and offer commission-free trading. Would you be tempted to open an account and begin investing given the current economic environment?
In the note he left, Alexander Kearns asks a simple question, “How was a 20-year old with no income able to get assigned almost a million dollars worth of leverage?” He also admits in his note that he had “no clue” what he was doing. What mistakes did he make when he began investing? How could you avoid making the same mistakes?
The Personal Financial Satisfaction Index (PFSi), reported by the AICPA (American Institute of Certified Public Accountants) is at an all-time high. This quarterly economic indicator measures the financial situation of average Americans. PFSI is the difference between (1) the Personal Financial Pleasure Index, measuring the growth of assets and opportunities, and (2) the Personal Financial Pain Index, which is based on lost assets and opportunities. The most recent report had a Pleasure Index 68.1 in contrast to a Pain Index of 42.1, resulting in a positive reading of 25.9, the highest since 1994.
While the stock market is high, unemployment is declining, and inflation is low, remember the economy is cyclical. Be sure to consider and plan for your long-term goals. Stay aware and position your financial plan appropriately to safeguard finances when the economy is in a downturn. Also, analyze your cash flow to an attempt to increase savings, including an appropriate emergency fund.
For additional information on financial satisfaction, click here.
Have students create an action plan for situations that might be encountered in times of economic difficulty.
Have students create a team presentation with suggestions to take when faced with economic difficulties.
What are examples of opportunities that create increased personal financial satisfaction?
Describe actions a person might take when faced with economic difficulties.
Collectible coins have some historic or aesthetic value to collectors. The value of many collector coins exceeds their melt value because the precious metal content is so small. Coin collectors refer to this collectible value as numismatic value, and it is determined by factors such as the type of coin, the year it was minted, the place it was minted, and its condition—or “grade.”
Dealers who sell collectible coins often have valuable coins graded by professional services. A grader examines the coin’s condition based on a set of criteria. Then the grader assigns it a numerical grade from one to 70, and places it in a plastic cover for protection. But factors like “overall appearance” and “eye appeal” are subjective, and the grade assigned to a particular coin can vary among dealers.
Expect to hold your investment for at least 10 years before possibly realizing a profit. That’s because dealers usually sell collectible coins at a markup. In addition, the market for numismatic coins may not be the same as the market for precious metals or bullion coins. It’s possible that the price of gold can increase while the value of a gold numismatic coin decreases.
“Advisors and investors are increasingly focused more on lower fee products amid expectations that finding consistently strong performing active funds is hard.”
Passive investing (index funds and exchange traded funds) has been a trend on Wall Street for years. So, what’s different? The answer: The trend is increasing at an alarming rate and investors are now retreating from actively managed funds that are beating their benchmark index. According to data from Morningstar, investors pulled $99 billion from the actively managed funds that beat their benchmarks over a 12-month period ending January 31, 2017. This is a remarkable trend given that most investors typically chase funds with high performance and high returns.
The reasons are many, and certainly lower fees is part of the reason, but not the only factor for this dramatic trend. Another very important factor is that the number of managed funds that consistently beat the index over a long period of time is small. According to data from Charles Schwab, the number of funds that score in the top 25% for at least two years is 1,098. The number of funds drops to 702 at the end of three years, and to 33 funds at six years. Only 4 funds score in the top 25% for at least seven years, and none stay in the top 25% for eight years.
The article goes on to say that this trend may encourage more actively managed funds to focus on bringing down the fees for their investment products in order to compete with the expense ratios for index funds and exchange traded funds.
“The Dow’s ongoing flirtation with the 20,000 market milestone is the talk of Wall Street.”
The 120-year-old Dow Jones Industrial Average consists of 30-blue chip stocks that make up arguably the world’s best-known stock index. At the time of this article and this blog post, the average is trading at near record levels and threatening the break the 20,000 mark. So how important is breaking the 20,000 barrier? Consider the following five questions.
Why, with the Dow so Close to 20,000, can’t it get over the hump?
Is Dow 20,000 a big deal?
Does a new milestone mark a new stage of the bull run we’ve seen?
Will Dow 20,000 improve the mood of investors?
Is Dow 20,000 a reason to buy?
Adam Shell, in this USA Today article, provides some answers to the above 5 questions that can help investors keep a more balanced perspective on what a Dow 20,000 really means for both individual investors and the economy.
You may want to use the information in this blog post and the original article to
With so much in the news about the stock market, record high values, a possible correction or pullback in market values, the Federal Reserve’s interest rate changes, and other economic factors, you may want to use this article and this blog post to explain why the Dow Jones Industrial Average is just one of many factors that affect investors, the market, and the economy.
Since the Dow Jones Industrial Average is in record territory, is this a good time to invest in the stock market? Explain your answer.
At the time you answer this question, what is the current Dow Jones Industrial Average? Has it gone up or down in the last six months, and what affect has the change had on the stock market and the economy?
“The sky is falling! If my chosen candidate doesn’t win, the markets are doomed and so are my investments.”
In this article, Bijan Golkar points out that a presidential election can cause excitement or despair depending on if you are a Republican or a Democrat and who the major parties nominate for the highest and most powerful office in the world.
The article discusses market returns both before and after a presidential election year and some of the underlying reasons for market volatility. Then the article stresses the importance of a person’s long-term goals and a plan for long-term growth as opposed to “emotional investing.” Finally, the article discusses the pros and cons of our economy that could affect investment values.
“Interest rate changes are among the most significant factors affecting bond return.”
When it comes to how interest rates affect bond prices, there are three cardinal rules.
When interest rates rise–bond prices generally fall.
When interest rates fall–bond prices generally rise.
Every bond carries interest rate risk.
This article describes how each of the “3 cardinal rules” described above affects a bond investment. It also explains the role the Federal Reserve plays in determining interest rates in the economy. Specifically it describes the federal funds rate, the discount rate, and basis points for bond investments.
Finally, this article provides information on where to find economic indicators that measure not only changes in interest rates but also other economic indicators for the nation’s economy.
Automated investment services are expanding. Many financial service companies are offering “robo advice,” in which investors complete an online questionnaire and a computer program generates and monitors a portfolio of funds. Robo-advisers are also designed to automatically rebalance a portfolio based on changes in the market as well as any changes in the amounts allocated to certain investments.
With many investors already making their own trades online, investment companies believe that robo advisors have these additional benefits:
lower costs for obtaining advice and conducting transactions.
an ability to adjust the portfolio for tax purposes by selling shares that have declined to offset gains.
an easier investment approach for younger clients with less-complicated financial lives.
Some will be concerned about automated portfolio management. Human advisors will still be available to address issues about mortgages, insurance, estate planning, retirement income, and other topics that robo-advisers are not yet equipped to answer.
For additional information on robo advice, click on the following articles: