ShmoopTube

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Principles of finance a la shmoop time is your friend in the stock market

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alright people well there is risk all around us more people die every year [Man walking streets and objects land around him]

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slipping in bathtubs than are killed juggling nuclear weaponry blindfolded on

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Mars you know think about that well one saving grace as it applies to

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risk in equities is time not the magazine but the clock measuring thing [Clock rings and person smashes it with a hammer]

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that is if you have loads of time like decades the markets tend to bail you out

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even if you make dumb decisions meaning that in modern history ie the

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last 150 ish years of the modern stock markets being around there have been

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absolutely no times where if you just put your money in an index fund pegged

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to the S&P 500 as this graph charting SNP returns since 1930 shows well you'd [SNP graph appears]

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likely be making a profit no matter what year you put your money in the markets

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and even if your gains weren't massive well they'd certainly have been a lot

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better than the very safe government bond alternatives you don't have to

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commit a hundred percent to any one class of course lots of index and mutual [Boxing coach talking to boxer in the ring]

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funds offer a mix of both bonds and stocks if you don't like the super sharp

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rocky peaks and valleys there and they would have given you a nice blend of

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risk and reward at the other end of the spectrum are hedge funds which in theory

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try to make you money whether the market goes up or down for a pretty little fee

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there, then there's venture capital funds which invest in very early-stage startup

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companies think lottery tickets then there's private equity funds yeah so for

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the very wealthy you do LBO's on dying companies and hope to turn them

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around and then there's other stuff yeah the like the guy in the trench coat you [Man in trench coat appears and boy runs away]

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know avoid him...Well these are all dubbed alternative investment class

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funds you know stands for high fees because for the most part well they

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aren't public read no regulations and they're highly illiquid like if you need

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your money back next week well you're out of luck...

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if you invest money today you should not expect to get a dime from your [Man approaches Frank's Bank with cash]

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investment in these kinds of funds in the form of distributions for at least

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five years sometimes longer sometimes never and there are other classes of

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investment that you need to think about as well and yeah they get tricky when [Rabbit appears from magicians hat]

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your time duration is short that is if you're a financial manager at a large

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company thinking about making an acquisition using cash in the next year

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or so well then you can't risk being invested with your company's portfolio [Equity market graph appears]

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money in the equity markets because they can go down a lot in one year and you

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can't afford the risk of interest rates going up quickly so long-term bonds

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which would get killed if they did well you can't use those either and so you

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have to use the short-term bonds and low-risk things yeah well shorter term

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classes of bond paper are things like money market accounts which trade very

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short term bonds like bonds coming due within the next few months they're safe [Man performing ultrasound to woman]

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and liquid which means you can redeem them for cash usually within just a day

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or two of notice and they come in every flavor you could want the basic idea [Ice cream flavors appear]

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here is that funds come in a few general flavors they're managed think mutual

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funds and then there's hedge funds private equity funds venture capital

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funds are all managed by humans then you have unmanaged funds think index funds

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and exchange-traded funds or ETFs yeah and stay tuned because you'll find out

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more about these two different flavors of investment funds [Man discussing investment funds]

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