Post on 23-Jul-2020
Investing Basics
Financial Planning for Women http://www.usu.edu/fpw
Dr. Jean Lown & Erica Abbott
FCHD Dept., USU
Welcome to FPW
• To access internet: Log in to
Bluezone: https://bluezone.usu.edu/
– Choose Guest access
• Enter your email address
• Please ask questions or ask for
clarification as we go along.
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Sign Attendance for Drawing
Each time you attend FPW in fall entered
into drawing.
– free financial consultation with Dr. Jean
Lown
• Recent winners: Carol Kochan & Star
Coulbrooke
– personal finance books
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Overview
• Getting ready to invest
• Basic building blocks of investing:
– mutual funds
• stocks & bonds
– Employer retirement plan: 401(k), 457…
– Individual Retirement Account (IRA)
– 529 college savings plan
– Regular taxable account
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Why Invest?
• To achieve financial goals…
– vehicle purchase/replacement
– down payment on a home
– a child’s education
• To build wealth for financial security
• For retirement
• What are YOUR $ goals? • Time line
• $ amount
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Things To Do Before
Investing • Pay off credit card debt!
– No investment pays as much as credit
card interest
• Build an emergency fund
• Need help? Use the FPW Blog
– http://fpwusu.blogspot.com/
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Determine your Risk Tolerance
• How much risk can you stand?
• Risk tolerance quiz:
– http://njaes.rutgers.edu/money/riskquiz/
– Lots of online quizzes
• What is your time horizon to achieve
your investment goal?
– More risk with long-term goals
– Less risk with short-term goals
But it wasn’t just stocks crashing!
What did you do in 2007-09?
• Research shows risk quizzes are not very
reliable, but a starting point
• If you had investments during 2008-
2009 global financial market
meltdown…
– What did you do?
• Buy? Sell? Hold?
• Are you closer to your goal time line?
DIVERSIFICATION
• 2007-09 illustrated benefits of
diversification
– Bonds were one safe harbor
Relationship Between Risk and
Return
Risk High Low
Expected
Return
High
Low
Cash
Equivalents
Bonds
Int’l Bonds
Real Estate
Stocks
Int’l Stocks
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Pick Investments to match goals, time
line, & risk tolerance
• Are goals short- or long-term?
– If your time horizon is <3 years you
should be saving instead of investing.
– Saving
• no risk of loss of principal
• Lose purchasing power to inflation
• Precursor to investing
– Investing
• take some risk to beat inflation & grow $
How to find money to invest
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Where to find $ to Invest?
• “The only thing that works is
saving first and then living with
what’s left.”
– Richard Thaler, Nobel Prize winner
in economics, University of Chicago
• Track your spending
• Use a written spending plan
– Savers who use a plan have twice
as much $ as those who don’t!
Bought gas lately?
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Investing Terminology
• Stock – ownership in a company
• Bond – loan money to bond issuer (corporate or state/municipality)
• Mutual Fund – A diversified portfolio
of stocks &/or bonds (or other
investments)
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More Terminology
• Dividend – a portion of a company’s
earnings paid to stockholders
• Capital Gain (loss)–increase
(decrease) in value of investment
– occurs only when you actually sell
• Rate of Return (or Yield) –total
return on investment expressed as
a % of price
Establish Your Long-
Term Investment Strategy • Strategy 1: Buy and hold
anticipates long-term economic
growth
– ignore short term volatility
– Turn off CNN
– If you are investing… your time horizon
is long-term
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Long-Term Investment
Strategy 2 • Dollar-cost averaging buys at “below-
average” costs
– Invest same amount every month
– Set up automatic deposit
– Ignore market fluctuations
– Buy fewer shares when price is high & more shares when price is low
– Average price of your shares is < average cost
– Like buying groceries on sale
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Long-Term Investment
Strategies 3 & 4 • Portfolio diversification
• Reduces volatility
• Would you like pumpkin, apple, or
mince pie?
• I’ll have some of each!
• Asset allocation
• % to desired investment categories
– Rebalance yearly to desired %
• Ex. 60% stocks/40% bonds
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What Type of Investments?
• Do you want to lend your money or own
an asset? (or both)
– Bonds: Debts – lending investments
• Fixed Maturity – borrower agrees to repay the
principal on a specific date
• Fixed Income – borrower pays investor a specific
rate of return
• Can lose $ if lender defaults (i.e. Detroit bonds)
– Stocks (equities) – ownership investments
• Value varies; can lose $ or gain a lot in long run
• No guarantees
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Investing Made Easy
• Automatic Investing
– Contribute to retirement plan at work
or
– Automatic transfer from checking to:
• Individual Retirement Account
• Mutual fund
• 529 college savings
• Other investment
Mutual Funds • Advantages
– Professional management
– Reduced risk through portfolio diversification
• Own small part of lots of different investments
– Monitoring investment is easy
• Disadvantages
– Funds follow market performance (down as well as up)
– No guaranteed rate of return
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Successful Investing • Educate yourself
• Determine your risk tolerance
• Decide on asset allocation
• Contribute regularly
• Monitor investment performance
• If you need help, consult an
adviser
– (N.B. most “advisers” are
salespeople)
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More Successful Strategies
• Ask questions about…
– Expenses
– Historical performance: 3, 5, 10 yrs
• Past performance is no guarantee of
future returns!
• How volatile in past?
– Investment goal? (e.g., capital
appreciation, income?)
• “Rule of Three”
– Compare at least 3 investments
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Low-Maintenance Strategies
• Target maturity date mutual funds
for retirement
• Index funds
• Automatic deposits
• Annual financial check-up
– Rebalance to chosen asset allocation
– Some funds will do this automatically
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Investing Resources
• “Investing for Your Future”
– home study course
http://www.extension.org/pages/10984/i
nvesting-for-your-future
• Money Essentials: Starting to Invest:
– http://money.cnn.com/pf/money-
essentials/index.html
• Money & Kiplinger magazines &
websites
• MF & retirement plan websites
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Learn About Mutual Funds
• Squared Away: Information for
making good decisions
– http://squaredaway.bc.edu/learn-more
– Mutual Funds
• http://squaredaway.bc.edu/learn-
more/mutual-funds
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Financial Planning for Women http://www.usu.edu/fpw
• Blog: http://fpwusu.blogspot.com/
– Searchable!
• Facebook:
http://www.facebook.com/FinancialPl
anningforWomen
• October 14: Diversification & Asset
allocation
• November 11: What makes women
are better investors
How to Win the Loser’s Game https://search.yahoo.com/yhs/search?p=How+to+Win+the+Loser%27s+
Game&ei=UTF-8&hspart=mozilla&hsimp=yhs-001
• “to provide ordinary investors with
the information they need - and to
challenge the industry to offer
consumers a fairer deal.”
• interviews “some of the biggest
names and brightest minds in the
investment world.”
• 80 minutes; 10 segments – https://www.youtube.com/watch?v=SwkjqGd8NC4
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Questions? Comments?
Experiences?