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

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• 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?