Financial Literacy - Intro Investing

Financial Literacy

Investment Basics



If the opportunity presents itself, try to talk to young adults about saving and investing. Here are some ideas to stimulate discussions.

First and foremost, know that any money you need in the next few years should not be invested in the stock market. This is true regardless of what the market is doing. It's just smart financial planning. Prioritize the planning process:

#1 – Have health insurance, life insurance and disability insurance in place.

#2 – Have 8 months of emergency savings (liquid, not invested)

#3 – Traditionally this step is to pay OFF your credit cards but I have found that paying DOWN your credit cards while investing for the future has worked for me. Conservative financial advisors will insist that credit cards be paid off first.

#4 – Investing does not take a lot of money, as many think. My father invested $50/month and built a very nice portfolio. As he and my mom moved up in their careers, they lived on one salary and invested the other to build a very comfortable retirement for themselves. Generally, but sometimes tough, saving 10% of your earnings is a good rule of thumb.

INVESTING*****

Step #1: Diversify into ETFs

Buy ETFs first (Exchange Traded Funds, a "basket" of stocks, containing common names such as Apple, Microsoft, Nike and many many others). Here are a few of the many choices:

(SPY) is a basket of S&P 500 stocks

(DIA) is a basket of Dow Industrial Stocks

(QQQ) is a basket of NASDQ stocks

(FDN) is a basket of internet stocks

With the above investments, you will have invested in a wide variety of stocks and your portfolio will move with the market. This type of investing provides “diversification”. So, for example, you could take your first $100 investment and divide it evenly into the above four ETFs. Please note: QQQ and FDN have some similar stocks in their baskets, so you may want to invest in only one of them so you are not over invested in any particular sector (in this case, technology).

Keep investing regularly. It’s not necessary to “time” the market. Make monthly contributions to your ETF investments or contribute when you have extra cash. Don’t pay too much attention to market movements (hang in there). Once you have a “core” position in ETFs, you can start buying individual stocks. Invest for the long term. Resist trying to time the market highs and lows.

Step #2: Diversify into individual stocks. Invest in at least 5 different sectors: Healthcare, Industrials, Technology, Consumer, Energy, Financial Services, Communication Services, Utilities, Real Estate (REIT), or Basic Materials. Buy quality stocks, preferably, but not always, with “dividends” that will be reinvested. This will turbo charge the portfolio.

Step #3: To find investable stocks, research, research, research.

-- Morningstar.com is an easy to understand website to learn from by signing up for free access to their research data. A good article from them is located at http://www.morningstar.com/articles/850913/teaching-loved-ones-about-money-heres-a-tool-kit.html.

-- Navellier.com gives both stock and ETF grades.

-- Jim Cramer’s show on CNBC seems a bit crazy but very educational (6pm EST).

-- Visit finance.yahoo.com for lots of fundamental and technical information.

-- Motley Fool (sign up for free newsletter at fool.com)

Step #4: Open a brokerage account. Fidelity.com has a 24/7 phone service for questions and a user friendly website for research and making trades. Manage your money yourself. And you can do it online for $0.00 per trade. Types of Investment Brokerage Accounts:

-- Roth IRA - Invest tax-free first! (IF you don’t need the money until you are 59 ½ years old)

-- Regular taxable account

If your employer has a 401K program, invest in it, especially if the employer matches your investment. Just remember if you leave that employer take your 401K account with you.

If you’re not that thrilled, or interested, in managing your investments, you can use the “set it and forget it” method – up to a point. Do keep an ear to the ground on macro changes in the of world economics and micro changes in your particular investments. By the way, do not "swing for the fence" with risky investments. Slow and steady wins this "game".

Your investment personality must match your tolerance for volatility – if your investments are causing you to lose sleep, you are not invested at your tolerance level and you should reduce your risk to a point where you can sleep peacefully and not look at the market every day.

******This article is not intended to give investment advice. It is just for educational purposes. No fiduciary obligation or duty exists by virtue of this information provided. No specific outcome or profit is guaranteed.

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Quote from Motley Fool – you can sign up for free to receive their newsletter (very informative) – here’s a recent example:

<< Investing in stocks requires a minimum five-year time horizon. Think of it this way: You're sending some of your money on vacation ... while your other money takes care of the more immediate chores, like paying for car repairs, a house, or college tuition.

Of course, it can be hard to be a long-term investor in a short-term world ... which brings us to the second secret ingredient for investing greatness.

Successful investors have the ability to remain calm and levelheaded when everyone around them is freaking out. That mind-set makes the difference between investors who consistently outperform the market and investors who get lucky for a while.

When a group of business-school students asked Warren Buffett why so few people have been able to replicate his investing success, his reply was simple: "The reason gets down to temperament."

After all, money, your IQ, or your lucky socks are no help when one of your investments is down 50%. But if you can keep your emotions in check and ignore the noise, you'll be able to hang on (even back up the truck and load up on more shares) rather than selling at the worst times.

If you look back at history and study how investing fortunes were made, you'll find that it wasn't by jumping in and out of stocks, but by buying great businesses and investing in them over the long haul.

How to hop off the emotional roller coaster

To cultivate a good temperament — one that focuses on the long term, not the short term, and ignores the crowd in favor of a well-thought-out strategy — channel your inner Buffett. Build resistance to the emotional triggers that lead to bad investment decisions. Here are a few exercises you can do to keep your cool:

Memorize this affirmation: "I am an investor; I am not a speculator."

All together now: "I am an investor; I am not a speculator." As investors, we:

• Buy stock in solid businesses. We expect to be rewarded over time through share price appreciation, dividends, or share repurchases.

• Don't time the market. And we certainly don't speculate when we buy stocks. Speculation is what day traders do.

• Focus on the value of the businesses we invest in. We try not to fixate on the day-to-day movements in stock prices.

• Buy to hold. We buy stocks with the intention of holding them for the long haul.

Tune out the noise: Put down the newspaper, turn off CNBC, and opt out of those alerts on your phone. None of it is doing you any good.

Fixating on the market's minute-to-minute news won't help you make your next brilliant financial move. That chatter is mostly noise. And it's costing you a serious amount of sound sleep — and maybe even some actual money.

Spread out your risk with a solid asset-allocation plan. You should be building a portfolio (or working toward it!) that includes a bunch of investments that don't always move in the same direction — bonds and stocks, for example. You need to diversify.

Putting an assortment of eggs in various baskets isn't the only way to spread your risk. You can also avoid the risk of investing in a company at exactly the wrong time. Say you're interested in buying shares of Scruffy's Chicken Shack but you just don't know when to pull the trigger.

The answer? Take a bunch of shots!

Practically speaking, you do this through dollar-cost averaging (this means accumulating shares in a stock over time by investing a certain dollar amount regularly) through up and down periods.

So every month for three months, you purchase $500 of Scruffy stock, regardless of the stock price. The beauty of this system is that when the stock slumps, you're buying more, and when it's pricier, you're buying less.
"Buying in thirds" is another way to average into an investment: Simply divide the total dollar amount you want to devote to a particular investment by three, and pick three different points in time to add to your position.


Stay strong, think long!

Investing success is not measured in minutes, months, or even a year or two: We pick our investments for their long-term potential. So resist the urge to act all the time. Make decisions with a cool head after letting new information sink in. Sometimes the best action to take is no action at all.

Distract yourself with something useful.
If you're going to obsess about your investments, use your time productively and review your investment philosophy and process. For example, pick any investment that's interrupting your sleep. Write down why you bought the business in the first place. Ask yourself: Has any of that fundamentally changed? This exercise underscores that short-term ups and downs in the stock market have little relevance to winning long-term investments and wealth generation.


Robert Brokamp Lead Advisor Rule Your Retirement>>


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Retirement tip from Suze Orman "Live below your means, but within your needs. This might take some time to incorporate into your life, but it is so worth the effort. When you live below your means you will always have money you can put toward long-term goals, such as retirement. Moreover, by living within your means today you are effectively reducing the lifestyle you will need to support retirement."

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Perhaps the best-kept secret when it comes to investing is that time¸ not cash, is the most important asset you can put to work for you. Just a little bit of cash, socked away for a long while, has the potential to grow into a substantial amount of wealth. Given enough time invested, even a person of modest means can retire with a million dollars or more.

The chart (below) shows just how powerful of an ally time can be for someone targeting retirement at age 70 with a cool million, simply by earning the market's long-run 10% historical average returns:

A teenager who can consistently sock away less than 5% of the salary from a minimum-wage job can retire a millionaire. On the flip side, even a well heeled 50-year-old who hadn't yet started saving for retirement would probably struggle with reaching that same milestone.

Small investments for real people You might believe that with a mere $47 per month to invest, your money would get eaten alive by fees and commissions. In most cases, that might be true, but there's one class of investments that actively welcomes even small investments. They're known as DRIPs -- dividend reinvestment plans. You might have to pay a small fee or come up with a bigger initial investment to join one. Once you're in the plan, however, many allow you to make additional contributions and reinvest your dividends with no fees or additional out-of-pocket costs.

Below are a few companies that welcome the small investments that can help make millionaires out of ordinary folks. This author makes no representation for success in these companies and past performance is no indication of future performance. Investors are encouraged to do research before choosing a company in which to invest . There are also quite a few easy-to-read and easy-to-learn books available which you can check out from your library. Here are a few prominent investment authors:

Poverty is not permanent
The big barrier to creating a nation of millionaires isn't cash -- it's ignorance. DRIPs and other low-cost, low-barrier investment strategies are available to anyone who cares to seek them out. But if you don't know how money works and don't realize how important time is to securing your financial future, you won't get started until it's too late.

The Motley Fool has teamed up with DonorsChoose.org to fund classroom projects that teach and improve financial literacy for students who are most at risk of falling through the cracks. Every time these programs reach a student, that student gets the valuable gift of time. And with that gift, he or she acquires the opportunity to move from poverty to prosperity.

Creating a nation of millionaires just might be as simple as improving financial literacy for children and then letting the power of time work its magic.Retirement tip from Suze Orman "Live below your means, but within your needs. This might take some time to incorporate into your life, but it is so worth the effort. When you live below your means you will always have money you can put toward long-term goals, such as retirement. Moreover, by living within your means today you are effectively reducing the lifestyle you will need to support retirement."


Prepared by Illana Herzig Weintraub This is not intended to give investment advice, it is just for educational purposes.

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Opinions and Analysis by: Illana Herzig Weintraub

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