Investing Basics. Financial Planning for Women. Dr. Jean Lown & Erica Abbott FCHD Dept., USU.

Transcription

1 Investing Basics Financial Planning for Women Dr. Jean Lown & Erica Abbott FCHD Dept., USU

2 Welcome to FPW To access internet: Log in to Bluezone: Choose Guest access Enter your address Please ask questions or ask for clarification as we go along. 2

3 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 3

4 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 4

5 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 5

6 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 6

7 Determine your Risk Tolerance How much risk can you stand? Risk tolerance quiz: 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 7

8 But it wasn t just stocks crashing!

9 What did you do in ? Research shows risk quizzes are not very reliable, but a starting point If you had investments during global financial market meltdown What did you do? Buy? Sell? Hold? Are you closer to your goal time line?

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11 DIVERSIFICATION illustrated benefits of diversification Bonds were one safe harbor

12 Relationship Between Risk and Return High Int l Stocks Stocks Expected Return Int l Bonds Real Estate Bonds Low Cash Equivalents Low Risk High

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14 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 $ 14

15 How to find money to invest

16 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! 16

17 Bought gas lately? 17

18 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) 18

19 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 19

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21 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 21

22 Long-Term Investment Strategy 2 Dollar-cost averaging buys at belowaverage 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 22

23 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 23

24 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 24

25 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 25

26 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 26

27 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) 27

28 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 28

29 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 29

30 Investing Resources Investing for Your Future home study course nvesting-for-your-future Money Essentials: Starting to Invest: Money & Kiplinger magazines & websites MF & retirement plan websites 30

31 Learn About Mutual Funds Squared Away: Information for making good decisions Mutual Funds 31

32 Financial Planning for Women Blog: Searchable! Facebook: anningforwomen October 14: Diversification & Asset allocation November 11: What makes women are better investors 32

33 How to Win the Loser s Game 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 33

34 Questions? Comments? Experiences?