Investing Basics
Dr. Jean Lown
& Erica Abbott
FCHD Dept., USU
Information credit to:
Dr. Barbara O'Neill
Rutgers Cooperative Extension
Welcome to FPW
• Please ask questions or ask for
clarification as we go along.
• To access internet Log in to
Bluezone: https://bluezone.usu.edu/
– guest
2
Overview
• Getting ready to invest
• Basic building blocks:
– mutual funds
• Holding stocks & bonds
3
Why Invest?
• To achieve financial goals…
– vehicle purchase/replacement
– down payment on a home
– a child’s education
– What are YOUR $ goals?
• To build wealth for financial security
• For retirement
4
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/
5
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
6
What did you do in 2008-09?
• If you had investments during 20082009 global financial market
meltdown…
– What did you do?
• Buy? Sell? Hold? Rebalance?
• Research shows risk quizzes are not
very reliable
Relationship Between Risk and
Return
High
Int’l Stocks
Stocks
Real Estate
Expected
Return
Int’l Bonds
Bonds
Cash
Equivalents
Low
Low
Risk
High
When to Start Investing
• Is your budget balanced?
• Do you save every month?
• Do you pay credit cards in full every
month?
• Do you carry adequate insurance to
protect against major catastrophes?
– Earthquake insurance on home
– Health, disability & life insurance
10
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
– Investing: take some risk to beat
inflation & see $ grow
12
How to find money to invest
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!
14
Bought gas lately?
15
Investing Terminology
• Stock – ownership in a company
• Bond – loan money to bond issuer
(corporate or state/municipal)
• Mutual Fund – A diversified portfolio
of stocks &/or bonds (or other
investments)
16
More Terminology
• Interest – price paid for use of
borrowed money
• Rent – payment received for use of
real estate
• Dividend – a portion of a company’s
earnings paid to stockholders
17
& more Terminology
• 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
18
Establish Your Long-Term
Investment Strategy
• Strategy 1: Buy and hold
anticipates long-term economic
growth
– ignore short term volatility
– Turn of CNN
20
Long-Term Investment
Strategy 2
• Dollar-cost averaging buys at “belowaverage” costs
– Invest same amount every month
– Ignore market fluctuations
– Set up automatic deposit
– Buy fewer shares when price is high
& more shares when price is low
– Average price of your shares is <
average cost
21
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 $
• No guarantees
23
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
24
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 (same as any
investment)
25
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)
26
More Successful Strategies
• Ask questions about…
– Expenses
– Historical performance: 3, 5, 10 yrs
• Past performance is no guarantee of
future returns
– Investment goal (e.g., capital
appreciation)
• “Rule of Three”
– Compare at least 3 investments
27
Low-Maintenance Strategies
• Target maturity date mutual funds
for retirement
• Index funds
• Automatic deposits
• Annual financial check-up
– Rebalance to chosen asset allocation
– Some MFs do this automatically for you
28
Investing Resources
• “Investing for Your Future”
– home study course
http://www.extension.org/pages/10984/
investing-for-your-future
• Money Essentials: Starting to Invest:
– http://money.cnn.com/pf/moneyessentials/index.html
• Money & Kiplinger magazines &
websites
29
Learn About Mutual Funds
• http://squaredaway.bc.edu/learnmore/mutual-funds
30
How to Win the Loser’s
Game
https://www.youtube.com/watch?v=SwkjqGd8NC4
• “to provide ordinary investors with
the information they need - and to
challenge the industry to offer
consumers a fairer deal.”
• 80 minutes; 10 segments
• interviews “some of the biggest
names and brightest minds in the
investment world.”
31
Financial Planning for Women
www.usu.edu/fpw
• Blog: http://fpwusu.blogspot.com/
• http://www.facebook.com/Financia
lPlanningforWomen
• October 14: Diversification &
Asset allocation
• November 11: Women are better
investors than men!
32
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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Questions? Comments?
Experiences?