1. Investing Basics Dr. Jean Lown & Erica Abbott FCHD Dept., USU Information credit to: Dr. Barbara O'Neill Rutgers Cooperative Extension

2. 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/https://bluezone.usu.edu/ –guest 2

3. Overview Getting ready to invest Basic building blocks: –mutual funds Holding stocks & bonds 3

4. 4 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

5. 5 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/http://fpwusu.blogspot.com/

6. 6 Determine your Risk Tolerance How much risk can you stand? Risk tolerance quiz: –http://njaes.rutgers.edu/money/riskquiz/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

8. What did you do in 2008-09? If you had investments during 2008- 2009 global financial market meltdown… –What did you do? Buy? Sell? Hold? Rebalance? Research shows risk quizzes are not very reliable

9. Relationship Between Risk and Return RiskHighLow Expected Return High Low Cash Equivalents Bonds Int’l Bonds Real Estate Stocks Int’l Stocks

10. 10 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

12. 12 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

13. How to find money to invest

14. 14 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!

15. Bought gas lately? 15

16. 16 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)

17. 17 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

18. 18 & 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

20. Establish Your Long-Term Investment Strategy Strategy 1: Buy and hold anticipates long-term economic growth – ignore short term volatility –Turn of CNN 20

21. Long-Term Investment Strategy 2 Dollar-cost averaging buys at “below- average” 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

22. 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 22

23. 23 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

24. 24 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. 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

26. 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

27. 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

28. 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

29. Investing Resources “Investing for Your Future” –home study course http://www.extension.org/pages/10984/ investing-for-your-future http://www.extension.org/pages/10984/ investing-for-your-future Money Essentials: Starting to Invest: –http://money.cnn.com/pf/money- essentials/index.htmlhttp://money.cnn.com/pf/money- essentials/index.html Money & Kiplinger magazines & websites 29

30. Learn About Mutual Funds http://squaredaway.bc.edu/learn- more/mutual-fundshttp://squaredaway.bc.edu/learn- more/mutual-funds 30

31. How to Win the Loser’s Game https://www.youtube.com/watch?v=SwkjqGd8NC4 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

32. 32 Financial Planning for Women www.usu.edu/fpw Blog: http://fpwusu.blogspot.com/http://fpwusu.blogspot.com/ http://www.facebook.com/Financia lPlanningforWomenhttp://www.facebook.com/Financia lPlanningforWomen October 14: Diversification & Asset allocation November 11: Women are better investors than men!

33. 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 33

34. Questions? Comments? Experiences?