A Ziggy comic strip from a couple of years back is one of those pieces that's just been etched on to my mind. It was a single frame strip with Ziggy next to his mailbox, opening up a letter in anticipation. The caption below read "Well, now that's a switch --my check's OK, but my bank bounced."
Specifically, the comic was addressing the savings-and-loans crisis which had just come to the forefront. Yet, it's a neat twist on something that we all have to consider -- checkbook balancing and actually, money management in general.
With the summer approaching, many of us are about to earn some money. Consider trying to be a better manager of this money, no matter how insignificant the amount may seem.
The first stage in better money management is to save some money in order to go on to the later stages. A common way to save that usually proves helpful is to write down whenever you spend any money and then to learn from your spending patterns. And yes, it also helps to resist those commercials for Country Line Dancing videos and the all-new Ginzu knives.
The sooner you start to save and invest, the easier you'll find it in the long run when the amount of money starts to get significant. I've been doing quite a bit of work on investment matters for my own family over the last few years, and I'd to share some of what I've learned. Hopefully, it can help get you off on the right foot.
Most people think of two commodities when it comes to serious investing (no: baseball cards and compact discs aren't the right answers) -- stocks and bonds. Basically, a stock lets you buy into a share of the ownership of a corporation, whereas a bond lets you lend money to a corporation or the government.
Another very important investment entity is the mutual fund. A mutual fund is run by professionals who buy a variety of stocks and bonds according to some set objectives of the fund. Common folks like us can then buy shares of mutual fund, in essence buying into all the stocks and bonds the professional has selected. This is a really great technique for cutting risk by not putting all of your eggs in one stock or bond. Also, since several hundreds of people are sharing the commissions and other expenses involved in trading stocks and bonds, mutual funds work out to be cost-effective especially for the small investor.
Of course, the biggest difference between a mutual fund and a bank account is the risk factor. It is possible to lose some or sometimes (very, very rarely!) even all of your money in a mutual fund. But, the advantage is that mutual funds have been able to provide an average annual rate of return of around 15 percent over the long term -- far more than your bank could ever earn for you. Again, I must stress the "over the long term" part: there are hundreds of funds and this number is a generalization for all these funds over a period of 15 years or so.
The trick is to not enter right away into a fund with high fluctuations in price but to look for one that has historically been a slow but steady gainer.
How the heck am I supposed to find this slow but steady turtle, you may ask? There are several resources that are of help. All applications for investing in funds come with a "fund prospectus." The prospectus has a section with fund price data over the last few years. You'd probably want to avoid the fund that started off at $10, went up to $19 in one year, and then was at $15, $12, $25, $13 and is now around $22 again. You get the idea that the fund that went $10, $13, $14, $17, $22, $19, $21, $22 is probably better for the starting small investor.
The prospectus will also give you specific information about the investment objectives of the fund and also any charges ("load") that you may have to pay to be an investor in the fund. In addition, Money magazine has one of the most comprehensive mutual fund ratings sections which is also very helpful. And if you really get serious, the newsletter Mutual Fund Forecaster has several specific "buy" and "sell" recommendations and is the most widely read newsletter of its kind. I definitely wouldn't order a subscription right away, though --a quantum electrodynamics textbook may prove more comprehensible.
It's not difficult to start investing in mutual funds. Many funds allow for minimum balances of $500 to $1,000, slightly more than the minimum balances for savings accounts in banks. The funds are run by "mutual fund families," each family running several funds with a range of objectives and risk factors. Three of the largest fund families are Fidelty, Vanguard and Dreyfus. You can reach these and several other families on toll-free numbers and request general information for small investors and fund prospectuses (remember those) be sent to you.
Before getting into the real world, you may want to be a part of a mutual fund simulation. If there's enough interest, I'll run one next semester. Anyone can enter, get a fixed number of "Disney Dollars" to start and then invest in one or more mutual funds. You can then buy, sell and transfer your mutual fund shares over the semester. The person who is able to make the most money will be declared the winner and will feature in a "I'm going to Disneyworld" commercial, probably co-starring a pink bunny. If you're interested, write to me here at the Collegian (or by e-mail) and I'll send you some info early next semester.
So overall, resist those infomercials, save a couple of bucks, practice some investing, hope for some luck and then someday you'll bounce your bank.
Warning: It isn't quite as easy as that!
Disclaimer: I am not in any way responsible for losses incurred by you in trying to invest in mutual funds. . .but I may be entitled to some of the profits.
