Investing 101, Updated and Expanded Edition E-Book

Kathy Kristof

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Bloomberg
• Sprache: Englisch

Seitenzahl: 399

Veröffentlichungsjahr: 2010

Beschreibung

People wanting basic advice about stocks, bonds, mutual funds, retirement planning, and tax strategies are often frustrated by information overload. Picking the right book seems as daunting as deciding what to do with their savings and investments. Investing 101: Updated and Expanded removes both roadblocks, putting people on a path that they can understand and stick with. Kristof is renowned for taking the mystery and anxiety out of investing by keeping choices manageable. Kristof walks readers through the entire investment cycle and the way they think of their financial lives, rather than presenting stand-alone concepts like stocks and real estate. This expanded edition has new information about 529 college savings plans, annuities, Roth IRAs, reverse mortgages, and why declining markets can be good for you. It includes a cautionary look at home mortgages as investments. There's even a portfolio for the lazy investor. Kristof's loyal readership and the success of this book's first edition demonstrate that she understands what's on the minds of investors as intimately as she knows what's happening in financial markets. Winner: Cover and Interior Design, The Bookbinders Guild of New York/2009 New York Book Show Awards

Leseprobe

Table of Contents

Praise

Title Page

Copyright Page

Dedication

Acknowledgements

Introduction

QUICK TAKE

What You’ll LEARN

What You’ll DO

How You’ll USE This

Chapter 1 - FIXING MONEY PROBLEMS

UNIVERSAL PROBLEMS

FOR WOMEN ESPECIALLY

FOR MEN ESPECIALLY

Chapter 2 - RISK AND REWARD

UNDERSTANDING MARKET RISKS

CONSIDERING RATES OF RETURN

WHY A BAD MARKET COULD BE GOOD FOR YOU

HOW MUCH INVESTMENT RISK CAN YOU TOLERATE?

Chapter 3 - THE STARTING POINT

ALLOCATING ASSETS BASED ON GOALS

IDENTIFYING INVESTMENT CATEGORIES

IDENTIFYING FINANCIAL GOALS

RUNNING THE NUMBERS

Chapter 4 - DIVERSIFICATION

INVESTING FOR SAFETY

INVESTING FOR INCOME

INVESTING FOR GROWTH

INVESTMENTS THAT PROTECT YOU FROM INFLATION

SPECULATION

INVESTMENTS TO AVOID

Chapter 5 - PICKING INDIVIDUAL STOCKS

FUNDAMENTAL INDICATORS OF VALUE

HOW TO READ A FINANCIAL STATEMENT

FERRETING OUT THE RIGHT NUMBERS IN FINANCIAL REPORTS

CORPORATE GOVERNANCE

FINDING FINANCIAL DATA ON THE WEB

MANIC MARKETS

WHY I LOVE COSTCO

Chapter 6 - TOUGH SELL

KEEPING AN EYE ON THE FINANCIALS

WHAT ABOUT STOCK PRICE MOVEMENT?

TAX IMPLICATIONS OF SELLING AT A PROFIT

CALCULATING THE BREAK-EVEN SALES PRICE

RUNNING THE NUMBERS

Chapter 7 - INVESTING IN BONDS

FIXED-INCOME INVESTMENT CHOICES

Chapter 8 - MUTUAL FUNDS

WHAT IS A MUTUAL FUND?

FEES AND LOADS

THE PROSPECTUS

DIFFERENT TYPES OF FUND CATEGORIES

CHOOSING SPECIFIC FUNDS IN EACH CATEGORY

FUND FAMILIES

SELECTING A FUND

THE REAL COST OF FUND FEES

EXCHANGE-TRADED FUNDS

Chapter 9 - SOCIALLY RESPONSIBLE INVESTING

EVOLVING INFLUENCE

PROMISING PERFORMANCE

SOCIAL FUND SCREENS

FINDING MUTUAL FUNDS WITH A SOCIALLY RESPONSIBLE BENT

Chapter 10 - REAL ESTATE INVESTMENT TRUSTS

WHAT REITS ARE

HOW TO INVEST IN REITS

Chapter 11 - INTERNATIONAL INVESTING

THE EFFECTS AND RISKS ON DIVERSIFIED PORTFOLIOS

INTERNATIONAL MUTUAL FUNDS AND RELATED INVESTMENT VEHICLES

ALL ABOUT CURRENCY RISK

Chapter 12 - TAX-FAVORED INVESTING

DECREASING THE TAX BURDEN

TAX-FAVORED VERSUS TAXABLE INVESTING

SAVING OPTIONS

COLLEGE SAVINGS ACCOUNTS

RETIREMENT ACCOUNTS

Chapter 13 - STARTING SMALL

HOW TO START SMALL

OTHER OPTIONS FOR SMALL INVESTMENTS

THE COST OF DELAYS

Chapter 14 - THE LAZY INVESTOR’S PORTFOLIO PLANNER

STEP ONE: DETERMINE WHAT YOU HAVE

STEP TWO: DETERMINE WHAT YOU NEED

STEP THREE: CHOOSE SPECIFIC INVESTMENTS

STEP FOUR: REBALANCE YOUR PORTFOLIO

Chapter 15 - HOW TO FIX YOUR BROKEN RECORDS

GETTING ORGANIZED

KEEPING TABS ON YOUR INVESTMENTS

Chapter 16 - GETTING HELP

CHOOSING AMONG FINANCIAL PLANNERS

UNDERSTANDING PROFESSIONAL DESIGNATIONS

FINDING A PLANNER

HIRING A PLANNER

GLOSSARY

INDEX

ABOUT THE AUTHOR

ABOUT BLOOMBERG

Praise for

Investing 101

Updated and Expanded by Kathy Kristof

“Investing 101 is a sensible, well-written, and comprehensive guide to investor options. I learned much from this book and am certain you can to.”

Stephen Brobeck Executive Director Consumer Federation of America

Praise for the first edition

“Investing 101 by Kathy Kristof is a reader-friendly introduction to the basics of investing and personal finance. . . . If I had to suggest a book on investing and personal finance to an absolute beginner, it would be Investing 101.”

BookPage

“… [an] excellent primer about investing. Investors will get a clearer idea of how markets work and what you can realistically expect from your retirement funds.”

The Boston Globe

“Kristof’s down-to-earth style and clear prose gives her writing a decidedly user-friendly quality. . . . The vast majority of us worker drones who haven’t yet made complete sense of things will find Investing 101 an easy way to get started.”

Miami Herald

“In Investing 101, Kathy Kristof skillfully guides the novice investor, step-by-step, along the path to investment success. It’s an ideal primer for anyone who wants to enter the financial world and would like a helping hand.”

Myron Kandel Founding Financial Editor, CNN

“Not only is this book more simple and straightforward than the typical book on investing, it’s also more humorous and personal.”

Today’s Librarian

“Too many of us give too little thought to the underpinnings of investing: how much risk to shoulder, when to sell, etc. Kathy Kristof explains these basics in language we all can understand. Investing 101 is sure to become a great reference guide for novices and longtime investors alike.”

Steve Dinnen Personal Finance ColumnistThe Des Moines Register

“Kathy Kristof knows investing inside and out. She can take even the most complicated information and make it easy to understand—and entertaining.”

Ilyce R. Glink National Syndicated Columnist Author of 100 Questions You Should Ask about Your Personal Finances

“If you’re just getting started in the investing world, this is the book you need. Kathy Kristof’s smart, sensible advice demystifies the markets and shows you exactly what you need to know to achieve your financial goals. Investing 101 offers a road map to financial success without gimmicks or secret formulas—and it’s a whole lot of fun to read, besides.”

Liz Pulliam Weston Personal Finance ColumnistLos Angeles Times

Also by Kathy Kristof

Taming the Tuition Tiger: Getting the Money to Graduate—with 529 Plans, Scholarships, Financial Aid, and More

A complete list of our titles is available at www.bloomberg.com/books

ATTENTION CORPORATIONS

This book is available for bulk purchase at special discount. Special editions or chapter reprints can also be customized to specifications. For information, please e-mail Bloomberg Press, [email protected], Attention: Director of Special Markets, or phone [phone].

© 2008, 2000 by Kathy Kristof. All rights reserved. Protected under the Berne Convention. No part of this book may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher except in the case of brief quotations embodied in critical articles and reviews. For information, please write: Permissions Department, Bloomberg Press, 731 Lexington Avenue, New York, NY 10022 or send an e-mail to [email protected].

BLOOMBERG, BLOOMBERG ANYWHERE, BLOOMBERG.COM, BLOOMBERG MARKET ESSENTIALS, Bloomberg Markets, BLOOMBERG NEWS, BLOOMBERG PRESS, BLOOMBERG PROFESSIONAL, BLOOMBERG RADIO, BLOOMBERG TELEVISION, and BLOOMBERG TRADEBOOK are trademarks and service marks of Bloomberg Finance L.P. (“BFLP”), a Delaware limited partnership, or its subsidiaries. The BLOOMBERG PROFESSIONAL service (the “BPS”) is owned and distributed locally by BFLP and its subsidiaries in all jurisdictions other than Argentina, Bermuda, China, India, Japan, and Korea (the “BLP Countries”). BFLP is a wholly-owned subsidiary of Bloomberg L.P. (“BLP”). BLP provides BFLP with all global marketing and operational support and service for these products and distributes the BPS either directly or through a non-BFLP subsidiary in the BLP Countries. All rights reserved.

This publication contains the author’s opinions and is designed to provide accurate and authoritative information. It is sold with the understanding that the author, publisher, and Bloomberg L.P. are not engaged in rendering legal, accounting, investment-planning, or other professional advice. The reader should seek the services of a qualified professional for such advice; the author, publisher, and Bloomberg L.P. cannot be held responsible for any loss incurred as a result of specific investments or planning decisions made by the reader.

Library of Congress Cataloging-in-Publication Data

Kristof, Kathy.

Investing 101 / Kathy Kristof.—Updated and expanded ed.

p. cm.

Includes index.

Summary: “The fully updated and expanded edition of Investing 101 offers basic advice to market newcomers. Subjects include: stocks, bonds, mutual funds, retirement planning, college savings, and tax strategies. This new edition removes roadblocks and offers low-maintenance portfolios that put investors on the path to investment success”—Provided by publisher.

ISBN 978-1-57660-307-9 (alk. paper)

1. Investments. 2. Stocks. 3. Mutual funds. 4. Bonds. 5. Finance, Personal. I. Title.

HG4521.K738 2008

332.6—dc22

2008021592

To Mom and Dad

You taught me everything of great value—and none of it was about money. For that reason, and about a thousand more, you are my heroes. Yesterday, today, and always.

ACKNOWLEDGMENTS

I never planned to write a book about investing. I really didn’t think I could be that dull. But my former editor at the Los Angeles Times, Bill Sing, insisted that consumers were in desperate need of solid advice on how to pick individual stocks, how to diversify their assets, when they should invest in bonds, and how they could get started. They needed this information and they needed it in a form that actually wouldn’t be dull, he argued. Informative, interesting, and short. Just the facts. No jargon. It was a tall order, but he’s the boss.

So I wrote a series of investing tutorials, then another series, then another. After responding to hundreds of requests for hard copies, we added yet more information and made it all into this book. In the process, I learned that Bill was right, again. (I hate that.) Yet, again, I’m indebted. Thanks, Billy.

It’s often said that a reporter is only as good as his or her sources. I’m grateful to mine. There are literally hundreds of experts—analysts and money managers from the likes of Merrill Lynch, Oppenheimer & Co. Inc., Neuberger Berman LLC, Fidelity Investments, the Vanguard Group Inc., T. Rowe Price Group Inc., and others—not to mention literally dozens of brilliant and highly paid tax accountants and financial planners who spent hours chatting about markets, economics, trading strategies, and asset allocation. Some of them are quoted in the following pages; some aren’t. Their wisdom contributed greatly to the creation of Investing 101.

Much more difficult to thank are my friends and family, who contribute to everything I do in ways both obvious and subtle. With their help and support, it seems as if anything is possible. For you, I am truly blessed. Thank you.

INTRODUCTION

Before we get started with the serious financial stuff, I’d like to share one of my favorite stories about investing. It’s true, and it illustrates a point that you need to remember while you’re reading this book—particularly if you’re a little nervous about your ability to invest wisely.

The story starts one dark October day on Wall Street, when the so-called “Asian Currency Crisis” struck. The Dow Jones Industrial Average—a key indicator of market health—plunged more than 300 points. I, like every other financial reporter on the planet, was charged with making some sense of it all for the readers of a general circulation newspaper.

Luckily for me, I work for the Los Angeles Times, where dozens of skilled reporters mobilize whenever there’s a major news event. As a result, I didn’t need to do the straight story—the story replete with numbers and specific details of which stocks fell the most and why. Instead, I was charged with figuring out whether individual investors were in a panic (as the professional investors assumed they would be). Given the fast-paced trading and the rapid decline in stock prices, it was clear that somebody was panicking.

First I called the professional investors. Beads of sweat were forming under their starched white collars and gray pinstriped suits. They didn’t talk. They sputtered, blurting out incomplete sentences, such as “The Asian financial crisis . . . spreading . . . could create global crisis. Market meltdown . . . It may be time to sell.” Yes, this could be called panic.

Then I called dozens of individual investors. A few were home. A few were at work. Some were at the baseball game. They were not breathless. They were not sweating. (Well, in the interest of accuracy, I don’t know for sure about the sweating thing. It’s sometimes hot in Los Angeles, even in October. But they didn’t sound as if they were sweating.)

Were any of them frantically calling their brokers trying to sell? Not a one. Instead, the individual investors said what the professionals should have said: Markets go up; markets go down. As long as your investments are appropriate for your goals, you don’t need to sweat the day-to-day movements. You can go about your business. Take in the baseball game. Relax.

The next day, the wisdom of the guy and girl on the street won out. Stocks climbed right back. Within a few days, they were higher than they’d been before the onset of the “crisis.”

What did the professionals have to say about the currency crisis that had them screaming “sell, sell, SELL” the day before? Ahem. “It’s better.”

The moral of this story: You can invest every bit as wisely—and sometimes more wisely—than a professional. Why? The professionals were in a panic for one very good reason: If you manage money for a mutual fund, your gains or losses show up in the newspaper the next day. Mess up, and all the world can see what a dope you are. That’s embarrassing. Besides, your pay as a money manager is probably going to be tied to how well your portfolio performed over the course of the year either relative to the market as a whole or the portfolios managed by a group of your peers. No professional wants to be the last numbskull to sell out of a money-losing stock.

You, on the other hand, can be a numbskull and only your spouse will know. (This might be the time to point out that “ . . . or for poorer” clause in your marital vows.) That gives you time to think. Time to consider whether an investment was a mistake or a wise move that simply needs more time to pan out.

In reality, few people make brilliant choices in the heat of the moment. The smartest thing to do when faced with a “catastrophe”—or a “hot stock”—is to take a deep breath and think for a moment.

What should you be thinking about? That’s precisely what the rest of this book is all about. It will help you determine how different types of investments react in different markets—and how to choose specific investments in good times and bad. It will even explain when you ought to invest on your own and when you ought to consider hiring a professional to help. With that knowledge, you can weather any investment storm.

Better yet, you can do it calmly, rationally, and with an eye to what matters in life, which, incidentally, is not the size of your portfolio.

So, read. Learn. Enjoy. And then do me one favor: Vow to spend more time with your family and friends than you spend with your portfolio. I guarantee you, it’s not going to matter if you have $10 million when you die, if you have no one you care about to leave it to.

QUICK TAKE

What You’ll LEARN

Everybody has little hang-ups that keep them from handling their money as wisely as they might like. In this chapter, you’ll find problems that are common among investors:

• Saving too little—or not at all

• Getting greedy

• Being tax-wise and bottom-line foolish

• Emotional spending

• Matriarchal martyrdom

• Financial overdependence

• Running scared

• Competing with strangers

• Tinkering away your profit

• Forgetting what the money is for

What You’ll DO

• Identify the personal problems that might be holding you back

• Identify potential solutions to help you get past financial roadblocks and begin investing wisely

How You’ll USE This

By facing your money fears and foibles, you can separate fiction from reality. That allows you to put money in its proper perspective. Money is a tool to make your life calmer and more comfortable. This chapter gives you directions on how to use it without hurting yourself.

1

FIXING MONEY PROBLEMS

When I started writing about finance, the world according to Wall Street was promoting something called the “efficient markets theory.” In a nutshell, this theory contends that the day-to-day price movements of stocks and bonds are ultimately rational—based on investors making informed and savvy choices about what to do with their cash at any given moment of the day. The idea was that we all went into the investment markets with a fist full of cash and all the accurate information we’d need. Then, our conversations would go something like this: “Hmm, that stock is a bargain at this price: Buy! Those bonds aren’t yielding enough: Sell and redeploy our capital!” As the market moved to reflect the increasing demand on the savviest investments and the dearth of buyers for the less attractive investments, the prices would shift accordingly and investors would make new choices. Supply and demand are always in sync and investors are always rational.