"No man can become rich without himself enriching others"
Andrew Carnegie

Saturday, April 27, 2013

Stocks, Bonds, Mutual Funds: Exposed!

Stock II
Stock II (Photo credit: hawkexpress)
By DailyShot

Los Angeles, Apr.27, top  stocks .- In a special edition of Daily Shot, we tackle personal finance. Did you know that, according to a recent study, only 66 percent of women, compared with 89 percent of men, said they have general investment knowledge regarding stocks, bonds, and mutual funds? So we decided to do our part to even out the knowledge gap. Basic investing is a hard thing to grasp if you, like us, find numbers boring. So we figured that the best way to illustrate the concept was to have three attractive, shirtless men help us explain it.
We also asked Lauren Lyster, co-host of The Daily Ticker on Yahoo! Finance to help us bring you a segment called ‘Stocks & Bods.’
First, a simple explanation of some of the basic components of investing: the aforementioned stocks, bonds, and mutual funds…represented in the video above by three attractive, shirtless bachelors.
Stocks have a long history of outperforming most other investments. But stocks are also sometimes like the bad-boy heartbreakers of the investment world – they can be risky. When you buy stock, you are buying a portion of a large company. If the company makes a lot of money, you get your share. If the company loses money, there’s no guarantee you won’t lose your shirt.
These are the strong, committed, dependable types. If you invest in one, think of him as a promise. A promise that if you loan your money to a company, city, or federal government, you’ll get paid back in full, with interest (that is, if you stay away from the “junk bond” types). Many consider the US Treasury Bond a risk-free investment. What is it exactly? Well, when Uncle Sam wants to pay for stuff he can’t afford with tax receipts – a US Treasury Bond is one way he gets the money to do that. The downside? While your money stays safe, it may not grow that fast. You’re basically in a happy, but otherwise boring marriage.
A Mutual Fund’s got everything the aforementioned guys have, and more. You go with Mutual Funds, and you can get a stake in stocks, bond, cash, and a bunch of other stuff. Are you interested in developing markets AND government bonds? With a Mutual Fund, you could have BOTH. And you don’t have to keep track of all the little details. There’s a guy who does that for you. For a minor fee, of course. The downside is that lately Mr. Mutual Fund has been lagging the market.
Lady Finances.
Now, when choosing between these options, women have to keep a few different things in mind than men do. On average, we live five to ten years longer, we earn 81 percent as much as they do on average, and we’re overwhelmingly the ones taking breaks from the workforce to have kids. According to financial advisors we consulted, these are all things women specifically need to plan for when investing.
A woman’s financial strategy, like anyone else, should be based on her goals- whether it’s retirement or saving for kids’ college funds. She also needs to consider how much she can risk losing, and how long she has to reach her goals.
A tailored strategy.
Women may need different financial strategies for different phases in their lives, so Ali asked for some help choosing one. Lauren is a financial REPORTER, not a financial ADVISOR, but she knew who to ask for some advice and suggestions, Jocelyn Black Hodes, resident financial advisor atDailyWorth.com.
If you’re a stock market virgin, and have never invested before, Hodes suggests a well-balanced and diversified mutual fund with low expenses.
She recommends The Schwab Balanced Fund (SWOBX), which has a minimum investment of only $100, or the Fidelity Balanced Fund (FBALX), which has a minimum investment of $500 if purchased in an IRA ($2,500 if purchased separately).
If you’re close to retirement age, Hodes says stick with a more conservative allocation fund. Today, more than ever (interest rates have been at historic lows), she says even pre-retirees and retirees need exposure to stocks to keep up with inflation. They also need to put a larger portion of their portfolio in fixed income and cash investments to help protect them from market risk.
Hodes recommends the Vanguard Wellesley Income Fund (VWINX) or the T. Rowe Price Personal Strategic Income Fund (PRSIX), which has a lower minimum investment.
If you still have a lot of earning years ahead of you, but have a looming financial goal such as putting kids through college, you may want to spice up the mix. If you want to pay for at least some of the college costs, Hodes says consider opening a 529 savings plan, which allows you to grow money on a tax-deferred basis and withdraw it for higher education expenses such as tuition, room and board, and related supplies, tax-free. She says to try contributing a little bit each month to a target-date mutual fund within a 529. (With a target-date fund, the asset mix resets the according to the time frame that’s appropriate for you, e.g. the time you have until your first kid starts college.)
Check out The Daily Ticker, Hot Stock Minute, and tons more financial news, analysis, and data onYahoo!Finance. You can also visit dailyworth.com, a financial website specifically for women. ...
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