Personal Finance for You!

Brought to you by Ms. Joseph, former financial professional with

lots of great advice for teens.

What is a stock?

• When I own a stock, how am I a part owner in the company with a claim (however small it may be) on every asset and every penny in earnings?

• How have stocks in general have been solid investments over time? As the economy has grown, so too have corporate earnings, and thus have stock prices grown.

• Why must I see investing as a long-term endeavor if I want to be successful?

Top tips about investing in stocks• Over the long term, stocks historically have

outperformed all other investments.• Over the short term, stocks can be hazardous to

my financial health.• Risky investments generally pay more than safe

ones—except when they fail.• The biggest single determiner of stock prices is

earnings.• Inflation may be the biggest threat to my long-

term investments. Why?

Top tips about investing in stocks, continued

• U.S. Treasury bonds are close to a sure thing as an investor can get. What are these?

• What is diversified portfolio? Why is it less risky than a portfolio that is concentrated in one or a few investments?

• Index mutual funds (what are these?) often outperform (make more money than) individually purchased funds. More on these later…

Top things to know about stocks

• Stocks aren’t just pieces of paper.• What are some different kinds of stocks (for

ex., small-cap, energy, technology, growth vs. value)?

• Why do stock prices go up, down, or sideways?

• Stocks are your best shot for getting a return over and above the pace of inflation.

Top things to know about stocks, continued

• Individual stocks’ value going up and down are not the same as the entire stock market going up and down.

• A great track record does not guarantee strong performance in the future.

• Can I tell how expensive a stock is by looking only at its price?

• What does a smart portfolio for long-term growth include? strong stocks from different industries.

• Why is buying and holding good stocks smarter than trading them quickly and often?

How can I buy stocks?

• Full-service stock brokers (the most expensive way—charge a commission)

• Discount brokers (less expensive)• On-line brokers (least expensive)

Top things to know about mutual funds

• What exactly is a mutual fund? What is an index fund?

• How do mutual funds make it easy to diversify my investments?

• What are some risks I might need to take to achieve the return on my investments?

• Taxes take a big bite out of performance.

Top things to know about 401 (k) retirement savings

• What is a 401 (k) savings plan?• Contributions come out of your pay before

taxes are withheld.• Many plans include a matching contribution

from your employer.• The money you save allows for tax-deferred

growth—your money can compound more quickly since it is not taxed yearly.

Top things to know about 401 (k) retirement savings, continued

• Figure out what your mix of stocks and bonds should be.

• What is my time horizon?• What is my risk tolerance?• What happens when I change jobs? Leave

it (if allowed), roll it into an IRA (the best choice), or cash out.

How do I invest in a 401(k)?

• How much am I “allowed” to save every year?• How much do I need to save, based on my

age? • What should my mix of stocks, bonds, and

cash—my asset allocation—be?• How much does my employer match?• Are all 401(k) plans the same?