Investing.

It seems that today investing is a complex mish-mash of various acronyms and jargony bits meant to confuse and humiliate the average Joe new to the investing world. As an administrative assistant on the margins of the financial world, it’s especially hard to admit you’re not in on the game. Perked by articles that other people are reading in my office and the professional talk that seems to encircle my desk just above my head, I’ve decided to make myself more of an expert.

Stocks, Bonds, and Mutual Funds: Ok, I think most people have heard of these, but let’s do a little recap just to be sure. Stocks are public companies that you invest in directly, receiving a ‘share’ of the company at such time as you choose to sell it. Each one is an individual investment to one company. They are usually handled by a broker who will charge a fee for purchasing the stocks for you or charge you a percentage of your earnings and income on the stock. Usually they give an end-of-the-year earnings report that gets included in your tax return, even if the money earned is re-invested in the stock. Bonds are basically IOUs between two parties for a fixed time with a fixed interest rate on the loan. CDs are a similar, in that they are more of a loan between two parties, but many of them have the additional security of being insured up to a certain value, similar to a savings account at a bank. That’s why they are typically only offered by banks and other credit-related organizations that are FDIC or equivalent insured. Bonds are not insured, which means they really aren’t that much less risky than stocks. They typically have a lower rate of return thank stocks as well. I beleive thier rate of return is typically more stable, but I’m not sure how true that has been in recent years. Mutual funds are a sort of conglomerate investment – they are made up of various stocks and bonds and other securities. Sometimes a mutual fund will invest in another mutual fund. Sometimes mutual funds are made up of one area of the market – technology, or utilities – on specific regional area – this is where you get international vs. domestic investments – or they can be more broadly based.

Investment/Pension plans : This is all the money that you put away for later that you can’t have now. Some of this is through pension plans offered by an employer, but these types of plans are generally dying out. In their place is the 401(k) or equivalent, which basically requires the employee to invest in their future directly – in exchange for avoiding income tax payments on the money when it’s earned. In addition, most companies will match a certain percentage of the money invested. You do pay taxes on this money eventually, when it is taken out of the 401(k). However, the money is available to you under specific circumstances with specific penalties, and thus is a little more flexible than a pension plan. 401(k)s often also give at least some investment options. The last big bullies are the IRA plans, which are also individual-driven and tax-free (up to a certain amount each year) while invested. They do carry penalties for early withdrawal under some circumstances, but allow for a very wide range of investing options.

New Variations: Ok, here’s where it gets interesting. With the advent of the internet, there are a variety of new ways to manage money. This can be seen in online banking or investing companies such as ING, as well as new services offered online by traditional banks (like bank of America) or money management companies (like Fidelity). In addition, online trading companies have stepped in to fill the instant gratification bug of the younger generation. New types of investments called Exchange-Traded Funds (ETFs) are stepping in to replace traditional brokerage options. Similar to mutual funds, they carry a few additional perks and benefits. They are instantly tradeable, meaning that they can be bought or sold multiple times before the end of the market day. Also, since they are not actively managed, they lack most of the fees and associated costs of more traditional mutual funds. This could also be considered a negative, since they lack the investment experstise of mutual funds. However, most are indexed to follow the market pretty closely, making their returns on par with the average. Most traditional brokers include some sort of web service that handles these fund as well as online stock trades, but there are also quite a few well established businesses only in the online industry. I looked at a few of these bargain companies (Schwab, E Trade, and Zecco) to get an idea of the range.

While E Trade is definitely a convenient way to manage, its fees are definitely the highest. Stock and options trades can range from $6.99-12.99, depending on how much you invest with them and how frequently you make trades. Putting me firmly in the $12.99 range. Still, you get what you pay for. E Trade is definely in the market of educating its investors and giveing help and advice when needed. In addition, there seems to be a wide range of research material in the field that is open to investors. I didn’t get a chance to look at this myself, as I didn’t give them any money.

Schwab, with its wide range of services in a variety of financial areas, does a little better as far as fees are concerned. There are no required balances, and no transaction fees for mutual funds. True, there are some limiting requirements – $1000 initial deposit in the portfolio, $100 invested per fund – but they do offer a similar, if not quite as extensive, network of investment assistance for the investor. Unfortunately they don’t offer much flexibility without fees. if you want to trade directly in stocks, or in ETFs, it’ll cost you. Similar to E Trade, these types of trades cost from $9.95-12.95, depending on your trade frequency and your annual income.

Zecco is the most reasonable, with no investment minimums and no fees. There is a $2000 initial deposit requirement for ‘margin accounts’.  Internet stocks and ETF trades are free.  Options trades cost around $4.50 each, which is pretty reasonable, considering the competition. Still, this service is much more bare-bones. You aren’t getting the same kind of advice or tools to go along with it (unless you’re willing to pay $19.99). It’s more of something for people who really know what they want to do in their investments.

Ultimately, I’m not in a financial position to start investing in anything but my 401(k) and my savings account, but in the not too distant future…who knows?

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Curly-hair products and other womanly things

I am a little hesitant to put up an entry with ‘womanly things’ in the title. Womanly things tend to be those things that are not discussed in polite or ‘mixed’ company. Actually, that whole embarrassment over regularly occurring events such as menstruation or drying your boxers on a line outside your apartment is a little weird. Still, I’m at least grateful to not be in Japan, where laughing is so embarrassing for a girl that she has to hide it. I’d have to use both hands.

Digressions aside, I still think ‘womanly things’ is an accurate way to discuss my topic. Unless you happen to be a straight male with an intense fondness for styling product. If so welcome! But try not to goo on me when I give you a hug.

The wonders of modern consumer tracking often amaze me. There I am, scrabulously minding my own business on facebook, when I happen to notice the ad in the margin. It was an ad for curly-hair products, no doubt aimed at my distinctive fro. As far as how that specific ad linked up to me – did my sisters call me fro-head one too many times on facebook? had I recently visited some website related to anti-frizz product that it tracked onto? – I am still in the dark. But the skill at which internet target marketing is expanding amazes me. Some people take this as invasive, but I’m ready for the day when I’ll only have to shop through the stuff I actually want. Ah consumerism! In the wake of Christmas, how you enliven my little footpads!

I did check out the curly hair place, for those of you who are interested. Not all that great or unique, but their marketing department definitely wins.

Oh Joy!

I am attempting to write something a little more systematic about investing and all its different types and little forms, but unfortunately my boss is making me do actual work instead of writing my blog.  And the whol ‘systematic’ thing means it requires research instead of me just making stuff up.  So it takes longer.

Anyway, avid reader, while-u-wait, here’s the little compilation/article I had to do as part of my real job.  Enjoy!

            With the recent Senate hearing on endowment spending rates for universities in the fall of 2007, most universities are taking a look at their past spending records and evaluating how a governmentally determined spending rate might affect them, and how their current spending policies affect the tuition of their students.  Institutions with large endowments such as Yale and Harvard have already declared spending increases in the wake of public awareness of the issue, though most institutions have spoken against spending regulations.

 

            Harvard was one of the first schools to publicly declare itself opposed to such regulation.  However, a tuition assistance plan targeted to provide increased assistance to middle and upper-middle income families announced late last year was regarded as a positive response to the base issue of affordability.  Following Yale’s announcement of an increase in their spending formula, Harvard also determined to raise spending to 5% from 4.3% last year.  This change does not imply a policy shift, and large returns for the endowment could mean that spending does not reach the 5% mark.

 

Yale announced in early 2008 that it would raise its spending formula to an annual 4.5-6% payout, as well as a 37% increase in spending for this year, including a substantial increase in student aid.  Concerns regarding possible government regulation of spending were not addressed.

 

Despite these policy and numbers shifts from those universities with the largest endowments, response to new regulations remains lukewarm at best.  Stanford raised its spending rate for the new year from 5% to 5.5% in June of 2007, while Princeton 5% to 5.75% in the fall of 2007.  Both of these increases seem to be attempts to more accurately accommodate investment gains in the overall budget rather than a policy shift.  Duke instituted an increase from below to above 5% spending last spring as a result of good endowment performance, but again this was not a policy shift.  UPenn publicly rebuked governmental controls but also announced a new loan-free financial aid program.  Similar to Harvard’s initial response, this move rejected a higher spending rate while at the same time addressing the underlying issue of affordability.  Northwestern was also opposed to regulation, despite their annual spending of 5%, due to adverse affects regulation might have in the future. 

Sedgehammer blog?

Someone in the past 24 hours has used a search engine to find my blog specifically.  I’m famous!  Or else someone was really looking for a sledgehammer blog and couldn’t spelll.  Still, how exciting!  Go me.