Investment Strategies 101

Investment tips for beginners

By Bondi Wood • Photo by Jennifer Kettler • Illustrations by Cody Moore

Bondi Wood

I’m not a numbers person. In fact, I scored so low on the math portion of my graduate school entrance exam, I was nearly denied admittance for fear I wouldn’t be able to find the classrooms. I didn’t balance my checkbook for two decades. Until the last few years, if a stockbroker began explaining financial issues to me, I’d feign comprehension by smiling and nodding incessantly, my eyes fixed and unresponsive (think plastic bobble head doll).

I not only lacked aptitude in understanding the stock market, I also lacked interest. Yet here I am today, writing an article offering advice on investing. What on earth could have made such a dramatic change in someone so unwilling to embrace anything financial?

Three things happened within a few months of each other during the mid-1990s. I set up a self-directed IRA account; I got Internet access at home, and I joined an investment club. These three events provided the motivation to learn about the stock market, an unending e-access to the information I needed to learn and an inept but sympathetic group of fellow investors willing to share my journey. It’s been a long learning curve for me. But I swear to you, if I can do it, you can do it.

I’m not an expert and have no professional training. This is just my story. When asked for advice, I try to avoid absolutes like “never” or “always”. So just consider the following suggestions as some things you may want to consider before investing.

Surround yourself with professionals that mesh with you and your family. No one knows your family dynamics, your spending habits and your future dreams like you do. There are numerous competent stock brokers, accountants and tax attorneys out there, and I’m not saying don’t use them, but just know that you are the expert on your family’s finances. Trust your expertise when making decisions. There is no blanket investing strategy that fits all households. I use the services of a stock broker for some accounts and I manage others myself. I have an excellent accountant since I’m still not all that good with numbers.
Don’t invest in the stock market if you currently have credit card debt. I have friends who buy clothes on sale, yet charge it to a credit card they don’t pay off monthly. Who would pay interest on a $20 blouse? Find a credit card that rewards you for using it. Many cards will reward you with a cash-back percentage. Run as many monthly expenses as you can through the card—your cable, long-distance, groceries, fuel, dry cleaning, etc. Then, be sure you pay it off each month.

Do not borrow money to invest in the stock market. Find a reasonable way to save some money to invest. Forgo expensive habits for a few months; you’ll be surprised how quickly you can scrape together some money that will actually work for you. Most online brokerage firms require $1,000 to open an account. There are several online brokerage firms out there like E*TRADE, TD Ameritrade or Scottrade. I investigated them all and settled on a company headquartered in the Midwest that had actual humans answering the phones.
Don’t buy whole life insurance; buy term insurance. If you’ve met with “financial planners” who only want to sell you whole life insurance policies, they are probably really insurance salespeople. An advantage of term life insurance is that you can adjust it to meet your needs. For example, due to an unfortunate lapse in family planning, I’ve had at least one kid in college since 2001, and for the past four years, I’ve had two kids in college. About the same time the kids started college, we built a new house. I increased our term life insurance significantly to cover these short-term additional expenses. Once the kids graduate and the mortgage is paid down, I’ll decrease the coverage again.

Invest money in the stock market for your kids. Kids possess the most powerful earning component—TIME. We only have history to rely on when predicting the future of the stock market. Even in this crazy, volatile economy, history tells us the market will recover. At the time of this writing, all my portfolios are down a good 20 to 25 percent or so. However, the stocks that I’ve owned the longest are still showing a profit. It’s not that I was particularly savvy in my purchases; the original cost of the stocks was so low way back when I bought them, even when compared to today’s dismal prices, they show a profit.

One of the best ways to get started investing for your kids is to enroll in a Dividend Reinvestment Program. DRIPs are awesome. They are particularly good accounts to set up for your children. You go directly to the company and purchase a minimum number of shares (it’s usually just one or two). They hold the shares for you, send you the necessary tax paperwork, and in most cases, you pay no fee or a small fee (which is tax deductible). Typically, each quarter, the company pays each share holder a dividend. In a DRIP account, that dividend automatically purchases more shares or fractions of shares—at no fee. Over the years, the value of each share will grow, as does the number of shares.

Go to the corporate Web sites of companies you think your kids would enjoy owning; for example, Campbell Soup, Kellogg’s, Disney or McDonald’s. Find out if the companies offer a DRIP program. Be sure to check into fees. You want no fees or minimal fees. Find out the current share price and the minimum share purchase required to set up the DRIP. I wish someone had told me when I was 23 years old that if I socked away $2,000 a year for five years and never touched it again, that I’d have around $600,000 at retirement.
Consider starting an investment club. I know they are no longer in vogue, but I’ve been a member of one for 13 years, and it has been an invaluable learning experience. Best of all, you share the risks and the rewards with your fellow club members. While my group was made up of all women, other groups are co-ed. Visit www.iclub.com or www.betterinvesting.org for tips on starting an investment club.

Find an analyst—or two—you trust, someone who connects with you and your investment strategies and read their expert advice. I subscribe to three different e-newsletters, so I can compare information among the three, and I also conduct a lot of independent research. I average an hour or two a week reading material on the companies I own and the companies I would like to own.

Look beyond the financial pages for insight into investments. For example, I’m pretty sure that the United States is going to decrease its dependence on foreign oil. Like me, you probably heard that statement repeatedly during the recent presidential campaign. A smart investor would be researching alternative energy options, the companies best poised to succeed in this new energy era and the new administration’s policies toward alternative fuel sources.

If you watch much professional golf on television, you’d see that every other ad is some financial firm or brokerage house. You don’t see those same ads on the Lifetime Network or on The Oprah Winfrey Show. There is a reason for that. Women are not considered a target audience for the advertising dollars of the big boys on Wall Street. It’s much easier for all of us to let our employers’ 401Ks pave the financial path to our futures. While it may be easier, I’m not convinced it’s more profitable. My portfolios have taken some big hits in the last several weeks, and I’m still optimistic and totally committed to investing in the stock market. If you’ve been waiting on the sidelines, lucky you. There are some real bargains out there right now. Just be sure you do your research and talk to your tax professional before investing.

Disclosure: Bondi Wood does not own shares of any of the companies mentioned in the article.