Investing For Your Future: A Resource For Financial Security In Later Life

Barbara O’Neill, Ph.D., CFP, IFYF Project Director

Interim Extension Specialist in Financial Resource Management

Rutgers Cooperative Extension

oneill@aesop.rutgers.edu

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Investing: A Topic of Great Interest Baby boomers approaching retirement More “do it yourself” employer pensions About $7 trillion in mutual funds Almost half of U.S. households own stock

directly or through funds, 401(k)s Increased media attention to investing Empirical research: investing is a topic of

interest to learners

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History of Investing For Your Future Project Committee wanted national implementation regardless of

investment knowledge and comfort level of FCS educators, subject matter responsibilities, agent & specialist vacancies, etc.

Spring 2000- Print version of IFYF home study course available & online course (www.investing.rutgers.edu) introduced

Summer 2000- Monthly e-mail message

Fall 2000- IFYF curriculum available

Fall 2001- IFYF Study Guide & Web site enhancements & research study data analysis

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IFYF Project Development

Funded by three grants from – Rutgers Cooperative Extension

– NE Regional Center For Rural Development

– The Foundation For Financial Planning

Developed by a team from 6 universities and two government agencies

“Deliverable” for Extension Financial Security in Later Life initiative

Over 1,200 registered online users Over 4,500 pre-orders for 2nd edition

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Target Audience For Program

Beginning investors

– “20 and 30-somethings”

– Older persons transitioning from savings

Investors with small dollar amounts to invest at a time

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Home Study Course Components

11 units + glossary Starts with “the basics” Action Steps at the end of each units “Ask the Experts” on online version Optional monthly e-mail message available

to registered online users Two evaluation forms: 2 months and 6

months

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The Second Edition of IFYF

Four additional external reviewers Completely updated for 2001 tax law and

other changes Professionally printed and distributed

through NRAES Two-color print and glossy cover Perfect bound Very reasonable cost (much cheaper than

duplicating and binding masters)

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IFYF Study Guide

110 pages

Master copies available from Dr. O’Neill:– Send $5 for a print copy

– Send a zip disk to get files (no charge)

Written by Dr. Ruth Lytton, Va Tech

Components:– Review Questions

– Applications (e.g., problems and Web sites)

– Answers to Review Questions (separate)

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Web Site Enhancements

Ask the Experts

Calculating What You Need to Save

– Retirement

– College

– Other financial goals

Online Extension publications (links)

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Class Series Components

Printed copy of speaker’s notes

Marketing materials

Initial and follow-up evaluation forms

PowerPoint slide files on a CD-ROM

Completely updated in December 2001

Class series content is exactly the same as the home study course

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Class Session Titles

Basic Concepts and Investing Pre-requisites

Equity Investing

Fixed-Income Investing

Investing in Mutual Funds

Investing Tax-deferred and With Small Dollar Amounts

Getting Help and Avoiding Investment Fraud

Session 1

Basic Concepts and Investing Prerequisites

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Basic Building Blocks of Successful Financial Management

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Key Investing Concepts Difference between saving and investing Risk tolerance Risk versus rate of return Impact of time on money accumulation Asset allocation Personal factors that affect investing

decisions

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Breaking Habits = $$ to Invest 6 Easy Steps

1. Identify habit, frequency, and cost

2. Make decision to change

3. Act immediately

4. Share your plan

5. Stick with your plan to change

6. Celebrate your success

Session 2

Equity Investing

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Common Stock

Share of ownership in a company

Elect directors

Vote on other matters

Two ways to earn money

– value of stock increases

– stock pays dividends

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Real Estate Options

Home Rental property Crop/mineral land Land for development Real Estate Investment Trust (REIT) Real estate limited partnership

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To Make Money With Collectibles Keep items in top condition

Focus on true value of property

Document evidence of value

Insure property

You may have to wait for right buyer

No regular income provided

Session 3

Fixed-Income Investing

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Two Types of Investments:

Ownership

– Investors own all or

part of an asset

– Examples include:• stock• real estate• growth mutual funds• collectibles

Loanership

– Investors loan money

to companies,

government, or

financial institutions

– Examples include:• bonds

• money market funds

• CDs

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Bond Ratings

Ratings predict ability of a bond issuer to

repay debt

Investment grade: top 4 grades

– Baa to Aaa from Moody’s

– BBB to AAA from Standard & Poor’s

Lower ratings: substandard grade (a.k.a.,

“junk”, “high yield”)

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Five Tips for Fixed-Income Investors:

1. Know the risks

2. Beware of guarantees

3. Ladder your portfolio

4. Use zero-coupon bonds to hedge

stock investments

5. Match investments with goals

Session 4

Investing in

Mutual Funds

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What Is Net Asset Value (NAV)?

The NAV is the price your fund pays you per share when you sell.

Value of fundNumber of shares = NAV

Example: $52,500,000 3,500,000 = $15 per share

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Match Your Goal to the Right Fund Categories with a growth objective

Growth

Aggressive growth

Small cap

Specialty (Sector)

International

Global

Index

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Seven Steps to Finding the Right Fund

1) Identify type of fund that matches goal

2) Do more reading

3) Research specific funds

4) Determine selection criteria

5) Get and read the prospectus

6) Make your purchase

7) Establish a schedule to buy more

Session 5

Investing Tax-Deferred and With Small Dollar Amounts

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Class Topics Include:

Tax-Deferred Investing– Tax-free versus tax-

deferred– Employer retirement

savings plans– IRAs– Plans for the self-

employed

Investing With Small Dollar Amounts– Employer plans– IRAs– Fixed-income assets– Equity assets– Mutual Funds– Other investments

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27,6

00

31,3

00

48,3

00

58,6

00 75,8

00 98,8

00

112,

200

157,

900

160,

300

244,

700

$0

$50,000

$100,000

$150,000

$200,000

$250,000

10yrs 15yrs 20yrs 25yrs 30yrs

Taxable Returns (at 28%) Tax-Deferred Returns

German/Forgue, PERSONAL FINANCE, Fifth Edition, Tax-Sheltered Returns are Greater than Taxable Returns (Illustration: 8% Annual Return and $2000 Annual Contribution)

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Here’s What $20 a Week Adds Up To: 5% Return:

– 20 Years: $36,100

– 30 Years: $72,600

– 40 Years: $131,900

10% Return:– 20 Years:

$65,500– 30 Years:

$188,200– 40 Years:

$506,300

Session 6

Getting Help and Avoiding Investment Fraud

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What This Lesson Covers

Investment resources (e.g., investment clubs, Web sites, publications)

Selecting financial professionals Investment fraud and how to avoid it

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Questions for Financial Planners

What services do you offer?

What can I expect from you?

What will it cost and how are you paid?

Who will work with me?

May I see a sample financial plan?

Are you registered with state or federal regulators?

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Types of Fraud:“Pump and Dump” Scams Promoter urges you to

“buy now or lose out”

Price rises sharply

Fraudsters sell at peak

Price drops when the hype stops

Investors lose money

0

5

10

15

20

25

30

Day1

Day2

Day3

Day4

Day5

Stock Price

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Why Pyramid Schemes Collapse Levels Number of Participants

1 6

2 36

3 216

4 1,296

5 7,776

6 46,656

7 279,936

8 1,679,616

9 10,077,696

10 60,466,176

11 362,797,056 - more than U.S. Population

12 2,176,782,336

13 13,060,694,016 - more than double World Population

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IFYF Class Series Evaluation

Post-class evaluation

– Reactions to class

– Usefulness of information

– Demographic info about participants

Follow-up evaluation

– 15 specific financial behaviors- planned & actual change as a result of IFYF

– Increased savings amount

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IFYF Class Marketing Materials

Promotional flyers

Radio script

News release

Certificate of completion

Guidelines for using financial professionals as IFYF volunteers

Speaker agreement form

Logos

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IFYF Class Series is Meant to be Flexible Use individual sessions (e.g., mutual

funds) as stand-alone classes

Use parts of class sessions (e.g., investment fraud in Session 6) as short presentations

Mix and match or delete slides, as desired

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Supplemental Materials Could Include: Net worth worksheet Applicable Web site information (e.g.,

article about decimalization of stock share prices)

Applicable clipping from newspapers (e.g., The WSJ)

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Additional Supplements

Investment books (display) Pages from Morningstar & Value Line Newspaper financial pages Clippings about current investment news

(e.g., change in savings bond rates)

Guest speakers Investment quizzes (financial firms) Hands-on activities (e.g., reading prospectus)

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IFYF Research Results

195 respondents– 127 online (nationwide) of 752 usable surveys sent

– 68 print version (3 states: NJ, FL, AZ) Data collected June-July 2001 Purposes of study

– identify characteristics/behaviors of users

– feedback on course content and format

– determine knowledge gained and behavior changed

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The Sample

Predominantly white & middle aged– 17.7% age 35 to 44

– 29.2% age 45 to 54

– 21.3% age 55 to 64

53.7% had a college degree 69.1% were married; 31.4% with dependents

51.3% had “some” prior investing experience; 28.3% had “a little”

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Course Ratings

45.4% “very valuable”

44.3% “valuable”

Five highest ranked units (in order)– Unit 8 (Investing With Small Dollar Amounts)

– Unit 6 (Investing in Mutual Funds)

– Unit 2 (Investing Basics)

– Unit 4 (Equity Investing)

– Unit 5 (Fixed-Income Investing)

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Other Findings

70.2% of respondents rated course as “basic”; 27.5% as “somewhat advanced”

128 (70%) reported investing money since completing course

Median amount: $1,800 (mode: $1,000) Significant variable relationships

– content level rating and course rating

– being a saver and demographic variables

– amount of savings and demographic variables

– knowledge gained and planned action

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Behavioral Changes

Questions about 15 behavioral changes

Behaviors from IFYF Action Steps

Top 3 actions taken:– using new investor resources (63.4%)

– learning more about investment fraud (56.1%)

– investigating specific investments (48.9%)

Top 3 actions planned:– determining amount needed to achieve goals (37.0%)

– setting specific (date/cost) financial goals (34.5%)

– increasing amount invested monthly (30.9%)

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Implications

IFYF is positively impacting participants

Diversity of audience outreach can be improved

The level of course content is on target

Emphasizing action steps results in action

Need to help learners with planned behavior changes (e.g., goals)

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Any Questions?

IFYF curriculum materials can be ordered through Barbara O’Neill, project team leader.