Feb. 27, 2023

Investing 101 - Getting started for beginners

Investing basics online reading:
Online resources for beginners
www.nerdwallet.com How to Invest in Stocks
www.investopedia.com How to Invest in Stocks: A Beginner’s Guide
www.fidelity.com How to Start Investing
 www.bankrate.com Stock market basics: 9 tips for beginners​
www.wife.org Investing and Saving
 
Investing basics books:
“The Women’s Simple Guide to Investing” by Elinor Davison
Motley Fool’s Investment Guide by Tom and David Gardner
“Smart Women Smart Money Smart Life” by Julia Anderson
“One Up on Wall Street,” by Peter Lynch
“A Random Walk Down Wall Street,” by Burton Malkiel
 
BY JULIA ANDERSON
It is one thing to save but another to invest.
Investing, however, is the only way you will accumulate enough “wealth” to have a comfortable retirement. With markets down (spring 2023) because of rising interest rates, now is the time to become an investor.
 
Let’s take baby steps with the basics:
 
What is a company?
A company is a business organization that makes money by selling goods or services. Companies can be public or private.
 
What is a stock?
Also known as equities or shares. If you buy a stock or a share you are buying a piece of a company. The company issues shares or stock to raise money. Shares go up and down in value depending on how the company’s business is performing. Prices go up if people want to buy more shares and down if more people want to sell the stock. It’s about supply and demand and business performance.
 
What is the stock market?
The stock market is a basket of stocks offered for trade in a public marketplace. Companies raise money on the stock market by selling ownership stakes to investors. These equity stakes are known as shares of stock. By listing shares for sale on stock exchanges, companies get access to the capital they need to operate and expand their businesses without having to take on debt. In the U.S. there are accounting rules for how companies operate and report earnings and distribute income.
 
What is a dividend?
A dividend is a reward paid to shareholders for their investment in a company's stock. A dividend usually originates from the company's net profits and is usually paid to shareholders every three months or quarters. A dividend is paid per share of stock, approved by a company board of directors.
 
What is compound investing?
Compounding is a powerful investing concept. It means earning returns on both your original investment and on payouts that are reinvested in more shares of the company or mutual fund.
You continue to receive returns (dividends) if you own the stock. For compounding to work, you must reinvest your returns back into more stock allowing your investment to grow.
Time is on the side of long-term investors. 
 
Example: You start investing in U.S markets at $100 a month while in your 20s. Your average positive return is 12 percent annually, compounded for 40 years. You end up with a $1.17 million nest egg.
 
A friend, however, doesn’t begin investing until 30 years later at a rate of $1,000 a month for 10 years, averaging the same positive return. The friend will have just $230,000 in savings for retirement at 65. It is essential to get STARTED EARLY.
 
What does history tell us about American stock markets?
History shows us that stock markets are cyclical with repeated patterns of highs and lows. American stock markets have been around since the late 1700s and early 1800s. From 1871 until 2022, U.S. stocks have increased at 4.6 percent a year in value EXCLUDING dividends. If you add in dividend reinvestment, markets have grown annually about 9.1 percent a year.
 
What is inflation?
Inflation is the rate of increase in prices of a basketful of consumer goods over time. Inflation eats into savings and incomes by decreasing the purchasing power of money. To cool off inflation (rising prices), the Federal Reserve Bank raises lending interest rates to slow the economy. Ideally inflation runs at about 2 percent a year.
 
What is a mutual fund?
Mutual funds let you pool money with other investors to mutually buy stocks, bonds, and other investments. They are run by professional money managers who decide which securities (stocks, bonds etc.) to buy and when to sell them. Those are actively traded funds and usually have a higher management fee.
Other “index” mutual funds are passive funds that just follow a group of stocks up and down based on the performance of those stocks or bonds etc. Fees are lower because management is minimal.
 
What is a bond?
A bond is simply when you buy part of a debt. A bond is a loan made to a company or a government that can be traded on the stock market. Examples are bonds issued by school districts to build a new school building or a bond issued by a city or port district to build a road or a new warehouse.  Investing in bonds is a more conservative way to invest your money:
     You usually invest your money for a limited amount of time.
     When the loan (bond) expires you receive back the initial amount you invested. Plus, you receive            interest income on the investment.
WARNING: When interest rates are going up as they did in 2022, the value of a bond fund typically goes down. That is because no one wants to buy a bond paying a lower interest rate when they can buy a new bond with a higher interest rate.  
 
The difference between stock shares and bonds? Bonds raise money via debt, stock shares raise money by giving investors a stake in the company’s business operation. Investors are rewarded with dividends.
Bonds pay interest. Bonds are offered with a time window, typically six months, nine months, a year, two years. You know when they will “come due.” Shares pay dividends that continue until you sell the shares or the company board of directors changes the dividend payout.
 
What is an EXPENSE RATIO?
An expense ratio measures how much of a fund’s assets are used for administrative and other operating costs. An expense ratio is calculated as a percent of your fund assets. Operating expenses reduce the fund’s assets, thereby reducing the return to investors over time. It can be a big factor in how much you can save and invest for retirement over time.
Examples:
Fidelity’s Contrafund is actively managed and has an expense ratio of 0.86 percent. That means for every $10,000 invested in the fund, Fidelity charges $86 dollars a year.
 
Vanguard has a passively managed fund that replicates the S&P 500. No one is managing this fund which just goes up and down with the shares in the S&P 500. The expense ratio on this fund is 0.03 percent, which means Vanguard charges just $3 per year.
 
Ideally, investors are looking for funds that charge 1 percent or less per year.
 
Is NOW (spring 2023) a good time to invest?
Yes, especially if you are young. Start now, stick with a plan. Ignore short-term market gyrations. Put as much as you can into deferred tax plans such as a 401(k), Individual Retirement Account or a Roth Individual Retirement Account – LET THE EARNINGS REINVEST OVER TIME TO BUILD A NEST EGG.
 
But let’s be REAL. With rising interest rates because of inflation, we may be in for slower U.S. and global economic growth, ups and downs in stock markets and more complicated challenges for investors. Ignore all this.
 
Why do we need to invest, not just save?
It is one thing to SAVE MONEY and another thing to INVEST MONEY. You can save money out of your paycheck, put it in a savings account at the bank for a rainy day. Investing requires more than that.
 
To have enough money to retire comfortably you will need to be not just a SAVER, but an INVESTOR. That means putting your long-term savings in U.S. stocks and bonds and bank certificates that will generate income over time. The earnings from those investments must be reinvested in a tax-deferred account…. usually through a workplace savings plan like a 401k or on your own with an Individual Retirement Account or Roth Individual Retirement Account.
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Over 25 or 30 years the compound reinvested earnings will build a retirement NEST EGG.  The sooner you get started investing and reinvesting those earnings, the better. Don’t wait until your 30s or 40s. That makes it so much harder to get where you need to be financially.
 
In recent Smart Money YouTube episodes, we have covered the basics. Click here.
 
All information provided at SMART MONEY and Sixtyandsingle.com is for informational purposes only. We make no representations as to the accuracy, completeness, suitability, or validity of any information here and will not be liable for any errors or omissions in this information or any damages arising from its display or use.

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Looking for a used car in 2023?
Here's what you need to know 

2/7/2023
​BY JULIA ANDERSON
Smart Money co-host Pat Boyle and I had a great conversation this week with Vince Powell of Powell Motors Inc., a second-generation car dealer in Portland, Ore. Vince brought us up to date on the 2023 new and used car market.  Here’s what we learned:
 
New car production in the U.S. is mostly over the supply chain difficulties of 2022 when carmakers could not build cars because of shortages of  computer chips and other components. With those roadblocks disappearing, manufacturers are again making cars and trucks and getting them to dealer lots. As more supply of new vehicles comes online, prices should drop, but not much. Ford Motor Co. this week forecast that prices will be down 5 percent from last year. According to Kelley Blue Book, the average new car price in 2023 is $48,094. That's UP from $37,876 in 2021. 
 
Vince Powell explained that with more new cars and trucks to buy, buyer demand for used vehicles has softened. That’s good news for buyers who saw used car prices jump 45 percent in the two years from 2020 to late 2022. Now used car inventory is growing and prices were down nearly 9 percent in late 2022 from a year earlier. Cars.com predicts a 10 percent to 20 percent drop in used-car prices from 2022. 

Unfortunately, this also means that trade-in values may drop. They were down nearly 11 percent in December. But trade-in values are still up from two years ago: $5,626 in 2020, now $9,316 in early 2023.  Indicator: It is now taking 46 days for the average used car to sell, vs. 30 days a year ago.
 
Powell said that buyers a few years ago could find a “good” used car in the $6,000 to $10,000 range. Now, buyers looking for a good used car are paying more in the $10,000-plus range. These are the cars with relatively low-mileage and good maintenance that everyone wants including auto dealers who want to re-sell them.
 
When shopping for a used car here are questions to ask the seller:
Why are you selling this car? Beware, if the seller can’t give you a clear answer.
Can I get a mechanic’s inspection? If no, walk away.
Does the seller have a free and clear car title? Ask about accident and repair history.
Use CARFAX.com to check out used car ownership and maintenance history.
Do you see rust? Rust means poor maintenance, possible problems.
How do the tires look? Uneven wear means the car may have alignment problems.
 
Smart Money YouTube interview with Vince Powell, CEO of Powell Motor Co.
Click here.
 
Looking ahead:
Vince expects the car market to continue to stabilize after three years of disruption because of Covid effects and supply chain issues. Higher interest rates may slow car sales somewhat, but buyers should get a break on prices.
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Secure Act 2.0: Good for younger workers, baby boomers

January 6, 2023
​SECURE ACT 2.0 key takeaways:
- Workers will be able to add an emergency savings account to their 401(k) accounts. 2024
- Employers launching new 401(k) and 403(b) plans will be required to automatically enroll eligible workers 2025
- Employers will be able to match student loan payments inside a retirement account 2024
- The age to start taking RMDs increases from 73 in 2023 and to 75 in 2033.
- The penalty for failing to take an RMD will decrease to 25 percent of the RMD amount.
- Starting in 2024, RMDs will no longer be required from Roth accounts in employer retirement plans.
- Catch-up contributions will increase in 2025 for 401(k), 403(b), governmental plans, and IRA account holders.
 
BY JULIA ANDERSON
Part of the giant $1.7 trillion spending bill passed by Congress just before Christmas 2022 is a set of rule changes that will make it easier to Americans to save for retirement and manage their nest eggs in retirement.
 
The rule changes build on earlier legislation from 2019 called the Secure Act, which was meant to incentivize Americans to stash money inside tax-deferred accounts such as 401(k) retirement savings accounts. The additional rule changes are being called Secure Act 2.0.
 
While the changes are mostly good news, there is still a problem. According to the U.S. Census Bureau, only 41 to 51 percent of American workers are participating in an employer-based 401(k) account or other tax-deferred retirement account.
That’s particularly alarming when 68 percent of employed Americans are covered and could be participating. Vanguard analysis shows that the average balance in a 401(k) is a meager $129,157. Congress knows that more needs to be done to get Americans saving for retirement. The Secure Act(s) help but do not solve the problem.
 
Rule changes include: 
For younger workers:
Starting in 2024, employers will be able to “match” employee student loan payments with matching payments to a retirement account. This provides an incentive to save for the long-term while paying off educational loans.
 
Starting in 2024, defined contribution retirement plans (such as a 401(k) will be permitted to add an emergency savings account to employer-sponsored plans. Contributions would be limited to $2,500 a year and could be eligible for an employer match. Such plans would help people save for emergencies, make tax- and penalty-free withdrawals rather than using expensive credit card debt to cover unexpected emergencies.
 
Employers launching new 401(k) and 403(b) plans will be required to automatically enroll eligible workers starting with a contribution rate of 3 percent a year with increasing going forward. Workers must opt out of the plan, rather than opting in.  Employees who change jobs will more easily be able to roll a retirement account into a new account when they change jobs rather than cashing out a plan. This “portability” will help lower income people preserve long-term savings.
 
The rules also change for employer matching for after-tax Roth accounts. Tax experts admit this option may take time to sort out and set up through payroll systems. Previously, matching only went into pre-tax accounts.
 
For older workers and retirees
Other changes in the Secure Act 2.0 are intended to help older workers save more for retirement and better manage their money in retirement.
 
Starting this month (January 2023), owners of retirement accounts will not be required to start taking RMDs (Required Minimum Distributions) from those accounts until age 73. That’s up from age 72 in prior legislation. By 2033, the RMD age increases to 75. D (In case you wondered, this change primarily benefits the wealthy who do not need to live on RMDs but would rather hold on to and grow their money tax-deferred.) 
 
Penalties for failing to take an RMD in the year required will drop from 50 percent of the amount not taken to 25 percent. There also are rule changes related to annuity payments that I am not going to get into and which mostly benefit the giant financial investment industry, not individuals.
 
Starting Jan. 1, 2025, individuals ages 60 through 63 will be able to make catch-up contributions up to $10,000 per year in an employer-based plan. The catch-up amount for those 50 and older is already $7,500. Detail: If you earn more than $145,000 a year, catch-up contributions at age 50 or older must go into an after-tax Roth account. Those earning less than $145,000 will be exempt from the Roth requirement.
 
Change in 529 plan rules, charitable giving

Grandparents holding 529 plans: After 15 years, 529 plan assets can be rolled over to a Roth IRA for the beneficiary subject to annual Roth contribution limits and other rules.
 
Changes in charitable giving regulations expand options for using a qualified charitable distribution from a tax-deferred plan such as an IRA. Previously, QCDs could only be granted to a specific qualified charity. (Typically, a taxpayer who can afford to use this option will be working with a tax-expert to thread the needle. I will leave it at that.)
 
While these are positive steps to help more Americans save for retirement, more must be done to create additional long-term saving incentives and to in general improve financial literacy. It doesn’t help that federal regulators let cryptocurrency exchanges get out in front of regulations. The conspiracy theorists are happy to spread mistrust in our regulated (rule of law) capitalist system.

SOCIAL SECURITY WARNING 

Congress also knows that because of the baby boomer population bulge there will be fewer people working people contributing to the Social Security Administration payroll system but more Americans collecting benefits.
 
By about 2037, payroll taxes are forecast to cover about 76 percent of scheduled benefits. In other words, a beneficiary currently collecting $25,000 a year in Social Security benefits will see that pay out reduced to $18,750. That’s unless the age for claiming benefits, currently at 62, is raised and/or payroll taxes are increased to cover the gap between funding and pay-outs.
 
Meanwhile, we can thank Congress for the steps taken with the Secure Act and Secure Act 2.0. More needs to be done.
 
FOR MORE: 
​Forbes -"Secure Act 2.0: Will it help you save for Retrement?" click here
Fidelity: Secure 2.0: Rethinking retirement savings from RMDs to Student debt click here
U.S. Bank: How new legislation could change the way you save for retirement click here

Advice for widows: Before and after the death

Pat Boyle, Julia Anderson, Pam Wolle and Rosemary Reynolds, (L_R) on Smart Money public television in Beaverton, Ore.

​​10/18/2022
​BY JULIA ANDERSON
Right now, three of my friends are living one day at a time through the slow deaths of the husbands. Their spouses are lovely, bright, and lively men with a lifetime of success in marriage and career. Their strong wives are there for them as they face decline.
 
In their 70s, two of these men are grappling with Alzheimer’s disease. The third has Parkinson’s. Their afflictions keep their spouses on a short tether, engaged in doctors’ visits, home care and day-to-day – sometimes minute-to-minute – management.
 
The end is clear. These men will almost certainly die before their wives. In fact, half of all American women over age 65 are single and on their own, emotionally, and financially because they have lost a spouse to death or divorce. This life-changing loss may happen in their 60s as it did for a couple of my friends because of cancer. And even more likely in their 70s.
 
With all this in mind, my Smart Money public television co-host, Pat Boyle, and I each invited a close widowed friend to join us on the show to talk about widowhood. It was a powerful conservation where they shared their experiences and their advice for women newly widowed or those who soon will be widowed. Below is their wisdom. (Click here to view the video on YouTube Smart Money).
 
What to do before the death of your spouse:
 
Update your health insurance coverage for your spouse during the annual open enrollment period that typically starts Nov. 1 through mid-December. In the face of serious illness, a less expensive Medicare Advantage plan will NOT be what you need going forward. Talk to your doctor’s office and to a health care insurance coverage specialist. Ask for advice on the best, most comprehensive coverage in the face of our spouse’s illness. A more expensive monthly payment may save you thousands and thousands of dollars in the longer run.
 
Adjust ownership of all tangible assets – vehicle titles, real estate, deeds, bank accounts and insurance policies. Make sure that the ownership transfer of these assets is seamless and low stress at his death.
 
Know as much as you can about all your finances – investments, Individual Retirement Accounts, savings, real estate holdings and credit card debt. Make sure you know how are they managed and by whom.
 
Review your household income and expenses prior to death. Then do a forecast on income and expenses post death. What changes when you spouse is gone? Look at income and expenses.
Also, look at your net worth – that’s assets minus debt. What might change down the road?
 
Get copies of your legal marriage certificate filed at the county courthouse. Make copies because Social Security and others will want to know that you were legally married.
 
With your spouse, make his funeral arrangements prior to his death so that you don’t overpay or are pressured by funeral directors or family to spend more than you want.
 
Don’t be afraid to ask questions of your spouse or your financial, legal and bank advisers. Widowhood does not mean that you are a victim.

Wisdom for widows, post death
 
Make lists, use "sticky" notes. You may think you are ready for the loss and the grief that will accompany the death of your spouse, but likely it will take months, maybe years to adjust. Lists will help you stay on track and avoid forgetting important to-do's, Grief and the shock of your loss may generate “fuzzy” thinking.
 
Don’t forget to pay your monthly bills.
 
Notify Social Security of the death as soon as possible. You otherwise may have to pay back automatic benefit payments. You will need a legal death certificate.
 
Make several copies of the death certificate.
 
Set up a face-to-face appointment at your nearest Social Security office to consider benefit options as a widow. Bring a legal copy of the death certificate and a copy of your marriage license. To receive widow’s benefits you must have been married 10 years or more.  
 
Make NO big financial decisions for at least one year. Don’t sell your house, don’t change your routine but instead let things settle down, let your mind and soul recover. It will become clear what moves to make after time passes. Don’t jump into a reverse mortgage on your house, for example.
 
Don’t be afraid to constantly ask questions as issues arise. Being a widow does not mean being a victim. If you don’t get the answers you want, keep asking, keep researching.  (When the Smart Money show becomes available on YouTube, I will add a link). - Julia

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