Monthly Archives: June 2013

Terms, Terms, Terms

This blog is going to be very objective in that all that will be going on here is providing the definition of many terms I use in this blog. This can serve as a beginners starting point or a more experienced or knowledgeable investor’s reference. This won’t be the most exciting entry, but I think it’s important to cover there. Thanks goes to Wells Fargo and Investopedia for providing many of these. So without further ado:

  • Bond: A debt instrument, a bond is essentially a loan that you are giving to the government or an institution in exchange for a pre-set interest rate paid regularly for a specified term. The bond pays interest (a coupon payment) while it’s active and expires on a specific date, at which point the total face value of the bond is paid to the investor. If you buy the bond when it is first issued, the face or par value you receive when the bond matures will be the amount of money you paid for it when you made the purchase. In this case, the return you receive from the bond is the coupon, or interest payment. If you purchase or sell a bond between the time it is issued and the time it matures, you may experience losses or gains on the price of the bond itself.

  • Stock: A type of investment that gives you partial ownership of a publicly traded company.

  • Mutual fund: An investment vehicle that allows you to invest your money in a professionally-managed portfolio of assets that, depending on the specific fund, could contain a variety of stocks, bonds, market-related indexes, and other investment opportunities.

  • Allocation of investments: Also known as asset allocation, this term refers to the types of investments/asset categories you own and the percentage of each you have in your investment portfolio.

  • Diversification: This is a risk management technique that mixes a wide variety of investments to potentially minimize your investment risk.

  • Index: A portfolio of securities representing a particular market or industry or a portion of it. Indices often serve as benchmarks for measuring investment performance– for example, the Dow Jones Industrial Average or the S&P 500 Index. Although investors cannot directly purchase an index, they are able to invest in mutual funds and exchange-traded funds that are based on the indexes. These types of vehicles enable investors to invest in securities representing broad market segments and/or the total market.

  • Yield: The income return on an investment. This refers to the interest or dividend received from a security based on the investments cost or face value.

  • vested: A person’s right to the full amount of some type of benefit, most commonly employee benefits such as stock options, profit sharing or retirement benefits. Sometimes an employee can be partially vested. An example of this would be if your company allowed full-vesting after four years of employment with 25% vesting occurring each year. This means that, in regards to a 401(k) match with your employer contributing $1 for every $1 invested, if you quit working for them after two years, you would receive half of the $1 they matched. However if you stay with them for at least four years, you will then be fully vested and are entitled to the full $1 match.

  • 401(k): A qualified plan established by employers to which eligible employees may make salary deferral (salary reduction) contributions on a post-tax and/or pretax basis. Employers offering a 401(k) plan may make matching or non-elective contributions to the plan on behalf of eligible employees and may also add a profit-sharing feature to the plan. Earnings accrue on a tax-deferred basis.
  • Roth IRA: An individual retirement plan that bears many similarities to the traditional IRA, but contributions are not tax deductible and qualified distributions are tax free. Similar to other retirement plan accounts, non-qualified distributions from a Roth IRA may be subject to a penalty upon withdrawal.
  • Traditional IRA: An individual retirement account (IRA) that allows individuals to direct pretax income, up to specific annual limits, toward investments that can grow tax-deferred (no capital gains or dividend income is taxed). Individual taxpayers are allowed to contribute 100% of compensation up to a specified maximum dollar amount to their Traditional IRA. Contributions to the Traditional IRA may be tax-deductible depending on the taxpayer’s income, tax-filing status and other factors.

I tried to get the main ones here. I hope this helps!

Until Next Time,

Andrew

Investing and the Millennial Generation

Hello to all you Generation Y’ers out there interested in investing!

This blog is designed to help those out there within the Y Generation to either get over the proverbial hump and begin investing and/or receive help in modifying your investments to help you make the most of the time that your money is sitting in an investment account rather than in your wallet. After-all, most of us would prefer to not part with this money every paycheck and would rather use it for any and all discretionary spending situations that we could create TODAY. So since we’re making the long-term sacrifice to part with it, we might as well make sure it is being utilized as efficiently as possible to yield us the best long-term performance, right? So let’s figure out if you’re in the right place–if you’ve ever asked yourself any of the following questions, you’re in the right spot to receive help:

  1. “Does my retirement account (401(k), IRA, etc) have the right type of mutual funds driving it to succeed?”
  2. “Which mutual funds are quality ones and which ones flat-out stink?”
  3. “How would I change the diversification of my retirement account if I wanted to? Who would I even contact?”
  4. “Is this stuff worth worrying about? I’d honestly rather turn a blind-eye to it. As long as I’m investing, I’m winning, right?”
  5. “What is a 401(k), Roth IRA, Traditional IRA, Mutual Fund, diversification, portfolio, and how does this or should this pertain to me?”
  6. “I can just wait a few more years to start allotting income toward a retirement account and be just fine, right?”

Again, if you’ve asked yourself these questions or questions similar to these, you’ve landed at the right place for a helpful resource.

One more thing to clarify from the beginning: This blog is deigned to help those within the Millennial Generation. You’re also known as Echo Boomers and as I used above, Generation Y. So why did I choose to focus on those born between roughly 1978-1995? Because I have noticed that there is not one authoritative source on the internet or elsewhere providing help specifically to this age group; and I know this because I’m one of you and no one has offered to help. It’s as if the marketing gurus for all the major investing firms have decided to pounce on us once we reach 45 and have made all of our money already. Well I’m here to help you, you young career person! If you’re not even close to fitting within the bounds of Gen. Y in age, don’t fret. Please read and learn what you can from me, but be aware that much of the advice is age-specific in this blog.

First, a little about myself: My name is Andrew Howerton. I’m 26, married to the woman of my dreams, and we have a 6-month old boy who brings incredible joy to us. I’m from very very small-town USA (a small MO town actually with a pop. less than 400), I live in Ft. Worth, TX now, I love sports (baseball mainly-go Royals!), and I graduated from College of the Ozarks with a degree in business with an economics emphasis. I must say though, my Investing course was my favorite of them all and if an investing degree was offered at the college, I would have been the first to sign-up. My first job was nearly as a financial adviser after being offered the position, but I decided to go a different route since at the time of my graduation the economy had absolutely tanked and the stock market was trying to find some form of a pulse. So with more investing knowledge under my belt and with more Millennials active and excited about the future of investing, the time now seems right to provide advice in this arena.

My boy and me after a recent Royals' win.
My boy and me after a recent Royals’ win.

Oh, and congratulations by-the-way! I say that because you are either currently investing or are considering investing, and that’s not as common as you might think. Of those working full-time and between the ages of 21-64, only 54% are utilizing a retirement account or pension according to the EBRI (Employee Benefit Research Institute). And it’s extremely likely this number is lower among us Echo Boomers than the rest as investing awareness increases with age.

So where’s the specific advice? Stay tuned, in my first post I just wanted to introduce you to myself, who I’m trying to help, and let you know that this blog will help you both become a more knowledgeable investor and reach your investing goals if you follow my advice. After all, does anyone really care more about your money than you?

Until next time,

Andrew