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FC: See why Chellie Campbell, author of The Wealthy Spirit, and Sharon Lecther, co-author of Think and Grow Rich – Three Feet From Gold and a member of the first President’s Advisory Council on Financial Literacy gave their seal of approval. | "Hey there. I invite you to read an excerpt of Moneylicious: A Financial Clue for Generation Y ."
1: Chapter 1 It’s My Prerogative! Deciding how you’ll spend your money Now I am not paying homage to Bobby Brown, but I can’t help thinking how most Americans have such freedom to do what they want to do. I know “I don’t need permission” to “make my own decisions.” I made the decision to start now on a path of financial success and to make sure I manage my money appropriately. I believe it is my exclusive right living in America to know what’s going on with my hard-earned dollars Unfortunately, many of us don’t know where our paycheck goes. Okay, okay, I know a good portion goes to taxes. What I’m referring to is our net pay after taxes are deducted. Buying Starbucks chai tea latte (my favorite drink), or buying items we don’t really need but just want because they look good is not the best form of money management.
2: I’m not here to tell you what to do with your money, but to advise you to consider the DECISIONS you make about your money. Ultimately, those decisions will affect your financial security. Splurging from time to time is not a bad thing. Just don’t go overboard. You want to indulge. If you want to buy a two hundred dollar pair of jeans, go right ahead. That’s your prerogative. Then walk away from the other sales racks slowly, with your hands up and empty. I don’t care if something’s 50 percent off—walk away. There’s nothing wrong with pampering yourself, but only when it makes sense. If you want to indulge yourself with a facial and body massage, go right ahead. But, don’t put yourself in a deficit by purchasing unnecessary items, such as the newest technology gadget that same month. My best friend and I splurge on special occasions. For her birthday we enjoyed a delicious shopping spree searching for the right “going-out” outfit.
3: We, definitely, enjoyed the night. However, I made a decision that her birthday night would be the only time I would splurge. It made financial sense for me. Splurge on items that will bring value. I splurged an extra one hundred forty-one dollars on an evening class at a university. The knowledge I gained from that one class will last a lifetime. Splurge on experiences. Take a trip to the Bahamas or visit Rome, Italy to broaden your cultural awareness. You pick your destination. Even in a tight economy it still makes sense to splurge. How do you know when it does make sense to splurge? The answer: to each his or her own. We all want to achieve a quality of life that is based on our own values. When you have your financial situation in order, you will know when it makes sense to splurge—and you won’t feel guilty the next day. ......................................................................................
4: Chapter 4 To Be or Not To Be Investing? Stocks, Bonds, Mutual Funds Hamlet’s soliloquy “To be or not to be” can be a little difficult to understand without the proper breakdown. Still, his speech is one of the most famous speeches spoken in the English language. He poses the question of living or dying. I decided to use it as a metaphor to investing. Investing, too, can be a little difficult to understand. So I reconfigured Hamlet’s speech to include investing: To be or not to be investing: that is the question: Whether ‘tis pose the reaction of noble middle- class investors towards the slings and arrows of outrageous fortune, or to take arms against a sea of troubles. My version concerns how we react to investing. The stock market may seem like the abyss of the unknown, but ‘tis not.
5: What we don’t understand, we fear. The market can have three consecutive days of losses, leaving everyone from small investors to those crazed day traders on the floor of the New York Stock Exchange hanging their heads. On the fourth day, it can close sharply higher, negating the losses of the last three days...and the sour moods. A bear market is not the doom-and-gloom scenario the media depicts—something that, as I alluded to before, strikes fear in the hearts of people and hurts the nation's financial picture. Perception is everything. Here's the perception of a bear market that rings true to an experienced investor: it is like hitting a huge sale at Macy's. It is a great time to buy, but not to sell what you have. However, on the same note, you may need to reallocate your money, depending on your stage of your life. Why? Because experts agree, it is unwise to sell off your investments in a state of emotional panic. You will miss out on some of the biggest “up” trends, where you can make money.
6: Being invested all the time with a long-term view is the only way you can be sure you will capture the profits. A smart investor realizes that “beating the market" is a sure way to lose. There is no way to predict when the good returns will occur. ........................................................................................... Creature 1: Stocks Stock is a fancy word signifying an ownership position in a company. Example: Do you shop at Walmart? I bet you do, and I bet you are stay at the store longer than you need to be. You might as well own it, right? It is a practical retail store. The vast majority of Americans have shopped at a Walmart. So why don’t you just own it? How? Glad you asked! You purchase Walmart stock. (Okay, so you won’t own all of Walmart, but you will own some of it! Some is better than none.) By purchasing Walmart stock, you will own exactly as much of the company your stake entitles you to... your share.
7: Do you want small, medium, or large with that order? Typically, companies are divided by: small-cap, mid-cap, and large-cap. These terms represent the companies’ total market capitalization. For the mathematicians and finance lovers out there, market capitalization equals stock price times the number of shares outstanding for a company. Why is the size of a company important? It determines the company’s value. If Company ABC has 5 million shares outstanding and its stock price is $10, then the market capitalization will be $50 million. If you happen to have $50 million lying around, you could buy the company! Here is a general rule of thumb in assessing the size: Large-cap companies have a market capitalization of $5 billion or greater. They include many companies listed on the Dow Jones Industrial Average (comprised of thirty of the largest companies in the USA; see Appendix A), such as General Electric, Walmart, Microsoft, and Coca-Cola. Some are also known as blue-chip stocks (which get their name from the poker table, where the blue chip is the most valuable).
8: These companies have diverse product lines. They have less fluctuation in stock price and less volatility. I am not saying these are guaranteed safe stocks, but they tend to have steady long-term returns. It means you will see the returns in the long run. Mid-cap companies are valued anywhere from $1 billion to $5 billion. These are companies with more growth potential than large-cap companies and are less risky than small-cap companies. Examples are Priceline.com and Marvel Entertainment. Small-cap companies are valued under $1 billion. Finally, there’s the “baby” of them all, the micro-cap company. These companies are valued at $300 million or under. The above two types of companies are risky, because of their exposure to risk. If the economy goes sour, the value of these stocks will decline faster and they are more likely to fail. On the other hand, they typically have great the potential to grow, which translates into high potential earnings and potential millionaires.
9: These companies are sensitive to any news affecting their industry, which can cause small-cap and micro-cap companies’ stock prices to explode if favorable. If a small-cap pharmaceutical company discovers a vaccine for AIDS, its stock price will shoot up. Are stocks stylish? Stocks may not be dressed in Robert Cavalli with Jimmy Choo shoes accessorized with one-carat princess cut diamond earrings, but they do have style! Depending on your risk tolerance and investment objective, you will need to assess your investment portfolio; risk has a direct relationship to your age. Remember, you are in it for the long haul. Knowing the different styles of stocks can guide you to a better understanding and help you choose the stocks that match your risk tolerance and investment objectives.
10: Styles of Stocks Value Stocks. Many value stocks are considered blue-chip and large-cap stocks. Many of them are household names. Value stocks are less risky than growth stocks. They have a higher dividend yield and low price-to-earnings ratio (P/E ratio). They also have less fluctuation in price. Let me illustrate; General Electric is a large value stock. Why is it considered a value stock? An old, established company, it experiences fluctuation; that is maybe the earnings fell a little flat or maybe its commercial finance side has slowed down. Perhaps GE messed up somewhere.
11: A value investor might decide that GE is worth more, because its underlying business is still sound. Its true worth is not reflected in the stock price. Growth Stocks. They are the opposite of value. Simple enough? No? Okay. Think of technology companies like Cisco. Also, mid-cap companies are usually growth stocks. They have the potential to grow their earnings. Typically, these companies are in their growth stage. Usually they don’t pay dividends; they use the money to reinvest in the company’s expansion; hence, growth. They have a higher P/E ratio and are more volatile than value stocks.