A small item in the newspaper said a local group was going to have a meeting on “how to become a more informed investor.” I jotted it down on my calendar because I figured it might be worth checking out for my column.
And then I remembered, I was the speaker at the meeting.
For years I’ve been attending meetings of the American Association of Individual Investors, a 20-year-old, not-for-profit investor education group with 170,000 members and chapters nationwide. I’ve covered dozens of talks by money managers and experts in investing, insurance, tax and estate planning and other areas of personal finance.
And now I found myself behind the microphone instead of in the audience taking notes. I was staring at eager eyes from 75 people, the third largest crowd the local Florida Gold Coast AAII chapter has ever had. The only two who drew more: Don Phillips, president of the mutual fund research firm Morningstar; and Harold Evensky, chapter president at the time and a well-known and highly quotable certified financial planner and investment adviser.
I had no illusions as to why the big crowd, though. Half the people were new, there only because they saw the notice in the newspaper. But they were more than curious–as non-members of the AAII they had been willing to part with $20 for the privilege of attending the meeting and hearing me speak.
Frankly, after seven years of writing this column I am still amazed how much people want–and often need–to be told what they already know. That the way to become a more informed investor, or succeed at anything, is to set clear goals, come up with a plan to achieve those goals and have the discipline to follow the plan.
But heck, I was now an “expert” in the eyes of these people, entitled to give out my opinions with authority.
And now, so as not to lose the habit of covering AAII meetings, I’ll tell you what I said.
If you are an absolute beginner or know very little about investing, start slowly. A good place to start is a money market mutual fund.
The price of your investment won’t be going up or down, and as a fund shareholder you’ll receive investment education literature for free.
I strongly recommend two fund companies–Vanguard (800-662-7447) and T. Rowe Price (800-225-5132)–just because of what you can learn from them. It’s worth it to become a shareholder to receive their newsletters. Many of their funds are also among the best and most conservatively managed in the business.
Once you’ve gotten your feet wet, start investing in other than money market funds. The price is going to go up and down but over the years you stand to make a bigger investment return.
Again, start slowly. Georgina and I started 15 years ago with a balanced fund that was 60 percent invested in stocks and 40 percent in bonds.
The share price of balanced funds doesn’t bounce around as much as that of funds that invest only in stocks.
Invest systematically by having the same amount of money taken out of your paycheck or bank account and moved automatically into the fund.
Some academics scoff at this technique, which is called “dollar-cost averaging.” They argue that over long periods of time stock prices tend to go up, so why not invest everything at once?
That may make sense to the academics, but it didn’t to Georgina and me when we were starting out.
For one, the academics totally ignore the emotional impact of experiencing, for the first time, the ups and downs of the market and seeing the value of your investment decline.’
Besides, not a lot of people have that much money to invest all at once. And third, dollar-cost averaging develops an “investment habit” that can last a lifetime.
Once you go beyond the basics, you may want to give an investment newsletter a try. Many offer free samples.
But don’t get one just to blindly follow its recommendations. Instead, use the newsletters to learn.
For its depth of analysis and commentary, No-Load Fund Analyst of Orinda, Calif. (510-254-8999) is in a class by itself. One problem may be price: $225 a year for 12 issues, or $18.75 for a trial issue or $55 for three months. Another is that this newsletter may be too “advanced” for beginning investors.
To get a feel for this newsletter without having to pay the $18.75, ask for a prospectus and shareholder report for the Masters’ Select Funds, which are sent free to anyone who calls 800-960-0188. Ken Gregory, president of the funds’ investment advisory firm, is the publisher of No-Load Fund Analyst.
Gregory’s firm has hired some of the most successful fund managers to each handle part of the funds’ portfolio. But regardless of whether you invest in these funds, what Gregory and the fund managers have to say will teach you much about investing, including how to diversify among investment styles.
But I’ve left one of the best sources for last–the AAII, of course. For $49 a year you get 10 issues of the AAII Journal, a commercial-free magazine devoted to all aspects of investing, an annual guide to low-load mutual funds and a tax guide near the end of the year. For information on the AAII, call 312-280-0170 or write to the association at 625 N. Michigan Ave., Chicago, Ill. 60611-3110.
