Investing Basics: Part 2

By Barbara O’Neill, Ph.D., CFP®, Rutgers Cooperative Extension, boneill@njaes.rutgers.edu

In a prior post, five key action steps related to investing were presented: Address the prerequisites, Set SMART investment goals, Understand risk-reward relationships, Understand and accept specific investment risks, and Assess your risk tolerance. This blog post continues the conversation about investing with nine more concepts that investors need to know:

Watering can over flower, illustration
mohamed_hassan/Pixabay.com, CC0
  1. Investment Characteristics- Different investments have different strengths. Common stock rates high for potential growth, bonds and preferred stock for income, and government bonds for safety.
  2. Historical Returns– Stocks have historically outperformed bonds and cash equivalent securities over the long term. From 1926 to 2017, the compound annual return of different types of assets was as follows: small company stocks: 12.1%, large company stocks: 10.2%, government bonds: 5.5%, and Treasury bills: 3.4%.
  3. Loanership Versus Ownership– With loanership investments, such as corporate and government bonds, investors lend money to a company or government entity (e.g., city, county, or state). Investors receive a pre-set interest rate and the promise of a return of their principal. With ownership assets (e.g., stock and real estate), investors purchase all or part of an asset. Investment returns and asset values fluctuate.
  4. Real Rate of Return- To achieve long-term investment growth, investors must earn a higher after-tax return on all of their investments, combined, than inflation. Otherwise, they are losing purchasing power.
  5. Asset Allocation- Asset allocation is the weighting of various types of assets in an investor’s portfolio. For example, 50% stock, 30% bonds, and 20% cash. Investors need to periodically rebalance their portfolio to maintain its original asset allocation weights. Rebalancing can be done by selling securities in an overweighted asset (e.g., stock growth after a bull market) and/or putting new investment deposits in an underweighted asset (e.g., bonds and cash assets after a bull market).
  6. Taxable Equivalent Yield Formula– This formula is used to compare the return on tax-exempt and taxable bonds. The taxable equivalent yield is calculated by dividing the tax-exempt yield (e.g., the return on municipal bonds) by 1 minus an investor’s marginal tax bracket. For example, the taxable equivalent yield of a 4% municipal bond for an investor in the 22% marginal tax bracket is .04 ÷ 1- .22 (.78) = 5.12%.
  7. Dollar-Cost Averaging- This is the practice of investing regular amounts at regular time intervals, such as $100 on the 5th day of every month. Many investors practice dollar-cost averaging automatically through deposits into their employer retirement savings plan or a mutual fund automatic investment plan.
  8. Rule of 72- This mathematical calculation tells how long it will take, or what interest rate is required, to double a sum of money. To solve for the time period, divide a known or assumed interest rate into 72. To solve for the interest rate, divide the desired time frame to double your money into 72.
  9. Investment Record-Keeping- Keep tax returns for up to six years after filing and retirement plan records (e.g., deposits, loans, rollovers, and beneficiary designations) for as long as these accounts are open. Also, save annual account statements from mutual funds and brokerage firms and records of investment sales.

For additional information about the basics of investing, review the free Cooperative Extension online basic investing course, Investing for Your Future and the following Military Families Learning Network webinars:

  • Investing Basics and Beyond: https://militaryfamilieslearningnetwork.org/event/27264/
  • Investing With Small Dollar Amounts: https://militaryfamilieslearningnetwork.org/event/29074/
  • Investing for Your Future Part 1: https://militaryfamilieslearningnetwork.org/event/30783/
  • Investing for Your Future Part 2: https://militaryfamilieslearningnetwork.org/event/30781/
  • Wealth-Building With Savings, Investments, and Windfalls: https://militaryfamilieslearningnetwork.org/event/28146/

Go Beyond the Webinar| Nurturing Family Resilience Through a Strengths-Based Framework

Go Beyond the Webinar Nurturing Family Resilience

On August 22, 2019, in the second webinar within our MFLN Resilience Series, Dr. Froma Walsh provided her insight and expertise on building resilience through tough times for couples and families. Dr. Walsh highlighted how highly stressful adverse situations impact the whole family and, in turn, how families dealing with challenges can facilitate positive adaptation for individual family members, their relationships, and the family as a whole.

Dr. Walsh is the Co-Founder and Co-Director of the Chicago Center for Family Health and a Firestone Professor Emerita at the University of Chicago. She is a foremost expert on family resilience, with extensive experience in situations of trauma and complicated loss; disruptive family transitions; and multi-stress, chronic conditions. For more on Dr. Froma Walsh, here is a link to her bio page.

With the conclusion of this webinar, we wanted to go back and showcase some of the highlights and to share info we found to be very helpful for professionals working with families. These helpful details to strengthen and nurture family resilience include foundational concepts on the resilience theory such as:

  • One key takeaway Dr. Walsh pointed out is that when we talk about a crisis, it’s not just an event that happens on just a single day. There are ripple effects and it may take a while to begin to build strength and resiliency in the aftermath of these live events.
  • Walsh shared that research shows within a few months to a year after a traumatic event, many people are able to not just to get back to a standard baseline they had before the event, but create a “new normal” that takes into account the crisis they faced and how to incorporate it into their lives for the better. It’s about rebuilding and growing stronger out of adversity.
  • There are common misconceptions about resilience and what it looks like. Many interpret resiliency as an individual’s ability to “bounce back” or “get over it.” However, practicing resilience involves struggling well, in which resilience requires constantly working through and learning from adversity. It also includes the ability to integrate past adverse experiences into the current and future chapters of our lives and to find strength and meaning in those experiences.
  • The approach of building family resilience is to practice reframing problems and risk factors as obstacles to success, with a focus on fostering positivity from traumatic events and life stressors. The goal is to identify and strengthen tools and resources for families as they learn to cope, adapt, and grow positively. By incorporating all members of the family and focusing on fostering the family as a unit, each individual has a role to play in strengthening the family. This avoids the potential issue of putting all the work on a single individual in the family, like a parent. This approach is about building team support through mutual collaboration.
  • Walsh introduced her family resilience framework, which integrates more than three decades of research and practice experience on resilience and effective family functioning.
  • A significant piece of this framework is the Key Processes in Family Resilience. These Key Processes are: belief systems, organizational supports, and communication processes. These three processes are the cornerstones of the family resilience framework.
  • Vicarious resilience is an important concept for therapists and other service professionals. Through this resilience-oriented practice, it can be beneficial for professionals to combat burnout and compassion overload when working with families who have experienced trauma and high stress.
  • Most importantly, Dr. Walsh conveyed the important message that all families have the capacity to grow and thrive from stresses and trauma.

If you happened to miss out on this live webinar, or would be more interested in gaining more information on any of the details above, the archived video recording of this webinar is available on the event page here. This webinar is part of our three-part Resilience Series, which also focuses on resilience in individuals and in communities. To view archived recordings for all three of the webinars within the Resilience Series, visit the Resilience Series homepage here. FREE Continuing Education (CE) Credits for all three of the webinars within the Resilience Series are still available. Thanks so much and stay tuned for more great MFLN programming!