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Investing Basics: Making Your Money Work for You · Talking FACS

• 0:01
  Welcome to talking facts.
• 0:03
  What you need to know about family food,
• 0:05
  finance and fitness.
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  This nationally recognized award winning podcast is hosted by the University of Kentucky Family and consumer sciences extension program.
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  Our educators share research knowledge with individuals,
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  families and communities to improve quality of life.
• 0:25
  Hello and welcome to talking facts.
• 0:27
  What you need to know about family food finance and fitness.
• 0:30
  I am your host,
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  Mindy McCulley,
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  Family consumer sciences extension specialist for instructional support at the University of Kentucky.
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  Today,
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  I am joined by kelly May,
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  who is our extension associate for Family Finance and Resource Management.
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  Welcome kelly.
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  Thank you so much for having me on here Mindy Well and we are continuing our moneywise discussions because so much of what you do is related to getting information out to our listeners about money topics.
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  And so our topic today is investing basics,
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  making your money work for you.
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  And I am excited about this discussion because I love it when my money works for me and I'm not always the one working for my money.
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  That's right.
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  We always want to help you get your money to work for you.
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  We want to take advantage of that interest.
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  And it it doesn't have to be hard.
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  It can start small and we'll help you with a few tips for how to get started or how to um think about your investments so that it's not such a daunting topic well.
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  And I do think that that's probably one of the greatest barriers that people just don't understand and don't know how to get into the investing process if they aren't connected with their work through a four oh one K.
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  Or 4013 B.
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  They might just have fear about shredding in the water.
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  Right,
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  Right.
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  And so,
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  you know,
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  one thing to do is just to get started,
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  start small and just get started and see what it's all about.
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  So we'll we'll help you through that.
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  But before we talk about getting started,
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  maybe we should talk about what portfolio we're getting ahead of ourselves.
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  Yeah.
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  Yeah.
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  I don't even know what that portfolio might be or,
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  you know,
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  the portfolio might be a term that is daunting.
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  And so let's,
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  yes,
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  let's definitely talk about what is an investment portfolio.
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  So an investment portfolio is a collection of the different investments that you've made at any one time,
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  It can have a wide range of assets.
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  Um It can be things in the market or Personal network can also include the things you own um that you're working on investing in,
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  such as your home or your business.
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  So what type of investment products should I consider?
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  So when people think about investing in the traditional sense,
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  there's probably the three main products that people think of and that is a stock,
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  a bond in a mutual fund.
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  And so a stock is a fraction of ownership in a company.
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  So when you own a stock it entitles you to,
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  to a percentage of that company's profits.
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  Units of stock are called shares and shares offer long term potential for growth over time and of course,
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  risk and reward go hand in hand.
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  So the more risk you take,
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  the more reward you might find.
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  Um And the opposite is true too.
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  If you,
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  if you buy into something really risky,
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  there's more chance that that something bad could happen.
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  So you're rewarded more for the more risk you take.
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  So if you wanna,
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  you know,
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  a conservative investment,
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  something that you think is probably going to do well over time and and not be volatile,
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  then you probably want a company that's established.
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  You want to invest in a,
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  in a long term company with solid management.
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  And you can kind of look at those things to see if that is a stock you'd like to buy.
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  On the other hand,
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  if you um want to play for the potential for growth and you want to um go for that,
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  that chance to make more money,
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  then you can take more risk and invest in a new company or a startup company or or those companies that are considered more risky.
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  So there's a lot of variants in how much risk is involved in a stock based on many,
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  many factors,
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  they fluctuate with the market and the economy and the,
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  and the type of stock that you're buying stock options though,
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  because sometimes people pay their employee through stock options and so part of their remuneration for working for a company might be that they get stock in that company,
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  which sounds like a great deal if it's a robust and growing company.
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  But what are some downsides to that?
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  That's a great question.
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  So if you work for a company that gives you stock,
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  that's wonderful.
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  Any time they give you something for free,
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  that's a wonderful thing to take advantage of.
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  If it's not a company you want to stay invested in,
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  you know,
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  check their rules and see if there's a time that you must stay invested.
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  But after that time you could sell that stock and move it to something else.
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  If there's a product you'd rather have.
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  But a lot of times the companies that offer free stock do that as an incentive for making their company better.
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  They figure if their employees are part owner in the company then they'll want the company to do well.
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  So it's a pretty interesting business incentive.
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  So yes,
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  I would say that if,
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  if your company offers stock,
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  if they match any kind of matching on a four oh one K.
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  Or an investment retirement investment vehicle,
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  do take advantage of that because if it's,
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  if it's free money you should,
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  you should get as much of that as you can.
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  That's part of your benefits.
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  That's that's what we always like to say,
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  take what is available to you right now,
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  let's move on and talk about bonds and mutual funds.
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  Oh yes.
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  So a bond is actually alone.
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  It could be to a government or a company.
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  It is in exchange for your money.
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  So what happens is,
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  let's say a government's going to do a new building project and they do a bond issue and people can buy into the bond and as the government pays back on the thing that they've,
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  they've built or they've done that is the interest you receive an interest payment.
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  So bonds are considered a little bit safer than stocks.
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  But again,
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  it depends on who the bond is going to.
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  So what government or what company is receiving this bond and are they going to pay it back?
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  That's what it really comes down to bonds offer often monthly returns because that interest is being paid back monthly.
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  But because they're considered a little bit safer and have that reliability,
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  they often have lower rates.
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  So again,
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  that risk and reward playing together,
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  you should mention here that the savings bonds that people often are gifted,
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  you know,
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  at birth and graduations and those,
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  they're still bonds,
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  Their bonds a little bit different because they don't exactly potential to earn so much reward.
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  Right,
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  Right.
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  Those are a little bit different savings bonds and Treasury bonds and eE bonds.
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  Those are a little bit different than the kind of bonds we're talking about.
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  When we say stocks and bonds,
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  we're talking about corporate bonds and municipal bonds,
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  um,
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  that you trade on the market.
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  And then finally a mutual fund could be either of these things,
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  it could be a bunch of stocks or it could be a bunch of bonds or if you hear somebody talk about a balanced fund that probably has some stocks and bonds.
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  And so a mutual fund is a professionally managed investment vehicle where companies invest combined money from investors.
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  So I like to say a pool of money,
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  if you,
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  if you picture a group of people going in together and saying,
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  I would like to buy some stocks that have to do with,
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  I don't know,
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  maybe real estate or maybe technology or maybe any kind of market there is,
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  they can all pull their money together and there's somebody who is a professional that manages the fund that will buy the shares and decide which tech companies or which real estate companies or which whatever the market is that they'll go for.
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  And,
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  and I say that because sometimes people think mutual funds are all you need,
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  which might be the case,
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  there are kind of diversified and we'll talk more about diversification in a minute,
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  But just having one mutual fund is probably not diversified enough because there is going to be something in common with those stocks.
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  So even if it's not in a particular market,
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  they might be all Fortune 500 companies or they might be all startup companies or there's probably some reason why they're picking this school,
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  they might have something in common.
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  So you probably want to have more than one mutual fund and mutual funds sort of,
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  the concept might be adopted by investment clubs,
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  you know,
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  they're gonna pull their money together and some investment clubs pool their money together and buy stocks and bonds together.
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  And so that might be something that you've heard of,
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  if you've been involved or aware of investment clubs.
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  Okay,
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  So now that we thought about our portfolios,
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  what kind of products should we consider and what do we also need to think about before we get started?
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  Yeah.
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  Now that we've considered products,
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  we can think about things like time and risk and here's what I'm gonna talk about diversification for and fees.
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  So let's talk about diversification.
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  What that means is it's the old saying are all your eggs in one basket,
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  you don't want to have just one investment,
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  if you're going to invest,
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  have a few different things and that way,
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  if one of them doesn't do as well as you hoped,
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  you still have other investments to fall back on,
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  that's true for just letting it build over time.
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  You know,
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  markets fluctuate.
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  There are some things that will do well while other things don't,
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  but also as you get closer to the time you need to withdraw that money and live on it.
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  You want to have a mix of things that you can pull from.
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  So that if one of the things you were hoping to draw from is not currently at its peak.
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  You can pull from something else that's,
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  that's holding steady or doing well and let that other one come back.
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  Hopefully it'll bounce back in time for you to utilize that later.
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  Another thing to consider is risk again,
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  how much risk am I willing to take all investments come with some risk.
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  It varies widely depending on what you're investing in and so it's important to select options that feel comfortable for you.
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  I think sometimes people will generally kind of generically say,
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  oh,
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  well if you're young,
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  you need to be aggressive and if you are older,
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  you need to be more conservative because you're going to draw on those funds and well generally that might be true.
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  It may not be true for every individual if,
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  if you're an older person and you have the money to play with,
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  maybe you want to take that risk and be aggressive.
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  If you are a younger person that's just not comfortable with risk,
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  there's no reason to make yourself sick every day.
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  Just because somebody told you it's a good idea to be aggressive if you can't sleep at night because you're worried about what your stocks and bonds and mutual funds are doing,
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  then that's probably not the best investment for you.
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  So maybe you won't make as much money,
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  but maybe you can sleep better at night knowing what they might be doing.
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  Time is important too.
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  Of course,
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  the sooner you can do it,
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  the better,
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  don't put it off because time is,
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  is very important for your money to grow.
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  That's how interest works.
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  It's not a steady rise from start to finish.
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  It actually builds over time.
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  And so if you look at models of how investments grow,
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  most of the growth comes at the very end.
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  So the earlier you can start,
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  the better that being said,
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  if you have not started as soon as you hoped,
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  I don't think that you can't start,
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  it's never to take advantage of as much interest as you can.
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  And finally,
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  I want to mention fees,
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  you know,
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  investments have fees and if you're paying somebody else to do it for you,
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  there's fees involved with that too.
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  And so there's nothing wrong with getting help.
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  Having a competent person who knows what they're doing can be a wonderful asset and help your,
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  your things to build.
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  And they could give you advice that just know that your you are paying for that service.
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  And so I know what the fees on each product you buy are and know how much the person who is helping you is making,
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  if they receive a commission or straight fees or or how they're paid and how much and how often,
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  and I think that that's an important point.
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  You know,
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  if you are investing through your company,
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  your your employer,
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  sometimes they'll pay those fees for you.
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  And so you might be able to invest with a little bit less cost to you.
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  But that's not always the case.
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  You need to to find out if that's the case.
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  So now that we have talked about all of these variables and all of the products,
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  what can I do to get started?
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  Like you said,
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  start with your work,
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  if your work offers a plan through their benefits,
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  um selection,
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  that's a great way to get started because it's set up to be easy,
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  they want to help you into these benefits.
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  It will be easier to set that up if you don't have that option.
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  Certainly you can still invest,
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  you can go to a website or a company and do it on your own with or without help.
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  So you can,
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  you can go to an investment website and just go ahead and choose some things yourself,
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  do some research or you could visit an advisor or broker and have them assist you with the process.
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  Um you can go to an independent company or sometimes your bank or credit union will have somebody who works for them that provides that service to the customers.
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  And finally,
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  I'd like to say,
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  do your homework,
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  make sure you understand what you're investing in.
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  Sometimes people have hot tips or they claim to have insider information or you're here,
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  you'll hear people saying how great something is.
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  Just don't take their word for it,
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  just in case if it's a scam or something and not on the up and up.
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  It's always a good idea to check it out.
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  And even with not scam investments on the markets,
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  it's better to invest in something you understand.
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  So a company that you understand their business model,
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  you know what they're selling.
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  Um,
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  if it's a company you have experience with,
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  that's even better because you probably know if they're providing a good product or service.
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  Um,
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  so stick to your experience and do your homework.
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  I think that that is great advice to wrap this up.
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  If you understand what you're doing,
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  your return is going to be greater either financially or just with knowledge kelly.
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  Thanks for joining us today.
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  I know that this information is going to be useful to all of our listeners and if you are just tuning in,
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