Category: Investing

Paying for College – 529 plans

College can be paid for in a number of different ways – you can save up in advance, you can work and pay along the way, you can excel in academics, sports or other areas and get scholarships, you can pay with grants or loans or you might just have a rich relative that is willing to pay it for you.

In today’s article I want to cover the first option – saving up in advance.

In 2013 the Center for Social Development did a study called “Small-Dollar Children’s Savings Accounts, Income, and College Outcomes”(1) where they share some interesting findings:

  • 61% of low- and moderate-income (LMI) children have no savings account for college.
  • An LMI with savings for college is three times more likely to enroll in college than a child with no savings, and more than four and a half times more likely to graduate.
  • Only 5% of LMI’s with no savings will graduate, while 25% of those with savings of $1-$499 will graduate, and 33% of those with $500 or more set aside will graduate.

These numbers are significant – compared to their peers from a similar socioeconomic background, setting aside between $1-$499 for your child or grandchild makes them three times more likely to enroll in college and four and a half times more likely to graduate. That’s not a lot of money for those outcomes.

In addition, the government has provided some great tax benefits to saving for college in special accounts called 529 plans. Each state has at least one 529 plan, but they all share these benefits:

  • Tax-free investment growth
  • Tax-free withdrawals for qualified expenses
    • Qualified expenses include tuition, fees, room and board, textbooks, computer, printer and software as well as any other required fee from a university or college
  • You can use the money to pay for education expenses in any state
  • The account holder maintains ownership of the account
  • You can change the beneficiary any time you want
  • If your child gets a scholarship you can withdraw up to the amount of the scholarship and just pay taxes on the earnings
    • Non-qualified withdrawals (i.e. those not for qualified expenses) are subject to taxes and a 10% penalty on the earnings
  • Legally there is no maximum amount, though in reality most people want to keep the annual contribution below $14,000 if you are single, and $28,000 if you are married(2)

Many states offer a tax deduction or credit of some kind if you live in that state and invest in that state’s 529 plan. NerdWallet has created a list of which states offer a deduction or credit here:

https://www.nerdwallet.com/blog/investing/529-plans-list/

Which plan should you invest in? You want to find a plan with low fees, direct-investing (which means you pay no commissions on the investment) and, if possible, a tax deduction or credit.

Consumer expert Clark Howard said, “Utah is by far the single best plan in the country.” He also lists Iowa, New York, Georgia and Michigan as great plans.(3) Morningstar rates Utah’s plan as “…one of the best in the U.S.”(4)

You can explore your state’s plan further from the NerdWallet link above, but if you are looking for a great plan you can’t go wrong with the Utah Educational Savings Plan (https://uesp.org/). It is direct-sold, has low-fees, and has good investment options with Vanguard. There is no fee to open the account, there is no minimum investment and Utah residents can get a Utah State tax credit for contributions.(5)

Remember – saving as little as $1-$499 for your child’s college education dramatically increases the odds of them going to, and graduating from, college, which will increase their lifetime earnings, decrease their chances of living in poverty and decrease their chances of being unemployed.(6)

 


  1. https://csd.wustl.edu/publications/documents/wp13-06.pdf
  2. Note that it could actually be much higher than this if your plan allows it, but that gets into estate planning issues, which we aren’t going to get into here.
  3. http://clark.com/education/clark-updates-his-529-guide-for-2010/
  4. https://uesp.org/morningstar-utah-educational-savings-plan-is-one-of-the-best-in-the-u-s/
  5. This is not tax advice – check with your tax advisor or preparer to ensure you get the maximum benefit.
  6. This is assuming they choose the right major, but that will have to be covered in another article.

The Five Lessons a Millionaire Taught Me About Life and Wealth by Richard Paul Evans

Let me share with you a few book titles on my bookshelf that have to do with money:

  • Think and Grow Rich
  • How Rich People Think
  • As a Man Thinketh
  • Mind Over Money
  • Wired for Wealth – Change the Money Mindsets That Keep You Trapped
  • Conscious Finance

Did you catch a theme there? It was something I hadn’t really noticed before. Clearly, according to these authors, wealth has more to do with your mindset and your thoughts than your habits.

5 lessonsToday’s post deals with that same concept. I am going to review the book The Five Lessons a Millionaire Taught Me About Life and Wealth by Richard Paul Evans (#1 New York Times bestselling author of The Christmas Box). I picked up a copy at the local library and read it in one sitting. It’s an easy read (93 pages of content and an additional 70 pages of resources), but definitely worth your time.

Evans learned these lessons at a young age from a millionaire and went on to change his mindset, incorporate them in his own life, and make a lot of money. He teaches five lessons or principles that he says will lead all who follow them to wealth and financial independence. In fact, he says that all wealthy people share this common denominator – they understand the principles of accumulating wealth and follow them (and by wealthy he isn’t talking about those who win the lottery or inherit a fortune then go broke 5 years later, but truly wealthy people who earn and keep their wealth).

None of these principles are new – you won’t find anything earth-shattering in the five lessons. In fact, they will seem very ordinary to you. However, very few people actually follow them. I discovered areas that I can improve and plan to sit down with my wife so she and I can decide together how to better live some of these principles. I also plan to teach these principles to my children in ways they can understand.

Here are the five lessons:

Lesson One: Decide to be wealthy

Evans says this is the most important principle and that wealth is a mindset – it’s all or nothing. Bryan Tracy, another one of my favorite authors, says that it never occurs to most people that they can be wealthy and that “the primary reason for underachievement and failure is that the great majority of people don’t decide to be successful. They never make a firm, unequivocal commitment or definite decision that they are going to become wealthy. They mean to, and they intend to, and they hope to and they’re going to, someday. They wish and hope and pray that they will make a lot of money, but they never decide, ‘I am going to do it!’ This decision is an essential first step to becoming financially independent.”

Lesson Two: Take responsibility for your own money

You need to know how much money you have (by calculating your net worth monthly and annually), know where your money comes from and where it is going (budgeting). If you don’t control your money it will control you.

Lesson Three: Keep a portion of everything you earn

As George Clason says in The Richest Man in Babylon “a part of all I earn is mine to keep.” Evans says that millionaires save between 15-20% of their income and recommends that you start with a minimum of 10% of your salary and 90-100% of any side earnings.

(Consequently, the book The Richest Man in Babylon is one of my favorite books about money – you can read it for free here: http://www.ccsales.com/the_richest_man_in_babylon.pdf).

Lesson Four: Win in the margins

This principle is the one that will help you increase your nest egg as quickly as possible. The basic idea is to look for ways to increase your income and decrease your expenses. Evans goes through a number of different ways to look for deals and decrease expenses. He says that one of the best ways to save money on a purchase is to ask “Is that the best you can do?” This seems to especially be true with high-ticket items.

Lesson Five: Give back

Evans donates 10% (or a tithe) of his money and says that he has never felt the loss of the money but instead has felt specifically blessed for his contributions. My wife and I do the same thing and feel the same way that Evans does.

Those are the five lessons. Are you surprised at all by the simplicity? I would guess that you are. Like I said, none of the ideas are earth-shattering revelations. How many of them are you actually living, though? If you are intrigued by these ideas I highly recommend you pick up a copy of this book and make some plans to improve.

What’s up with the economy?

Are you tired of watching your savings earn .02% per year and seeing your investments lose money each year? You’re not alone.

You probably feel a lot like this guy – you just want someone to “FIX IT!”

Let’s establish a few things up front:

  • The economy moves in cycles:

economy

We go through times of high unemployment, low savings rates, negative stock market growth, etc. and we go through times of low unemployment, great stock market growth, etc.

It’s all part of a cycle.

There are times, of course, when the recessions and troughs last longer than others, but overall that is how the economy works. No one knows how long or short any part of the cycle is going to be.

  • The “stock market” is made up of a lot of different components.
    There are individual company stocks, company and government bonds and money market savings. It also includes things like commodities (gold and silver), oil and real estate. You can invest in all of these.

  • Most people invest in the stock market through their employer (401(k)) or through another retirement account such as an IRA. Typically this is in the form of mutual funds, which is a collection of corporate and government stocks and bonds. Throughout the article when I refer to investing in stocks I am talking about stock mutual funds. Most people shouldn’t be purchasing individual stocks.

  • Past performance in the stock market doesn’t predict what it will do in the future, but it can give you an idea of trends.

So how do you make or lose money in the stock market? When the market is down in a recession or trough stocks generally lose money. This can be caused by many things. Most recently the drop in the market has been caused by economic issues in China and the low price of oil, along with a continuing sluggish economy in the U.S.

In the first two weeks of 2016 the stock market has lost about 8% of its value. 8% in two weeks! Everyone’s invested assets are taking quite a hit right now.

Let’s take a look at some historical data.

Dow Yearly Return Histogram

The graph above shows the Dow yearly return frequency. You can see that there are years that the return on your investments would have returned more than 70%, and years it would have lost more than 20%. About 25% of the time the market has lost money.

This next graph shows the range of returns for a portfolio of 100% stocks, 100% bonds and 50% stocks and 50% bonds between 1950-2013.

In a single year the stock portfolio returned between -37% and +51%.

If you invested for 5-years that range narrows to -2% and +28%

If you go out to 20 years, the range narrows even more to +6% and +18%.

range of returns

The average annualized returns for stocks during those 20-year periods is 11.1%.

You have to decide if you are willing to ride out the negative years in hopes of gaining in the good years, and how long your time horizon is.

Here are some things to keep in mind:

  • The further out your time horizon is the better chance you have of getting a positive return, with the stock market returning the most. If you don’t have at least 5 years, or even better 10 years, you shouldn’t be invested in stocks.

  • The shorter your time horizon is the more you should be invested in conservative assets such as bonds. That means that you can be invested in stocks the younger you are, and move your money to bonds the closer you get to retirement.

  • A good rule of thumb is that you should take 100 minus your age and that’s how much you should invest in stocks. If you are 40 years old you should invest about 60% in stocks (100 – 40 = 60%). If you are 55 years old you should invest about 45% of your money in stocks. Your risk tolerance level might be higher or lower than that, though. Here is a good free online tool that will help you determine your risk tolerance level: http://njaes.rutgers.edu:8080/money/riskquiz/. Because I have a higher risk tolerance I have more of my assets invested in stock mutual funds.

  • Remember that there are additional ways to invest your money. While most of our retirement money is in the stock market, we are saving up money to invest in some real estate as well. A diversified portfolio is best.

  • What you don’t want to do is invest in stocks, panic when it goes down and pull all your money out, then when the market goes back up move your money back in to stocks. That’s a losing game, and you will never get ahead that way. You are buying high and selling low, which is the opposite of what you should do. A lot of people do this, however, which is why there is a big difference between investment returns and investor returns. Investment returns assume you leave the money in the market, while investors move their money around when things get bad.This chart helps me to remember that I need to stay invested:

    missed opportunity

    This chart assumes you invested $10,000 between Dec 31, 1993 and Dec 31, 2013. During that time the stock market had some great years and rough years.If you kept it fully invested you would have ended up with just over $58,000. If you missed the 10 best days (which often come right after the worst days) your return drops to $29,000. If you missed the 40 best days your return is actually negative – your $10,000 drops to $8,147.

    People miss the best days all the time though because they switch from stocks to cash when the market goes down, miss the up-side, and invest when stocks are back at their most expensive.

I realize that all these charts and statistics don’t make you say, “Well, I’m sure glad my portfolio is losing money!” No one likes to see their portfolio drop for even a day, let alone for a few years in a row.

Every time it feels different, like we aren’t going to recover this time. I understand it. I get it. If you need help, find a financial planner who can help you set goals and stick to the strategy you outline together. Make sure it is someone you trust and has your best interests at heart. Someone who will teach you and encourage you and cheer you on.

As always, feel free to leave comments or ask questions below, on Facebook or in an e-mail.

The Difference

For each attitude or behavior listed below indicate whether it describes you Very Well, Well, Slightly or Not at All.

Very Well Well Slightly Not at All
I feel stocks are worth the risk.
I devote money to personal savings each month.
I save regularly for emergencies.
I have invested for retirement.
I am significantly reducing or I have eliminated outstanding debt.
I have a goal to be financially comfortable during my working years.
I have a goal to retire comfortably.
I know what I want to do for a career and I am actively pursuing it.
I have a goal to accumulate $1 million.
I own a home (or plan to).
I am confident.
I am optimistic.
I am happy.
I am competitive.
I am a leader.
I have a college degree or I am actively working on getting one.
I socialize with friends at least once a week.
I exercise at least 2-3 times per week.
I read newspapers (or online news) regularly.
I am married (or plan to be married).

According to research conducted by Merrill Lynch, Harris Interactive and Jean Chatzky, these twenty attitudes and behaviors were the most critical in determining individuals varying levels of wealth.[1]

The initial question asked by Chatzky was, “Why do some people seem to move relatively easily from a paycheck-to-paycheck existence into comfort or wealth, while others get stuck or – worse – fall back?”

The study, which included hundreds of questions and was administered to more than five thousand individuals, identifies four levels of wealth, along with what percentage of the population falls into each category:

  • The wealthy – 3%
  • The financially comfortable – 27%
  • The paycheck-to-paycheck – 54%
  • The further-in-debtors – 15%

Chatzky and her team found that the wealthy can select at least twelve of the twenty attitudes and behaviors listed above as describing them “very well”, the financially comfortable have at least ten, while only half of those in the paycheck-to-paycheck group or further-in-debtors have more than three that describe them “very well”. In her book, The Difference, Chatzky stresses that most of the above factors are things that can be learned, and that moving up is not only possible, but inevitable if you focus on the right things.

There are, of course, other important factors. While these were identified as the top 20, Chatzky also discusses gratitude, giving, hard work, long-term thinking and others.

Here is Chatzky’s description of those who understand the difference their attitudes and behaviors make and have achieved success in life:

“They knew what they wanted, they plotted a course, and they arrived. They’re not stagnant. That wouldn’t do. Every day, they think about what’s next and set about achieving it with intention and purpose. And today, as a result, they are surrounded by people they care deeply about – and who return the favor. They wake up happy and go to sleep fulfilled. And they don’t lose sleep at night worrying about paying that next bill or any other financial matter.”[2]

It does take time, after developing the attitudes and behaviors listed above, to move from one group to the next. On average, it takes about seven to eight years to move from paycheck-to-paycheck to financially comfortable, and an additional eight to move to a life of wealth. In can be done faster – in fact there were some people that moved from paycheck-to-paycheck to wealth in a total of about ten years. The research also showed the number one reason people slipped from financial security to living paycheck-to-paycheck is overspending.

So where does all of this data leave us? First, Chatzky says, is that you need to make a decision that you want to change and achieve higher levels of wealth. “You choose The Difference,” Chatzky says, “it does not choose you.” Second, you have to take action. Look through the list above and select some things you can begin to work on. Maybe you can start building up your emergency fund, or start exercising more, or focus on your career goals. Any step in the right direction is a good step to take.

For further discussion on this topic, I encourage you to read Jean Chatzky’s book The Difference.

Ryan H. Law, M.S., CFP®, AFC®

[1] The study and findings are discussed in detail in Jean Chatzky’s book “The Difference”  ISBN: 978-0-307-40714-6
[2] Chatzky The Difference pp. 2


     

 

 

 

 

 

 

 

 

Meeting Jean Chatzky at a conference

The Importance of Personal Financial Planning for College Graduates

by Ryan H. Law

Over the past 6 weeks I saw more than 500 graduating seniors come through my office (The Office for Financial Success) to receive student loan exit counseling. Exit counseling is required for all graduating students with federal student loans. At the University of Missouri they can choose to do the counseling online or they can come through our office and meet with another student who is trained to offer this counseling.

Seeing all these seniors come through our doors has caused me to reflect on my own graduation and some things I did well as well as some things I wish I had known or done upon graduation.

Today’s post will focus on some specific steps that I think all graduating seniors should take (but don’t worry – it’s good advice for everyone – even if you haven’t graduated yet or graduated years ago).

Become financially literate

Financial literacy in the United States is, unfortunately, not widespread. Most high school students fail a personal finance exam (less than 50% of questions answered correctly) and college students score just 62%[1]. One of the best things you can do for your future is to become financially literate. If you can take a college course in personal finance I highly recommend it. In a 3-credit personal finance class you will learn about everything on this list and you will be more financially literate by the end of the course than most people in America. If you don’t have the option to take one on campus look into one of the many excellent Open Courseware classes – you won’t get any college credit for it, but you can’t beat the price tag – free![2]

As a part of becoming financially literate I recommend you learn the fundamentals of how the U.S. economy works. Learn about the business cycle, unemployment rates, inflation and interest rates. All of these things affect your personal finances, so a basic understanding of them is helpful.

Don’t get your financial advice from amateurs

Financial advice can be found almost anywhere – it is prolific on the internet and on the bookshelves at libraries and bookstores. However, I would caution you to be careful that you are not getting your financial advice from amateurs. For example, a few years back there was a taxi driver who “figured out the system to wealth” day-trading stocks. A lot of people lost a lot of money following his advice. Be careful of advice received from friends or family about the latest “hot tip” on a stock. This tip, like all the others, will take you back to the first recommended suggestion – a good solid class will teach you much about how to win at personal finance.

Establish financial goals and take action to achieve them

You need to start thinking about some short and long-term financial goals. How soon do you want to pay off your consumer debt? How much money do you need at retirement? Do you plan to buy a home eventually? Do you plan to have children and send them to college? What are your plans for increasing your earning potential? I recommend you take some time to sit down and make some decisions about where you are financially, where you want to be, and how you plan to get there.

Learn to budget

No company would go one day without a good, solid budget. They understand how much is coming in, how much is going out and exactly where those dollars are going. You should likewise have a budget. A budget is not a record of where your money went (though that is important as well); it is a plan for where you want your money to go. Learn the process for budgeting then discipline yourself to take action and stick to your budget[3]. A key component of your budget should be to spend less than you earn and to pay yourself first. As part of your budget you should work diligently to build up a 3-6 month emergency fund.

Develop a net worth statement and update it annually

A net worth statement is a snapshot of a particular moment in time. It should list all of your assets (everything you own that is worth money) and all of your liabilities (debts). Minus your liabilities from your assets and you will come up with your net worth. You should update this annually to see how you are doing. Over time this number should increase.

Care about your credit

You should know what your credit report contains[4], what your credit score is and what steps you can take to improve that score[5]. Your credit score determines what interest rate you pay on loans, what your auto insurance will cost, if you can rent certain apartments, and in some cases if you can even get a particular job.

Pay off consumer debt as quickly as possible

Carrying consumer debt, especially credit card debt, is toxic to your financial goals. Pay it off as quickly as possible by paying more than the minimum and refusing to take on additional unnecessary debt[6].

Start saving now for retirement and take advantage of employer-sponsored retirement plans such as a 401(k) or 403(b)

If your employer offers a tax-advantaged retirement savings plan, such as a 401(k) or 403(b), take advantage of it! You will save on taxes now and can often get free money through a company “match” of your savings.

Time is your best friend when it comes to saving for retirement. If a 23-year old saves $3000 a year at 8% interest until he or she is age 65 they will have about $912,000 in the bank. If a 33-year old does the same thing they will have about $402,000. That is the power of compound interest!

Understand taxes, insurance and basic estate planning

Even if you pay someone else to prepare your tax return for you, you need to understand your own taxes. You should know your average tax rate, your marginal tax rate, and some steps you can take to reduce your tax burden. You should understand the difference between taking the standard deduction and itemizing deductions.

You also need to understand your insurance products. We spend a lot of money on disability insurance, life insurance, auto insurance, renter’s or homeowner’s insurance and other types of insurance. You should understand what your policy covers, what it doesn’t cover and how much you are paying for each one. You should occasionally check around to see if you can get lower cost insurance.

Everyone needs to do some basic estate planning. Even if you are single with no dependents you at least need a basic will, healthcare directives and a power of attorney. As your situation changes you should review these documents and update them and add other important estate planning documents as necessary.

Start an uncomplicated financial record-keeping system

You and your loved ones should know where important financial documents are and what each one is for. For example, if I were to pass away today I would want my wife to know exactly where my life insurance policies are and how to begin the process of collecting that money. The system I use is a fireproof file box with the HomeFile Organizer system[7]. With this low-cost system I can file and find auto titles, insurance policies, medical records, warranties and any other financial documents.

Give yourself an annual financial checkup

I recommend that you set aside a day each year to give yourself a financial checkup. Review your goals, your budget, your net worth, your insurance and estate policies, your savings and your debt level and determine some steps you can take to improve in each area. As part of the review I recommend you choose a new personal finance book to read over the next year. Take this opportunity to reassess where you are and determine a plan for how to get to the next level.

Conclusion

Hopefully you got some good ideas about improving your financial situation from this list. I recommend you choose just one or two things from this list that you can take action on today. As that becomes a habit you can incorporate another item until you have implemented all of them that fit your situation.

[2] If you are looking for an excellent course I recommend Alena Johnson’s Family Finance course from Utah State Open Courseware: http://ocw.usu.edu/Family__Consumer____Human_Development/Family_Finance/index.html. This is the course I took that convinced me to change my major and helped determine my life’s work.
[3] www.Mint.com is a great, free resource for budgeting. The software I personally use can be found at www.YNAB.com. It isn’t free, but I highly recommend it.
[4] www.AnnualCreditReport.com is the only place to get a free copy of all three of your credit reports annually
[5] www.MyFico.com has a great explanation of credit scores and is the most reliable place to purchase your score.
[6] www.PowerPay.org is a great free resource to figure out how you can pay your debt off quickly

How to Look Really Smart in Front of Your Friends

by Ryan Law

As you’re driving home in the evening or watching the news you probably hear the reporter say something like, “The Dow closed up a fraction to finish up the day at 12,988 while the S&P lost 12 points to finish up at 1370 and the Nasdaq advanced 12 points to finish at 2971.” As they are saying that do you know what they are talking about? If not, after today you can look smart in front of your friends and say something like “Wow – I expected the Dow to peak over 13,000 today – it did earlier in the week. I imagine it will do that soon, though. I really should call my broker in the morning. What do you guys think?”*

What are stock market indexes?

The Dow, S&P 500, Nasdaq – what does it all mean?

Each of these represents a group of stocks, or in other words, they represent companies. They are meant to represent either how the overall stock market is doing or how a certain segment of the market is doing.

Here are five of the most common indexes you might hear about:

Dow Jones Industrial Average (also called the Dow, Dow Jones, the Dow 30, DJIA): The Dow was created in 1896 by Charles Dow (hence the name – the “Jones” part came from Dow’s friend and business associate, Edward Jones). The Dow has 30 stocks in it, all of which are major corporations in the global economy and most of which you will know – names like 3M, Coca-Cola, Wal-Mart, IBM, Disney and Chevron. These companies do change occasionally – for example in 2008 Kraft replaced AIG. GE has been the longest one on the index. For the full list see the Wikipedia article in sources, below.

Standard & Poor’s 500 (also called S&P 500): The S&P 500 was created in 1957 and contains 500 stocks, which represent the 500 largest companies in the United States and 75% of the stock market (there are a few non-US companies, but just a handful). For this reason it is, along with the Dow, the most widely quoted and compared stock index. A lot of people see how well their portfolio did in comparison to the S&P 500. To fill up space in this article, I am going to list all 500 companies below (just kidding! If you want to see the full list, see the S&P link below).

Nasdaq: The Nasdaq is actually a stock exchange, rather than an index, but it is often reported as an index. It was founded in 1971, and there are about 2700 stocks traded on the Nasdaq. While the Nasdaq has a variety of stocks, it is often seen as being representative of technology stocks.

Wilshire 5000: If you were on a game show and they asked you how many stocks are in the Wilshire 5000 you might be tempted to answer 5000, but you would be wrong and might just lose the game show because of it. Since you read this, though, you will know it is a trick question – there are actually about 4100 stocks in it (to be fair, when it started in 1974 it did have closer to 5000 stocks). The Wilshire 5000 is intended to cover most publicly-traded companies that are headquartered in the United States. Because it is larger it gives a broader measure of the overall US market and includes a number of medium and smaller sized companies.

MCSI World: MCSI has 1600 stocks from developed countries all over the world and is often used as a benchmark for how the global stock market is doing.

What do the numbers mean?

When the news reporter says the Dow was up 12 points, what does that mean? Look at it this way – if you had an index made up of 5 stocks that were worth $100 today, and tomorrow it was worth $110, it went up $10, or 10%, so you would say “My index went up 10 points today to close at 110.” The next day if it went down to $103, you would say “My index went down 7 points today and closed at 103.” You’re still up 3% overall, though, from the original date.

That’s an oversimplified example, but it gives you the basic idea. Different indexes use different formulas, but remember this rule of thumb: If the numbers go up and you have investments similar to the index, you should have made money that day.

Great – sign me up!

Now you know all about indexes so you want to invest in one? Well, too bad, you can’t invest directly in an index. After all, it’s simply a number that represents the underlying stocks. There is good news, though – you don’t have to go out and research which 4100 stocks are in the Wilshire 5000 and purchase them yourself. That would get expensive and time-consuming. There are mutual funds that have created index tracking funds, and there are also stocks that are traded on the stock exchanges that also follow a certain index. If you want to follow the S&P 500, for example, instead of you purchasing the stocks you purchase shares of a mutual fund, and then they combine your money with a bunch of other investors and buy the 500 stocks. A number of mutual fund companies sell index tracking funds, including Vanguard, T. Rowe Price and Fidelity.

I hope that you have learned something today and that on your drive home you will tune in when the reporter talks about the stock market. Really, though, it’s all about looking smart in front of your friends!

Sources and Further Reading:

Dow:
http://www.djaverages.com/?go=industrial-overview
http://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average

S&P:
http://www.standardandpoors.com/indices/sp-500/en/us/?indexId=spusa-500-usduf–p-us-l–
http://en.wikipedia.org/wiki/S%26P_500
http://en.wikipedia.org/wiki/List_of_S%26P_500_companies

Nasdaq:
http://en.wikipedia.org/wiki/Nasdaq
http://www.nasdaq.com/

Wilshire 5000:
http://en.wikipedia.org/wiki/Wilshire_5000
http://www.wilshire.com/Default.aspx

MCSI World:
http://en.wikipedia.org/wiki/MSCI_World
http://www.msci.com/

*If one of your friends says that you could come back with “Well, yes, but the housing market is still flat and interest rates are poised to stay low for at least the next year, according to Bernanke, so I think it still might be a little high. I think we will see it hold steady by the end of the fiscal quarter, given the circumstances.”

Is Your Religion Your Financial Destiny?

by Ryan Law

Last year the New York Times[1] published an article titled “Is Your Religion Your Financial Destiny?”. I have come back to this article and discussed it with several people and finally decided to write about it. The graph about speaks for itself, but I have a few comments about it.

First, the graph:

If you have a hard time reading the graph in your e-mail, you can pull up a copy online here:

http://www.nytimes.com/imagepages/2011/05/15/magazine/15-Leonhardt.html?ref=magazine

A couple of notes – the y-axis shows the percentage of households with an annual income above $75,000 in each religion listed. The x-axis shows the percentage of college graduates from each religion listed. For example, among Anglicans/Episcopalians, approximately 52% have an income above $75,000, and about 52% are also college graduates. The national average of all households in America that make over $75,000 is about 30%, while about 27% of all households in America have graduated from college.

On the low end of the graph we have Jehovah’s Witnesses, with less than 20% of households making over $75,000 and less than 10% college graduates, while at the other end about 65% of Hindus make over $75,000 and about 74% have a college education.

As you look at the graph, do you notice a trend? Does it almost look like you could draw a line that would slant up and to the right and hit almost every point? With the exception of a few in the middle, and a slight dip at the end, you almost could draw a straight line. What does this mean?

First, and this is definitely worth noting, religion does seem to have a factor in how much money people make. The study, conducted by the Pew Research Group, shows that religion plays a greater role in predicting your income than the differences among states or even racial groups.

Second, college education and wealth go hand-in-hand, and some religions place a high emphasis on education.

I would be interested to seeing where atheists fit on the graph. We have one titled “unaffiliated religions” but nothing for atheists.