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INVESTING 101.

Learn how you can make money in today's financial markets

EVERY ONCE IN A WHILE YOU HAVE AN "AHA!" MOMENT, a point in time when the light bulb in your head comes on and you experience a revelation. Kym Jefferies had such an epiphany when she got a divorce some years back. She wanted a "quick, painless divorce that cost only $500," says Jefferies, 36. The divorce fee was, indeed, minimal, but the $10,000 debt she was saddled with after the settlement rocked her.

Jefferies admits that it was an uphill battle trying to pay off the debt--mostly credit cards in her name--that her ex-husband helped to create. But she made sacrifices to rid herself of the debt. She says divorce has a way of clearing your head; slammed with a massive debt, she realized it was time to "play grown up," and her finances were a good place to start. Now, she is debt-free and investing her extra cash regularly.

Investing is not just for rich folks. Investing is for anyone who wants to see his or her money make money. This guide takes the guesswork out of how to get started. In Part 1 of this series on Investing, we'll show you how to get into the stock market, gain knowledge, and understand the process.

DON'T WAIT TO GET IN

When Jefferies started investing at age 22, she was earning only $13,500 as a mortgage claims processor. "I worked there for two years and invested the minimum, around 1% to 3% [of my salary]," says the single mother. Now, she puts away $200 per month in her current company's 401(k); her investment is worth $13,000. She still invests the minimum--3% to 5%--reasoning, "depending on your age, you can invest close to the minimum," because time is on your side. Using that logic, she borrowed $3,000 from her account 10 years ago, which slowed her 401(k)'s growth. Now a senior accountant at Westcon Group Inc., a distributor of connectivity devices, Jefferies says she will be talking to an advisor about investing outside of her 401(k). Recently she began saving for 9-year-old daughter Bria's college education by investing $50 each paycheck in a Galaxy fund through Fleet Bank.

Regardless of how much you invest, the point is to start now. According to the 200i Ariel Mutual Funds/Charles Schwab & Co. Inc. Black Investor Survey: Saving and Investing Among High Income African American and White Americans, African Americans are almost twice as likely to invest when their income increases from $75,000 to $100,000, while whites invest at similar percentages at either of those incomes levels.

Says Mellody Hobson, president of Ariel Capital Management Inc./Ariel Mutual Funds (No. 3 on the BE ASSET MANAGERS list with $5.2 billion assets under management), in Chicago, "If people put off investing by saying, `I'm waiting to know everything I can [and to make more money],' they'll never get there and they will have squandered a wonderful wealth-building opportunity."

To get started, inquire about your company's employer-sponsored plan. Contributions are pretax, you choose the investments, and it's professionally managed. Some employers even match contributions up to 100%. The money may be placed in a mutual fund or company stock.

If you think you don't have enough cash to invest, think again. For example, if you spend $5 a day on lunch, that's $25 a week, or roughly $100 a month. If you were to brown-bag your lunch, you could put that money into an account where it's growing tax-deferred, your taxable income would be reduced, and you'd be investing in your future. Under that scenario, the $100 invested each month in a mutual fund with an 8% return compounded annually would grow to $7,602.12 within five years.

Jefferies tries to keep a healthy attitude about investing. She lost 5.6%, or about $800, over the past year, but, she claims, "I don't take it [the downturn] that seriously." Investing in the technology sector has hurt her investments, but, she explains, "I'm willing to take risk."

GET THE KNOWLEDGE YOU SEEK

Investing is not rocket science. Beading publications such as BLACK ENTERPRISE (call 877-WEALTHY to receive our Wealth Building Kit), The Wall Street Journal, and Investor's Business Daily will take the mystery out of investing. Or check out fool.com from those jokers at The Motley Fool to learn about the inner workings of the stock market. The key is to find information that's at your level. If you're a first-time investor, read Wow the Dow: The Complete Guide to Teaching Your Kids How to Invest in the Stock Market by Pat Smith and Lynn Roney (Simon & Schuster, $14). Also, speak to friends, family, and colleagues who invest. The more you talk about investing, the more comfortable you'll become.

William Montier, president of Complete Computing Services, a technology consulting firm in Columbia, Maryland, says he has a firm grasp of the financial markets. In August 1997, the former Bell Atlantic employee began investing in the AIM Constellation Fund (CSTGX), using dollar-cost averaging, a system through which you invest money at regular intervals over time. He began by contributing $25 per month. In July 1999, he rolled over his 401(k) account, which was worth approximately $16,000, into the Van Kampen Emerging Growth Fund (ACEGX). In August 1999, he sold his AIM Constellation Fund and invested the entire $1,700 in the Van Kampen Technology Fund (VTFAX) at $11 per share.

Montier, 36, then used the investments to make his dreams come tree. Under the guidance of Martin A. Smith, a financial consultant with A.G. Edwards & Sons Inc. in Columbia, Maryland, he sold 70% of his Van Kampen Emerging Growth Fund, using $15,000 as start-up money for his business and applied $5,000 toward the purchase of a home in January 2000. He also sold his entire Van Kampen Technology Fund holdings at $23 per share for a total lump sum of $3,554.55, which covered his moving and furniture expenses.

"Since we exhausted the majority of his mutual funds for his business and home, our plans are to immediately implement an IBA for the self-employed, where he will be able to invest approximately $25,000 per year, tax deferred," says Smith. Montier also continues to maintain a taxable investment account made up of stocks and mutual funds, which was worth about $5,000 in July.

Montier says he started investing because "that's the only way to grow wealth." Smith takes that thought a step further. He says financial planning should precede investing, but many people do the opposite. "Investing is a business," he cautions, "if you don't have any navigation, you don't know where you're going."

But do you have to know everything before you invest? Many financial experts say no. Financial planners are out there to help you, and good ones will teach you along the way. Whether you'd like to meet short-term goals like saving for a down payment on a house, or long-term goals like a retirement nestegg, investing for the long term can make it all possible.

THE SLEEP FACTOR

Knowing your "risk tolerance" will help you choose investments that allow you to sleep at night. "The longer you have [until retirement], the greater your risk tolerance, generally," says Eugene A. Profit, portfolio manager of the Profit Value Fund (PVALX) in Silver Spring, Maryland.

Why? Because in the long run, a mutual fund, for example, is likely to outperform a certificate of deposit (CD), which means you get a higher return on your money. When investing in low-risk, low-yield securities such as CDs, you want to make sure the investment beats inflation. Inflation is the increase in the cost of goods and services. For example, "If you buy a CD that yields 3% and hold it for 20 years, even the cost of a stamp may have increased from 20 cents to 34 cents [which is a 70% increase], but your CD returned the same 3%. So it's a loss of purchasing power," explains Profit.

Dr. Leslie Simmons and Oswald Warner Jr., D.D.S., like to consider themselves aggressive investors--at least Leslie does. And since she handles the family's finances, many of their investments are higher risk. "It's been a little bit nerve-racking to see your retirement money shrinking, but everyone says what you lose in the short run, you will eventually get back," says 37-year-old Simmons, an OB-GYN at Howard University Hospital in Washington, D.C. She and Warner, 39, a dentist who owns Warner Family Dental Centers in Washington, D.C., and Takoma Park, Maryland, began investing in 1996, several years after their marriage. Time and consistent investing have served them well; their portfolio is valued at $170,000.

The couple consistently contributes the maximum to their retirement plans. Currently, they put $1,600 a month into saving and investing. They're also researching education saving plans for their three children, Brandon, 10, Sloane, 7, and Austin, 3. Sixty-five percent of their portfolio is made up of her retirement plan at work and his SEP-IRA; 35% is stocks and mutual funds. Their holdings include the Profit Value Fund and Legg Mason Value Trust (LMVTX), as well as shares of Microsoft (Nasdaq: MSFT), Citigroup (NYSE: C), and Sun Microsystems (Nasdaq: SUNW).

Even though they estimate their portfolio lost 30% last year, overall they believe they have had good fortune and wish they had started investing earlier. "If you look at the power of compounding, the sooner you start saving, the less you have to save on the back end," says Simmons.

TRUST THE PROCESS

According to Ibbotson Associates, an investment research and consulting firm in Chicago, the Standard & Poor's 500-stock index, the benchmark that tracks the performance of the stocks of 500 U.S. large companies chosen by S&P as representative of leading industries, averaged a return of 11% from 1926 through 2000. That's consistency over the long term that you can trust in.

Beginning investors should understand that investing is based on supply and demand. "The markets are a mechanism created by people who want to buy and people who want to sell," says Profit. "The markets exist because companies need capital." That need for capital gives you the opportunity to profit from the ingenuity and entrepreneurial spirit of others. So what are you waiting for? Investing is how wealth is created. Learn your lessons and reap the rewards.

A LIST OF RESOURCES TO HELP YOU GET STARTED

BOOKS

Black Enterprise Guide to Investing James A. Anderson (John Wiley & Sons Inc., $19.95)

The Wall Street Journal Guide to Understanding Money & Investing Kenneth M. Morris and Virginia B. Morris (Lightbulb Press, $16.95)

Investing in the Dream: Personal Wealth-Building Strategies for African Americans in Search of Financial Freedom Jesse B. Brown (Hyperion Books, $22.95)

ORGANIZATIONS

Coalition of Black Investors Check out www.cobinvest.com, an organization geared toward African Americans that promotes saving and investing. The site also highlights black professionals looking to serve our community.

American Association of Individual Investors At www.aaii.com, you'll find information on investing in stock and mutual funds, and portfolio management.

Mutual Fund Education Alliance Log on to www.mfea.com to find out everything you need to know about mutual funds. You can even set up a portfolio and monitor your favorite funds.

WEBSITES

www.blackenterprise.com

www.fool.com

www.investorwords.com

www.kiplinger.com
COPYRIGHT 2001 Earl G. Graves Publishing Co., Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2001, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Author:SYKES, TANISHA ANN
Publication:Black Enterprise
Article Type:Statistical Data Included
Geographic Code:1USA
Date:Nov 1, 2001
Words:1914
Previous Article:paving the way.
Next Article:WHAT THE NEW TAX LAW MEANS TO YOU.
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