Boosting financial literacy: How to talk money without getting a headache
Or: How to talk money without getting a headache
Monday, February 9, 20091
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Some years ago, Mary Paige met with a financial planner about possibly investing some money. As the meeting went on, Paige recalled, the planner realized she was struggling with terms he used. He made an effort to help. Instead of producing a complex portfolio loaded with details, figures and projections, he produced something more user-friendly.
"I got a quite nice-looking folder with three pages in it. Each page had one very large pie graph with one 48-point font caption. One said "Large Cap," the next "Small Cap" and the third "Cash,"" Paige said with a laugh.
Since then, Paige, of Williamsburg, has become more familiar with basic financial terms like "mutual funds" and "certificates of deposit." But, like many people across the Pioneer Valley, finance is not her area of expertise, and she is not comfortable navigating the deeply layered world of investments. Now, as the economic crisis endures, she and others, like Wendy Hart of Florence, aren't quite sure what, if anything, they should do with their money. Two local financial advisers spoke about how they help clients make sense of it all.
"Most people are overwhelmed by their investment choices and what to do in this market," said Paul Hillsburg, a financial executive with PeoplesFinancial and Insurance Services and Infinex Financial Group, with securities offered through Infinex Investments Inc. Member FINRA/SIPC. PeoplesBank has 15 branches around the Valley. Hillsburg, 50, who is based in South Hadley, says he begins with new clients, by helping them shape a life financial plan.
"I want to know who they are, how they are currently investing, what their goals and dreams are," he said. "What can they afford to invest and what type of risk are they comfortable with? Do they have savings strategies for the short- and long-term? Do they have a 401(k)? Do they have kids in school? Are they winding down, close to retirement?"
Using that information, Hillsburg helps formulate a retirement and investment strategy, loosely shaped in five-year blocks. For example, he asks clients, "What money do you need to have available in the next five years?" That money must be kept somewhat "liquid," a term he defined as money readily available as cash without penalties attached. Savings accounts, and maturing CDs meet that criterion, he said.
Those with money they don't need within five years might invest in the market, which can bring greater returns - and greater risk. When considering which investments to suggest, Hillburg said, "I ask people what their risk tolerance is and when they will need their money." Risk tolerance, Hillsburg said, means how much uncertainty an investor can handle with regard to negative changes in the value of their portfolio.
The biggest mistake people make when they are pondering investments, Hillsburg said, is that they try to time the market or take too much risk.
"An important lesson I've learned over the past years of market cycles is that no one rings a bell signaling the top of a market, and no one rings a bell at the bottom. I do know that the market will eventually recover and investors who stay the course will be better positioned to participate in that recovery."
Financial adviser Mark Brannigan echoed Hillsburg's thoughts. Brannigan is a senior financial adviser with Ameriprise Financial, and serves clients throughout Hampshire County.
"I try to take the emotion out (of investing)," Brannigan said. "In bad years, it's not what you make, it's what you keep."
Brannigan, along with Hillsburg, stressed "rebalancing" financial portfolios once or twice a year. That means rechecking investments with an eye toward keeping all asset allocations in balance. "Keep everything in context," Brannigan said. "If you rebalance (regularly), over time you'll have a better average return with less risk."
Hillsburg and Brannigan stressed that diversity is key to investing. Creating a broad base that puts money in both high- and low-risk investments helps ensure a firmer financial foundation, they say.
Uneasy about Wall Street
Paige, 56, the library director at Williston Northampton School in Easthampton, said she has come to feel a sense of disquiet about the stock market, a system whose strength she never previously questioned.
"You don't really pay attention (to the market) because everything was always growing. But now, I have a vague fear, like something is happening (that we don't know about), that what we've been told isn't true," she said. "It feels like the world is shifting." Paige has two children, one in college, the other a senior in high school.
"I basically have always had faith that things will improve," she said.
"It comes from a lifetime of believing that."
Though she does have some investments, she keeps things simple, mostly because it all seems so complicated. "There are so many choices," she said, referring to ways to invest.
Meanwhile, Wendy Hart, who lives with her family, James Hart, a carpenter, and their children Kristen, 16, and Lori, 12, in Florence, considers the stock market a bit of a blur. "If I had a chunk of money, I would have no idea where to put it," she said. "I'm not even sure about banks anymore.
"I don't really know about Wall Street, Dow Jones," she said. "It's up, it's down. I don't know what it means, specifically." Hart, who works at Different Drummer in Northampton, recalled the day last October when the Dow Jones Industrial Average plunged nearly 800 points.
"I knew it was bad, but somehow I felt removed. I don't have money in the market. I'm more interested in the price of food and gas."
Asked what she would do if she were to invest money, Hart said owning property seems like a sound investment, though that is beyond the family's means right now. More realistically, she said, "I guess I would look into a Savings Bond. When I was young, that's what my grandmother did for me."