Explaining Investing to Kids – Stocks, Proxy Statements

For my nephew’s 13th birthday, I transferred some shares of stock into a UTMA account for him under a dividend reinvestment plan (DRIP), and I’ve been using the investment as a teaching opportunity. Every time I get a statement or other correspondence about the investment, I forward it to him with a brief note explaining what it is and what it means to him and his investment. As I was crafting my latest email to him about the proxy statement we received, I realized that others trying to teach children about investing might appreciate reading my notes, too. So I lightly editted it to make a bit more cohesive for people without a knowledge of the background, and I offer it to you…

I got a message from Fortune Brands (Ticker: FO) and since you’re an owner, too, I wanted to share it with you.

In a small corporation like mine (I own an IT consultancy), I’m the sole owner, president, and most of the workforce. However, public companies like Fortune Brands are owned by thousands or even millions of individual investors like you and me. As owners, we get to control the company, but there are too many of us for everyone to be involved in the day-to-day operations – that would be crazy. Instead, we exercise our control by electing a board of directors to provide direction and guidance for the company. The board of directors hires a CEO for the company, and some of the other top officers, and those officers handle the day-to-day operations of the business.

You and I don’t participate in decisions about manufacturing, sales, shipping/receiving, hiring/firing of employees, payroll & benefits, business hours, or office locations – we leave that to the company’s officers, who are selected by the board of directors you and I elect. Since we don’t get involved in the daily grind, the company produces annual and quarterly status reports for us about its activities, successes, and failures. An annual Proxy Statement asks for our votes for the board of directors and for our input on a limited few additional important issues. We can submit our votes by mail or over the Internet, or we may attend the meeting in person in Illinois at the end of April.

I’ve attached the company’s 2010 Proxy Statement (omitted from this article), containing information about their upcoming shareholders’ meeting. It’s going to seem very confusing, but don’t worry – I don’t need you to read the whole thing – I just wanted to show you something on one page of it…

Board members have a limited term, so we’re voting to replace the ones who are expiring this year. Knowing who to vote for can sometimes be a difficult matter. Different people approach this different ways. All of the candidates being offered to us have been selected by our existing board of directors, so they are people that our board thinks we’ll like and will be a good fit with the other board members. For many owners, that’s good enough, and they just go with the board’s recommendation, especially if they’re happy with the way the company has been running. Other owners may do some research into the resumes and past experiences of the various candidates before deciding.

I approach it a different way: I want the board members to have my interest at heart, and that is that I want my investment to increase in value. To be sure that they have the same interest, I look for candidates who, themselves, have large investments in the company’s stock. If you open the attached PDF file and flip to page 60 (sorry, readers – just imagine it), you’ll find a table entitled “Certain Information Regarding Security Holdings” that reveals this information. The table shows the number of shares owned by each officer and director of the company, and by multiplying these numbers by the share price, I know how much money each of them has invested in the company. I only vote for those with sizable investments. Today, it was all of them, but I always check because I’ve occasionally seen candidates who own few or even no shares of the company.

Besides the election of directors, the proxy statement goes on to ask for our votes on several other items, such as approving an auditor, approving a change in voting requirements, and approving a plan to pay directors with additional stock. I like the way the board has been handling things, so I voted in favor of all of their requests.

There’s one last special item on the list, too. As owners of the company, you and I have a right to propose our own issues to be put forth to vote upon by the other shareholders. The last item on the list is one such proposal from another shareholder. He wants us to make a rule that anytime 10% of the shareholders feel strongly about something they may call a “special meeting” of all of the shareholders, rather than wait for this once-a-year regular meeting to discuss and vote on the matter. It’s the sort of thing you’d like to be able to do yourself, but it could start to get expensive and disruptive for the company to have to send out announcements, reserve auditoriums, and arrange flights and lodging for executives every time a vocal minority wanted to talk about an insignificant issue. I voted against it.

As the custodian for your shares, they sent me a single proxy statement for the total of both your and my shares, so I’ve already voted for both of us. In the future, when you’re old enough to control your own investments, the responsibility of voting on these issues will rest with you. If you have questions, I’m always happy to help.

New Book Offers Practical Tips for Achieving Financial Security

In Your Money and You: How to Increase Your Chances of Achieving Financial Security, Deborah Ellis, a longtime Certified Financial Planner (CFP), offers readers a plethora of information about stocks, bonds, saving, investing, allocating your investments, and even individual advice for people in different industries. While the book is full of information, it’s also written in a highly accessible manner. Ellis shares her personal stories of how she began saving money as a child and young woman, how her aunt taught her how to invest and buy stocks, and how things have changed in the decades since she began saving. Her personal experiences then branch into her professional experiences with clients and with years of investing in the market.

I know investing can be scary and confusing, but that’s usually due to a lack of information or the fear that we won’t understand the information. As Ellis shows us, investing is really not that difficult. In fact, anyone who passed middle school math classes can figure it out. What is harder is to learn to save and to break some negative beliefs we may have about money so that we can quit solely working for money and learn to make it work for us. The book opens with a quote from Napoleon Hill, author of the classic book Think and Grow Rich, that states, “If you let it, you will be surprised at how money attracts money.” Nothing could be truer, and Ellis shows us how it can be true for all of us. She states, “I believe that today the stock market is a gateway to opportunity in America. I believe it is a way for almost anyone from any walk of life to build wealth and partake in the American Dream.” Your Money and You shows you just how to pass through that gate.

The book’s opening chapters teach us how to take on a leadership role with our money. Ellis helps us learn how to plan for retirement and what to expect. She walks us through the elements of a financial plan. Then she has us take a financial inventory of where we currently are so we know what we have to work with and what is required to reach our goals. She teaches us how to develop a saving and a spending plan, and finally, how to assemble a team to help us, a team that may include an accountant, a financial advisor, maybe a lawyer, etc. We do not hand over our financial affairs to these people, but rather, we learn to lead them so they can help us achieve our goals. Ellis warns us “if one of your team members has different priorities, a bias, or wants you to go in a direction you don’t agree with, you need to find another team member!” That’s just one example of how Ellis tells it like it is. Another example I love and know is very true is that “If you want to charge something you cannot pay off in full, you cannot afford it.”

Next, Your Money and You gets into all the meat of investing. Ellis walks us through the power of compounded interest and how investing over time can benefit us. She explains to us the differences between stocks, bonds, and mutual funds. She clarifies just exactly what the stock exchange and market indices are, and she teaches us how to understand how different companies and their stocks are rated.

Once Ellis makes sure we understand the market, she gets into the more personal aspects of investing. She helps us understand our risk tolerance for investing, how to diversify our assets, and all the various scenarios we might encounter from inheriting money to winning the lottery and, ultimately, how to go about retiring.

The book closes with some chapters for people in special situations, including those in the military, those in industries like film and television where you may go from feast to famine at different times, and those who are self-employed. A bonus section includes several articles on how to achieve financial security.

Your Money and You is the perfect book to get you started with saving and investing your money. Don’t put off reading it; it’s time to invest in yourself. As Ellis warns us, “money is not static. If you nurture it, it will grow. If you neglect it, you will end up with very little. It is up to you.” Furthermore, Ellis tells us “Investing is not difficult. Developing an investing mindset might take a little more effort.” Your Money and You can help you develop that mindset, and once you do, your money will begin to work for you so that, ultimately, you will not have to work.

Tips for Avoiding Investment Fraud

Investors should always be on alert for investment scams. FINRA published an alert to warn investors about classic types of investment fraud and help them spot and avoid the persuasion tactics fraudster’s use. The following information is taken from that article:

Types of Investment Scams

Investment scams can take many forms, but the most common securities frauds tend to fall into the following general schemes:

  • Pyramid Schemes: Where fraudsters claim that they can turn a small investment into large profits within a short period of time, but in reality, participants make money solely by recruiting new participants into the program. Pyramid schemes eventually fall apart when it becomes impossible to recruit new participants.
  • Ponzi Schemes: Where a central fraudster collects money from new investors and uses it to pay purported returns to earlier-stage investors rather than investing the money as promised. Ponzi schemes tend to collapse when the fraudster can no longer attract new investors or when too many investors attempt to get their money out.
  • Pump-and-Dump: Where a fraudster deliberately buys shares of a very low-priced stock of a small, thinly traded company and then spreads false information to drum up interest in the stock and increase its share price. The fraudster then dumps his shares at the high price and vanishes, leaving many people with worthless shares of stock.
  • Advance Fee Fraud: These scams generally begin with an offer to pay you an enticingly high price for worthless stock in your portfolio. To take the deal, you must send a fee in advance to pay for the service, but then you never see your money again.
  • Offshore Scams: These scams originate in another country and target U.S. investors. Offshore scams can take a variety of forms, including those listed above. Unfortunately, whatever form an offshore scam takes, it can be difficult for U.S. law enforcement agencies to investigate fraud or rectify harm to investors when the fraudster acted from outside the country.

Red Flags of Fraud

To avoid being drawn into a scam, look for these warning signs:

  • Guarantees: Be suspect of anyone who guarantees that an investment will perform a certain way.
  • Unregistered products: Many investment scams involve unlicensed individuals selling unregistered securities.
  • Overly consistent returns: Any investment that consistently goes up month after month, or that provides remarkably steady returns regardless of market conditions, should raise suspicions. Even the most stable investments have hiccups once in a while.
  • Complex strategies: Legitimate professionals should be able to clearly explain what they are doing. It’s critical that you understand any investment you’re considering.
  • Missing documentation: If someone tries to sell you a security with no documentation, he or she may be selling unregistered securities.
  • Account discrepancies: Keep an eye on your account statements to make sure account activity is consistent with your instructions and be sure you know who holds your assets. Fraud can more easily occur if the advisor is the custodian of the assets and keeper of the accounts.
  • A pushy salesperson: No reputable investment professional should push you to make an immediate decision about an investment, or tell you that you’ve got to “act now.”

If you’re able to identify red flags of investment frauds and you know some of the most common types, you’ll be better equipped to avoid these types of scams and protect your financial future.

Do I Need A Real Estate Investing Course?

Taking a real estate investing course will introduce lots of helpful information needed in today’s market. Most investors find that their motivation and desire to succeed is all the help needed. However, there are some that may need additional guidance with their projects. The real goal is understanding the basics of real estate investing (REI). These basics are essential to being successful in this business.

For starters, here are a few things that an investors course will teach:

Negotiations: As you begin investing, you will find that negotiation is a major aspect of these investments. In terms of time, negotiation may seem like a small part of an extensive process, but the rewards resulting from negotiation can be quite financially rewarding. Learning to negotiate through courses will prove beneficial during your endeavors with investing.

Using Trusts: Trusts involve companies that channel real estate transactions with investors in a way that is more profitable. By using trusts, you can operate with less taxes while protecting your assets in the event of a dispute. If you are a new investor, trusts may seem like an undesirable and unnecessary investment tool, but the effective form of protection offered by this system can easily prove worthwhile.

Managing Your Real Estate Investment: Owning a real estate investment can be a financial burden, and can be a headache even more so if you are uninformed about how to manage your investment. When managing a property, you are essentially operating a home-based business. The overall nature of real estate investing requires investors to incorporate proper management techniques in order to be successful. REI courses provide a detailed outlook on management, an unrivaled perspective that can only be given from experts who have managed real properties.

How To Buy and Sell: REI courses will provide worthwhile education about buying and selling properties, such as information on financing your purchase or tips for finding the best deals. If you are a beginner, it will be difficult for you to access this information without the help of an experienced source. Since this stage is the first in finding good investments, it is important that you learn these tips about buying and selling before you actually get started.

General Tips & Information: There are many insignificant aspects of real estate investments that can actually be very important when conducting business. REI courses contain information that, while trivial, can be just as important to success in the long run. These courses serve as a source for information that is often times unobtainable elsewhere.

All in all, the resulting advantages of consulting with REI courses are countless. The knowledge you learn will advance your success both directly and indirectly, as each piece of information will help you to acquire useful techniques while simultaneously gaining valuable experience in investing. Investors of all calibers will find that REI investing courses are a more than worthwhile tool in your real estate business.

Five Basic Tips for Investing in Real Estate

There are a lot of things to learn in Real Estate before you start investing. In fact, investing in Real Estate is much more complicated than the stocks investing. That is why Real Estate has become the common investing area for many people and thus have become more popular over the years. One needs to have financial and legal knowledge before investing in the Real Estate.

So, here we are providing you five basic tips which helps you to familiarize yourself with the basic concept of Real Estate.

1. Location:

Location Matters which is an old age saying perfectly suits when we think of the investing in Real Estate. The first thing you should make sure while investing in a property or proceeding forward is whether it is located in a good place or not.

If it is the best location, it can be the worst house there, but that doesn’t matter as you can just fix the issues or resell it to someone who wants a house in the best location. This is called as the Fixing and Flipping formulae by the professional Real Estate investors.

2. Wholesale properties:

Being wise is also very much important while investing. You need to follow the Warren Buffet formulae from the stock market investing which says “You need to be greedy, while everyone else is feeling fearful.” You need to look out for the wholesale properties that are being offered at great discounts and thus avoid paying full prices.

Using this technique, you can buy the property at low price and keep the selling price twice the buying price which helps you in maximizing your investment return.

3. Connect with local investors:

Hanging out with the local investors and talking with them about the local Real Estate market will help you in knowing the things better. Ask them to show their properties and take in every single bit of information they give you.

4. Reading helps a lot:

There is a tremendous amount of information available online these days. You can also gain information that you may need regarding the Property field and investing as well. Buy and read books that give you practical knowledge about buying, flipping, renting and selling the properties.

5. Find a good Realtor:

This is the best part. When you are all set and finally ready to invest in some property, then a Realtor is the person who helps you with it. And a good Realtor who understands the concept of investing returns and also have sold a number of properties can be the best choice.

Property investment can offer fabulous returns, but there are also people who are bankrupted after investing in Real Estate. It is all in your hands, so be sure and know everything involved before you invest.