Investing in America

Investing in America through saving

By Randy Kielan

In the textbook Economics Today, it defines Economic Freedom as the following: The rights to own private property and to exchange goods, services, and financial assets with minimal government interference, therefore known as the free enterprise system. Our Forefathers established this concept when authoring the Declaration of Independence, which states the following: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights that among these are Life, Liberty and the pursuit of Happiness. —to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed”. It is my understanding that it is our obligation as citizens to support these principles in order to preserve the existing Free enterprise system as we know it today. We as individuals can do this through “Saving”, which Economics Today defines as the following: The act of not consuming all of one’s current income. Saving is an action measured over time. Our government provides us with an incentive, in the form of a tax deduction, to encourage this behavior. We can also defer paying taxes on the gains our savings earns through interest paid, or equity and dividends earned from stock and mutual funds investments. Benjamin Franklin wrote the following quotes: “The Declaration of Independence only guarantees the American people the right to pursue happiness. You have to catch it yourself. And, “God helps them that help themselves”. You can enroll in a 401k or similar tax deferred investments through your employer, most companies provide this option, or you can open a 401k retirement account with your bank or a discount broker, such as Charles Schwab, or E-Trade. By setting up a regular payroll deduction you will be helping yourself with lowering your income taxes and also by putting away savings for your retirement years. Another quote from Benjamin Franklin, “A penny saved is a penny earned. And “Creditors have better memories that Debtors”. Businesses need money for expansions and they can raise this from the sale of bonds or stocks, and as they grow we as a country can grow our supply to keep up with the demand, expressed in Gross Domestic Product. Factors for economic growth include Labor, Physical capital, Education, and Capital and labor productivity which is the result of the combination of improved technology and a better educated labor force, both are a results of investments made with our savings, and time invested in continuing education. Here is a quote from our text book, Economics Today, “To have more consumption in the future, you have to consume less today and save the difference between your consumption and your income". This applies to how we save our money and how we also spend our time on continued education, both will result in a better future in the long run. There are many savings vehicles available for you to utilize. The first step recommended by financial advisers is to fill out a “Risk Tolerance” survey to determine an investment strategy that will match your comfort level and investment goals. This will help you both design the right combination of investment vehicles to achieve your financial objectives. You may include a mix of stocks, mutual funds, bonds, cd`s, and annuities in your portfolio. The stock of a business is divided into shares, the total of which must be stated at the time the business is formed. Given the total amount of the money invested into the business, a share has a certain declared face referred to as par value of a share, which is the minimum amount of money that the business may issue and sell shares for in many jurisdictions. A business may declare different types of classes of shares each with its own set of ownership rules and privileges. The type of stock that you and I would purchase is what is called a “Common Stock” the shares represent a fraction of ownership in the company and include voting rights, along with the right to share in dividend payouts per share. A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests it in stocks, bonds, short term money market instruments and or securities that is managed by a fund manager and or team, and the net proceeds/losses are typically distributed annually to the investor. Bond`s are a debt security, in which the authorized issuer owes the holder a debt and the interest if indicated and or the principle at a later date indicated by the maturity. The bond is a formal contract to repay borrowed money with interest at fixed intervals. You may also purchase a Certificate of Deposit, which is also a debt instrument in which you deposit a Minimum amount, depending on the institution for a fixed time, 3 months to 5 years, upon which time you will receive back your principle “amount invested” plus the agreed upon accrued interest you earned.
Investing in the stock market can bring the greatest return, however it can also bring you losses. My wife and I have experienced our net worth “on paper “drop , but since we had enough discipline and faith in our investments to NOT sell when they were undervalued we have recovered it, and as of last check we are back up showing growth in our account for the year. It isn’t easy seeing your account balances that you have saved up after many years, drop in a few days. It takes faith not to panic and press the Sell button to stop the bleeding. Mutual funds can be a nice way to enjoy the next best returns you can get from owning 1000s of shares of a hundred stocks, without having to have a massive amount of money to cover the cost of the portfolio. They can provide relatively good returns without you having actively to trade them like stocks, you may want to pick a large fund family such as Janus or Vanguard which have a large variety of funds for you to move your money appropriately to capture the gains and avoid the losses. As defined above, a Mutual fund is a professionally managed collection of stocks that is funded by a group of pooled investment money provided by its investors, and the gains/losses are shared by the investors, typically on an annual basis. You can pick a mutual fund made up of a group of stocks for a specific sector such as Health Care, or Financial sectors, to one made up of every sector that will tend to follow the stock market, called an Index fund, like the Vanguard Index 500 . Even the top mutual funds have bad years, so you do have to keep a watch on the overall economy conditions. The Website E-How says to go to successful Mutual fund websites and see which stocks they have in their portfolio then click on the stocks and check their performance, I have also found some great stock tips this way.
The first step as mentioned earlier, and is the foundation of sound investment choices, is do your research before you exchange your dollars for shares of stock. If you were wishing to buy a new car, you typically would not go and buy the first car that you saw with a for sale sign on it. You first would want to determine which type a vehicle best fits your life style, if you spend a lot of time surfing and mountain biking, you would probably be looking for a SUV to accommodate the transportation of your sports equipment, and then there is the price that you can fit into your budget. You purchase stock in the form of a share, like you would purchase gasoline in the form of a gallon. You and I would be purchasing what is referred to as a share stock in a particular company, which is the smallest unit of ownership in that company, which entitles you to rights for voting and to share in dividend payouts. When the media speaks of stocks being up or down, they are referring to “Common Stock, for which is the majority of stock held by the public. Thanks to the internet and online Brokers, you can buy and sell stock from your cell phone or computer, as well as get text messaging for stock prices as well as trading volumes that you have set up. You can set up a stock watch to text message you with alerts for stocks you select to watch and receive a text message for when they hit your Low/High price, so you can ether purchase or sell the shares. I have mine set up with Yahoo, and my Online Brokers. Yahoo is free and you can do stock research and build your portfolio to watch for the High/Low prices you have determined from your research, and once you are ready to put your finding into action, you can set up an account at one of many Online brokers. You can set up your account without an immediate deposit, and link it to your bank, for transfers. Each Online Broker may have different minimum deposits and transaction fees, so please read and compare to find the one that best fits your investment strategy. The minimum deposits are the lowest for a new or Roll over IRA accounts. A Roll over IRA would be from and old Employer sponsored retirement plan, and once you have opened your new account you can contact them to have them close out, “sell off your investments” there and send the proceeds to your new account. I have mentioned the fact that you are cashing out, to highlight that you want to pay attention to the market price that you are agreeing to except for your current investments, I had to wait for 7 months for the for one of my accounts, due to the fact that I anticipated that they would go up in value if left alone, as they happened to do, then I had them cashed out and they sent me the check to deposit in my new account. And here again, I waited for my low price alerts to tell me which stock to buy and when to buy it, which took a few months for me to be reinvested in the market.
One of the ways investors classify stocks is by the type of industry. The overlying concept is to group companies into the same type of industry for comparison, this applies to the apples to apples concept. These are generally referred to as sectors. Joshua Kennon at About.com, in an article about stocks mentions that investors consider two of their sectors “Defensive” and the other remaining nine to be Cyclical. Defensive stocks tend to be more stable in down market conditions due to consumers still need to eat and use electricity. In our textbook this is the part of the Autonomous consumption mentioned. Defensive stocks include utilities, and consumer staples, which would include PG&E, Verizon, ATT, Kroger, Kraft foods, Target, Wal-Mart, ect.
Warren Buffet said, he doesn’t know if the market will be up or down, or sideways next month or even a few years from now. But he does know that there will be intelligent things to do in the mean time. Not everything is gloom and doom, the collapse of the dollar has been magnificent for Multinational firms like Coca Cola, General Electric, Proctor and Gamble, and Tiffany and Company that have been able to ship money back from overseas markets, into cheaper greenbacks. Just remember there is a buyer and seller for every financial transaction. One of those parties is wrong, and time will tell which one got the better deal. In view of Mr. Buffets first comment that there will be times of Doom and Gloom, we can relate this in Economic terms as a contraction period, and in biblical terms, a time to plant and a a time to harvest. I am hinting here that this is the time to make your lemonade. We will check out Warren Buffets second comment for example by looking at Tiffany and Company to see how it has responded to the value of the dollar.


As mentioned above, when the US dollar is weak, the Multinational companies export sales tend to go up due to the increased buying power the people in the countries with relationally stronger currencies live. It also should help our tourism industry, let us take a look.

It appears to be relationship brewing here, and it is an inverse one, the lower the dollar value trend since July is shared by an upward trend in the Hotels, restaurants and Leisure industries. I also checked on Windham Worldwide WYN and Carnival Cruises CCL to see how they have responded and both have an identical relationship to the value of the US dollar since July. There are other factors of course that may be influencing the tourism, such as when other countries take their holiday`s and also their economic climate. These stocks would be considered a cyclical stock and Consumer Cyclical industry, Charles Schwab has it under Consumer discretionary category group. According to Joshua Kennon there are nine sectors that are considered cyclical: Basic Materials, Capital Goods, Consumer, Cyclical, Energy, Financial, Health Care, Technology, and Transportation.
Now as far as Warren Buffets comment about financial transactions, every investor I know has been in both positions, the key is to work with what decisions you have made and make lemonade out of the lemons we have. As for me, prayer for guidance and wisdom combined with the faith and patience to act accordingly has been working extremely well. As quoted by Benjamin Franklin, “God helps them that help themselves”. And George Washington said,” It is impossible to rightly govern the world without God and the Bible”. I have found that the same sources mentioned by our forefathers and my personally know ancestors still work very well today.
In summary there are many savings vehicles available for us to utilize. The first step recommended by financial advisers is to fill out a “Risk Tolerance” survey to determine an investment strategy that will match your comfort level and investment goals. This will help you both design the right combination of investment vehicles to achieve your financial objectives, as well as to introduce you to the many types of investment vehicles available. You may include a mix of stocks, mutual funds, Bonds, or even Bond Funds. You can still set up an online account at one of many Online Brokers and, for example at Charles Schwab where you can purchase these stocks, Mutual funds, Cd`s, Bonds and more. These websites also have research tools for comparing the investment vehicles mentioned above as well as the alerts I mentioned so you will always know when your stock is at your buying or selling price. I am now going to share two principles that have worked for our forefathers and for my family for many generations. I refer to the same teaching`s our forefathers had when they designed this system. For the first principle to help you determine how to invest when the market is up or down, or in Economist terms, in a contraction or a peak, when we are in a contraction, we want to plant, hence buy stocks, or make lemonade, and during a peek we want to harvest, hence sell or stocks, or drink your lemonade. For the second principle there also will be times of sideways movement, when we apply the principle of, we are to “Feed the poor”. In economist terms, this is where we are to look for stocks that are undervalued. There will always be stocks out there that are undervalued, and by using the research tools that are provided to members at websites such as E-Trade, or Schwab, which also provide their members with free classes on how to use them to find these undervalued stocks, and also determine the high/low limits to setup for your alerts for when you are to buy and sell them.

Sources:

Websites: About.com, Joshua Kennon, and Website: Wicikipedia.org
Website: https://www.schwab.com
Book: Americas Founding Fathers
Book: Economics Today, The Macro View
Principle reference`s mentioned above: Holy Bible, KJV
By Randy Kielan