Finding Ways To Save For Retirement
http://www.WomensJournals.com/articles/43/1/Finding-Ways-To-Save-For-Retirement/Page1.html
Sandra Reynolds, CFP
Sandra Reynolds, CFP® specializes in the financial issues affecting women and their loved ones.
Sandy has been a guest speaker and participant at the State Treasurers’ Money Matters Conference for Women in Massachusetts and Maine. She has also been quoted in articles for “Investment Advisor”, “Financial Planning”, and “The Journal of Financial Planning” magazines as well as appearing on WOMR 92.1 radio. She is a retired teacher and adjunct faculty for the College of Financial Planning.
Sandra Reynolds, CFP® welcomes clients from all walks of life with varying income and net worth levels. She offers clients a safe, relaxed and non-judgmental atmosphere where they can explore their values, goals and life plans.
Securities and Investment Advisory Services Provided through Capital Analysts Incorporated Member FINRA/SIPC.
Please feel free to contact Sandy at 508-636-6521 or visit www.reynplans.com
By Sandra Reynolds, CFP
Published on 01/2/2007
Let’s talk about the importance of saving for retirement and finding ways to do that. I often have clients come in who want to “invest” but don’t really understand what that means. In this issue we’ll look at what investing is, what it isn’t and what your options are.
Finding Ways To Save For Retirement
Let’s talk about the importance of saving for retirement and finding ways to do that. I often have clients come in who want to “invest” but don’t really understand what that means. In this issue we’ll look at what investing is, what it isn’t and what your options are.
What does “investing,” mean?
Investing is buying something that you think will increase in value over a period of time. It is usually one of three things; stocks, bonds or real estate. You’ll notice that I didn’t include cars, dolls, furniture or anything else that people tend to collect. We call those “collectables” and don’t classify them as investments because there is no organized national market that can be followed and analyzed to determine the value of an object.
Investing is not putting your money under the mattress or in a savings account at the bank. Money that is in a bank or money market should be for immediate bills or for an emergency fund, not for investment. Whatever money you set aside for investing should be money that you won’t need for a long time (5 or more years).
What are stocks and how do they work?
Stock is simply ownership in a company. Let’s say you start a widget company, The Amazing Widget Company (AWC), out of your home. You hire one, then two, then more employees to help you make these widgets. You move out of your home into a building so you can make even more widgets. Widgets suddenly become the hottest thing on the market and you need to grow to keep up with the demand.
You have two choices, borrow money or sell part of the company to raise the money you need. When you sell part of the company you can do it through an Initial Public Offering (IPO). That means you are offering stock (shares) of ownership in AWC to the public. Of course you’ll keep most of the stock (shares) for yourself but let other people buy some so that you get the money you need. One share of stock equals a percentage ownership of the company. If there are 100 shares of stock in the AWC and you offer to sell 40 shares, you still own 60% of the company and you’ve raised money to help expand the company. Once that’s done, the stock (shares) of AWC can be bought and sold on public markets like the New York Stock Exchange (NYSE).
How does the Stock Exchange work?
The stock exchange is really nothing more than a giant auction. What happens at the auctions you’ve been to? People bid on objects that are offered for sale. If more than one person wants it, the price goes up. That’s what happens on the stock exchange.
Picture this: you are in the Gobi desert with 10 other people. You’ve been stranded for 3 days, the temperature is 110º and you are the only one who has water. You offer sips of the water for money. Will you take the first price offered or will you wait to see if someone else will pay more? Why would someone pay more than someone else? Because there is only
so much water available and everyone wants it. This is supply and demand and this is basically how the stock market works.
If you own stock in AWC and everyone wants to buy it, the price of the stock will rise for the same reason that you waited for a better price for your water. Now picture that you are with the same group of people and it has suddenly started raining. Do you think you’ll be able to sell your water
for the same price as before or will you have to drop your price? That’s what happens when someone wants to sell his or her stock but there isn’t much interest in it. They have to lower the price in order to get someone to buy it.
Is that the only reason stock goes up or down?
No. Just like water has value (we can’t live without it), companies have value in the things they own and make. The movement of the price up or down can be because of supply & demand; something has happened at the company, the owners of the stock just got nervous or any other reason. There are many variables to the market but, at its most basic, it is an auction.
This sounds complicated. Is there a way for me to invest without picking individual stocks?
Yes. The easiest way to invest in the market is through mutual funds that invest in the stock market. For more information about mutual funds or if you would like to get started in investing for your future, contact a proficient financial planner.
What does “investing,” mean?
Investing is buying something that you think will increase in value over a period of time. It is usually one of three things; stocks, bonds or real estate. You’ll notice that I didn’t include cars, dolls, furniture or anything else that people tend to collect. We call those “collectables” and don’t classify them as investments because there is no organized national market that can be followed and analyzed to determine the value of an object.
Investing is not putting your money under the mattress or in a savings account at the bank. Money that is in a bank or money market should be for immediate bills or for an emergency fund, not for investment. Whatever money you set aside for investing should be money that you won’t need for a long time (5 or more years).
What are stocks and how do they work?
Stock is simply ownership in a company. Let’s say you start a widget company, The Amazing Widget Company (AWC), out of your home. You hire one, then two, then more employees to help you make these widgets. You move out of your home into a building so you can make even more widgets. Widgets suddenly become the hottest thing on the market and you need to grow to keep up with the demand.
You have two choices, borrow money or sell part of the company to raise the money you need. When you sell part of the company you can do it through an Initial Public Offering (IPO). That means you are offering stock (shares) of ownership in AWC to the public. Of course you’ll keep most of the stock (shares) for yourself but let other people buy some so that you get the money you need. One share of stock equals a percentage ownership of the company. If there are 100 shares of stock in the AWC and you offer to sell 40 shares, you still own 60% of the company and you’ve raised money to help expand the company. Once that’s done, the stock (shares) of AWC can be bought and sold on public markets like the New York Stock Exchange (NYSE).
How does the Stock Exchange work?
The stock exchange is really nothing more than a giant auction. What happens at the auctions you’ve been to? People bid on objects that are offered for sale. If more than one person wants it, the price goes up. That’s what happens on the stock exchange.
Picture this: you are in the Gobi desert with 10 other people. You’ve been stranded for 3 days, the temperature is 110º and you are the only one who has water. You offer sips of the water for money. Will you take the first price offered or will you wait to see if someone else will pay more? Why would someone pay more than someone else? Because there is only
so much water available and everyone wants it. This is supply and demand and this is basically how the stock market works.
If you own stock in AWC and everyone wants to buy it, the price of the stock will rise for the same reason that you waited for a better price for your water. Now picture that you are with the same group of people and it has suddenly started raining. Do you think you’ll be able to sell your water
for the same price as before or will you have to drop your price? That’s what happens when someone wants to sell his or her stock but there isn’t much interest in it. They have to lower the price in order to get someone to buy it.
Is that the only reason stock goes up or down?
No. Just like water has value (we can’t live without it), companies have value in the things they own and make. The movement of the price up or down can be because of supply & demand; something has happened at the company, the owners of the stock just got nervous or any other reason. There are many variables to the market but, at its most basic, it is an auction.
This sounds complicated. Is there a way for me to invest without picking individual stocks?
Yes. The easiest way to invest in the market is through mutual funds that invest in the stock market. For more information about mutual funds or if you would like to get started in investing for your future, contact a proficient financial planner.