Lipper Research Senior Analyst Don Cassidy on "Business for Breakfast" 1060 KRCN - Valentine's Day
Q. So, Don, you wanted to talk today about funds in relation to Valentine'sDay!???A. Right. I was just struck over the weekend by all the advertising tospend, spend, spend--and I thought about saving/investing!
Q. So, you're saying for people you care about, why not give the gift ofinvestments?...
A. Right--something that will be there after the flowers wilt. The chocolatejust goes to our hips, and we then must work to get rid of it. And so on.
Q. Something lasting!
A. Exactly. I was thinking, especially for young people--like our childrenand grandchildren--how a little invested each holiday can become a lot...
Q. And I'll bet you have some figures.
A. Of course. Suppose you invested $25 at each of just four occasions in ayear:
- Valentine's Day
- Easter or Passover
- Birthday
- Christmas or Hanukkah
That would be $100 in a year. If you did that for a newborn child, by the time the child is 63, that first year's $100 of gifts alone--if you earned just 8% per year on average--would grow to $12,800.Q. And if you did that every year...
A. It would become a huge amount. My point is: we spend so frivolously andeasily, but we don't often think about saving and investing...small amountsdo mount up!
Q. Right. A week or so back the Commerce Department said the nation'sconsumer savings rate for 2005 was minus 0.5%!!
A. Exactly, the worst since the great depression. We are justspend-a-holics.
Q. How can people change their habits and start reversing that trend?
A. It does take some deliberate work. But we all can find ways. Whether itis one less mocha latte per day, or brown-bagging lunch, or using coupons,whatever!
Q. Some people say the best answer is "pay yourself first."
A. Yes, a very key attitude to develop. If we say we'll save what's leftover, there may be nothing left over. But, if we take out the savings chunkfirst, automatically, then we do have it. And we work on the marginalspending at the end of the month to make the budget balance. The savingspart has to become not the buffer or equalizer at the end.
Q. Are there mutual fund groups out there allowing fairly small regularinvestments, so you don't need to start with a four-figure chunk?
A. Definitely--quite a few, too many to start naming on the air. A personshould call the 800 number of a funds family they like and simply ask. It'sfaster than plowing through the details at the back of the prospectus. Andthey can walk you through the form, to fill it out right. Many firms,particularly the no-load types, will open your account with a very smallfirst contribution if you agree to some sort of automatic, periodic,follow-on amounts.
Q. And doing it at work can provide some tax benefits, too, right?
A. Sure--if you have a 401(k) or similar plan. Of course, in such accountsit must be in your own name, so it technically could not be a gift yet tosomeone else. But the big advantage of a qualified plan is that it costsyou less in reduced take-home pay than what you actually set aside. Andthat's even before any employer match!
Q. How much should people be putting away?
A. That depends on individual circumstances, like your age, what youalready have, and what types of things you invest in. It you put it all inmoney funds, for example, you'll need to save more than if you buy equityfunds.
Q. And you believe in an annual "bump-up," right?
A. Definitely! Whatever you're putting away now, once a year add another 1%to that percentage. It's pretty painless that way. If everyone did that,our savings rate would turn positive in 2006!
Q. Don, if everyone took that advice, consumer spending would slow down andwe'd probably have a recession!...
A. I'm not overly worried. Unless your transmitters at KRCN have gotten alot more powerful since last week, and unless everyone in the countrysuddenly turns into big savers overnight, I think consumers will keep theeconomy rolling along just fine. But if we do have a recession, invest inhigh-quality bond funds then.
Q. For a first-time investor what types of funds would be good startingchoices?
A. The life-cycle funds--with a date in their names that matches when youexpect to retire--are an easy choice. Or if the group you like does notoffer those, a balanced fund can be a good first choice that will helpprevent your having to agonize and analyze, which could delay your actuallygetting started now.
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Don Cassidy is a Senior Research Analyst at Lipper specializing in fund flows, exchange-traded funds, (ETFs), closed-end funds, equity fund performance, and author of Trading on Volume (McGraw-HIll).
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