Authors

Karen Chan
Extension Educator, Consumer Economics

Paul McNamara
Extension Specialist, Consumer Economics

Kathy Sweedler
Extension Educator, Consumer Economics

Blog Archives

Plan Well, Retire Well

Saving and investing your money

April 29, 2009

Financial Education Rocks!

What an amazing week. Money Smart Week has come and gone in Illinois like a whirlwind! People from all walks of life and careers came together to help people better understand finances. I love this event because Money Smart Week partners include bankers, community educators, school teachers, media, stock brokers, financial planners, grocery store managers and more. And, of course, the Federal Reserve Bank of Chicago - who is the sponsor for this event. Without the Federal Reserve Bank of Chicago's leadership, and their dedicated staff, this Week wouldn't happen.

During the week I had the opportunity to talk to people who were attending several programs. They came to my program with their highlighted Money Smart Week Calendar ready to learn and take action to improve their financial picture. It was energizing and exciting week!

Did you miss it? Oh no! Well, here's two bits of good news. One, as soon as the date is available, we'll let you know when Money Smart Week 2010 will be and you can put it on your calendar. Two, the Illinois media was very helpful in covering events. Here are few of the links so that you can learn more about Money Smart Week and handling your money:

cbs2chicago Morning News with interviews about investing (with our own Karen Chan), foreclosures, and more.

WCIA has several video clips posted including an interview where I talk about saving money on food costs and also one on how to match your investments with your short and long-term financial goals.

Karen Chan next talked about budgeting and saving money on ABC News in Chicago.

Extra News posted an article about how to Improve Your Financial Situation: Tips on how to beat these tough financial times.

This is just a short list of organizations that helped promote Money Smart Week and do financial education too. Thank you to all media partners who helped publicize Money Smart Week.

And, stay tuned in for more updates about Money Smart Week in the future.

Would you like to share your Money Smart Week experience? Click on my name below and send me your comments to be posted.

Posted by Kathy Sweedler at 10:01 AM | Permalink |
Categories: Budgeting, Investing, Kathy Sweedler, Saving Money
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April 17, 2009

Money Smart Week is here!

From April 18 to April 25, take advantage of the numerous workshops and other public events that are part of Money Smart Week. In the Chicago metropolitan area, there are more than 450 separate events. There are also numerous events in Champaign-Urbana, Bloomington, Peoria, Rockford, and the Quad Cities. Led by the Federal Reserve Bank of Chicago, the purpose is to provide education, and no sales pitches. University of Illinois Extension Educators are providing many of these workshops. Come join us! Check of the calendar of events on the Federal Reserve Bank of Chicago's website. Or check University of Illinois Extension's calendar for those events taught by our own educators.

Many Extension offices across Illinois will be hosting a special panel presentation via teleconference, Saving and Investing in Turbulent Times. You can check the U of I calendar for a location near you.

Posted by Karen Chan at 5:50 PM | Permalink |
Categories: Events, Karen Chan
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April 7, 2009

The death of diversification?

Some people have given up on diversification. You've heard or read about them - people who are so fearful that the current market downturn is the beginning of the end that they will only keep their money in US Treasury securities or insured bank accounts. Maybe you are one of them.

It's understandable. Even the most novice investor knows the mantra, Don't put all your eggs in one basket. Diversification is supposed to protect us. Everything isn't supposed to drop in value all at the same time. Thus, we own not just US stocks, but foreign stocks as well. We don't own just the stocks of large companies, but also small and mid cap companies. We have some money in bonds of US companies, foreign entities, money market funds, real estate investment trusts, even commodities. And we thought we were safe.

Now we feel that diversification betrayed us. The value of our homes, US stocks, foreign stocks, even bonds to a degree, all dropped in value. That wasn't supposed to happen.

To make matters worse, there seemed to be nowhere safe to run. There was even a scare about money market funds last fall.

So some investors have thrown up their hands and surrendered. They're not even going to try to figure out how to invest in hopes of keeping ahead of inflation and taxes. They're content to earn next to nothing on their money on insured bank accounts or US Treasuries, just so they can avoid the pain of perhaps losing more. They've given up on diversification.

But what does that mean for these investors in the long term?

The Alternatives

William Bernstein, columnist for Money Magazine and a hedge fund manager, sees two alternatives to using diversification. He discusses these in the April issue.

Everything in one basket, "and watch that basket," he quotes Mark Twain.

If that basket is Treasuries, you won't lose any money. But over time, after taxes and inflation, you'll very likely just break even or even lose value. That may be OK in the short term, but it means you're going to have to save one heck of a lot of money in order to have what you need in retirement or for your newborn's college education.
Or maybe you choose Wal-Mart and McDonald's as your "basket," since they are two of the few bright spots in this recession. What happens if hamburgers and french fries suffer the same fate as Krispy Kreme doughnuts? After its meteoric initial public offering, the low carb trend (and perhaps other factors) caused its stock price to drop from $12.60 at the end of 2004 to $1.68 at the end of 2008. Or perhaps Wal-Mart and McDonald's don't do poorly, but small US companies and foreign stocks outperform them by large margins year after year.

The point is that without diversification, without investing in a variety of assets, you make yourself vulnerable to other types of risks.

If you can't stand the heat, get out of the kitchen is the label Mr. Bernstein puts on his 2nd option. I'd call it market timing. This strategy says, when things get too crazy, I'll get out of the stock market. And I'll get back in when things are safer. Sounds great in theory, but in practice, almost nobody can make those calls on a consistent basis. That's the whole reason that few actively managed mutual funds beat index funds over the long haul. Making one prescient decision doesn't make you money; you have to do it time, after time, after time.

The Final Word

Well, it's possible that those who believe the sky is falling are right, and that US and foreign stocks will tread water or lose more value for years to come. But after considering the alternatives, for my money, I'll go with diversification.

For more about diversification and sound investment strategies, visit Plan Well, Retire Well and check out Choose Investments. Or join me and my colleagues for a workshop during Money Smart Week, April 18 to 25.

Posted by Karen Chan at 12:52 PM | Permalink |
Categories: Investing, Karen Chan
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