However, there’s one major stumbling block for the young investor – fees. Whether it’s the transaction charges from an online service like E*TRADE or ShareBuilder, or an actual broker or money manager’s fees, young people need to be careful they’re not losing all of their gains by overpaying.

The reason is simple – when you’re young, you have less money available at any given time than most people who are 10 or 20 years older. That means the fees eat into your principal a lot faster.

A simple example: you want to invest in GE (ticker symbol GE). You might want to put $1,000 into the stock, but you only have $100 available to invest each month. So every month, you buy $100 worth of GE shares , for 10 months. If you’re paying $10 – a pretty common fee – for each transaction, by the time you get to $1,000 of stock you’ve already spent $100, so you’re down 10 percent.

That means the value of a GE share needs to rise at least 10 percent over the average price you paid – which will change, possibly by a lot, over the entire 10-month period you invested. So you could see a 9 percent gain and still end up losing money, even though it might feel like you’re winning.

A richer, older investor, on the other hand, can just wait until the price looks good, then pull the trigger and buy $1,000 all at once.

One way to get around this is automatic investing discounts, like those offered by Sharebuilder. Sharebuilder lets you buy any number of securities every Tuesday at no charge, provided you enter the trade and provide the money by Monday afternoon. It charges $12 per month, minimum, for the service, but it lets you invest small amounts of money constantly at very low charge.

By setting up an automatic investing plan, you make saving for the future second nature, and you avoid the trap of losing money on transaction fees. Just make sure your portfolio gains at least $144 per year ($12/month for 12 months), or you’ll still end up in the red.

While some planners charge a minimum annual retainer, there are planners who offer a limited engagement rate or even an hourly rate. And, with today’s web technology, you and the planner don’t have to live in the same area. Two places to find such services online are www.myfinancialadvice.com and www.garrettplanningnetwork.com. 

Always look for a fee-only financial planning advisor who adheres to a Fiduciary Standard, which means they act in the client’s best interests. These advisors are not Stock Brokers or Registered Representatives who benefit from selling you an investment or financial product. Fee-Only Financial Advisors sell only one thing—their knowledge. You can learn more about fee-only financial planning at www.napfa.org.

A second option is to teach yourself the basics of money management and investing through books, classes, and websites. The problem here is choosing wisely, because there is so much material available. The following guidelines may be helpful:

• Beware of any source that promises you overnight wealth or makes claims that sound too good to be true.
• Be cautious about sources promoting only one idea, such as buying real estate. Even if the author’s advice is sound for that one type of investment, it isn’t wise to plan your financial future around only one investment strategy. Look instead for sources like my own co-authored book Conscious Finance which teach you the fundamentals of investing and money management.
• Be aware that authors or seminar instructors will usually have a secondary purpose of publicizing their products or services (as, you may have noticed, I just did in the previous point). There’s nothing wrong with this; just consider their possible biases as you evaluate their information.
• The websites of online brokerage firms include a lot of basic investment information, and you can also find many articles from financial journalists online or in business magazines.

As you learn about investing, focus on some basics:
• Buy mutual funds, not individual stocks.
• Learn what “diversification” means, and practice it.
• Max out IRAs, as well as your 401(k) if your employer offers one.
• If you invest with a broker who earns commissions, comparison shop and insist on full disclosure of fees and costs.
• Be the tortoise, not the hare: invest for the long term instead of trying to build wealth overnight.
• Have a spending plan, and follow it.
• Don’t overlook estate planning. At the absolute minimum, make a will and provide for your family’s future with term life insurance.

Making sound financial decisions on your own is possible. What it takes is your willingness to invest time and energy in your own financial future.

Rick Kahler, MS, CFP®, ChFC, CCIM, is president of Kahler Financial Group, the first Fee-Only financial planning firm in South Dakota and recognized by Bloomberg’s Wealth Manager as the largest financial planning company in a seven state region. Kahler is a past chairman of the South Dakota Investment Council, managing $6 billion. He has co-authored four books on personal financial planning, including the recently published book Wired for Wealth: Change the Money Mindsets That Keep You Trapped and Unleash Your Wealth Potential (HCI Books).

First you’ll need to find one or two mutual funds you’d like to purchase.  If you don’t already have a fund in mind try referring to the list of the top 25 mutual funds published by Kiplinger each year (the list is available for free at www.kiplinger.com).  When you begin researching mutual funds you’ll see the minimum purchase amounts range from about $1,000 to $25,000 per fund.  Not many investors can afford these minimums, especially if you’re still in school or just starting your first job.  But the opportunity to invest is not lost.  Each fund you’re researching is run by a mutual fund manager, and that manager is responsible for deciding what stocks to buy and sell within the fund.  You may not have known that what stocks each mutual fund manager buys and sells is public information and is available for free to all investors.  In fact, a list of each fund’s holdings can be found on almost any stock research website including www.morningstar.com and www.finance.yahoo.com.  The top stock holdings are also listed directly on each fund’s website and in their prospectus, which is the fund’s primary selling document and acts as the fund’s owner’s manual.  A prospectus can be requested free of charge directly from each mutual fund company. 

Your next step is to research the different stocks owned by the mutual funds to make sure they’re a good fit for your portfolio and meet your investment needs and risk profile.  You should then calculate how many shares of each stock you can afford to buy. 

Finally, you’ll need to determine how to actually purchase the stocks you want to buy.  You can either buy them directly from the parent company or you can open an investment account at a brokerage firm which allows you to trade stocks.  For advice on how to open an investment account see my article titled, “Where To Open Your Investment Account."

By purchasing individual stocks instead of mutual funds, you’ll be able to avoid high minimum investment requirements and save on mutual fund expenses and commissions.  This strategy is also a great way to learn from the smartest investors for free.  Take Warren Buffett’s Berkshire Hathaway fund for example.  Just one of his fund’s “A” shares will cost you well over $90,000 (ticker symbol: brk.a).  But you can see a list of what stocks his fund owns for free and then purchase those stocks directly for only a few hundred dollars.  Of course, you won’t have Warren Buffett’s expertise of knowing exactly when to buy and sell each stock, but you’ll be able to closely copy his investment style without having to break the bank.

The phrase “fiduciary duty” means very little to most 21 year olds. I really didn’t fully understand the term either until I participated in Stetson University’s Roland George Investments Program, a student managed investment portfolio approximating $3 million.  Upholding a fiduciary standard means that you are now entrusted with managing someone else’s finances-and you are expected to act solely in the best interests of your client.

This term becomes real as you consider the awesome responsibility and challenges involved with managing such a fund. At this point you might ask, “What defines responsible management?” Is it simply investing wisely in stocks with the most perceived value, funds with neither too much nor too little risk, or developing and maintaining a portfolio that matches the client’s risk tolerance? Is it simply maximizing shareholder wealth?  Or does the phrase run deeper; do ethics play a part … a large or small part?

Part of my “fiduciary duty” entailed recommending a stock to the class, which would then be approved or denied by a board of trustees consisting of four students and three faculty members, majority rule applying. Mine and other qualified stocks were presented and some were approved throughout the semester. One stock in particular was brought forward, which raised ethical questions. This stock was a holding company whose primary line of business was a string of nightclubs providing live adult entertainment.  Technically, the stock met all criteria set forth by the class at the onset of the semester: It was small cap, growth oriented, undervalued, with increasing earnings per share – and it exceeded all these predetermined standards.

Among many other things, Stetson University actively promotes gender equality, and while some may point to gentlemen’s clubs as a lucrative job market for young women, many feel the practice and the mentality behind the practice severely demean the value of women.

Although the stock surpassed expectations at one level, the question was put to every member of the class as to whether the stock was actually a responsible investment. Did the stock represent the university’s core values or were they in large part compromised?  Did the absence of language prohibiting such an investment mean the previous question was a non-issue, or must a student-managed, donor-funded portfolio answer to the university’s values? Are we as investors restrained by only what is disallowed, or are we held to higher standards as human beings? Did our “fiduciary duty” require us to value stocks solely on the basis of their returns, and would one be wrong to not approve such a stock?  Whether or not the resolution was voiced, each member of the class came to a conclusion.  After vigorous debate on both the technical and ethical merits of the stock, it was decided that the stock would not be purchased. This was not a unanimous decision, however.

Unfortunately, many people solely define what is ethical by what is lawful: To be ethical means to abide within stated regulations and/or pay for the damages – and many companies and organizations operate on this premise. Businesses pay fines determined by courts rather than doing the right thing at the beginning. Ethical decision-making has become susceptible to cost-benefit analysis.  All other things being equal, what sets individuals apart in the workplace and in life in general is that some individuals hold themselves to higher ethical standards.  Most students I’ve encountered were searching for quality positions upon graduation, and what I’m afraid some failed to recognize, is that quality businesses are looking for quality individuals.  These are individuals who hold themselves to higher standards, who think and act independently with a critical and thoughtful mind, rather than let their actions be determined by society’s predetermined lowest level of responsibility.

The decision regarding the gentleman’s club stock was no different than what we all face day in and day out. It was just one decision that intensified the dilemma, questioned our understanding of responsible behavior, and made us examine our individual moral convictions.

Nathan McPhail earned a BBA in Finance in 2008 from the School of Business Administration at Stetson University in DeLand, Florida. He currently resides in DeLeon Springs, Florida.  He is employed as a financial analyst by the Fastenal Corporation, one of America’s largest industrial supply firms.

Roland George Investments program at Stetson is: http://business.stetson.edu/george/

Are you a trader or an investor?

 
Traders react to short-term changes in the stock market while investors take advantage of long-term trends.  Traders buy and sell stocks weekly, daily or even hourly, while investors use a buy-and-hold strategy that leads to investment gains over the long run.  Unless you have extensive knowledge of the markets and hours a day to research stocks, your money is safest as an investor.  But to be an investor you first need to know how to think like one.  That means you need to learn how to analyze current trends in our economy and see what has the best long-term growth potential.

Take the health food trend for example.  There’s been a huge marketing blitz over the past few years to encourage consumers to eat healthy and make smarter decisions about their diet.  But does this trend have the potential to make you money?  To answer this question you’ll need to examine the trend from three perspectives.  First, determine which companies could potentially do well and continue to gain popularity as the trend continues.  Second, determine which companies will do poorly as a direct result of the trend.  Third, identify the companies whose futures are uncertain, meaning they could be impacted either positively or negatively.  These are the companies you should avoid until the trend stabilizes.

3 Questions For The Health Food Trend

1. Which companies will do well?

• Producers that make and package health food
• Stores that sell health food
• The health food products themselves

2. Which companies will do poorly?

• Fast food franchises unwilling to adopt healthy menus
• Producers who make food high in fat and carbs

3. Which companies should you keep your eye on?

• Companies in the healthcare industry: As more people eat health food there may be less need for treatment of heart disease, diabetes and other related illnesses.  However, as more people monitor their diet they may be willing to spend more on preventive care.  It may be too early to tell how the healthcare industry will be affected by the health food trend.

Once you’ve identified the trend and the industries involved, your last step is to identify the actual companies that you expect to outperform the market.  This complete process is called “Top-Down Investing” and involves looking at the big picture in the economy and then breaking down a trend into finer details until you finally decide which companies to invest in.  For this last step – identifying the specific companies to invest in – you’ll need to search the internet and newspapers for articles that will give you an indication of the company’s financial stability.  As a general rule, you should spend at least 10 hours researching a potential stock before committing to buying it.  By using the Top-Down Investing approach you’ll be taking advantage of long-term market trends and learning how to think like an investor.

Ways to Make Fast Cash

HUMAN GUINEA PIG: Ever thought of participating in a research study? Compensation for clinical research study volunteers runs the gamut from $15 for answering a few questions on lifestyle habits to a couple of thousand dollars for participating in a longer term study with an in-patient stay.

If your university has a med school, check out opportunities on campus. National clinical listing services include www.clinicaltrials.gov and www.centerwatch.com.

MOVING BILLBOARD: All Savi Maharaj from the University of Florida has to do to get a paycheck is drive her black Volkswagen Beetle around campus. If she leaves her car parked in front of the dorms, it’s even better for business.

Maharaj is one of the over 700,000 contacts for a marketing and promotions company called Free Car Media. The company matches advertising clients with drivers across the country to promote the company’s products. Drivers are given free samples of the product they are promoting to pass out along the road to interested consumers.

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Earn Extra Money: Clinical Research Trials

SELL STUFF: Sell what you don’t need, can’t use, or no longer like. Sell back your used textbooks at semester’s end. Do it on campus for the fastest return, but if you’re a recent grad you can sell back textbooks on-line. Check out www.barnesandnoble.com.

Other easily convertible-to-cash items include CD’s and clothing. Expect to get $1-$5 per CD, depending on the condition. Gary Alpert, 23, after-school director at the Jewish Day School in Newton, Mass. takes the music resale concept a step further. “I’ve bought a box of used records at a garage sale for $3 and then sold them for $1-2 each at the used music store.”

QUICK CASH-IN’S: For students that live in a state that has bottle deposit laws, returning empty soda cans and beer bottles is a popular way to make quick cash. Pick up empties at the cafeteria or littered at school events.

Kate Hutchinson, 21, and her friend Nate Curtis, 22, both recent Trinity College (Hartford, Conn.) graduates, recycle cans together and use the money for “the extras, mostly stuff for our cat; a new collar, a litter box, going out money.”

Data Entry at Home:

If you can type quickly and have a home computer, many companies are looking for you to help. These jobs are usually easy to qualify for after a short online test.

ODD JOBS: Hutchinson does typing for extra money. “I work an average of 2 hours a week at $10/hour but I get more business closer to Christmas because my customers are busier themselves,” she says. Alpert has a weekly babysitting gig.

TEMPORARY JOBS: Sometimes the only way to get real money is to get a real job. For example, playing Santa in the winter and manning a firework stand in the summer or anyother temporary holiday jobs are perfect if you want to make money but don’t want to make a huge job commitment. Some schools will post jobs on-line; others will post them outside the financial aid office.

*The ten states with bottle laws are: California, New York, Michigan, Massachusetts, Iowa, Maine, Delaware, Connecticut, Oregon and Vermont.

Complete Surveys Online:

Another great way to make fast cash is to complete surveys online. While you won’t qualify for every job because you don’t fit the profile, you will qualify for enough to make some extra bucks.

Contributing writer Sara Faiwell provided information for this story.

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