Change

By Olivia Sandham

Family Investment Center recently introduced our new logo and website.  Our new website includes much more than the basics, including dozens of useful financial calculators and interesting articles, as well as an area for our very own blog.  With the ability to now post directly to our website blog, we will no longer be utilizing this blog page for our newest posts.  In honor of our transition, we would like to make our final post on this blog page devoted to change.

First, let’s do an exercise with a pen and piece of paper.  Write down the words and phrases that come to mind when you ponder “change”.  What thoughts and feeling arise?  Take a few minutes to complete this exercise, and allow yourself to write down everything that comes to mind, staying focused on what “change” means to you.

Now, set your pen down and look at your paper.  Would you describe the words and phrases you wrote as positive overall or negative overall?

Quite often, many people have a negative perspective regarding change.  Some might believe “the familiar” is comfortable and secure, while “change” is scary and uncertain.  Sticking with what we know gives us the perception of balance and control, and sometimes might seem like the easier option.  If we don’t change, we can remain in a pattern and we don’t have to face challenges or difficulties.

But what does change really mean?  According to Dictionary.com, one of the definitions of change is “A transformation or modification; alteration (noun).” Notice this definition does not include a positive or negative connotation.  Therefore, change can be perceived however we choose, and change doesn’t have to be feared.

Instead, with the right mindset, change could be seen as positive.  Sure, change can be uncertain, but facing the unknown increases knowledge and experience.  Change can bring challenge, but with challenge comes growth and opportunity.  Change can make things seem out of control – but are we truly in control if we are not exercising our right to be different or choose differently?

In fact, lack of change can actually have many negative connotations as well.  How enticing does “staying the same” or “stuck in a routine” sound?  What would you have written down if we had performed the same exercise for the words uniformity, monotony, or stagnant - all of which are opposite of change?

As the famous Mahatma Ghandi quote reads, “Be the change that you wish to see in the world.”  If you want to view change as a positive, positive outcomes will be all around you.  If you choose to see change as a negative, then you can stay in your “same old routine” and everything around you will stay the same as well.

The amount of effort and work behind implementing the new Family Investment Center logo and website changes was great, and it was indeed challenging.  Weeks were spent making decisions regarding color schemes, wording, and editing.  But as you can see by visiting our new, colorful and useful website and by checking out our new blog area, this change has been well worth it.  We hope you will embrace this change with us, and consider embracing changes in your life as well.

How The Economic Machine Works

Narrated by American businessman Ray Dalio, this video explains the economy and its cycles in a simple and helpful way.  Dalio is the founder of Bridgewater Associates, one of the largest hedge fund investment management firms with nearly $120 billion under management.  Dalio was also listed as one of "Bloomberg Markets' 50 Most Influencial" people in 2011 and 2012.

 

Ten Things You Need to Know About Stocks

 

      This week’s “pin” features stocks. We have compiled a list of basic stock fundamentals with links to further explain the material provided.

 

    1)   Sectors.  Sectors are a way of categorizing and classifying stocks. They are typically classified by type of business or industry.  The fastest growing sectors are currently the health and technology industries, although that varies often. 

    2)   Growth vs. Value.  Growth stocks are just as they sound: they are anticipated to grow at an above-average rate.  Value stocks, on the other hand, are viewed as bargains in the sense that the market has undervalued the stock and the investor hopes to get in before the market corrects the price.

   3)   Company size (“capitalization”).  A company’s size is measured by its market capitalization.   Large-cap companies are typically established with a lower growth prospective than small cap. Small-cap companies tend to have higher growth potential in the long run, but investors may see more volatility with small-cap stocks since small companies have a higher likelihood of running into trouble as they expand.

   4)   Risk.  The possibility of a stock performing worse than expected.  There are many types of risk that an investor must consider, such as market risk, political risk, business risk, and others.  Typically, the larger the risk, the larger the possibility for return. The best way to minimize your risk is to properly diversify your portfolio.

   5)   Taxation.  Your income and capital gains are taxed unless the stocks are held in certain types of retirement accounts.  Some investment strategies can reduce tax liability, but as with all other investment considerations, this must be done with care and prudence.   

   6)   Trade fees.   These fees are imposed when stock is bought or sold.  Some brokers will label this fee as a “transaction fee.”  Trade fees can range in price, so be sure to research a broker’s fees before making transactions.

   7)   Cyclical vs. Defensive.  Cyclical stocks are sensitive to the economic cycle.  In tight economic times, people are less likely to spend money on unnecessary items, such as retail and entertainment, which can impact cyclical stock prices.  Defensive stocks include necessary items, such as food and medicine.  For this reason, defensive stocks tend to change very little when the economy declines.

   8)   Selecting stocks.   The first step in selecting a stock to purchase is to determine your objective and risk tolerance.  You must also remember the importance of diversification, as investing in a single company is much riskier than investing in, say, eight or ten companies.  The more you know about a company and about the current market, the better.  You can also narrow your search for stocks using a stock screening tool.   

   9)   Diversification.  This is a technique used to reduce risk in a portfolio whereby a variety of investments are placed within a portfolio instead of investing in only a few companies.  As an example, Charles Schwab & Company has created the following visual representation showing how to diversify your portfolio:

 

   10) Stocks vs. Mutual Funds.  Mutual funds are used to diversify a portfolio better than individual stocks allow.  Each mutual fund contains holdings of several different individual securities, allowing an investor to easily spread his or her investment dollars among several companies instead of just one.  Another advantage of mutual funds over stocks is that each fund has a professional manager of its own, who buys and sells securities within the fund so the individual investor doesn’t have to.  Every investor is different, so individual circumstances must be fully considered when constructing a portfolio. 

 

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