Growing your investments

The concept of investing is simple: spend money now, get more money back in the future.

At least that’s how it’s supposed to work.

With the fortitude of the American stock market in question, many investors, including some IU students, are starting to panic. Time for an investment game plan.

Chip Snively, a senior finance lecturer in the Kelley School of Business, said students and investors need to relax.
       
“First of all, the students have to recognize that money in the market, for them, should be considered long-term investments,” he said. “The historical return on stocks is somewhere in the neighborhood of 10 to 12 percent on an annual basis. They have the ability to weather the ups and downs of the market over a long period of time.”

Doug Hughes, a partner and lead consultant with the local firm Comprehensive Financial Consultants, shares a similar view toward student investing.

“As a student with many years to go, my advice would be to make sure they’re allocating properly, and to grin and bear it,” Hughes said. “They shouldn’t panic with such a long time frame ahead of them.”

A specialist in retirement planning, Hughes also emphasized that this is not a time to forget about the future.

He said college students should start planning for retirement now.

Students should specifically pay close attention to Individual Retirement Accounts, special accounts built for long-term retirement savings. A Roth IRA account, for instance, lets students accumulate funds over time. At retirement, students can then withdraw those funds tax-free.

“I’m still recommending that people put money into their retirement plans,” Hughes said.

Hughes said this is also great time for young people to enter the market.

“There are opportunities right now, especially with global mutual funds,” he said.
“Going for a good global fund right now would make a nice addition to a portfolio.”

Still, students should be patient in waiting for any significant return on their stocks.

The crisis won’t resolve itself overnight, and Americans have to be prepared to ride out the tumultuous economic storm.

“The next year or year and a half is going to be quite painful,” Snively said. “People have to recognize that you may have to change your standard of living a bit.”

For cash-strapped college students, this might not seem new.

However, Snively adds that even students are bound to feel the financial squeeze.

“If you’re a student, you probably can’t be as selective on jobs,” he said. “Jobs are going to become scarce as companies reduce their hiring plans.”

While most investment experts agree that things should improve eventually, the legacy of the recently implemented bailout package is yet to be determined.

“We still need some time to sort everything out,” said Chi Hoong Ng, president of IU’s Undergraduate Investment Club. “We have to wait at least half a year to see what the effects of the plan will be on the economy.”

Students who don’t think they have anything personal riding on the outcome of this situation might want to think again.

“What’s happening on Wall Street today is not just a Wall Street problem,” Snively said. “Students should be intimately aware of what’s going on in the markets because it has a direct impact on what happens from an economic standpoint.”

Hughes said that while these events have obvious importance economically, they could also end up spurring significant political changes, such as when the “Panic of 1907” – caused when the stock market fell 50 percent – instigated the creation of the Federal Reserve.

“It’s wildly important that people understand what’s happening on Wall Street, just so they get a feel for what can politically come from a major stock market crash,” he said.