Worth the risk

Even in unsure economic times, one thing is true, according to experts and analysts: now is the time to buy.

“If anyone has put together a plan for themselves, a long-term plan, now is a great time to buy,” said Christopher Bomba, first vice president of Hilliard Lyons, a Bloomington financial advising office. “If you’re a college kid looking 20, 30, 40 years down the road, there’s a lot of good companies out there that are at potentially reasonable prices.”

With high stock price volatility and companies going out of business, investing is a scary proposition for many, including most college students. However, some, such as sophomore and president of the Kelley Portfolio Management Club, Brian Bollinger, make it their passion.

“I’m not an expert by any means, but it seems like a lot of economists are predicting that the recession will hopefully taper off and end after 2009,” Bollinger said. “It’ll take a few years to really start rebounding, but it wouldn’t surprise me in three, four, five years seeing a big 20, 30, 40 percent pop in the market.”

While many college students have little time and even less disposable income, taking the time and money to invest can pay great dividends in the future – literally.

John Slatter, author of the annual book “100 Best Stocks You Can Buy 2009” and self-made businessman, said after graduating from the University at Buffalo he went into two dead-end jobs that he hated before working with stocks and mutual funds. He then spent 23 years writing for a brokerage firm.

He is now retired, has written 15 books and said he is in “very good financial shape.”
Within those 23 years, his best advice for investing can be summed up in two pages of his book.

“You don’t have to be a brilliant stock-picker to become a successful investor,” Slatter wrote.

When creating a stock portfolio, there are a few things to keep in mind:

Diversify

Nothing kills a stock portfolio quicker than not having money in multiple places in case a certain aspect of the economy falters.

“The most important factor is diversification,” Slatter wrote in his book. “The one thing you want to avoid is buying too many stocks that are similar.”

Slatter cited one example of why diversification is important. In 1998 and 1999, many people began to solely invest in technology stocks, Slatter said. Following the market’s downturn in 2001, many were down as far as 90 percent.

“First thing they have to be looking at is investing in diversified funds so they aren’t subjected to any one industry or any one company and the risks that come along with those specific or narrow-based investments,” said Chip Snively, a senior lecturer of finance for the Kelley School of Business.

Bomba, who has had experience dealing with many types of portfolios, said he has seen the damage non-diversified holdings can do.

“I think it’s very important,” Bomba said. “We’ve had a number of examples here lately that having all your eggs in one basket is not a very prudent thing to do – not only just having one stock, but, for example, having all bank stocks.”

Research

Experts recommend at least one hour a week per stock. No excuses. No exceptions. Almost every expert agrees that good research leads to good buying choices and solid payouts.

Bollinger’s team of Kelley students, for example, began work this semester and haven’t even begun to buy. They are working on building an investment strategy and gauging the market.

“Right now, we’re just practicing going through evaluation processes on different stocks,” Bollinger said. “From there, we can decide if we want to expand membership to include more analysts and whatnot.”

Bomba said if students don’t have the time to invest in research, they should find someone else to do it for them. Otherwise, the consequences could be dire.

“If they have limited funds and limited time, then they need to find a consultant or financial adviser to work with,” Bomba said. “If they don’t have time to do the research on their own, they’re just going to be basically throwing darts at a dart board.”

Snively started investing in college, and did his research in what he calls “a very different world.” Now, the Internet gives students the ability to have access to much more information.

“Students should be watching and reading and learning and developing an opinion about where things are heading economically, globally and politically, for that matter,” Snively said. “You have to have somewhat of a purpose. That should guide the initial part of your investment philosophy and where you want to go.”

However, Snively said it is important to avoid the trap of believing everything found on the Web.

“There’s almost too much information out there today,” Snively said. “There are lots of conflicting opinions.”

Be Patient

A stock portfolio doesn’t grow overnight, especially given the current economic situation, experts say. It will take time for investments to mature, but that is okay – most college students have time.

“Let’s say you want to reach age 65 with investments worth a million dollars,” Slatter wrote. “If you buy your first stock at age 35 and pick stocks that appreciate at a rate of 10 percent, you will have to set aside $6,079 each year.”

That number nearly triples after 10 years and is 10 times higher after 20 years.
Snively said longer maturity lines equal bigger payouts in most cases.

“Students, if they get started today, have the advantage of earning compounded interest,” Snively said. “That could help (them) exponentially improve their returns over the years. Having a long time horizon certainly is a benefit if you’re talking about a college student who isn’t going to retire until their 40s, 50s or 60s.”

Bollinger has holdings in General Electric, which took a major fall when the current recession hit and its financial arm collapsed. However, he remains optimistic about the stock because it has time to recover due to his early start on investing.

“Luckily, tragedies like the current financial crisis don’t happen too often,” Bollinger said. “Being young has so many advantages because you can afford to take risks. ... You’re not going to have to worry about working 10 more years because, unfortunately, none of us are going to be retiring anytime soon.”

By following these guidelines, experts say college students could potentially find themselves in a great position come retirement. All it takes, they agree, is the courage to risk a little for potentially big gains in the future.

Not all investments are good ones, experts say. But every once in a while, an investor can find a diamond that makes the rest of his or her rough holdings shine.

“If you can take advantage of the resources that are available to you, even within the context of your academics, take advantage of it.” Snively said. “There are good resources there.”