Chapter_11

THE 33-33-33 PORTFOLIO

For decades, a 60/40 (60 percent stock, 40 percent bond) investment portfolio has been encouraged by financial advisors. However, we live in a new world, so in recent years a 33/33/33 allocation has been suggested, with investments divided equally among stocks, bonds, and alternatives. This shift in portfolio strategy is the result of unsustainable stock prices, looming inflation, and expected higher interest rates.  

The alternative investments include assets such as venture capital, real estate, private equity, private debt, commodities, and cryptocurrencies. These asset categories offer investors enhanced diversification, and have a low correlation with stocks to provide an inflation hedge. 

Real estate offers an opportunity for an improved yield for investors with a lower risk tolerance. Venture capital and private equity are suggested for investors comfortable with more risk.

Recent J.P. Morgan research revealed that an allocation of 30 percent of these alternatives can substantially increase annual returns, while strengthening portfolio stability and decreasing risk. However, these illiquid assets can’t be quickly sold, or liquidated, so careful cash-flow planning is also necessary.

Remember, every portfolio must be personalized to the needs of the individual based on liquidity need, risk tolerance, and the time horizon of financial goals.

For additional information on the 33/33/33 portfolio, go to the following articles.

Article #1

Article #2

Teaching Suggestions

  • Have students research alternative investments (venture capital, real estate, private equity, private debt, commodities, cryptocurrencies) to determine recent returns, risk, and suitability for their personal portfolio.
  • Have students create a visual proposal or video with a suggested investment portfolio for their current or future situation.

Discussion Questions 

  1. What factors should a person consider when planning an investment portfolio?
  2. Describe actions a person might take to determine if alternative investments are appropriate for their financial situation. 
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Environmental, Social and Governance (ESG) Investing

An increasing number of investors are seeking a more ethical portfolio with an emphasis on socially responsible and sustainable investing. An emerging trend is environmental, social and governance (ESG) investing, with these factors used to evaluate the financial return and overall impact. 

The ESG score measures how investments and companies perform in these categories:

  • Environmental – carbon emissions, air and water pollution, deforestation, green energy initiatives, waste management, water usage
  • Social – employee gender and diversity, data security, customer satisfaction, company sexual harassment policies, human rights at home and around the world, fair labor practices
  • Governance – diversity of board members, political contributions, executive pay, large-scale lawsuits, internal corruption, lobbying

Many view “sustainable” investing as very vague. The ESG criteria hopes to provide a grading of investments that clarifies what sustainable involves. ESG scores are calculated using different methods. Some ratings are created by using data collected from company disclosures and government, academic and NGO databases. Other scores are developed with self-reported data from participating companies.

Recent benefits of ESG investing include higher returns and a lower downside risk than traditional funds and conventional investments.  To start investing, you can search on your own to identify an ESG fund or an individual stock with a high ESG score that fits your investment beliefs and goals.  Investors can also use a robo-advisor to guide their ESG investment choices.

For additional information on ESG investing, click on the following links:

Article #1

Article #2

Article #3

Teaching Suggestions

  • Have students search online to identify ESG funds or companies they might consider for their investment portfolio.
  • Have students talk with others to obtain the level of interest for ESG investing among potential investors of various ages.

Discussion Questions 

  1. What aspects of ESG investing do you find attractive?  What are your concerns?
  2. What concerns might be associated with methods used to create ESG scores?
Categories: Chapter_11, Chapter_12, Chapter_13, Investments, Mutual Funds, Stocks | Tags: , , | Leave a comment

Money Habits of Women and Men

Based on recent research, findings comparing the financial habits of women and men include:

  • Overall, single men outspend women, which may be due to higher average earnings. Men spend more on food and transportation, while women have higher spending for clothing. Both groups have similar spending for entertainment.
  • Women are wiser shoppers, buying items on sale and using coupons more often than men.
  • For debt, including credit cards, student loans, auto loans, personal loans, home equity lines of credit, and mortgages, men have more debt than women.
  • For both groups, the main financial goals were saving for a vacation, paying off credit card debt, and improving their credit score.
  • As they near retirement, men had higher amounts in their retirement funds. However, women are more likely to participate in an employer retirement plan than men, and save a greater percentage from their paychecks.

For additional information on the money habits of women and men, go to:

Source #1

Source #2

Teaching Suggestions

  • Have students create a short survey to compare the spending, saving, and investing activities of women and men.
  • Have students create a visual proposal (poster or slide presentation) to suggest improved money management activities.

Discussion Questions 

  1. What factors might affect differences between the money management activities of women and men?
  2. Describe actions a person might take to improve money management activities. 
Categories: Chapter 1, Chapter 2, Chapter 5, Chapter_11, Credit Cards, Financial Planning, Investments, Savings | Leave a comment

Investing Success for Young People

Young people should take advantage of time, and start investing now for the long-term.  When doing so, they should consider these actions:

  • Make use of low-cost mutual funds, exchange-traded funds and index funds to minimize administrative costs, transaction fees and commissions.
  • Take advantage of tax-deferred retirement programs, which will allow them to invest pre-tax dollars to lower their current tax bill. Employers may match retirement fund contributions.
  • Don’t avoid risk by emphasizing conservative investments. Taking on more aggressive investments creates greater potential for higher, long-term returns.
  • Effectively manage risk with fixed index annuities, fixed annuities, and market linked CDs. Dollar-cost averaging allows for obtaining more shares at a lower cost during market downturns.

For additional information on investing by young people, click here.

Teaching Suggestions

  • Have students talk to others for suggested investment actions to take.
  • Have students conduct online research regarding the best investments for their life situation.

Discussion Questions 

  1. What factors might a person consider when selecting investments for their life situation?
  2. Describe actions people might take to increase the funds they have available for long-term savings goals.
Categories: Chapter 1, Chapter_11, Financial Planning, Investments | Tags: , | Leave a comment

How the Presidential Election Will Affect Your Investment Strategy

“The sky is falling!  If my chosen candidate doesn’t win, the markets are doomed and so are my investments.”

In this article, Bijan Golkar points out that a presidential election can cause excitement or despair depending on if you are a Republican or a Democrat and who the major parties nominate for the highest and most powerful office in the world.

The article discusses market returns both before and after a presidential election year and some of the underlying reasons for market volatility.  Then the article stresses the importance of a person’s long-term goals and a plan for long-term growth as opposed to “emotional investing.”  Finally, the article discusses the pros and cons of our economy that could affect investment values.

For more information, click here. 

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Discuss the importance of a long-term investment plan that will take advantage of the time value of money.
  • Describe some of the pitfalls of “emotional investing.”

Discussion Questions

  1. What are the typical characteristics of an emotional investor? Of a long-term investor?
  2. What are the advantages of a long-term investment program when compared to “emotional investing?”
Categories: Chapter 1, Chapter_11, Economy, Financial Planning, Investments, Savings | Tags: , , | Leave a comment

How to Find a Financial Advisor

“Finding your next financial advisor is as easy as counting from one to five.  You just need to know where to look and what to ask.”

The information in this article is provided by the National Association of Personal Financial Advisors (NAPFA) and was developed to help people find a financial advisor.  Specific suggestions include

  1. Before beginning a search for a financial advisor, have a conversation with your loved ones to determine what is important, what you value, and what you want to accomplish.
  2. To develop a list of potential advisors, talk to friends and relatives and visit websites like http://www.napfa.org.
  3. Narrow your list to the top three contenders then do your homework. Visit company websites and read each advisors biographical sketch, check information available on the SEC website (www.sec.gov), and develop a list of questions that you want to ask when you meet each advisor.
  4. Request a meeting with each potential advisor. Ask questions to help assess your comfort level with each advisor.  For help, visit the NAPFA website (www.napfa.org) and click on “Tips and Tools.”
  5. Often the key to building a relationship with a financial advisor is communication. Review your relationship with a financial advisor over time.  Don’t just look at investment results, but also determine if the advisor (and her or his firm) is helping you achieve your important goals.

For more information, click here.

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Remind students that it is better to start financial planning earlier rather than later in life.
  • Stress that even beginning investors or investors with little money can still use a financial advisor.
  • Encourage students to visit the National Association of Personal Financial Advisors website (www.napfa.org). There is a great deal of quality information available with a click of a mouse.

Discussion Questions

  1. Often, the first step when choosing a financial advisor begins before you actually meet a potential advisor. How can determining your goals and what you value help you start financial planning?
  2. While many investors think that financial advisors are only for the rich, beginning investing or investors with little money can benefit from professional help. What steps can you take to find the right financial advisor to help you obtain your goals?
Categories: Chapter 1, Chapter_11, Financial Planning, Retirement Planning | Tags: , | Leave a comment

Bonds and Interest Rates

“Interest rate changes are among the most significant factors affecting bond return.”

When it comes to how interest rates affect bond prices, there are three cardinal rules.

  1. When interest rates rise–bond prices generally fall.
  2. When interest rates fall–bond prices generally rise.
  3. Every bond carries interest rate risk.

This article describes how each of the “3 cardinal rules” described above affects a bond investment.  It also explains the role the Federal Reserve plays in determining interest rates in the economy.  Specifically it describes the federal funds rate, the discount rate, and basis points for bond investments.

Finally, this article provides information on where to find economic indicators that measure not only changes in interest rates but also other economic indicators for the nation’s economy.

For more information, click here. 

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Review why investors choose bonds for their investment portfolio.
  • Explain how the three cardinal rules described in this article affect a bond’s value.

Discussion Questions

  1. Assume you are 35 years old, married, and earn $85,000 a year. In what circumstances would bonds be a good choice for your investment portfolio?  In what circumstances would bonds be a poor choice?
  2. What happens to a bond’s price if interest rates in the economy increase? If interest rates in the economy decrease?
  3. In addition to interest rates, what other factors that could affect the value of a bond?
Categories: Bonds, Chapter_11, Economy, Investments | Tags: , , , | Leave a comment

Robo Investment Advice

With many investors already making their own trades online, investment companies believe that robo advisors have these additional benefits:

  • lower costs for obtaining advice and conducting transactions.
  • an ability to adjust the portfolio for tax purposes by selling shares that have declined to offset gains.
  • an easier investment approach for younger clients with less-complicated financial lives.

Some will be concerned about automated portfolio management.  Human advisors will still be available to address issues about mortgages, insurance, estate planning, retirement income, and other topics that robo-advisers are not yet equipped to answer.

For additional information on robo advice, click on the following articles:

Article #1
Article #2
Article #3

Teaching Suggestions

  • Have students ask people to describe the process they use to select investments.
  • Have students create a framework to analyze when using robo advice might be appropriate for an investor.

Discussion Questions 

  1. What are benefits and drawbacks of robo advice?
  2. What factors might be considered when using robo advice for investment decisions?
Categories: Bonds, Chapter_11, Chapter_12, Chapter_13, Financial Services, Investments, Mutual Funds, Stocks | Tags: , , , , | Leave a comment

10 Reasons You Will Never Get Out of Debt

“Do you feel as if you’ll be in debt forever?  You’re not alone.”

According to a CreditCards.com survey, 13 percent of Americans say they’ll never pay off all their loans, and another 8 percent say they won’t pay off what they owe until they’re 71 years old.  While the results of the survey are discouraging, this Kiplinger article describes the following 10 reasons people can’t get out of debt and also provides suggestions for getting out of debt.

  1. You don’t know how much you owe.
  2. You pay only the minimum.
  3. Your mortgage is too big.
  4. You took out too many student loans.
  5. You can’t say no to your kids.
  6. You don’t have money for emergencies.
  7. You feel a sense of entitlement.
  8. Your car loan is too long.
  9. You rack up late fees.
  10. Your interest rates are too high.

For more information, click here.

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Explain how people get in trouble when they make financial decisions without considering the consequences.
  • Go into more detail about how each of the 10 reasons described in this article affect an individual’s financial future.

Discussion Questions

  1. How do you plan to balance your objective of creating an enjoyable and entertaining life with the objective of building a secure financial future?
  2. Based on the 10 reasons in this article, what steps can you take to improve your financial planning for the future.
Categories: Chapter 1, Chapter_11, Debt, Investments, Opportunity Costs, Time Value of Money | Tags: , , | Leave a comment

The Retirement Number Secret No One Wants to Tell You

There’s a substantial gulf between the amount of money Americans have actually saved for retirement and what they might need to last throughout their golden years.”

This article reports the results of a survey conducted by the Employee Benefits Research Institute which discovered that nearly three in five people surveyed had saved $25,000 or less for their retirement.  Even worse—more than a quarter of those surveyed had saved less than $1,000.

To help plan for retirement, many financial experts suggest that you need between 70 and 85 percent of whatever yearly income you had during your career in order to sustain the lifestyle you enjoyed prior to retiring.  While these calculations provide a recommended dollar amount to provide retirement income, the same calculations often create two problems.  First, there is often a big gap between what people have saved and what they need for retirement.  Second, the amount of money you need in retirement is based on what’s important to you and the standard of living you want in retirement.  And the you may be the most important part of retirement planning.

For more information, click here.

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Explain why you should plan for retirement early in your career rather than waiting until you are about to retire.
  • Reinforce the concepts of the time value of money and a long-term saving and investing program.

Discussion Questions

  1. Many financial experts suggest you begin retirement planning as soon as you begin your career. What are the benefits of planning for retirement planning sooner rather than later?
  2. How is the time value of money related to a long-term investment program and retirement planning?
Categories: Chapter_11, Chapter_14, Investments, Retirement Planning, Time Value of Money | Tags: , | Leave a comment

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