Colorado high schools
If you’re an investor, you’ve probably been less than ecstatic lately when you open the newspaper and see what’s happening in the stock market. From October 2007 to the end of June, the Dow Jones Industrial Average fell about 20 percent. And stock prices continued to slide during the first two weeks of July. Are we in a “bear market”? And, if so, how should you respond?
First of all, you might want to know a little bit about the nature of bear markets. By one commonly used definition, a bear market occurs when stock prices have declined by 20 percent or more. Bear markets last, on average, about 14 months; a two-year bear market is considered to be on the long side. Generally speaking, a bear market is triggered by unexpected events or economic conditions, which, in 2007 and 2008, include the credit crunch and soaring oil prices. And bear markets can end as quickly, and as unpredictably, as they began.
You may well feel the need to do something. Here’s an idea: Why not approach a bear market the same way you would an actual bear? Consider these suggestions:
• Stay calm. If you were to ever encounter a real bear, you’d need to avoid panicking. And the same is true with a bear market. You can’t control stock prices, but you can control your reaction to them. If you remain calm and survey your individual situation with an understanding of what’s happening in the broader market, you’ll be likely to make rational decisions.
• Make no sudden moves. When facing a bear, you can’t make sudden moves. And when you’re in the midst of a bear market, you also want to avoid reacting too quickly. If you’ve built a portfolio of quality investments that are suitable for your goals, risk tolerance and time horizon, stay the course and stick with your long-term strategy— even during a bear market.
• Don’t try to “outrun” a bear. Just as bears are faster than you are, the movements of the stock market are typically too quick for most people — even so-called market experts — to anticipate. Nonetheless, many people try to “outrun” a bear market by jumping out of it, thinking that they can profit from missing some of the market’s worst days. But when you head to the investment sidelines, you can also miss some of the market’s best days, too. Either way, you’re trying to time the market, and it’s almost impossible to do so consistently.
Even if you follow these ideas, you may find it hard to stay positive in the midst of a prolonged slump. Staying invested throughout market ups and downs can help you work towards your long-term strategy.
Tom McLean, Edward Jones financial advisor
Don’t Let College Loans Overwhelm Your Child
For millions of kids, summer vacation is here. If you have children in school, you’re now one year closer to the time when you send them off to college. And if you haven’t started saving for that day, now is definitely the time to start – because college costs keep going up.
Let’s look at the hard facts, as reported by the College Board. In the 2007-2008 academic year, the average tuition, fees and room and board at a four-year private college was $32,307; the corresponding figure for a four-year public school was $13,589.
Knowing that college is expensive – and likely to become more costly – what can you do about it? Of course, your child may well qualify for some financial aid in the form of grants and scholarships. And it’s in your best interests to look for as many of these as you can. For help in finding out what’s available, contact your local college’s financial aid office, or just do an Internet search.
Still, even if your child does get some grant or scholarship money, it probably won’t be enough to cover all college costs. That’s why so many students take out loans.
Initially, you might think that taking out a loan or two isn’t such a bad thing. After all, the rates are competitive, and the interest may be tax-deductible. But consider this: The average undergraduate debt is $18,900, according to Nellie Mae, a major student loan agency.
No matter how you look at it, that’s a lot of money – and it’s an especially heavy burden for young people to bear as soon as they leave school. This debt load can keep college graduates from buying houses and making other important investments in their lives.
So, how can you help keep your college-bound kids as debt-free as possible? Start early, save regularly and consider tax-advantaged vehicles such as a Section 529 plan or a Coverdell education savings account.
When you establish a Section 529 college savings plan, your earnings and withdrawals are exempt from federal taxes, as long as the money goes toward paying qualified college costs. And you can contribute large amounts to your 529 plan. In fact, some plans allow you to put in as much as $340,000 per beneficiary. You also have the option of setting up a Section 529 plan as a pre-paid tuition program.
You might also want to look at a Coverdell education savings account, formerly known as the Education IRA. Depending on your income level, you can contribute up to $2,000 annually per beneficiary to a Coverdell. And, as is the case with a Section 529 plan, your earnings and withdrawals are tax-free, provided you use the money for qualified education expenses. Also, qualified withdrawals can be used for kindergarten through high school, as well as college.
Coverdell education savings accounts and Section 529 plans can go a long way toward reducing your child’s dependence on student loans. By making the right moves, you can help your children get off to a debt-free start in their adult lives. And that’s a great graduation present.
Tom McLean
Edward Jones
Financial Advisor
3947 East 120th Avenue
Mission Trace Center
Thornton, CO 80233
303-255-8176
Tom.McLean@edwardjones.com
