Nest Eggs
Plain English Investment Equity Terms, Part 1
April 23, 2012With personal investment planning, as with statistics, the knowledge is in the details. Words can be just as important as numbers. While market technology, products and services are continually evolving and changing, much of the language of finance and investment has remained constant — especially in the equity, or stock, market. The following glossary contains some of the most familiar terms that you will encounter when buying, selling and reading about stocks.
Blue Chips: Blue-chip stocks and the well-established companies they represent generally have long and unbroken records of earnings, industry leadership, growth prospects, dividend payments and a solid reputation. Blue chips typically are relatively high-priced and yield low quarterly dividends.
Bulls and Bears: These terms describe people with opposing views of potential stock-market trends. Bulls believe stock prices will rise and, acting on their optimistic projections, will buy rather than sell. On the other hand, bears believe the market will decline and are more inclined to sell. Likewise, in bull or bear markets, prices are rising or falling, respectively.
Common Stock:Units of ownership of a public corporation. Owners of common stock typically are entitled to vote for corporate directors and on other important corporate matters. In addition, they are entitled to receive dividends on their stock when, or if, dividends are declared. Most stocks traded in this country are common stocks.
Dividend: Payment declared by a corporation's board of directors and usually made on a quarterly basis to the company's stockholders in the form of cash, additional shares of stock, or other corporate assets. On common shares, the dividend varies with the assets of the company and may be omitted if business is poor or if the directors decide to retain earnings to invest in plant, equipment, or other expenditures.
P/E Ratio: The price/earnings ratio represents the relationship between the price at which a stock is selling and the company's earnings per share. When a stock sells below its historical P/E range, it's probably undervalued if the issuing company’s prospects are favorable. In general, a high P/E ratio indicates that investors expect future earnings to exceed present earnings, and vice versa.
Preferred Stock: Securities that carry a specified dividend rate. Their holders’ claims on a corporation's dividends and assets in the case of liquidation must be paid before common stockholders’ claims.
Yield: The dividend paid by a company, expressed as a percentage of the current stock price. For example, stock that sells for $40 and pays an annual dividend of $2 per share has a yield of five percent.
These are only a handful of the many terms used in the day-to-day buying and selling of equities. More of these terms will be discussed in a future installment. Stocks offer long-term growth potential, but may fluctuate more and provide less current income than other investments. An investment in the stock market should be made with an understanding of the risks associated with common stocks, including market fluctuations.
Investments in securities and insurance products are: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE Wells Fargo Advisors, LLC, Member SIPC, is a registered broker-dealer and a separate non-bank affiliate of Wells Fargo & Company.
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City Year Red Jackets Changing the World
April 15, 2012Have you seen the young people in City Year red jackets around town? Ever wonder what they do and who they are? I sat down with Jeff Franco, upper Georgetown resident and Executive Director of City Year Washington, D.C. to learn more about the organization.
City Year is an education-focused nonprofit that aims to keep students in school and on track to graduate. Jeff heads up the organization, which recruits 160 of those young people in the red jackets – called corps members – to spend an entire year volunteering full-time as tutors and mentors in a DC Public School. This year, City Year corps members are working in 14 schools and reaching 4,200 students.
Jeff came to City Year four years ago with experience in business development and project management, having worked at for-profit companies such as Voxiva and Corporate Executive Board. Jeff had never worked at a nonprofit organization before, but was immediately drawn in by the vast needs of Washington, DC’s education system and the strategic way City Year was making a difference. You’ve all probably heard of the dismal graduation rates in most large urban cities, but you may not be aware of how dire the situation is right here in Washington, DC. What’s particularly striking is that some of the worst graduation rates in the country are east of the Anacostia River. In Wards 7 and 8, where City Year predominately works, College and Career Connections reports that 6 out of 10 students who enter ninth grade will drop out.
City Year’s approach to curbing the dropout crisis is based on Johns Hopkins University research that states that as early as the sixth grade, students at risk of dropping out can be identified by three early warning indicators – poor attendance, disruptive behavior, and course failure in math and English. Corps members target students displaying one or more of these early warning indicators and work with those students all year to get them back on track, through interventions like literacy and math tutoring, attendance and behavior coaching, and after-school programming. City Year partners with the teachers and principals at each partner school to ensure students are receiving the right interventions at the right time.
Corps members are uniquely able to make a difference because they are at the school all day for the entire year, from when the first student arrives to when the last student leaves the afterschool program. Corps members, all between the ages of 17-24, are also able to serve as near-peer role models – they are old enough to be respected and taken seriously, yet young enough to relate to students in a way that is sometimes more difficult for adults. The corps members’ dedication is something that motivates Jeff to show up to work every day, even when the hours can be long and the work grueling. “The connection corps members have with the students they work with is inspiring,” said Jeff. “I am continually amazed at how corps members go above and beyond, doing things like taking their students on field trips and helping them apply to high school and college. It really shows me how invested corps members are in the success of their students.”
During Jeff’s tenure, City Year has grown from serving in 4 schools to 14 schools. This growth has been a result of the impact corps members have had on the students they serve. For example, last year, 93% of elementary school students that received literacy tutoring improved their standardized test scores and 56% improved at least one whole proficiency level. City Year also planned over 55 school-based events last year, such as literacy and math nights, which engaged over 660 parents and family members in their children’s educations.
It seems only fitting that City Year’s tag line is “give a year. change the world.” That’s just what City Year corps members are doing every day. Check out City Year and see how you can partner with City Year to help change the world.
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Don't Put All Your Eggs in One Easter Basket - A Rebalancing Act
April 9, 2012If this everyday piece of advice comes to mind when thinking about your investments, then you may already understand the importance of a diversified portfolio. But even the most carefully composed investment portfolios can get out of balance from time to time. To make sure your portfolio stays on track to helping you reach your goals, it’s important to take the time regularly to rebalance your portfolio to make sure it’s still in line with your investment objectives.
Some of the most common reasons your portfolio could get out of balance would involve a change in the ratio of the asset classes in your portfolio, or a change in the value of your various assets. Asset classes refer to the general types of investments that make up your overall investment mix: stocks, bonds, cash, mutual funds and ETFs, to name a few. As the respective values of those various investments change, the proportions in your portfolio will change as well. That’s why it’s important to check in on your investments to make sure the division of your assets doesn’t stray too far from the allocation you want.
To help understand this problem, let’s take a look at how your portfolio can get out of balance. Consider a very basic portfolio made up of stocks, bonds and cash. Out of these three asset classes, stocks are likely to see the biggest price fluctuations. If the price of your stock position rises significantly, the overall percentage of stocks in your portfolio grows in relation to the percentage of cash and bonds. The proportion of cash and bonds is therefore decreasing.
This imbalance may increase the volatility of your portfolio as a greater percentage of your assets face a higher level of risk, due to the fact that stocks tend to carry a greater level of risk. At the other end of the spectrum, if your stock prices drop, the percentage of equity assets in your portfolio decreases as well. The risk is lowered, but so is your opportunity for potential growth.
Another way to look at it is to consider a hypothetical example with numbers. Let’s say you invest $10,000 in bonds and $10,000 in stocks at the beginning of the year. By year end, you see that your stake in bonds has grown to $10,475 (for a return of 4.75 percent on the year) while your stock holdings are now worth $11,560 (or a 15.6 percent return).
While that’s a nice overall return for your portfolio, you’ll notice that your investment mix in stocks and bonds has strayed from the even 50-50 you started with at the beginning of the year. At this point, your portfolio is 52.5% stocks and 47.5% bonds, and at this pace the difference could get much bigger in just a few more years. Rebalancing helps put you back in line with your original allocation. When your portfolio gets out of balance, it’s important to realign your investments by making adjustments in accordance with your long-term strategy. Meeting with your Financial Advisor on a regular basis to discuss your asset allocation can help you spot significant changes and make the necessary adjustments to get your portfolio back on track.
Good luck and take care of those Nest Eggs in you Easter basket!
Investments in securities and insurance products are: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE Wells Fargo Advisors, LLC, Member SIPC, is a registered broker-dealer and a separate non-bank affiliate of Wells Fargo & Company.
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