On the Ball

This morning I opened my emails and had an email from a high school student asking me information on the cost of MU tuition for the year of 2012-2013. The student indicated that she is an aspiring journalist and has her heart set on the University of Missouri. She had a few questions about financial aid issues, scholarships, and employee discounts. When I was thinking about a Tip to write for you today, while my mind is busy thinking about getting everything done for Dr. Yao’s and my travels to Beijing tomorrow, it struck me how exciting it is to see a young person thinking that far ahead about her college experience and that she asked me to help her!

We all know the advantages of a college degree with respect to the ability to earn a salary or to build the human capital to increase the chance for financial success. (See: “Education Expensive, Try Ignorance” in our archive of blogs, if you need a reminder.) The data are compelling. Nothing, however, can take the place of planning ahead with a dogged determination to succeed – regardless of the goal. This young lady has it. What do I recommend to our high school students in the audience? What would I like to see you do, particularly with respect to college admission and success?

First, do well in your coursework. Your high school class rank and grade point average (GPA) do matter. Second, be involved in some activities to demonstrate your leadership, sense of service above self, or amiability. Third, take your ACT or SAT test early. If you are not happy with your score, you might consider a test preparation service to help increase your score. Apply to several different colleges/universities that you want to attend and where you have a chance of being admitted. Do not limit your choices to those schools to which your friends are applying. Apply for admission early, very early – like this weekend, if you are a senior! Most schools have deadlines of late December or early January for scholarship considerations.

Speaking of scholarships, apply for all of them you can. Do some research. Get your parents to do some research for you. Are you a descendant of a Daughter of the American Revolution? If so, they have a scholarships. Have you asked a member of your local Rotary, Lions, or Optimist club about programs they might have for youth in your community. Churches sometimes have similar programs, as do other civic minded groups that believe that the future rests with a well educated citizenry.

Do you qualify for work-study, where you work part-time for the university or college? Importantly, you must complete the FAFSA form to be eligible for most need-based financial aid and, guess what, the Obama Administration has streamlined this process making it easier for those who file taxes to apply. Do you live in a state where you could attend a community college for less, often much less, for the first two years of school? In Missouri, for example, students that graduate from high school through the “A+ program” can attend a community college for two years for free. If you choose this route, however, I encourage you to contact your destination university to see if they have suggested routes toward your Associate’s degree matriculation, prior to getting too far into your community college program. You want ensure the credits transfer to the destination college.
My point is simple. The world belongs to those that show up. We often say that twenty percent of the student body make eighty percent of campus life possible. I think the same is true with most of life and, as I remind my students, it is not hard to be in the group that sets itself apart. You just have to act. This morning, I had an email from a young lady I’ve never met. She asked me some very important questions aimed at helping her with her financial success. I replied to her and copied our Vice Provost of Enrollment Management, just as a point of information. My guess is that this experience will help her take the next step, as well as the next step, until she reaches her goal. Yet, she had to take the time and effort to take step one. I am glad to have been the one on the other side, when she stepped across.

- Robert O. Weagley, Ph.D., CFP(r)

Chair, Personal Financial Planning

University of Missouri

Columbia, MO 65211

给予

My colleague and I have been asked to attend a conference in Beijing. Since we are being hosted by Tsinghua University, we plan to bring gifts to our hosts, as is customary in Chinese culture. (Hence, I use the Chinese words for “giving”, as the title of today’s tip.) Not knowing how many hosts exist, their gender, and their tastes makes this process quite interesting. Although, we are working on solutions – quickly – as we leave next Friday, the 25^th. Regardless, I’ve been thinking about gift giving and I realize that it is something that can create some disagreements among individuals and families – and can lead to costly mistakes.

We are often invited to events; such as weddings, showers (either for brides or babies), Bar or Bat Mitzvahs, graduations, baptisms, Christmas parties, invited dinners, Chanukah, Eid al-Fitr, or whatever! The point is that, even if our checking account needs some fattening-up, our relationships make it very hard to ignore these events and our friends that are entangled with them.

In most cases, an invitation is not a requirement to bring a gift. Of course, if you attend a wedding, a gift for the bride and groom is expected. How well you know the person, the size of your budget, as well as your upbringing will also influence your expenditures. What are some other considerations?

Showers: Make sure the gift is useful. To avoid duplication, consider finding out if they have registered the shower, bridal or baby, with a particular store and then purchase something that is on the list that has not been purchased by others.

Weddings: Certainly, the thought matters more than the expenditure but don’t try to be too cute. It might backfire. If you want to be creative and you know the person well, then gift them something that is a perfect fit; like a nice camp stove for a couple that likes to tailgate at football games. An empty, nice photo album for their “friends” photos from the wedding is always a winner and is relatively inexpensive.

Hosts and Hostesses – If they don’t drink alcohol, do not take wine. If you don’t know if they drink alcohol, do not take alcohol. If you take cut flowers from your garden, take a vase. If you spend a night with them, take a small gift. Take them to dinner for longer stays. If you can cook and your budget is tight, a great idea is to offer to prepare a meal for their household. Besides, this can lead to a lot of fun.

Children: Children love gifts, regardless of the source. Yet, once you start a practice of gifting every time you visit a child, it becomes expected and it loses meaning. (The same goes for your own children, when you travel.) When buying for children, makes sure the gift is age appropriate and either useful, fun, or both.

Professional courtesy: For example, we’re visiting Tsinghua University as faculty from the University of Missouri. As such, we’re taking MU tartan ties. Something that is a meaningful representation of you or your business is key to this category of gift.

Employees: Something simple for your employees over the holidays is a nice gesture, although don’t overspend in a good year, as a lean year may not allow for a repeat performance. Simple things that fit the culture of your business is fine. As far as gifts for your boss, be careful. If it is part of the culture it is acceptable. Otherwise, it may be seen by your coworkers as an attempt to gain favor – which it is.

When you receive a gift: Hand written thank you notes are always the best – case closed. If you can’t seem to remember to write the note, buy the notes, or where you put your car keys, then an email or phone-call would be acceptable.

Finally, we’ve always heard that it is better to give than to receive and it is truly a measure of financial success when we can give of our money, time, and talents to make our world, or someone’s world, a little brighter. One final thought, Waite Philips, the philanthropist that gave his ranch to create Philmont Scout Ranch, once said, “The only things we keep permanently are those we give away.” Indeed, this is a powerful thought.

- Robert O. Weagley, Ph.D., CFP(r)

Chair, Personal Financial Planning

University of Missouri

Columbia, MO 65211

Summer of ‘10

I recognize that not all our readers are students. Yet, many high school and college students are among our readership. Given the facts that 1) I teach our Careers class in the fall semester, 2) I’ve three children that are all in school and all have jobs, and 3) today is the Career Fair on our campus, a good financial tip would be one on internships and employment. Yes, you guessed it; it is not too soon to start looking.

Given the current state of the economy, having an internship/summer job to help propel you in the job market is as crucial as ever. Moreover, your parents might be in a position where they could use your help in assuring a successful start to your adult life. What are my tips that I tell my students, as well as my children?

· First, if you’re looking for a summer job or internship, begin your search the Thanksgiving break before the summer you’re hoping to be working. This communicates that you are forward thinking and a good manager of your time and resources. Beginning to seek summer employment in June, communicates the opposite.

· Do not be ashamed to talk to your parents and your parents’ friends for advice. Yet, don’t take the first thing that is offered, if it doesn’t fit your goals.

· While working as a lifeguard might provide the greatest back-to-school tan, it may not provide the experiences you need. If your goal is to be an investment banker, a job working as a teller in a local bank or as clerical staff at a brokerage firm allows you to learn the workings of a financial institution, while making valuable contacts. Think about what you want to do and ways you can find these experiences. Lay the foundation for your future today – not tomorrow.

· Write a resume and cover letter. For help in writing both, check out a good job-hunters book for help. (I like What Color Is Your Parachute?) Importantly, keep your resume limited to one page, with your references on a second. Have others, many others, read your resume for errors and for their suggestions. Make sure you use “action” words and don’t be so lazy that you don’t take the time to refocus your resume for each individual job opportunity. You’ve only one-pitch. It has to be a strike!

· If you want an interview and sincerely want to learn more about an occupation, call the offices of an executive at the firm and ask her assistant if you can make an appointment to interview the executive to learn more about her occupational life, as a possible career choice for you – a student. Call as high up the executive ladder as you’re comfortable. You will be surprised how few people do this and how most professionals will want to talk to a student about their life. (Successful people, by and large, like to talk about their success!) Then, when you interview them, take a sincere interest in them. Come prepared with a set of questions and something on which to write their answers. Then, listen and relax. Oh, by the way, do not forget to take your resume and to dress for success. Often, these people will want to know more about you. It just might come up in the conversation that you’re working your way through school and are looking for a summer opportunity. BINGO!!

· If you need the most money from the job, be aware of the costs and characteristics of that job. How far do you have to drive each day? Can you take public transportation to avoid parking costs? Do you need to purchase special clothing? Do you need to pay for licensing? If the job involves commissions, do you believe that you can sell? Will it require you to live in expensive housing or, conversely, only be able to afford to live in Cockroach City?

Finally, you have to believe in yourself and to take actions to support your goals. When I was in college, I used to wonder why the girls wouldn’t dance with me. Then, one day, it dawned on me - I had to ask them to dance. It made all the difference in the world.

- Robert O. Weagley, Ph.D., CFP(r)

Chair, Personal Financial Planning

University of Missouri

Columbia, MO 65211

Curbing our enthusiasm

I recently read an article by Jason Zweig, in the Wall Street Journal’s weekend edition. It is my hope that the following is a meaningful echo of his work.

As of last weekend, the Dow Jones Industrial Average had increased 46% since its low point in March. This is the seventh largest and fastest rebound in the history of the Dow. Certainly, this is cause for ebullient optimism and ceremonial toasts. And, yes, it has been quite a ride. On the flip side, remind yourself that three of the past five days have seen the DJIA close below where it opened each day, shedding 3% of its value during that time. Moreover, the DJIA has to increase another 43%, from Wednesday’s close, to be at the same level it was twenty months ago, at the end of 2007. Risk – you have to learn to love it.

The price-earnings ratio is a very common measure of the value of the stock market. It, simply, indicates how much an investor has to pay (the “price”) per dollar of a firm’s earnings. If you think of buying stocks like you do buying socks, I will bet that you’d rather pay less per pair of socks than more. The same is true for stocks; you’d rather pay less per dollar of firm earnings than more. Currently, the average price-earnings ratio of the Dow is over 18. In March, however, it stood at under 12 (hence, a better value), while the long-term average is slightly more than 16. So, are stocks currently overpriced?

Well, I’ll retreat into the answer of an economist, “That depends”. It depends on the future earnings of firms. For example, given the current price-earnings ratio of 18, if the earnings of all the firms in the Dow were to double by this time next year (not likely) and the price of stocks remained the same (I guarantee that this will not happen if earnings double), today’s price-earnings ratio would fall from 18 to 9. If, however, stocks did increase in price and they settled at the long-run average price-earnings ratio of 16, their price would have to increase, on average, by 77% from current levels. On the other hand, if earnings stay constant and the price-earnings ratio reverts to its long-term average, stock prices will have to fall by 11%. Of course, if earnings decline, stock prices will fall by more and, perhaps, much more as investor pessimism takes another turn at the helm of the world’s financial markets. Clearly, it depends on what the future holds and, the last time I checked, tea leaves make a better drink than they make a forecasting tool. (The same holds true for most analysts, assuming they can make a good drink.)

Consider the success of Warren Buffett, protégé of Benjamin Graham, author of The Intelligent Investor. Mr. Graham taught Mr. Buffett (and us) that investors should expect change, in both directions, in the value of their portfolio and to not be overly concerned with movements in either direction. That is, investors need to remain calm at the helm of their portfolio – just like when they are at the helm of a ship. When the seas are calm and the wind is behind us, the exhilaration feels like nothing can stop us. Our greed drives us to race ahead of all others – right into the squall. Similarly, when the seas become choppy and we find ourselves in a gale, we seek immediate shelter – often running aground as our rudder strikes an unknown shoal. So, what is the answer?

The answer is simple and the answer is discipline. One of the best ways to remain disciplined is through dollar-cost averaging – the act of investing a fixed dollar amount each week, month, or year into a low-cost, diversified portfolio. This allows you to buy more when prices are low (on sale) and less when prices are high (overpriced). When coupled with periodically rebalancing across market sectors, allowing you to sell a sector when prices are high and buy when prices are low, you won’t get rich quick, but you will achieve financial success.

Postscript: Many of you sent me a reply email last week to express condolences on the death of my father. Your expressions were beautiful and it deeply touched me to have others, some of whom are absolute strangers, communicate their sympathy. Thank you! - Rob

- Robert O. Weagley, Ph.D., CFP(r)

Chair, Personal Financial Planning

University of Missouri

Columbia, MO 65211