Tag Archives: Financial Literacy Month

What Is Cost-Benefit Analysis?

By Selena Maranjian

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April is Financial Literacy Month, and our goal is to help you raise your money IQ. In this series, we’ll tackle key economic concepts — ones that affect your everyday finances and investments — to help you make smarter choices with every dollar decision you face.

Today’s term: cost-benefit analysis.

Most of us are familiar with the term, and have a basic grasp of it. It refers to how a project or decision might be evaluated, comparing its costs with its benefits. In many cases, it’s a like a quantified pros-and-cons list.

Applying cost-benefit analyses in the business world and your own personal finances can be very effective, helping decision makers avoid just going with their gut or with very rough calculations.

The Most Bang for the Buck in Business

In the business world, companies’ managers might think in terms of costs and benefits if they have several possible actions they can take. For example, a cost-benefit analysis can help them determine whether to build another factory, buy a certain company, issue more stock, or expand their employee retirement benefits.

Economists apply cost-benefit analysis when they want to estimate the effect of various actions, such as government incentive programs to support the housing market, or subsidies for certain industries, or changes in tax rates, or spending on infrastructure.

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The analysis can take various forms, and can involve varying degrees of complexity and precision, everything from considering opportunity costs (i.e., what is given up by making a given choice) to applying probability estimates to outcomes, to calculating the net present value of various options (which involves translating future costs and benefits into current dollars).

Assessing the costs and benefits helps zero in on the action that offers the most bang for the buck. It’s good to remember, though, that these analyses are not necessarily precise, as they often include estimates, especially for qualitative factors.

Cost-Benefit Analysis in Our Lives

When pondering big decisions (or even some small ones), using cost-benefit analysis can help you be a bit more rigorous in your decision making process and more confident in the final decision you make. It comes in handy in all sorts of situations, such as when you’re:

  • Weighing different career or job options. In this case, you might factor in any costs associated with getting the required training, the amount you’ll expect to earn, the degree of enjoyment you’ll get, the location, the commute, the wardrobe, the hours, the employee benefits, and so on.
  • Deciding whether to rent or buy a home, and what kind of home, too. You might consider costs such as the down payment, mortgage, insurance, monthly rent, along with the cost of commuting from various spots, the satisfaction provided by each location and home type, the expected cost of repairs and

    From: http://www.dailyfinance.com/2013/04/19/cost-benefit-analysis-definition/

Financial Literacy Quiz: 10 Questions to Challenge Your Money Smarts

By Michele Lerner

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April is Financial Literacy Month, and if there’s one thing we know for sure, it’s that educating Americans about how to manage their money can’t start early enough. In a recent survey of international women’s financial literacy commissioned by Visa, the U.S. ranked last among 27 countries when it came to the question: “To what extent would you say that teenagers and young adults in your country understand money management basics and are adequately prepared to manage their own money?” Only 17% of respondents expressed any confidence that young people starting out understand financial basics.

Of course, teaching by example is one of the surest ways to get kids to learn. Here are 10 money questions to challenge your basic knowledge about managing finances. Find an area you need to brush up on? Visit the new DailyFinance Learning Center, where you can take interactive courses on personal finance topics, including how to teach your kids about money.

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From: http://www.dailyfinance.com/2013/04/18/financial-literacy-quiz-money-management/

What Is Inflation?

By Selena Maranjian

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April is Financial Literacy Month, and our goal is to help you raise your money IQ. In this series, we’ll tackle key economic concepts — ones that affect your everyday finances and investments — to help you make smarter choices with every dollar decision you face.

Today’s term: inflation.

You probably think you’ve got the term down pat: Inflation means prices rising over time. Well, yes, that’s pretty much right. But there’s much more to inflation, and it’s much more relevant to your life than you might think. Inflation can go in the opposite direction, for example, and it can spiral out of control.

First, a quick review.

Inflation is about purchasing power. It’s a way to measure the changing purchasing power of our currency by tracking changes in the prices of things we buy. The national banks of various countries try to keep inflation under control through their actions and policies (such as via the interest rates they set); many aim for an annual inflation rate of about 2 percent to 3 percent.

If inflation is at our long-term national average rate of about 3 percent, you can expect that something that costs you $100 today will cost you $103 next year, and $116 in five years. Plenty of online inflation calculators can give you a peek into the past, too. For example, per the U.S. Department of Labor’s calculator, it would cost you $62 in 1993 dollars to buy what costs you $100 today.

It’s not as simple as it seems

While the concept of inflation seems simple, as in the examples above, it’s actually a bit more complicated. For one thing, prices of various goods and services tend to grow — and sometimes shrink — at significantly different rates.

Think of college tuition, room and board, for example. Between the 2000-2001 and 2010-2011 school years, that cost has grown by an annual average of 5.5 percent overall, at both private and public schools combined. Meanwhile, the average selling price of a new vehicle rose just 1.7 percent, on average, annually between 2001 and 2011, and the price of gas averaged 8.9 percent annual growth during that same period.

Changes can be quite different in different time periods, for different items, and even in different regions — think of the housing market, for example.

Inflation is calculated in different ways, too. Its most basic form, as calculated by the Bureau of Labor Statistics, is the Consumer Price Index or CPI, which reflects the changes in prices of a basket of goods and services, such as food, gasoline, newspapers, postage, lodging, furniture, dental services, socks, cigarettes, pet food and more. There’s also the “Core CPI,” which excludes energy and food prices, as they can be especially volatile.

Another key thing to understand is that each of

From: http://www.dailyfinance.com/2013/04/17/inflation-definition/

What is Supply and Demand?

By Selena Maranjian

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April is Financial Literacy Month, and our goal is to help you raise your money IQ. In this series, we’ll tackle key economic concepts — ones that affect your everyday finances and investments — to help you make smarter choices with every dollar decision you face.

Today’s concept: supply and demand.

Most folks are familiar with the concept of supply and demand, but most of us also don’t give it much thought, which is a mistake. That’s because it applies to much more than just business.

First, to review. In basic economics, the law of supply and demand influences prices. If supply of an item is abundant, that will pressure the price downward, and vice versa. In practice, imagine that you’re the only one in town selling shoehorns. Because consumers don’t have any other places to buy the product, that gives you some pricing power. But if other stores in town start carrying shoehorns, you may have to drop your price to keep customers coming.

In the Stock Market

Similar principles are at work in the stock market. Once stocks are launched into the market via an initial public offering, or IPO, their prices aren’t set by the companies behind the stocks, or even the brokerages processing the trading. Instead, they reflect the shares’ supply and demand.

As an example, think of retailer J.C. Penney (JCP). Its stock closed at $15.87 per share on April 8. But on April 9, it closed around $13.92, down more than 12 percent in a single day.

What happened? Well, the struggling company’s CEO, Ron Johnson, was dismissed, replaced by a former CEO, Mike Ullman. The fact that the stock price sank reflects a lack of confidence in the company — or a lack of demand for its shares. If investors were more optimistic about the company and Ullman’s leadership potential, demand for its shares would have risen, driving the price up.

Meanwhile, shares of Yahoo (YHOO) have surged more than 50 percent since Marissa Mayer took the reins of the company. That increase reflects confidence in her leadership and the company’s future — via an increased demand for shares.

In Our Lives

Shortages and surpluses affect other areas of our lives, too, such as careers. There’s a good case to be made for pursuing the career that most excites you, but you would also do well to factor in the supply and demand for that occupation and others.

There are many lists of jobs that are expected to be in great demand in the coming years. The folks at Randstad, for example, a major global staffing company, have listed “13 Hot Jobs for 2013.” They include registered nurses, physicians (specializing in urgent care and anti-aging medicine), drug safety specialists, mortgage underwriters, loan documentation specialists, accountants, manufacturing production specialists, industrial

From: http://www.dailyfinance.com/2013/04/16/supply-and-demand-definition/

What Is Compound Interest?

By Selena Maranjian

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April is Financial Literacy Month, and our goal is to help you raise your money IQ. In this series, we’ll tackle key economic concepts — ones that affect your everyday finances and investments — to help you make smarter choices with every dollar decision you face.

Today’s term: compound interest.

The concept of interest is familiar to most of us. We know that with many bank accounts, for example, we earn some interest — though it’s rather paltry these days.
It’s Financial Literacy Month, so throughout April we’ll be examining key economic concepts that affect your everyday finances. Today’s term: net worth
But there are several kinds of interest that are calculated and represented quite differently than simple interest. Compound interest is — pardon the pun — one of the more interesting ones.

First, let’s start with simple interest. Here’s how it works: Let’s say that you’ve parked $1,000 in an account somewhere, earning 10 percent per year in simple interest. In year one, you’ll collect $100, bringing your total to $1,100. Great, eh? In year two, you get… $100. That brings your total to $1,200. In year three, you’re at $1,300. You’re probably catching on to the idea by now. You keep earning that interest rate off your initial principal.

Small numbers become big numbers

Enter compound interest, which is far more exciting.

Start again with $1,000 and factor in an annual 10 percent compound interest rate. In year one, you get $100, for a total of $1,100. In year two, though, you collect that 10 percent not only on your original principal amount, but also on the interest you’ve already earned – on the whole $1,100. So you earn $110, instead of the $100 that simple interest gave you, bringing your total to $1,210. In year three, you collect $121 instead of $100, for a total of $1,331 instead of $1,300. In year four, you earn $133, bringing your total to $1,464 instead of the $1,400 you’d have earning simple interest.

The key thing to observe in this example is that not only is your overall total investment growing from year to year, but the amount by which it’s growing is also increasing.

Now check out how powerful that 10 percent compound interest rate is over time, because when you combine compounding with years, the magic really happens:

$1,000 grows at 10% annually over… And becomes…
10 years $2,594
20 years $6,728
30 years $17,449
40 years $45,259
50 years $117,391

Compound interest in your life

That kind of growth may seem magical, but it’s not magic — it’s just math.

You don’t need to wait around for an every-so-many-years environment of steep interest rates, either. If you invest in stocks or some other appreciating asset, your investment can compound over time even if it does not deliver the same return every

From: http://www.dailyfinance.com/2013/04/15/compound-interest-definition/

What Is Asset Allocation?

By Selena Maranjian

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April is Financial Literacy Month, and our goal is to help you raise your money IQ. In this series, we’ll tackle key economic concepts — ones that affect your everyday finances and investments — to help you make smarter choices with every dollar decision you face.

Today’s term: asset allocation.

In the most basic sense, asset allocation is simply how one’s assets are divided among different asset classes, such as cash, stocks, bonds, real estate, and so on — even insurance investments, commodities, collectibles, and other categories count.

But the term also refers to an investment strategy — one that can reduce risk through diversification.

Clearly, having all your money in any one asset class can be risky. In 2008, the S&P 500 plunged 37 percent. If you’d held all your assets in an S&P 500 index fund, your net worth would have taken a big hit that year. (It’s worth noting, though, that long-term investors who held on regained those losses.) That was also a time of falling real estate values, and had you been a big property owner, especially in some particularly hard-hit regions, you’d have suffered a big blow, with our national housing market only recently starting to pick up again.

Given the harrowing ride we’ve been on in recent years, you might think that holding cash is the best way to protect your assets from outside forces. Think again.

Cash’s buying power tends to shrink every year, due to inflation. Given the inflation we’ve experienced between just 2000 and 2012, something that cost you $100 in 2000 would cost you about $132 today. Dollars stashed in a mattress are shrinking dollars.

Even dollars kept in savings accounts these days are problematic, given our low interest rates. If you’re earning even 1 percent in interest, but the inflation rate is around the long-term average rate of roughly 3 percent, then you’re losing ground by 2 percent annually. Bonds can offer a guaranteed return, but they too sport low interest rates today, and bond prices can fall over time, too.

Allocation in Action

There is no one-size-fits-all perfect asset allocation model. What’s good for you might be less so for someone else, due to the current size of your nest egg, your risk tolerance, your years until retirement, and other considerations.

One thing that everyone should do, though, is rebalance their portfolio, to maintain the desired allocation. That’s because over time, an allocation will likely change.

Imagine this simple example: If your assets are split equally between stocks and bonds, and over three years your bonds hold steady, but your stocks double in value, your allocation will no longer be 50-50. It will be 33-67, with stocks making up much more of the overall portfolio.

Some advisers

From: http://www.dailyfinance.com/2013/04/12/asset-allocation-definition/

Sterling Bank Celebrates Financial Literacy Month with Tips for Every Stage of Life

By Business Wirevia The Motley Fool

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Sterling Bank Celebrates Financial Literacy Month with Tips for Every Stage of Life

SPOKANE, Wash.–(BUSINESS WIRE)– According to the 2013 Asset and Opportunity Scorecard published by the Corporation for Enterprise Development (CFED), one in three Americans do not have a savings account. In an effort to help its communities achieve stronger financial footing and in recognition of April being Financial Literacy Month, Sterling Bank, a subsidiary of Sterling Financial Corporation (NAS: STSA) , offers the following tips to improve your financial well-being at every stage of life:

Youth / adolescents

  • Start saving: Commit to setting aside a certain amount every month to save for something important, whether it be a new pair of shoes or something much bigger, like a car or college tuition. Open a savings account if you don’t have one – it is much safer than keeping your money at home and will allow you to gain interest.
  • Keep a money journal: Keep track of the money you make (from part-time jobs, birthday gifts, allowance, etc.) and what you spend it on. When you see where your money is going, you might decide to change some of your spending habits.
  • Learn the basics of banking: Open a student checking account and learn how to balance a checkbook, even if you use online banking. Make sure you know how much money you have in your account before you write a check or use your debit card and always ask yourself before the purchase, “Can I do without it?” If the answer is yes, walk away.

College graduates / young adults

  • Make a budget: Keep all of your receipts for a month or two to see exactly how you are spending your money, and use that information to create a realistic budget. Include wants as well as needs in your budget, and stick to it

    Source: FULL ARTICLE at DailyFinance

Higher One Opens Financial Literacy Counts Grant Program to Colleges and Universities Nationwide, Re

By Business Wirevia The Motley Fool

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Higher One Opens Financial Literacy Counts Grant Program to Colleges and Universities Nationwide, Recognizes Financial Literacy Month

NEW HAVEN, Conn.–(BUSINESS WIRE)– Higher One, a leader in providing services to higher education administrators and students at more than 1,300 campuses across the U.S., has opened the application process for its third annual Financial Literacy Counts grant program, which supports financial literacy programs and initiatives on college and university campuses.

Selected institutions will receive grants totaling between $2,000 and $5,000 each to support student awareness campaigns, workshops, online financial literacy tools and other activities and resources that promote financial literacy and provide opportunities for students to increase their personal financial management skills and abilities.

The U.S. Congress recognizes April as Financial Literacy Month, and the Financial Literacy Counts grant program is an example of Higher One‘s continued mission to support financial literacy among college students by providing needed resources and promoting effective initiatives on campuses—Money Matters on Campus, a recent survey of 40,000 college students, found that 79 percent of college students worry about debt.

Higher One‘s engagement with over 10 million college students across the country has strengthened our commitment to develop real-world money management programs with our partner institutions,” said Mary Johnson, Director of Financial Literacy and Student Aid Policy at Higher One. “The Financial Literacy Counts grants help institutions create and implement much needed curricula and programs.”

The Financial Literacy Counts grant program is part of the company’s Higher One CARES (Community Action for Resources Education and Service) initiative, which was formed by employees of the company to identify opportunities for community involvement and engagement.

Previous grant winners attest to the need for financial literacy and the positive impact of the Financial Literacy Counts program.

“We were honored to receive the Financial Literacy Counts award from Higher One to help support financial literacy education for our students,” stated Jim O’Neill, associate vice president at Madonna University. “The award has defrayed the costs of implementing orientation programming and enhancing existing workshops targeted to the financial literacy needs of various groups of Madonna University students.”

Higher One believes students can be financially responsible and, when given the tools, live within their means. To that end, Higher One offers innovative student banking services based on choice. The company has dedicated resources to financial literacy including its Financial Intelligence online financial literacy course, One For Your Money blog dedicated to the fundamentals of finances for college students and sponsorship of

Source: FULL ARTICLE at DailyFinance

10 Ways to Improve Your Financial Literacy

By Business Wirevia The Motley Fool

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10 Ways to Improve Your Financial Literacy


TD Ameritrade Celebrates 10
th Anniversary of Financial Literacy Month with Free Investor Education

OMAHA, Neb.–(BUSINESS WIRE)– TD Ameritrade, Inc. (“TD Ameritrade”), a broker-dealer subsidiary of TD Ameritrade Holding Corporation (NYS: AMTD) is celebrating the 10th anniversary of Financial Literacy Month by encouraging investors to take time to improve their financial knowledge with these 10 tips:

  1. Make a plan. Identify your financial goals and objectives and use a free calculator like WealthRulerTM to help you assess your financial situation and devise a plan to help you pursue those goals.
  2. Know thyself. Do market swings make you uneasy? Or, do you seek opportunity in the daily swings? There are plenty of investing and trading approaches; be sure to consider your goals, risk tolerance, and time frame when you choose the one that makes sense for you.
  3. Protect your assets. Understand your tolerance for risk and use it to determine the size of every investment you make. Position sizing and utilizing stop orders or Trade Triggers™ are tools that can be used to help you protect your investment capital.
  4. Analyze from the top down. Learn how to identify current market trends and the stocks following them.
  5. Search for additional opportunities. Build a list of securities to “watch” and invest in when your criteria indicate the time is right.
  6. Get technical. After you’ve done your research but before you place your trade, be sure to review the security’s past performance and identify when you might want to get in—and out.
  7. Manage and monitor your positions. Use online tools to better understand your portfolio’s exposure to different industries, geographic regions and sectors. You can also monitor on the go using mobile apps.
  8. …read more

    Source: FULL ARTICLE at DailyFinance

What Is Net Worth?

By Selena Maranjian

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April is Financial Literacy Month, and our goal is to help you raise your money IQ. In this series, we’ll tackle key economic concepts — ones that affect your everyday finances and investments — to help you make smarter choices with every dollar decision you face.

Today’s term: net worth.

In a nutshell, net worth is what you get when you subtract liabilities from assets — what you owe from what you own. Like many economic and financial terms, net worth can apply in a variety of situations.

If you’re evaluating a company for your portfolio,you might glance at its balance sheet to get a handle on its net worth. Balance sheets break out assets (such as cash, inventory, and receivables) and liabilities (such as debt and accounts payable). Subtracting the latter from the former gives you net worth, which is also referred to in this context as shareholders’ equity or book value.

Here’s an example: As of the end of 2012, IBM’s (IBM) assets totaled $119 billion, and its liabilities totaled $100 billion. Thus, its net worth, or shareholders’ equity, was $19 billion.

Net Worth in Our Lives

Each of us has an individual net worth, too, and it’s arrived at in similar fashion.

First, grab a sheet of paper and list all your assets. These would include the contents of your bank accounts, your investments, the equity you have in your home, your retirement accounts, the current value of your car(s), the value of your jewelry, the contents of your wallet or purse, and so on. Be thorough — your sizable board game collection might be worth several thousand dollars, for example.

Next, list all your liabilities, or debts. These would include what you owe on your mortgage or car loan, your credit card debt, any school loans outstanding, and any other debt, such as a home equity loan.

Finally, subtract the liabilities from the assets. What’s left is your net worth.

Ideally, your net worth is positive and will grow over time. If your net worth is in negative territory, that’s not great, but by saving aggressively, paying down your debts, and being careful in your spending you can reverse the situation over time.

How Does Your Net Worth Compare?

For the record, a typical net worth for an American family these days is between $100,000 and $200,000.

The aggregate net worth of Americans has risen recently and is finally back to pre-recession levels. But much of those gains have gone to wealthy Americans and can be traced to the stock market‘s recovery.

Middle-class Americans have about two-thirds of their net worth represented by their home equity, and home values have not recovered as much as the stock market at this point. The Dow Jones Industrial Average has more than doubled …read more

Source: FULL ARTICLE at DailyFinance

7 Questions to Test Your Financial Literacy

By Erik Carter, Contributor Did you know that April is Financial Literacy Month? With taxes fresh on your mind and spring cleaning in the air, it’s as good a time as any to brush up on your financial literacy. After all, as we’re required to make more and more financial decisions, financial literacy is becoming almost as important as being able to read and write. …read more

Source: FULL ARTICLE at Forbes Latest

What is Cash Flow?

By Selena Maranjian

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April is Financial Literacy Month and our goal is to help you raise your money IQ. In this series, we’ll tackle key economic concepts — ones that affect your everyday finances and investments — to help you make smarter choices with every dollar decision you face. Stick with us, and you’ll end April financially smarter than you were when the month began.

Here’s a vital concept to understand: cash flow.

The meaning of the term varies depending on context. In the accounting world, for example, it refers to the change in a company’s cash level over a specific period of time. If a company’s cash level rises during that period, it’s exhibiting positive cash flow. If it shrinks, negative cash flow.

When investors study companies to see if they might be good fits for their portfolios, they may assess “free cash flow.” That reflects a company’s cash flow from its operations after it pays all its expenses. Free cash flow can be viewed as the lifeblood of a company.

Negative free cash flow means a company is burning through its cash — a la J.C. Penney (JCP), Sears Holdings (SHLD), and Radio Shack (RSH), all of which have recently been sporting negative free cash flow.

While negative free cash flow can be viewed as a red flag in the investing world, it’s not necessarily a portent of doom. It all depends on what the company is spending its money on. Consider Netflix (NFLX), for example. Its free cash flow recently turned negative, but it has been investing heavily in its business, enlarging its catalog, and creating original programming, such as the well-received “House of Cards.”

Cash flow in our lives
The cash flow concept isn’t just useful for companies. It can also be applied to personal finances and can give you a better handle on how you’re doing money-wise.

To assess your personal cash flow, grab your bank account statement and jot down the cash you had on hand at the end of the past few months or quarters. (If you have multiple bank accounts and/or coffee cans stuffed with money, include those as well.) A glance at those sums will reflect whether you’re building cash value or shedding it.

Big or growing cash totals mean you have more opportunities to deploy those sums — perhaps socking some in an emergency fund, or adding to an IRA, or paying down debt.

Your cash flow doesn’t represent your total financial health, though. That’s a topic for another day. After all, you might have a modest amount of cash in the bank but no debt, a robust stock portfolio, solid retirement savings, and a big chunk of equity in your house.

Tracking your cash flow, however, can be a big eye opener.

Corral your cash and see which way …read more

Source: FULL ARTICLE at DailyFinance

What Is Sunk Cost?

By Selena Maranjian

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There are some economic terms most of us know and understand, such as supply and demand. And there are other terms we will probably never even run across, like implicit logrolling and a Kondratieff cycle.

In between, though, are all the terms you need to know to help with everyday financial decision making. To mark Financial Literacy Month, throughout April we’ll be unpacking key economic concepts — the ones that affect your everyday finances and investments — to help you make the smartest choice with every dollar decision you face.

Today’s term: sunk cost.

As the name suggests, sunk cost refers to money that has already been invested in something, money that can’t be recovered. Too often, we factor that expense into our financial decision-making when we shouldn’t.

Let’s say you’ve spent $40 on a nonrefundable ticket to the theater for tomorrow night. And you’re suddenly invited to play board games at a friend’s house that same evening. You might think that you should go to the theater — after all, you spent that $40 — even though what you’d rather do is hang out with your friends and play games. The $40 is a sunk cost. It’s spent, whether you go see the play or not, and the money doesn’t know the difference. So you should do whatever you would rather do.

Companies need to keep sunk costs in mind when they plan projects and execute strategies. It’s easy to think that once they have spent money buying another company or perhaps building a factory or coal mine, they should stick with it, even if it’s not turning out to be as productive as initially expected. If they disregard the sunk costs, though, they can make more sensible decisions about where to spend their next dollars — ideally on their most promising options.

Sunk costs come into play frequently when we invest in the stock market. Maybe you spent $5,000 on shares of Scruffy’s Chicken Shack, and those shares are now worth $3,000. Frustrated that you’ve lost $2,000 you hang on, even though you’re no longer very confident in Scruffy’s future, waiting and hoping that the shares will rally and you’ll make your money back.

That may seem reasonable, but it’s not. View the $2,000 lost as a sunk cost and you’ll see that you still have $3,000. You can leave it invested in that same stock, but you can also move it into another investment, ideally one in which you have much more confidence. You are, after all, more likely to earn $2,000 or more in your most promising ideas than in Scrufy’s mediocre ones.

Related term: opportunity cost.

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Source: FULL ARTICLE at DailyFinance

TD Ameritrade Provides Free Investor Education to Help Promote Financial Literacy

By Business Wirevia The Motley Fool

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TD Ameritrade Provides Free Investor Education to Help Promote Financial Literacy

Introduces F.A.M.E. – a simple way to help demystify investing

OMAHA, Neb.–(BUSINESS WIRE)– April is Financial Literacy Month and TD Ameritrade, Inc. (“TD Ameritrade”), a broker dealer subsidiary of TD Ameritrade Holding Corporation (NYS: AMTD) is encouraging investors to take time out to expand their financial knowledge with access to free financial education tools, research and webinars on their education center.

April is also a great time to do a little financial spring-cleaning. Many of the same documents, papers and files you go through to complete your taxes are the same documents you need for assessing your retirement preparedness. Whether you’re just starting out or nearing retirement, knowing your level of readiness for retirement is critical to your financial well-being.

“When it comes to planning and investing for the future, starting early is key,” says Lule Demmissie, managing director, investment products and retirement, TD Ameritrade. “But, it’s important to remember that you don’t have to do it all at once. By breaking your planning and investing into steps, you can build upon it in stages and make the task a lot less daunting.”

It can help if you put the right positive perspective on planning and investing. Demmissie suggests investors use F.A.M.E. to reframe how they think about saving and investing for the future.

Step 1 Framing – The lenses with which you view your goals can have a profound effect on how you save for retirement. If you focus on being behind on your savings goals it’s easy to feel defeated. Instead of thinking “I have a 30% chance of not reaching my savings goals,” think, “I have a 70% chance of reaching my goals.” It’s the same mathematically, but it’s all in how you look at it.

Step 2 Action – Take action. Don’t get paralyzed or overwhelmed by the end goal of what you must do. And, instead of focusing on what you can’t control – budget cuts, the fiscal cliff, social security – focus on the positives and what you can do. Remember that the first step is often the hardest. Don’t think “I will never be able to accumulate $2 million dollars by the time I retire.” Say “I …read more
Source: FULL ARTICLE at DailyFinance

Money Terms to Know: Opportunity Cost

By Selena Maranjian

Filed under:

Alamy

There are some economic terms most of us know and understand, such as supply and demand. And there are other terms we will probably never even run across, like implicit logrolling and a Kondratieff cycle.

In between, though, are all the terms you need to know to help with everyday financial decision making. To mark Financial Literacy Month, throughout April we’ll be unpacking key economic concepts — the ones that affect your everyday finances and investments — to help you make the smartest choice with every dollar decision you face.

Today’s term: opportunity cost.

Simply put, it’s what you give up in order to do something. Imagine, for example, that you dream of becoming an engineer or a chef. If you opt to become a chef, you give up the experience of being an engineer and all that goes with it. That’s an opportunity cost of becoming a chef.

Opportunity cost is also often defined, more specifically, as the highest-value opportunity forgone. So let’s say you could have become a brain surgeon, earning $250,000 per year, instead of a chef earning $50,000. In that scenario, your opportunity cost, salary-wise, is $200,000. (Of course, you should also consider factors such as your enjoyment of your chosen profession.)

Opportunity cost can help you think rationally about your personal finance and investing decisions, too. Imagine that you’re thinking of buying a wide-screen TV for $1,000. It costs a grand, true enough. But there are opportunity costs as well. If you invested that $1,000 in the stock market, for example, and over the next 20 years it averaged a 10 percent growth rate, you’d end up with a bit more than $6,700. So that TV that costs $1,000 today will mean that you’re giving up an alternative of $6,700 in 20 years.

The concept of opportunity costs applies to making investing choices, too. There are thousands of stocks in the market, and thousands of bonds and mutual funds. It’s easy to become captivated by a certain stock or fund, but is it the best investment choice for your needs? Spend some time thinking about its opportunity cost — the other stocks and funds you’re passing up that might actually be more attractive.

The next term you need to know: sunk cost.

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Source: FULL ARTICLE at DailyFinance