Corrections or additions?
Published in U.S. 1 Newspaper on May 10, 2000. All rights
Facets of Financial Planning
Buy and hold — invest for the long-term — says
Sal Mannino, an investor with Edward Jones in New Hope
(www.edwardjones.com , 215-865-5205). "Don’t try to time the
market," he says. "Stocks
are not lottery tickets. They’re real companies. Buying a stock just
because it’s going up is never a good reason."
On Thursday, May 11, Mannino presents "Mutual Funds 101,"
at 7 p.m. ($39), and on Thursday, May 18, he presents "Build Your
Portfolio on $25 a Month," at 7 p.m. Call 609-688-0800.
A radio personality who gives a stock report twice a day on WDVR,
Mannino has been with Edward Jones, a full-service financial firm
with over 5,000 offices, for four years. He learned most of what he
knows about investing from his father. "My father told me that
when you’re buying a stock, you’re buying a business, not a lottery
ticket," says Mannino. "What drives a company’s stock price
over the long-term is earnings."
Whether you put your money in stocks or in CDs depends on your goals,
says Mannino, and your ability to take risks. Everybody is unique.
"Even when everything is equal — age and income — you
may have very different portfolios," says Mannino. "The
for a lot of people is a comfortable retirement. We’ve all come to
the realization that Social Security is not enough and we’re all
For a person in their 40s, it hits them like a ton of bricks. About
70 percent of our retirement will have to come from IRAs and
Return and risk go hand-in-hand, so in the long-term stocks are the
most profitable investment. Nonetheless, there are many reasons to
diversify your holdings. "Nobody should have all of their money
in stocks," says Mannino. "The right balance is different
for everyone. It depends on your goals and your own ability for risk.
If you put all your money in the stock market, but you needed all
of that money in six months, there’s a good chance that there’s going
to be less than that in six months."
For the short-term, Mannino suggests putting money away in a money
market account. "A money market is like a high-interest bearing
checking account," he says. "It’s rainy day money. If the
furnace blows up, the roof leaks, that’s what it’s there for. It’s
your cushion. People should have three to six months’ worth of bills
in a money market account, so that if you lost your job, you wouldn’t
have to dip into your investments."
Mannino’s investing advice:
advantage," says Mannino. "The earlier you start, the less
you have to put in, and you don’t have to contribute for as long."
If you put a $100 a month into an IRA at age 30, says Mannino, at
12 percent interest that would $649,000 at retirement. If you start
at 25, the returns jump to well over $1 million. "The three
enemies to the long-term investor are inflation, taxes, and
says Mannino. "Even a year costs you."
spend it," says Mannino. "If you wait until all the bills
are paid, you won’t have anything. People need to put a little money
away for the future, and the best way is systematic investing."
tools — solutions to problems," says Mannino. "Like risk
— there’s a risk that I could die early. The solution to that
risk is life insurance. Inflation is a risk. The only thing that
inflation is stocks. Then there’s the short-term risk — the
blows up. The tool is the money market. That’s what the money’s there
for. There’s political risk, a downturn in one country’s economy could
affect stock prices, so people should have their money invested
in international mutual funds. There’s a risk that we may need to
go into a nursing home: long-term care insurance. Or we may get hurt
on the job: disability insurance."
a stock is $10 or $100, it’s how much a company’s trading for in
to its earnings," says Mannino. "Don’t look at the 52-week
high low and see that the stock was trading at 300 and now it’s 100.
Don’t think that that’s a good deal. It may still be too expensive.
People are paying astronomical prices for these stocks, and when they
fall, they fall very hard. In the end, it’s the quality of the
in your portfolio."
when you see the market sliding is to sell — but often times
the wrong reaction," says Mannino. "Perhaps that’s the time
you should be buying — it’s a stock sale."
like we’ve seen," says Mannino, "if you’re a long-term
you can use this to sell off some of the companies that you perhaps
shouldn’t have invested in and upgrade your portfolio. The only time
companies become cheap is in the volatile times."
this: "If you keep pulling off the side of the road, you’ll never
get to your destination."
Women should be professional investors — they’re
the primary caregivers, live longer than their male counterparts,
and experience more career interruptions. Sadly, they are not, says
Michele Wink, an agent with the Northwestern Mutual Financial
Network Company at 777 Alexander Road (609-951-8700).
"One recent survey showed that only 46 percent of women between
the ages of 46 and 64 had started saving for retirement before they
turned 40, compared to 67 percent of men," says Wink. "When
it comes to investing, many women are forced to do more with less.
Because of their longer life span, women have an even greater need
than men to make the most of their retirement dollars. The single
smartest thing a woman can do is to begin saving earlier and invest
Wink will be a panelist at a meeting of the Central Jersey Women’s
Network on Wednesday, May 17, at 6 p.m. at the Holiday Inn, Route
1. Elaine Britt, an attorney at Fox, Rothschild, O’Brien, &
Frankel on Lenox Drive (see story below), and Julia Raven, vice
president of Merrill Lynch, will join the discussion on how women
can better prepare for their future. Cost: $30. Call 908-281-3119.
An graduate of Rider with a B.S. in management and marketing, Class
of 1995, and an active member of the Princeton YWCA, Wink became a
financial representative with Northwestern during her final year in
college. She practices in the area of insurance, wealth-accumulation,
and retirement and estate planning.
Wink adheres to the philosophy that peak performance begins with
complete responsibility for your life and everything that happens
to you, and therefore hopes to see more women taking an active role
in investing and their financial future. "Women tend to live
than men by about seven years on average," she says. "As
caregivers, women tend to have more career interruptions. Women
about 11.5 years out of the workforce, versus just 1.3 years for men,
and they stay with an employer 5.8 years, compared to 7.6 years for
men. As a result, women who do qualify for pensions plan — and
nearly 12 million women work for small firms that do not offer any
kind of pension — often have less money available to them."
The earlier, the better, when it comes to investing, says Wink. For
starters, less money is needed in the long run. And, says Wink,
planners can realize advantages by purchasing permanent life insurance
early because life insurance typically costs less at earlier
she says. "The insured can sometimes borrow against a policy to
realize dreams such as paying for a child’s education or starting
To women investors or would-be investors, Wink offers this general
or a comfortable condo in the city," says Wink, "concrete
objectives give you something tangible to strive for and make it
to assign a price tag to goals."
objective outside advisor for help in calculating your financial
says Wink, "including investments owned."
available and always ask questions.
seemingly small amounts of saving can build future stability and
wealth," says Wink.
"and work to get your answers."
Financial planning comes down to this simple principle,
says attorney Elaine Britt: "The choice is between the
getting the share of the assets or the family getting more," she
Britt, who will be speaking at the Central Jersey Women’s Network
"Women’s Financial Planning Options," on Wednesday, May 17,
at 6 p.m. at the Princeton Holiday Inn (see story above), says don’t
wait too long to tie up loose ends, whether it’s drafting a will or
settling your estate. "In past generations, women didn’t always
know what the family assets were, and didn’t participate in financial
planning, and that’s a lot less true than now," she says.
"The war stories are about people who wait until it’s too late.
They have lots of assets and not enough time to do the kind of
to avoid substantial taxes."
There’s no formula to financial planning, says Britt, who has a BS
in political science from Mount Holyoke College, Class of 1967, and
earned her law degree at Rutgers in Newark. "This is not
she says. "When you do estate planning for people you should
listen to what the family situation is, what their biases are, and
what they want to do. Some people can tell you right away that they’d
be more comfortable with aggressive planning, but you don’t want to
do something that would subject people to audit or questioning if
they’re not prepared to do more risky planning. There are some steps
that are likely to be questioned by the IRS and you have to be
to answer those questions."
Britt advises everyone to start early, but also wants to dispel the
lot of people have a lot of assets jointly held, and probably more
than they should," she says. "The thing they should ask
is do I want it to pass it to someone else if something happens to
me. Sometimes the answer is no." In a situation where an older
parent and child share an account, one child would then automatically
end up with a disproportionate amount of the assets when that might
not otherwise have been intended.
a lot of publicity and promotion of trusts to avoid probate,"
says Britt. "In other states it’s very expensive and that’s where
probate gets its bad name. There might be other reasons to avoid
but probate is not one of them. Probate is a simple and inexpensive
process in New Jersey."
but the other mistake people often make, says Britt, is not telling
the attorney the full story. "When you don’t give a full picture
of the assets, then things can backfire," she says.
— Melinda Sherwood
Financial reports are, let’s face it, never going to
be easy to understand. Just as journalists spend their lives trying
to make things simple, accountants spend their time trying to make
things complicated. Nevertheless, several elegantly simple guides
can separate the wheat from the chaff of all those confusing numbers.
One good resource is Stuart Bochner’s posting to ABC’s website,
"Secrets of the Annual Report" at www.abcnews.com. Look for
overused cliches in the CEO’s statement, says Bochner. "If the
CEO says vaguely, `We had a challenging year,’ chances are you’ll
find a decline in sales and profits. Similarly, `management has met
the challenge’ can easily translate into: Sales rose and so did
Sales, inventories, and receivables are the important "hidden
three" of the balance sheet, Bochner says. "If inventories
are increasing at a faster rate than sales, the company is producing
more than it can sell. Not a good sign. If receivables are rising
faster than sales, the company is not collecting its bills. It may
be a sign of deeper problems." He shows how to calculate stock
turnover versus debt turnover.
But the most well-known book for explicating the complicated is John
A. Tracy’s "How to Read a Financial Report: For managers,
lenders, lawyers, and investors," and the subtitle is
vital signs out of the numbers." Tracy’s tome, published by John
Wiley & Sons, is in its fifth edition, selling for $16.95 in
An alumnus of the University of Wisconsin, Wiley is a CPA who has
worked at Ernst & Young and is an accounting professor at the
of Colorado at Boulder.
With 192 pages and 25 chapters this is not one-night fireside reading.
You need to take it chapter by chapter, page by page, and let it sink
in. But Tracy is very down to earth. Almost at the end of the book
he talks about debt paying ability, called a "solvency ratio,"
a set of numbers important for every merchant.
to test the short-term debt-paying ability of a company is its
ratio , which is the company’s total current assets divided by total
"The general rule of thumb is that the current ratio should be
2 to 1 or higher. In other words, short-term creditors generally limit
the credit extended a business to 1/2 or less of the company’s
assets. Given this credit limit, a company’s current assets will be
twice or more its current liabilities.
"Why do short-term creditors put such a limit on a business? One
reason is to provide a safety cushion. Each dollar of short-term debt
is `backed up’ with two dollars of present cash or future near-term
cash inflow. The `extra’ dollar of current assets provides a nice
margin of safety.
"However the 2 to 1 ratio is only a rule of thumb; there are
Some companies such as car dealers can borrow almost 100 percent on
their inventories, so their current liabilities are more than 1/2
their current assets. Dun & Bradstreet publishes the current ratio
for a large number of industries.
away from conversion into cash. Products are held two, three, or four
months before sale. If the sale is made on credit, which is normal,
there’s another waiting period before the receivables are collected.
In short, inventory is not nearly as liquid as Accounts Receivable.
"The acid test ratio excludes Inventory and Prepaid Expenses.
Add the Cash to the Accounts Receivable and divide by Total Current
Liabilities to equal the Acid Test Ratio.
"It is also called the quick ratio because only cash and assets
quickly convertible into cash are included.
"The rule of thumb is that the acid test ratio should be 1 to
1 or higher, although you find many more exceptions to this rule of
thumb than the 2 to 1 current ratio.
much debt is dangerous. The debt to equity ratio is an indicator
a company is using debt to its advantage, or perhaps going too far
and is overburdened with debt.
"Divide total liabilities by total stockholders equity to get
the debt to equity ratio.
"Most businesses stay below a 1 to 1 debt to equity ratio, because
they don’t want to take on so much debt or because they can’t convince
creditors to loan them more than one-half of their assets. However,
some industries are exceptions to this rule of thumb."
Tracy casts a similar bright light on 23 other subjects in chapters
that cover everything from defining what is profit to solving the
conundrum of the true cost of goods sold. You might be able to get
this same information on the web, but there’s nothing like being able
to grab a book, this book, off the shelf.
— Barbara Fox
For an analysis of the various financial news sites,
turn to www.usnews.com/usnews/issue/000508nycu/onlinex.htm. The sites
include CNNfn, CBSMarketWatch, TheStreet.com, Morningstar,
Silicon Investor, Motley Fool, Yahoo! Finance,
MSN’s MoneyCentral, Financial Engines, Virtual Stock Exchange, and
to women investors. Focus On Women (www.plan.ml.com/focusonwomen),
includes articles on saving for a child’s education, trading online,
investment advice, as well as tools to help women manage their
Sex, money, and power are driving forces for many of
us, and some even spend a small fortune on how-to books that promise
more of each. But Michael Lipp, a self-help guru, says those
books miss a crucial point: winning in life isn’t about what you’re
doing, it’s about who you’re being.
Thus, Lipp created "The Being Workshops," programs aimed at
helping individuals realize their full potential by first realizing
what stops them from taking effective action, the unconscious behavior
patterns that prevent growth and success. "If how-to courses and
the how-to books really worked," writes Lipp, "we would all
be thin and healthy, our houses would be neat and uncluttered, we
would all be wealthy or on our way to wealth, our retirements would
be handled, and our children would be excelling in everything they
A Princeton resident, Lipp spent 40 years teaching self-growth
at Columbia Graduate School of Business, SUNY, and Landmark Education
"Being Wealthy," a six-hour program designed to eliminate
stress about money, will be held on Sunday, June 4, at the Holiday
Inn in Somerset. "Being in Love," a course on finding the
freedom to fall in love all over again, is presented on Sunday, May
21, at the Holiday Inn in Somerset. Both workshops cost $165. Write
the Being Workshops, 38 Sayre Drive, Princeton 08540, E-mail Lipp
Rutgers Cooperative Extension is sponsoring a non-credit
self-study course entitled "Investing for Your Future," a
158-page booklet that costs $15 and that will soon be available as
an online course. The course consists of 11 units, starting with
Basics," "Finding Money to Invest," and "Investing
with Small Dollar Amounts," as well as units on stocks,
securities, and mutual funds.
The program was designed by Barbara O’Neill and Patricia
Brennan, educators with the Rutgers Cooperative Extension and
of the successful Money 2000 program, a program designed to help small
savers cut their costs and boost their savings. Visit
or call 732-932-7085, extension 614.
The Greedy Fox Investment Center at 3679A Nottingham
Way in Hamilton Square is offering a free investment seminar on
May 11, at 7 p.m. entitled "Picking Stocks II," on using the
Internet to manage your portfolio. Call 609-587-9501 or visit
The Franklin Township Library will host a free, 90-minute
Financial Management Workshop" on Tuesday, May 16, at 7 p.m. in
the library’s business room at 485 DeMott Lane, Somerset. Call
Corrections or additions?
This page is published by PrincetonInfo.com
— the web site for U.S. 1 Newspaper in Princeton, New Jersey.