Investing 101

Investing 101

by Kathy Kristof


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People wanting basic advice about stocks, bonds, mutual funds, retirement planning, and tax strategies are often frustrated by information overload. Picking the right book seems as daunting as deciding what to do with their savings and investments.

Investing 101: Updated and Expanded removes both roadblocks, putting people on a path that they can understand and stick with. Kristof is renowned for taking the mystery and anxiety out of investing by keeping choices manageable.

Kristof walks readers through the entire investment cycle and the way they think of their financial lives, rather than presenting stand-alone concepts like stocks and real estate. This expanded edition has new information about 529 college savings plans, annuities, Roth IRAs, reverse mortgages, and why declining markets can be good for you. It includes a cautionary look at home mortgages as investments. There's even a portfolio for the lazy investor.

Kristof's loyal readership and the success of this book's first edition demonstrate that she understands what's on the minds of investors as intimately as she knows what’s happening in financial markets.

Winner: Cover and Interior Design, The Bookbinders Guild of New York/2009 New York Book Show Awards

Product Details

ISBN-13: 9781576600443
Publisher: Bloomberg Press
Publication date: 01/28/2000
Series: Bloomberg Personal Bookshelf (Paperback) Series
Pages: 217
Product dimensions: 6.12(w) x 9.16(h) x 0.67(d)

About the Author

Los Angeles Times business writer Kathy Kristof is nationally known for her weekly syndicated personal finance column, which reaches forty million readers online and in more than fifty major newspapers. She is a sought-after lecturer at investment conferences and appears regularly on radio and television.

Read an Excerpt

Chapter One

Exorcising Your

This book is going to tell you how to invest wisely. It's simple. It's straightforward. You'll get step-by-step instructions. Anyone who reads and follows the directions will find it's easy to do.

    But following even the most logical instructions may be difficult if, like many people, you've developed a bad habit or two over time. In fact, we all have our demons—our little psychological hurdles that stop us from doing the things that we know to be logical, reasonable, and smart.

    Some of these hurdles are caused by our upbringing or culture; some seem to strike men and not women—or women and not men. But no matter the cause, we need to get over them if we're to have any hope of investing wisely enough to have more money than regrets in our old age.

    I'm not a psychologist, so you shouldn't expect that buying this book is going to save you from a lifetime of therapy expenses. In fact, I don't know what particular complex or syndrome or shortcoming affects you. But following the adage that "recognizing the problem is the first step to fixing it," I can tell you some problems that I've seen frequently over the years and whom they usually seem to strike, as well as a few simple moves you can make to overcome each obstacle.

* * *


By and large, women start investing later in life than men, set less money aside, and invest more conservatively. That has the unpleasant effect of leaving them poor in theirold age. Some 80 percent of the elderly people living in poverty are women. So what's their excuse?

   [] The poor girl: "I would invest, but I just don't have the money," says the perfectly coiffed twenty-five-year-old as she slams the door of her BMW in the mall parking lot. "I'm going to start just as soon as I get a raise."

   OK. That was a slight exaggeration. And we all know that women do earn less, on average, than men. It would be easier to save if you earned more money. But sometimes life is just not fair. Get over it.

    Now, be fair with yourself and answer honestly: When was the last time you bought lunch or dinner at a restaurant instead of going for the cheaper alternative of packing a sack lunch or making your own dinner? When was the last time you bought a suit, sweater, skirt, or pair of shoes that you knew you didn't need? (And if you said "Never," just how exactly did you define the word need? Did you need it because you wanted it really, really bad? Or because it was on sale and you might need it before it was next on sale?)

    If you have a job that pays a decent wage—that's anything that keeps you above the poverty line—you can afford to invest. Spend $2 less per day—that's the cost of one less Starbucks coffee or one less soda and crackers from the junk-food machines—and you've got $60 a month. That's enough to plop into an automatic investment plan with a mutual fund.

    Still think it's a matter of poverty, not spending? Do this: Start carrying a notebook around with you. Jot down every expense, from the $1 coffee to the $25 you spend filling up your car. Review your notebook after a month. Add up the things that weren't necessities. Vow to cut those by half (or, if you couldn't stand the deprivation, by one-quarter). Put the amount you're no longer spending into savings. Voilà.

    [] The substitution shopper: Speaking of shopping, is this what you do when you have a fight with your boss or your spouse? Do you find that you "need" a good shop whenever you're feeling down, as a way of boosting your spirits?

    The bad news is your credit card balance is likely to rise faster than your spirits. As a result, you're sentencing yourself to a life of servitude—working harder or more hours to pay your debts, which makes you all the more depressed.

    If you need to get rid of your boss or your spouse, stop spending and start saving. What will make you happy now and forever is knowing that you've become financially independent enough to tell whoever is bugging you to shove off.

    But shopping really does make you happy? OK, shop. But leave the credit cards at home. Shopping may make you happy, but overspending makes you poor.

    [] The martyr: "How can I save for myself when Johnny needs a new soccer uniform and we haven't even gotten close to funding Susie's college account?" you whine. Heavens to Betsy, your honeybunch is wearing a gravy-spotted tie, and you just know that he would be happier and more successful at work if you just sacrificed a little more to get him some nicer duds.

    Certainly, it would be nice to think of yourself once in a while, you admit, but how can you when you're so busy being the family caregiver? After all, somebody has to take care of the rest of the family, and no one else has stepped up to the plate to do it. So all of your worldly concerns are going to be put on the back burner until you take care of theirs—today, tomorrow, and forever. Right?

    Consider this: if you are strong physically and financially, you can solve a lot more problems for your family than if you're weak. That's precisely why young moms need to balance their long-term financial needs with the pressing day-to-day expenses of managing a young family.

    Vow to set some priorities, and make your retirement account one of them. If you are working and have access to a company 401(k) plan, contribute to it. It is, hands down, the best way to save for your retirement needs. If you don't have a 401(k)—if you don't even have a paying job—set up an automatic savings account with a mutual fund (see Chapter 12). Even if all you're saving is $50 a month, you'll have started taking care of yourself and making yourself financially strong. You owe that to yourself and to your kids.

    [] The princess: Why save and invest yourself when there's always been someone willing to take care of you? First there was Dad. Then there was your husband. Both of them are kind and thoughtful and wonderful providers.

    But what happens if they both predecease you? Women usually live longer than men.

    Then there's that other uncomfortable fact of life: About half of marriages end in divorce. Are you prepared to take care of yourself if you're forced to because of death or divorce? Roughly 90 percent of women are going to need to take care of themselves economically at some point in their lives. Think about it.

    Then start reading about investments. Put a toe in the market by joining an investment club or starting a monthly investment program with a mutual fund. You can learn about mutual funds in Chapter 8. If you want to join an investment club, you can find information on the Web at

* * *


Although men usually have more money than women, they still make some surprising mistakes. Sometimes they invest too aggressively; sometimes they worry too much, second-guessing their best judgment; sometimes they get so caught up in saving and investing that they forget what the money is for. By and large, it appears that the bulk of their problems stem from one thought: This is a game. I've got to win, either for the pure competition or for the spoils. Such thinking produces the following types of investors.

    [] The unrealistic pessimist: You go to a cocktail party and start talking to some guy. He's wearing a nice suit, he's confident, and he starts telling you that he's making a killing in the stock market. "Yeah, I doubled my money on in three months," he brags. "Then I bought this little penny stock, and whammo! It tripled in value!"

    You stand there quietly, wondering why you've been doing it so wrong. Here you are investing in companies with track records, earnings, sales, and supposedly skilled managers, and what is your portfolio earning? A paltry 10 percent to 15 percent per year, you grouse. "What kind of loser am I? Why didn't I buy that penny stock?" you think. You begin to question your whole investing strategy. You need to be more like that guy ... that cocktail-party guy.

    You go home, and you buy some of that guy's stock. Maybe you sell some of your boring stocks and mutual funds. When you lose money on those new investments, you know that it's your fault. You're a loser—not a winner like that cocktail-party guy.

    Naturally, what the cocktail-party guy didn't mention was that two weeks before he met you, he was downtrodden because his portfolio had declined in value by half, and he was wondering whether he'd have enough cash to make his mortgage. Why didn't he tell you about that? Well, it's not really cocktail-party chatter, is it?

    But you should know that anyone who makes a fortune overnight can also lose a fortune overnight. Risk and reward go hand in hand in the financial markets.

    If you have thought out a reasonable investment strategy, stick with it. Don't be derailed by a big talker.

    [] The unrealistic optimist: You bought a stock figuring that it was going to go to $50. Then lo and behold, it popped up to $65. Based on all of your market knowledge, this is an incredibly high price for this stock. Its price/earnings ratio (see Chapter 5) has never been this high, and you can't imagine why it might be now. And yet, if it went to $65, it could go to $70, right? Maybe you ought to hang on just a little longer and see.

    The fact is, the stock could go higher. Or it could go much, much lower. Every time you buy a stock, you should have a target—a price at which you would either sell the stock or reevaluate its prospects before you decide to leave it in your portfolio (see Chapter 6). Don't let emotion—regardless of whether that emotion is fear, greed, or hope—rule your actions.

    Financial markets are mathematical. Do the math. Make the evaluation. Live with the idea that you may never sell at the peak. That's OK, as long as you also don't sell at the nadir.

   [] The ostrich: You don't have a loss until you sell. Sure, the market price may have dropped, but until you sell, there's hope that the company and the stock will recover, and you will be safe to brag at cocktail parties again. For this reason, many a man holds onto a money-losing stock until it loses everything but its wallpaper value.

    Evaluate your stocks once a year. Make reasonable decisions about whether each one is a buy, a hold, or a sell. If you realize that you wouldn't buy a stock today given its future prospects and that there are better opportunities out there, sell it. Take the tax deduction. You'll lose less money and less sleep in the end.

   [] The tinkerer: You saw it on Tool Time. You do it in your portfolio. Here you have a perfectly functioning item, be it a lawn mower or a stock. But you know that if you just fiddle with it a little bit, you could make it better.

    When you're dealing with tools, the worst thing that can happen is you'll have to replace them. When you're dealing with your portfolio, the stakes are considerably higher. But now that you can check your stocks on the Web—and trade for just a few bucks a pop—it's particularly tough to leave well enough alone.

    Many tinkerers are particularly apt to sell stocks when they've got a bit of a profit. "Lock that in," they say. Naturally, if the stock keeps rising, they've missed out. Worse still, every time you sell a stock at a profit in a taxable account, you not only have to pay a trading fee, you also pay tax on the gain. If you held the stock for more than a year, that tax will be at capital gains rates, which max out at 20 percent; if you've held it for less than a year, the gain is taxed at your ordinary income tax rates, which are sure to be higher. Either way, to make up for the taxes you pay, you'll have to earn more than a 20 percent return on your next stock purchase just to break even. Don't trade just because you can.

    [] The believer: On Wall Street they call some companies "story stocks." They're companies without track records of good sales and earnings, but their managers have a great tale to tell. They've got prospects. It's easy for almost anyone to get caught up in the euphoria—to imagine that this twenty-seven-year-old wunderkind will be the next Bill Gates, capable of carrying you into the realm of the rich and famous. But at some point you've got to look at the numbers. If the numbers don't support the story, you've got to ask yourself whether this stock belongs in your portfolio, regardless of how much faith you have in the tale.

    How do you do that? Frankly, it's tough. But plowing along oblivious to the numbers is the investment equivalent of failing to stop and ask directions. If you are not certain how to evaluate a story stock, seek out information on that industry. Read everything you can. Consult experts. If your story stock happens to be in the technology industry, check out Chapter 5. It's got some tips on how to survive and profit in an industry full of fish stories.

    [] The money-lover: You invest every dime, often scrimping and saving to do it. And thanks to this superfrugality, you have a lot of money saved and invested. But it's not enough, you theorize. It's never enough. So you work extra hours; you skip vacations; you urge your spouse to do the same. All the while, your riches are growing bigger, and you are growing older.

    Before you postpone one more vacation or miss one more baseball game, stop and consider what all this money is for. What are the things in life that you hold precious? Have you saved enough to buy those things? (You can answer that by completing the worksheets in Chapter 3.) In fact, is your emphasis on saving robbing you of enjoying these things? If so, slow down. Step back. Reevaluate your actions.

    Too many men work themselves into ulcers, heart attacks, or divorces in a quest to get something that they already had but were too busy working to notice. Evaluate how much money you need for your personal goals. Figure out how close you are to accumulating that amount of money. Then, once you have more than enough, relax. Enjoy it. Spend your time with your family and friends rather than your portfolio. That's what the money is for.

   [] The fool for love: OK, you were in that last category. And you know it probably cost you your first marriage. But you also know that your current wealth is the reason all those beautiful young model types are interested in you. You've got to keep it up so this gorgeous girl, twenty years your junior, will agree to marry you and let you buy her a three-carat diamond and a Porsche.

    I'm not going to tell you you're wrong. There are definitely women who marry for money. Women who won't marry for money like to call the women who will marry for money "bimbos." It saves us time. After all, the term "women who will marry for money" is so wordy.

    So let's say you do get to marry a bimbo. You go home at night and admire her perfect hair, her manicured nails, her sculptured figure. You know you're the most envied man in the room when you walk into a party with her on your arm. You love how she doesn't interrupt when you tell her a long story about your latest success at work. And when you ask her a question, you think it's so cute the way her lips purse before she says, "Huh?"

    But keep in mind a few words of wisdom about bimbo Darwinism: While you know twice as much as she does about business and investing, she knows twice as much as you do about the community property laws in your state.

    As your mother used to say, "Be careful what you wish for."

Table of Contents


Chapter 1— Exorcising Your Demons

Finding and fixing the psychological ills that keep us from investing wisely.

Chapter 2— Risk and Reward

The basics about how taking a few risks can reap long-term benefits.

Chapter 3— Your Starting Point

How to allocate your assets based on your goals.

Chapter 4— Diversification

Dividing your assets among investment categories is easier when you think about what different types of investments can do for you. Here are the categories, and the choices within them.

Chapter 5— Picking Individual Stocks

Using fundamental indicators of value to pick good stocks, including guidance on reading a financial statement and tips on finding financial information on the Web.

Chapter 6— Tough Sell

How to figure out when it's time to call it quits with an investment.

Chapter 7— Investing in Bonds

Where to put bonds in your portfolio and which bonds to choose.

Chapter 8— Mutual Funds

A primer on mutual funds, from what they are to where to find one to suit your needs.

Chapter 9— Socially Responsible Investing

What social investing is about and how to find socially conscious mutual funds.

Chapter 10— International Investing

The basics on investing outside of the United States.

Chapter 11— Tax-Favored Investing

Uncle Sam gives Americans lots of ways to defer taxes while we save. Using these tax-favored vehicles can give your portfolio a boost. Here are your choices and what they can do for you.

Chapter 12— Starting Small

Think you can't invest because you don't have a pile of cash to start? Never fear. There are several choices for people with as little as $20 or $25 a month.

Chapter 13— How to Fix Your Broken Records

Record keeping is one of the most important—and widely ignored—steps in wise investing. But good records can help you monitor your portfolio and help you determine when to buy and sell. They can also save you a small

fortune in tax. Here's how to keep your records and a worksheet to help.

Chapter 14— Getting Help

Read it all, but still don't want to go it alone? Here's a quick guide on how to hire someone to help you.


Definitions for commonly used jargon so you can interpret Wall Street speak.


List of Worksheets

Quiz— How Much Risk Can You Take?

Worksheets— Emergencies

Worksheet— Saving for a Car

Worksheet— Buying a House

Worksheet— College Cost Calculator

Worksheet— Retirement

Worksheet— Is It a Buy?

Worksheet— The Tax Implications of Selling Too Soon

Worksheet— Picking a Mutual Fund That Suits You

Worksheet— Investment Record

What People are Saying About This

From the Publisher

"Investing 101 is a sensible, well-written, and comprehensive guide to investor options. I learned much from this book and am certain you can too."
Stephen Brobeck, Executive Director, Consumer Federation of America

Praise for the first edition:

"In Investing 101, Kathy Kristof skillfully guides the novice investor, step-by-step, along the path to investment success. It's an ideal primer for anyone who wants to enter the financial world and would like a helping hand."
Myron Kandel, Founding Financial Editor, CNN

"Too many of us give too little thought to the underpinnings of investing: how much risk to shoulder, when to sell, etc. Kathy Kristof explains these basics in language we all can understand. Investing 101 is sure to become a great reference guide for novices and longtime investors alike."
—Steve Dinnen, Personal Finance Columnist, The Des Moines Register

"Kathy Kristof knows investing inside and out. She can take even the most complicated information and make it easy to understand—and entertaining."
Ilyce R. Glink, National Syndicated Columnist, Author of 100 Questions You Should Ask about Your Personal Finances

"If you're just getting started in the investing world, this is the book you need. Kathy Kristof's smart, sensible advice demystifies the markets and shows you exactly what you need to know to achieve your financial goals. Investing 101 offers a road map to financial success without gimmicks or secret formulas—and it's a whole lot of fun to read, besides."
Liz Pulliam Weston, Personal Finance Columnist, Los Angeles Times

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Investing 101 4.2 out of 5 based on 0 ratings. 17 reviews.
Anonymous More than 1 year ago
The organization of the book allows quick reference if the reader is seeking specific information. When taken in order, the chapters serve a beginning investor well, walking the reader through basic information and definitions before going more in depth later in the book. I think the section on determining the individual's risk tolerance and (investment) safety needs is particularly helpful to someone trying to determine how much money needs to be set aside for major purchases or events, and for an emergency fund.
Guest More than 1 year ago
Broad enough to cover the basics for new investors, combined with an efficient delivery.
Nitestar on LibraryThing More than 1 year ago
I have just finished reviewing Investing 101. As the title implies, this book takes a detailed look at finances (personal) but more to the point it takes a look at what is a financial market and how to invest, as an individual, without, hopefully losing your shirt.There is a handy quiz to find out just how high (or low) your tolerance to risk is and based on this, the book continues to explain all the fundamentals about investing wisely.This book is written for a novice and the terms used are everyday and easy to understand. This book also describes the various financial terms that are used in the market and this feature was quite helpful.While I enjoyed this book, it focused more on families and less on singles - which is something that I was interested in. Also, this book's audience definitely is novice as there is very little in the way of intermediate financial information.This is a great book for somebody who is starting out or who needs to polish their knowledge.
jonasreads on LibraryThing More than 1 year ago
Practical primer that addresses immediate investor concerns and questions. I especially enjoyed the straightforward elements in each chapter, such as specific questions and answers to money problems; self-assessments on, for example, risk tolerance; and easy-to-use financial formulas (e.g., tax implications of selling too soon).
rosswirth42 on LibraryThing More than 1 year ago
Excellent introduction to personal investing and family finances. Explains a wide range of investment vehicles while recommending a conservative, long-term approach to wealth building. One interesting chapter is the "lazy investor portfolio planner." This chapter leads the reader through a series of questions that focus on the essentials of balance sheet valuation for your personal situation and an investment strategy that fits where you are in your stage of life.
madamlibbytellsall on LibraryThing More than 1 year ago
An excellent starting point for anyone with questions about the basics of investing. Kristof starts off with a chapter on finding the money to invest and how to change attitudes toward saving and investing. She includes tips for addressing universal problems as well as guidance on gender specific money problems ("emotional spending" for women and "competing with strangers" for men). One of the most informative parts of the book was the section in chapter 8 about "How to Read a Financial Statement." Even after years of reading those closely printed statements they can be overwhelming. Kristof tells you which sections to look at and what to look for to determine if the company is worth investing in. Chapter 14 - "The Lazy Investor's Portfolio Planner" shows you how to put all the lessons together to determine your goals and how to reach them. Simply a well written and accessable guide to taking those first steps into investing and what to do once you get there.
NQTBradyBunch on LibraryThing More than 1 year ago
The book is entitled Investing 101 (revised and updated), and what an appropriate title. I have been teaching my 14-year-old some of the ins and outs of investing, and this is a sound resource for us to have on hand. Whether the reader knows nothing about investing, or has been dabbling for some time now, there is something to be learned--or, at least reminded--from this book. Concepts such as diversifying a portfolio are demonstrated with real numbers and percentages of gains and losses, reflecting the differences (between a diversified and not-so-diversified portfolio) in a way that I had never seen done so well.It's the basics, and more; in layman's terminology with excellent examples. Couldn't recommend it more!
DrMcDougall on LibraryThing More than 1 year ago
As the title says, this is definitely structured as a basic personal finance book, to assist those who wish to understand the incoming and outgoing process, in a very hands-on, non-technical approach. Beneficial to all as a good resource to check on various aspects of the financial jungle, as we attempt to balance our budgets - maybe the government should read this book!
foof2you on LibraryThing More than 1 year ago
Investing 101 is a great book for anyone whether just starting out or you have been investing for a while and need to refresh what you know. This book explains many different aspects of investing. The explanations are easy to follow and detailed. there are however, a couple of drawbacks with the book. First if the book came out today in Dec 2008 the examples of the worst and best days of the stock market would be different. Secondly many of the examples deal with inflation. I wish this book would talk about how to prepare for recessions, depressions and other calamities that could hit. How can someone prepare for any impending financial crisis would be nice if only a few pages. Finally the problem with a book like this is that the information can become dated. i imagine that if I had read this book a year ago the information would have been dead on and the example would have been great. Today one just does not know how the market will go.
Anonymous More than 1 year ago
This book makes it easy to understand the stock market and different investment options. It has great advice and worksheets that guide you through the process. Enlightening.
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Guest More than 1 year ago
The author has made the material very easy to understand, especially for the average person that has never been exposed to the investment process and the terminology used. The book awakens an individual's curiosity about the daily happenings in the stock market.