Investments: 10 ways to increase the family nest egg - includes related material

Ebony, April, 1993 by Lisa C. Jones

BARELY out of the recession and affected by a weak economic recovery, Black Americans are looking for new ways to insure their financial future. And for good reason.

"When the smoke clears, you want to make sure that you have as much in that nest as possible, " says Dr. Willis B. Sheftall Jr., chairman of the department of economics and business administration at Morehouse College in Atlanta. Dr. Sheftall and other Black financial experts say families can achieve a cushioned financial nest egg by cutting back on expenditures, saving more and learning how to invest for the future.

It's a good time for investment, " says John W. Rogers Jr. of Ariel Capital Management Inc. The president and chief investment officer of the Black-owned, Chicago-based firm advises investors to "put a little bit of your money into the market every month."

Other experts agree. "It's important to get started on something and stick with it," says Daphne Dickens-King, strategic planning manager of the 21st Century Management Services Inc., a Cincinnati-based firm. But with interest rates at a historic low, Dickens-King and other experts say families should begin with diversified investment packages.

Rogers says, "Instead of going out, trying to pick your own stock, put your money in a good quality mutual fund where you're hiring someone to pick stocks for you. It's less risky that way. " But he and other financial pundits say investors should exercise caution before investing in mutual funds because they are not guaranteed.

In addition, Dr. Sheftall tells investors to beware. "Any asset whose return is going to come in a form of an interest payment right now," such as Treasury bonds or CDs, he explains, "is typically likely to be low compared to stocks."

Many potential investors shy away from the market, Dickens-King says, because they think they need a "chunk of money" to get started. But that's not always true. "You don't need to put $300 or $500 away every month. You can start with $10, " she says, that can easily be deducted from your bank checking or savings account. "But it's important to start, to be consistent and not let the inability to pool large amounts of funds be a deterrent."

She advises couples to participate in company-based investment plans, such as the 401(k), when available. "You should start early, looking at company savings plans that use tax-deferred money, " she says. "This offers a low-cost investment vehicle to set up funds for retirement, your kids' college education or even a house loan."

But before families can consider investing, they must first budget their existing funds. After that, experts say, families must decide what their goals are, such as saving money for college tuition, adding a new wing to a house or buying a new car. This is one reason Dr. Sheftall encourages families to review their budget on a monthly or quarterly basis.

"Set up some guidelines and parameters about where your money goes," Dickens-King adds. By prioritizing purchases, she says, families learn how to live within their means, avoid credit card debt and save more.

Before making investment plans, families should already have a solid emergency savings fund in place. "It's critical for people to have an emergency fund," says Dr. Sheftall. "It should be equivalent to about six months income, stashed away for a rainy day." But in families where there are two breadwinners, and both are susceptible to layoffs, Dr. Sheftall says, families may want to save even more.

Some folk might be able to start an emergency savings fund and even launch an investment portfolio of their own, but in most cases, experts say, it's best to hire a professional financial adviser. "If you're going to invest in individual stocks yourself you should only invest in those things that you really truly understand," Rogers says. "Otherwise, if you're like most of us--busy, working couples on the go--it's good to have someone help you touch base and make sure that you follow through on your financial pledges and goals."

For those who decide to employ professional financial planners and investors, Dickens-King warns, "Look for someone who is independent, stays current in the market and is certified. " She adds, "A lot of people out there are associated with investment firms or insurance companies, but they may not have certification. "

Once you've decided who is best suited to handle your financial portfolio, you must then decide on its contents. Dr. Sheftall says all investment packages should contain a degree of liquidity (assets that can be quickly converted into purchasing power), diversification (a variety of shares in different markets that reduces the likelihood of loss on your investment) and involve prudent risk (investments that allow for some growth and gamble).

In essence, Rogers says your portfolio pie should be cut to reserve 10 percent for aggressive growth stock funds, such as funds which invest in small, fastgrowing companies, 30 percent for growth stocks, which are shares in well-established, successful companies, 40 percent should be divided between corporate bonds and liquid assets and the remaining 20 percent, he says, should be concentrated into a value equity portfolio, which is investments in companies that are currently out of favor on Wall Street.