School daze - investments by a teacher

Black Enterprise, June, 1999 by Carolyn M. Brown

How a Gen-Xer seeks to maintain her portfolio while in grad school

Kimberly Felder knows she has time on her side. Over the past three years, the 29-year-old teacher has been investing in stocks, mutual funds and a tax-deferred annuity plan that seeks maximum capital gains. "[Young] people always say that they don't have money to invest in the stock market," she maintains. "But the money is there. It just depends on your priorities. I know that the stock market is going to give me [a greater] return on my money than any other vehicle."

And she's not above investing in riskier securities to gain her reward. She's co-founder of a year-old investment club composed of seven under-30 professional women. Dubbed ISIS (Independent Sisters Investing and Saving), the club has developed an aggressive approach, scooping up shares in small cap, high-tech and emerging growth companies.

"I don't mind investing in volatile stocks, like technology and pharmaceuticals, or aggressive growth funds, because I can afford to take more risks at my age," she explains. "This is money that I have put aside for the long term and don't plan to touch for another 25 to 30 years."

A member of the National Association of Investors Corp. (NAIC), ISIS is using NAIC's formula to evaluate stocks within certain industries, particularly technology. However, most of the companies it investigated have been overpriced. Now, the club members are reviewing other sectors for value buys.

Says Felder, "We [ISIS] made it part of our bylaws that you have to attend NAIC [stock study and selection] classes. Last year, we signed up for their beginners investment series--three courses, each two hours long--which give you a basic feel for investing and the criteria for picking stocks. This year we plan on attending NAIC's intermediate and advance classes once we have gained a little more experience."

Members contribute $30 a month. So far the club has amassed $2,200 in its portfolio, most of which is sitting in cash as the group continues to search for stocks that are growing at a rate of 15% or more, yet they want to get them at relatively low price-to-earnings ratios (P/E). At press time, ISIS owned shares in one stock, Indicare, a growth company that produces wheelchairs, safety banisters, and other medical products and devices used in nursing homes.

As with most Gen-Xers, Felder is skeptical about traditional sources of retirement funding and concerned about achieving financial independence. "At my age I don't see Social Security as a source of my retirement," she explains. "So I'm looking for something that will help me build my retirement income. This is something I know I'm going to have to do myself, because I want to maintain a certain lifestyle. Eventually, I want to get married and have kids, and be able to send them off to college. But the only way I'm going to be able to do that is to invest in the stock market."

Felder says she knows that the stock market is going to give her a better return on her money than other investment vehicles, given that stocks have outperformed bonds, mutual funds and other securities over this past century.

Felder has invested about $1,000 in the direct investment stock plans of electronics manufacturer Kopin (Nasdaq: KOPN), digital photofinisher Seattle Filmworks (Nasdaq: FOTO) and mortgage banker Fannie Mae (NYSE: FNM) as part of her personal portfolio. As a result, she has become an avid reader of financial publications. She, along with members of ISIS, use online research to explore investment opportunities. "It's important for me to do the research myself [rather] than having to rely solely on a financial planner or broker," Felder says. "[When considering stocks to invest in], I look at the history of the company, the types of products they are producing and management's earnings expectations. With mutual funds, I thoroughly read the prospectus and look at which companies are in the fund's portfolio, what management is doing and the returns for the past year, five years and 10 years."

While the Gen-X investor is on the right road, she has been slightly sidetracked. This past fall, she decided to attend Baruch College in New York City to pursue a master's degree in public administration. To pay for her education, she had to dip into her cash reserve for roughly $1,500, and reduce monthly contributions to her savings from $300 to $100. She has another $3,900 in two mutual funds, which invest in small caps and mid-size companies.

"I decided to pay outright for classes instead of taking out a student loan and being burdened with debt," says Felder, who is debt-free with the exception of the $50 a month that goes toward paying off an undergraduate student loan. "I made sure I eliminated all of my credit card debt before I seriously began investing a few years ago, because I know that whenever you have credit card debt or loans, whatever [return] you are making on your investments is canceled out by the interest due on your account balances."