Kenneth Boyd's Blog, page 67
March 18, 2018
Expenses That Startup Businesses Can Avoid In The Early Years
There it was: right next to the popcorn machine at the movie theatre:
“Buy and Sell Bitcoin Here”.
A TV-size screen with instructions, and the current price for Bitcoin, in U.S. dollars.
At a movie theatre.
Seems unnecessary. How many people need to exchange Bitcoin at the movies?
Which brings me to this question: What expenses can you avoid in the early stages of your startup? To answer the question, you need to think about some factors that impact the amount of spending you’ll need to make.
Every successful business goes through a similar process for validating a product or service offering, and you need to spend enough money to complete the validation:
Get free sample chapters for my book: Not Another Personal Finance Book.
Start with a need- an urgent need
It’s obvious, but every successful product solves a problem or fills a need- if the problem must be solved quickly, even better. What’s an urgent need? How about a car repair when you’re stuck on the side of the road (‘had the transmission on my car give out on a highway exit ramp. I don’t recommend it). Another good example is heat or air conditioning repair at home.
You’re willing to pay to solve an urgent problem or need.
What makes you mad- annoys you?
I am a huge fan of the How I Built It podcast, hosted by Guy Raz from NPR. As the name implies, the show interviews company founders- and every episode is worth your time.
A recent podcast was an interview with Marcia Kilgore, who founded the Bliss spa and skincare company, along with several other businesses. She tells a moving story about being young in New York and saving money for a facial at an expensive spa. She was treated poorly and thought to herself:
“No one should ever feel that way after a facial- it was supposed to be great experience”.
And that was her first business.
Where the rubber meets the road
So, I’m sure you can jot down some realistic business ideas. Once you do, you need to take a hard look at three factors:
How urgent is the problem or need?
What’s the size of the market?
Can I scale to meet the market’s size?
If you don’t have specific answers to these questions, you’ll struggle to get your business venture off the ground.
Spend enough money to validate your idea. If you don’t you’ll really be flying blind as you start your business.
If recovering from a financial setback, this article may help.
Sell hammers, not lawn mowers
How much will you charge for your product- and what profit margin will you generate? A product with a high profit margin probably means that you can justify spending more money in the early years.
Sometimes it’s smarter to sell a $5 hammer, rather than a $300 lawn mower.
Huh?
That doesn’t make sense- I’d rather sell a $300 item than make $5. Well, if you consider profit margin- and not the sale price- you might be better off with hammers.
Profit margin is defined as (net income / sales), and it represents the dollar amount of profit you make for each dollar of sales. Profit margin is a great tool to measure profitability because you can assess products at different sales prices. If you earn $1 for each $5 hammer, the profit margin is 20%. On the other hand, a $45 profit on a $300 lawn mower is only a 15% profit margin.
Speaking strictly about profit margin, you’re better off selling hammers.
Sony Betamax: Make the tent bigger
If you have growing interest in your product, spend the money to get it in the hands of customers.
I was fortunate to experience the huge changes in media and entertainment products over the past 45 years or so. In music, we went from albums to cassettes, to CDs, to steaming music (I love my Spotify and Pandora).
It was cool to go to “record stores”- glad to see that vintage albums are making a comeback.
We also had radical changes in entertainment over that same period (remember Blockbuster Video?). One big change was the home video battle between Betamax and VHS in the mid-70s.
It’s the classic case of limiting access. Sony started selling the Betamax in 1975, and rival business started selling VHS machines at the same time. Sony kept the Betamax technology as proprietary, meaning that other firms couldn’t make the same type of machine and expand the market.
The result: VHS won the market- partly because there were simply more VHS machines in consumer’s hands.
On the flip side, Apple does a great job of creating a “big tent” when it comes to iPhone Apps. Come one, come all: Apple welcomes iPhone App creators, since more Apps may lead to more iPhone users.
Keeping a great product’s technology to yourself may limit the growth of your market. Take the risk, spend the money- and grow your market share.
Spend money here:
Legal fees: Hire an expert to help you form your business and decide on a business structure (corporation, partnership, etc.). Have the discussion about profit sharing and exist strategies now- it will save hours of headaches later.
Tech engineers: These experts can make or break the visibility of your website, and your ability to operate a business.
Interns: They don’t cost much at all, they can learn from you- and they might become great employees later.
Don’t spend money here:
Office lease: I can’t tell you the number of business owner I know who are still making payments on office space they don’t use. Work remotely.
New equipment- or anything: You can buy everything used- and with a warranty included. Don’t buy new, with the exception of laptops.
Good luck!
Ken Boyd
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
Co-Founder: accountinged.com
(email) ken@stltest.net
(website and blog) http://www.accountingaccidentally.com/
(you tube channel) kenboydstl
This post was originally posted on my Quora page. This post is for educational purposes only.
Image: Bullseye, Jeff Turner CC by 2.0
March 5, 2018
How To Identify A Business Opportunity
Yesterday I saw a “Permit Driver” sign in the back window of a brand new Range Rover.
Now, that seems like a risk- spending a lot of money on a car, only to let an inexperienced driver run over a curb. Seems like you need to do a lot more driving before taking the Range Rover for a spin.
The same is true in business.
It’s one thing to identify a business opportunity, but quite another to think the idea through carefully and launch your product or service. Consider these ideas when you want to identify a business opportunity:
Get free sample chapters for my book: Not Another Personal Finance Book.
Observation
I’m a huge fan of the How I Built This podcast, and I recommend it to everyone in business, because the host interviews successful entrepreneurs. All of the business founders notice what’s going on around them, and identify a problem that needs to be solved. Here are some other examples of founders using observation:
Bliss Spa and Skincare Products: Maria Kilgore started her business career by learning the proper way to give people facials. She was inspired to start her business after a terrible experience getting a facial at an expensive spa in New York.
LinkedIn: Reid Hoffman noticed that people segmented their online preferences between personal and professional. He started LinkedIn to fill the consumer’s desire for a professional online platform.
Patagonia: Yvan Clouinard started Patagonia, because he couldn’t find camping gear that was durable enough to stand up to the intense hiking and climbing trips he was taking.
What is it in your own life that’s a problem you might solve?
If you’re recovering from a financial setback, this article may help.
Where the rubber meets the road
So, I’m sure you can jot down some realistic business ideas. Once you do, you need to take a hard look at three factors:
How urgent is the problem or need?
What’s the size of the market?
Can I scale to meet the market’s size?
If you don’t have specific answers to these questions, you’ll struggle to get your business venture off the ground.
My example
I started an online tutoring business for accounting and finance topics, and I focused on MBA candidates and other graduate-level students. I certainly found an urgent need- many people who viewed my You Tube channel of 400+ videos on those topics contacted me for help.
But there was a problem. I was only one person, and scaling the business required me to fund and hire other qualified instructors. While I’ve seen other online tutoring companies scale with great success, I decided that I didn’t want to manage a large staff.
I went on to other things.
Perform intensive research
Arthur Blank started Home Depot with a partner, but the pair did not open their first business until they performed research on the concept for several years. Blank and his partner had extensive experience managing a successful chain of big box hardware stores, but they did more research to increase their chances of success.
There’s an endless ocean of information on the web, and finding useful research may be difficult. However, it’s worth the time investment to find the right information source for your startup idea.
Find the thought leaders in your particular industry, and find how what they’re saying about the industry. Many thought leaders put out white papers, free webinars and other useful information to attract an audience- and potential future clients. The information must be useful, in order to keep the reader engaged, and it can be a great reference for you.
Here’s an example: I pay attention to content marketing, and I recently came across an infographic from LookBookHQ. I thought the infographic was useful, so I went to the website. I downloaded this 15-page content marketing research document, and now I feel far more educated on the subject.
Find thought leaders- and read, watch, listen to everything they put out. It’s a form of free education.
Ken Boyd
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
Co-Founder: accountinged.com
(email) ken@stltest.net
(website and blog) http://www.accountingaccidentally.com/
(you tube channel) kenboydstl
This post was originally posted on my Quora page. This post is for educational purposes only.
Image: Bullseye, Jeff Turner CC by 2.0
February 16, 2018
Most Common Stock Market Investing Mistakes
If you were an investor in the first few weeks of February of 2018, you probably want to visit a place like Anger Room.
“Redirect your frustrations and take it out with us…safely.”
It’s a real thing.
The huge swings in stock market performance may have you wondering if you’ve made some huge mistakes, and that’s normal when investing tensions are running high. To assess whether or not you’re on track, here’s my list of the most common mistakes investors make.
Forgetting your investing goal (or not having one at all)
For starters, go back to the reason you started investing in the first place. Specifically, how much money were you trying to accumulate, and for what purpose? How long were you planning to invest?
Get free sample chapters of my book: Not Another Personal Finance Book
Let’s assume, for example, that your investing now in a 401(k) retirement account, and that you’re 25 years from retirement. You’ll willing to take a moderate amount of risk. If your portfolio is up or down 10% in one year, you can live with it. A 25% change, however, makes your palms sweaty. You invested in mutual funds, with 70% in stock and 30% bonds.
That’s the plan- and that’s where you start.
If you’re recovering from a financial setback, this article may help.
Unrealistic expectations
As of 1/22/18, the Dow Jones Industrial Average (DJIA) closed at an insane 26,214.60, up 32.4% in the last 12 months. The DJIA is an index of 30 large corporate stocks. A broader index, the Standard and Poor’s (S&P) 500, closed at 2,832.97 on 1/22, and this is an index of 500 large stocks- a bigger basket of stocks. The S&P 500 is up 24.7% over the last 12 months.
Crazy, record-setting performance… and it’s stressful to consider the fact that every bull market ends. Expecting a 25%-plus annual return is simply not realistic.
It may seem like everyone around you is getting rich- but that’s normal. In every bull market I’ve seen since the ’87 market crash, most of us think that everyone else is making a pile of money.
But there’s a trade-off. The people who are really killing it in the markets these days are taking more risk (Bitcoin, anyone?). They either have larger percentage of their total portfolios in stock (vs. bond or cash), and they’re buying riskier stocks- stocks that have less of a performance history of earnings and sales.
You need to keep your head and realize:
Your goals haven’t changed
Bull markets, historically, come to and end at some point
When (not if) the bull market ends, you may incur some losses in the short term
But you can get through it.
So, what’s a normal return?
So, what’s a “normal return” on stocks, if such a number exists? Seeking Alpha (a site I highly recommend) has some great stats on historical returns for the S&P 500 from 1928 to 2015:
Over 88 years, the S&P 500 went up 64 years and went down 24 years.
The worst return was -43.84% in 1931 (ouch) .The best return was 52.56% in 1954.
The mean return (think average) was 4122%
So, what’s normal? Seeking Alpha says 11%, and other stats suggest 8-10% over a 70-80 year period. The point is that 24-32% isn’t normal.
Accept the fact that, over the long-run, you’re not going to earn more than the historical “normal” return.
Risk assessment
Most investors do not honestly assess risk tolerance. Note that word- honestly. To assess your risk tolerance, ask yourself this question: If your portfolio’s value went up or down 10% in one year, is that something you could live with? How about 20%?
You get the idea.
Use that knowledge to select your investments. If want a stock mutual fund with moderate risk, read the fund’s investment objective and check the fund’s historical performance. Specifically, check out the fund’s beta, which measures a fund’s volatility in comparison with the broad stock market, such as the Standard and Poor’s (S&P) 500.
Succeeding once is random
Ask that guy who just hit 21 playing his first hand of blackjack at a casino. He may think he’s a genius, but the law of large numbers removes randomness. Over time, the blackjack player’s results will shift back to a normal level. In the same way, great investors succeed over the long term- when returns are no longer random.
Final thoughts
Have an investment plan, and avoid emotional decisions (particularly sell decisions)
Invest in companies that consistently make money- and hold those stocks
Timing the market doesn’t work over the long-haul, so don’t try it
Diversity- it’s not just an old wooden ship. Diversify your portfolio into stocks and bonds that perform differently in up and down markets. That approach will help you average out your total returns over time.
Ken Boyd
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
Co-Founder: accountinged.com
(email) ken@stltest.net
(website and blog) http://www.accountingaccidentally.com/
(you tube channel) kenboydstl
This post was originally posted on my Quora page. This post is for educational purposes only.
Image: Bullseye, Jeff Turner CC by 2.0
Where And How To Invest Your Monthly Salary
It was a lot like one of those horror movies– when the characters can’t get out of the house where the murderer is.
On a day when the Dow Jones Industrial dropped by 1,175 points (a 4.6% decline- and a record, in terms of number of points), many prominent online investment firms had their websites crash. Clients could not access their accounts and make transactions.
As if investing wasn’t hard enough already.
So, I get it. With all of the volatility and anxiety in the stock market, it’s human nature to wonder if your investment decisions are wrong. If you’re thinking about where and how to invest, here’s a plan for you.
If you’re recovering from a financial setback, this article may help.
Create a personal budget
Before you make decisions about specific investments, you need to decide on an amount to save and invest each month. To come up with a savings amount, create a personal budget. Here’s how:
Determine your net monthly pay: If you’re an employee, you know your net income per month (excluding bonuses). Self-employed people can estimate their net income, based on their earnings in the last few months.
Document all expenses: Start with a piece of notebook paper, and write down a spending category on each line. Your list will probably include food, insurance premiums, car payments, etc. Once you have all the categories, go through your bank statement and credit card activity to add up your total spending by category for the prior month.
Analyze variable expenses: Now that you have each category with a spending total, separate your categories into fixed spending and variable expenses. Your insurance premiums and your car payment are fixed costs, while your entertainment and weekly spending on work lunches is variable.
Make some spending cuts: Take a hard look at your variable spending, and make some cuts. Remember: the payoff here is that you can use the savings to invest each month. Maybe you dine out twice a month, rather than three times- and you decide to bring your lunch to work a few days a week.
The end result is that you have a monthly amount that you can invest. To discipline yourself, have your bank automatically transfer the monthly savings amount from your checking account into savings.
Get free sample chapters of my book: Not Another Personal Finance Book.
The magic of the 401(k) plan
Ok, now how do you invest? Start by looking into your workplace retirement plan options (if you have them). In this case, you reduce the amount of net pay you receive each month, rather then fund a separate savings account.
The most common employer-sponsored plan is a 401(k) retirement plan, and these plans offer several great benefits:
Diversification: You can create a diversified portfolio of stock and bond investments. Many plans offer the same type of mutual funds you may buy for your other investment accounts.
Tax-deferral: The dollars you invest are not taxed, meaning that the gross pay you add to the plan is 100% invested. Taxes are taken out when dollars are withdrawn at retirement. Your total return over time is much higher, because your earnings are not taxed each year. If you invest, say, $100 of your gross pay, the entire $100 is contributed, and none of the earnings are taxed until you withdraw funds.
Employer contribution: Here’s the best reason of all: your employer may match your 401(k) contribution, which means even more tax deferred money in your account. Make every attempt to maximize the dollar amount of the company contribution. If, for example, your employer matches up to 3% of your gross salary, figure out a way to contribute your own 3% (by cutting personal expenses).
If you’re self-employed, you have some retirement plan options.
Final step: Talk to a financial advisor to evaluate the amount of risk you’re willing to take, and other investment issues.
Ken Boyd
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
Co-Founder: accountinged.com
(email) ken@stltest.net
(website and blog) http://www.accountingaccidentally.com/
(you tube channel) kenboydstl
This post was originally posted on my Quora page. This post is for educational purposes only.
Image: Bullseye, Jeff Turner CC by 2.0
February 9, 2018
Accumulating Wealth: What’s the best path?
“Actually, I’ve always lived frugally and saved a lot of my income, so I don’t need to work for awhile”
Wow.
It was 1999, and I was talking to a co-worker, Ron, who was about 50 years old. A large insurance company we both worked for was merging with another firm, and we were both leaving the company. (I left to start my current business).
I had suspected that Ron well below his means, because I had a good idea of how much money he made. Both Ron and his wife worked, yet they lived in a blue collar-type neighborhood with small homes.
Get free sample chapters for my book: Not Another Personal Finance Book.
Ron wasn’t retiring early, but he had enough money to take some time off. He told me that he and his wife had planned financially, so neither of them would need to start working immediately after leaving a job.
They planned, they saved aggressively, and invested wisely.
This strategy can build wealth- even in times of market volatility.
What’s your end game?
The starting point to answer this question is: What’s your end game? What financial goal are you trying to reach? Knowing how much you need- and when you need it – is the first step.
Let’s say, for instance, that you want to accumulate $1 million in invested assets over the next 25 years, and that you assume an average annual rate of return of 8%. That 8% is an approximate average annual rate of return for the Standard and Poor’s 500 index of stocks. Think of this index as the broad stock market.
If you’re recovering from a financial setback, this article may help.
Future value of an ordinary annuity
In finance, an ordinary annuity is a series of equal payments made in consecutive periods, and the annual amount you’re able to invest may be an ordinary annuity. You can plug numbers into a future value annuity calculator to find out how much you need to invest each year to reach your $1,000,000 goal.
Assume that you invest $10,500 in year one, and that you’re able to increase your invest 3% each year (as your salary or other income increases). They aren’t equal payments, but you still have an annuity.
Assuming an 8% annual rate of return for 25 years, you would be darn close to $1 million ($998,486.43).
Taking less risk
What if, instead of investing in the stock market, you simply bought certificates of deposit (CDs) at the bank for 25 years? Assuming that the average interest earned on a CD is 3%, you’d have to invest $19,700 per year to reach $1,001,151.
The goal ($1,000,000 in 25 years) is much harder to reach if you buy CDs, vs. investing in the stock market.
The savings route
If you simply cut expenses and put the money in the bank, the amount of money you have to save must be large. As a result, the only people who accumulate wealth purely by saving (like my grandmother) must do so over many decades. A bank rate of return is so much smaller, and the amount invested is larger.
A little of both
Most people accumulate wealth by:
Creating a personal monthly budget
Saving money each month
Investing money saved in a diversified portfolio
It’s a little of both, because you must have the discipline to manage your spending, while you also take some risk as an investor.
My answer? Accumulating wealth requires both disciplined saving and taking some level of investment risk.
As always, this information is for educational purposes only. Consult a CPA or a financial advisor for more information.
Ken Boyd
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
Co-Founder: accountinged.com
(email) ken@stltest.net
(website and blog) http://www.accountingaccidentally.com/
(you tube channel) kenboydstl
This post was originally posted on my Quora page. This post is for educational purposes only.
Image: Bullseye, Jeff Turner CC by 2.0
February 4, 2018
Best Ways To Think Of Ideas For A Startup
A baby pooping all over themselves in public can be a crisis…
It’s really bad if the clothes are covered in poop- and you can’t get to a washer for hours. If you just change the baby and keep the clothes in a diaper bag, the clothes might be ruined.
There’s now a solution.
I heard the founder of Wash. It. Later. on the How I Built This podcast. She created a water-tight bag for soaking soiled baby clothes before they stain. Her packaging is an attractive black and white stripped design- it looks like a shopping bag from a high-end store.
If you’re a parent of your kids, this product solve an urgent problem- almost as important as landing on the moon (seriously, it’s that important).
Get free sample chapters for my book: Not Another Personal Finance Book.
Observation
So, how did the inventor, Hannah England, come up with an idea? She observed what was going on around her, and noticed a problem that needed to be solved. That’s a great way to come up with ideas for a startup. Here are some other examples of founders using observation:
Bliss Spa and Skincare Products: Maria Kilgore started her business career by learning the proper way to give people facials. She was inspired to start her business after a terrible experience getting a facial at an expensive spa in New York.
LinkedIn: Reid Hoffman noticed that people segmented their online preferences between personal and professional. He started LinkedIn to fill the consumer’s desire for a professional online platform.
Patagonia: Yvan Clouinard started Patagonia, because he couldn’t find camping gear that was durable enough to stand up to the intense hiking and climbing trips he was taking.
What is it in your own life that’s a problem you might solve?
If you’re recovering from a financial setback, this article may help.
Perform intensive research
Arthur Blank started Home Depot with a partner, but the pair did not open their first business until they performed research on the concept for several years. Blank and his partner had extensive experience managing a successful chain of big box hardware stores, but they did more research to increase their chances of success.
There’s an endless ocean of information on the web, and finding useful research may be difficult. However, it’s worth the time investment to find the right information source for your startup idea.
Find the thought leaders in your particular industry, and find how what they’re saying about the industry. Many thought leaders put out white papers, free webinars and other useful information to attract an audience- and potential future clients. The information must be useful, in order to keep the reader engaged, and it can be a great reference for you.
Here’s an example: I pay attention to content marketing, and I recently came across an infographic from LookBookHQ. I thought the infographic was useful, so I went to the website. I downloaded this 15-page content marketing research document, and now I feel far more educated on the subject.
Find thought leaders- and read, watch, listen to everything they put out. It’s a form of free education.
Spin off your current career/ industry
If you work in a certain field, you probably have your own ideas about how you can improve things. Here are some other business founders as examples:
Chipotle: Steve Ells worked in a high-end restaurant in San Francisco, was a classically trained chef. He started Chipotle originally as a cash generator to fund a gourmet restaurant, and he wanted to use some unique cooking ideas. Chipotle took off, and he expanded into dozens of store locations.
Kate Spade: Kate Spade worked in the fashion and design industry in New York for years, and decided that the handbag market was missing something. She started making simple, modern handbags to fill a customer need.
Clif Bar: Gary Eriskson was a competitive bike rider who was tired of eating energy bars that tasted terrible. His mother helped him create a better tasting energy bar that was healthy- and now Clif Bar has a big share of the energy bar market.
If you come up with an idea in your own industry, you’ll have some natural advantages. You’ll already know about the industry, so the learning curve won’t be as steep. Second, you can leverage your existing contacts to get feedback on your business idea. You know what questions to ask.
Summary
Observe, perform research, and consider challenges in your own industry. Create the smallest test version of your product or service, and see how it’s received by customers. Price your product so you can earn a reasonable profit, and do your homework to find out if the market is large enough to justify starting a business.
Good luck!
As always, check with a CPA and a financial advisor for specific answers- this is for information purposes only.
Ken Boyd
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
Co-Founder: accountinged.com
(email) ken@stltest.net
(website and blog) http://www.accountingaccidentally.com/
(you tube channel) kenboydstl
Image: Bullseye, Jeff Turner CC by 2.0
February 2, 2018
The Diet Coke Label: A Personal Finance Story (Chap. 14)
Authors’ note:
This post is a chapter in my book, Not Another Personal Finance Book. Free chapters here. Enjoy!
Where’s the Diet Coke?!
The grocery store shelves were fully stocked, as David scanned the selections nervously. There’s all the Pepsi products, regular Coke (who drinks that?), but no Diet Coke. He was about to ask a clerk when he leaned in and noticed the problem.
They changed the labeling.
The word “Diet” was tiny on the new label- well, it was small enough that David didn’t notice. Relieved, he grabbed a 12-pack and headed for the checkout lane.
David had just listened to the 401(k) retirement plan webinar at work, and the information offered was a bit overwhelming. He’d read a blog post on the benefits of 401(k) investing, and the benefit of the company matching his investment made sense.
Get free sample chapters for my book: Not Another Personal Finance Book.
He glanced to his left and noticed the t-shirt on the woman checking out next to him:
“I don’t mean to get all chemistry on you, but alcohol is a solution”
Pretty funny, he chuckled.
As he swiped his debt card, he remembered the company 401(k) invested in American Funds, and that his sister was happy with the fund family’s performance and the customer service.
He called his sister Mary from the car:
“Yeah- the American Funds website looks great. I just don’t know how to go about choosing the individual mutual funds for my 401(k).” David thought for a minute. “I think you emailed me a document to explains things, but I don’t remember”.
Mary jumped in: “Well, before we get to that, what was the asset mix that their financial advisor suggested for you? Wasn’t it 60% stock and 40% bonds?”
“That was it- and I told him that I wanted to take a moderate level of risk with the stock portfolio, but I wanted super-safe bond investments.” David said as pulled into the Target parking lot. Might as well get all of the errands done now, he thought.
“Pull up that link I sent you”, Mary said. “It’s from an industry group, and it does a nice job of explaining mutual fund objectives. Remember- those fund managers must comply with the objectives they set. So, consider that moderate-risk stock fund you’re interested in- you can find the objective for that type of fund on their listing.”
David read through the list, which was divided into levels. Level 1 was Long-Term Funds, which he was looking for. Below that, Level 2 had an Equity category, which was stock investing, and Level 3 was Domestic Equity (US-based company stocks).
“Ok, under Domestic Equity is see a Capital Appreciation category…the objective is to seek growth of capital, dividends are not a primary consideration. That’s my Level 4. Under Capital Appreciation I found Growth. Growth says the fund invests in stocks that exhibit signs of above average growth, even if the share price is high, relative to earnings.”
Mary started again as David jotted down some notes. “Sounds like you found the description you needed. Now you can go to the American Funds website and find the mutual fund objective that is the closet fit.
You can use that listing to search for any type of fund objective- then visit the fund’s site. Bond funds, balanced funds- stocks and bonds, any fund type. Just read through each level and find the right objective.”
Davd sighed. “Ok, that’s a relief. Now I can pick my mutual funds for the 401(k). Oh- I gotta tell you how the changed the labeling for Diet Coke!”
As always, check with a CPA and a financial advisor for specific answers- this is for information purposes only.
Ken Boyd
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
Co-Founder: accountinged.com
(email) ken@stltest.net
(website and blog) http://www.accountingaccidentally.com/
(you tube channel) kenboydstl
Image: Bullseye, Jeff Turner CC by 2.0
