Let’s get this straight: Your chances of building wealth are optimized when you invest. While
it’s true that you should try to save every cent you can, your bank accounts will only take
you so far. To the risk-averse, bank accounts offer reassurance, but the problem is that the
average yield on a money market account is 3.5% and that can be easily eaten up by inflation and taxes.
For instance, if inflation is a modest 1.5%, then the yield on your savings account has been reduced to a
mere 2%—and that’s without the tax hit.
By investing in equities, bonds, and/or mutual funds, you take full advantage of the power of compound-ing—
taking a small amount of dollars and watching them multiply exponentially. For example, if you were
able to invest $100 a month in a vehicle that produced an average return of 18%, you would have earned
$33,625 in 10 years, and $91,921 in 15 years (see chart on how an investment doubles in value).
The first key to becoming proactive and knowledgeable about investing, money management, and
consumer issues is to understand how much money you have to invest, the amount of time you need to
reach your investment goals, and how much risk you can tolerate. The second is to understand how to
adopt thrifty lifestyle and bargain-hunting skills that enable you to save money to buy a home, finance a
college education, and grow retirement funds.
Here’s how to get going:
Bone up on the basics
Develop your own financial education plan so that you can learn about the stock and bond mar-kets.
Take courses on investing at a local college, read the financial pages, visit
blackenterprise.com daily, and read the Moneywise section of each issue of BLACK ENTERPRISE
magazine. Your crash course should include learning about financial terms, calculations and
indices (see How to Read Stock Tables on page 20).
Outline an investment plan for the different stages of life
The closer you get to retirement age your portfolio should become more conservative and income
oriented, because you will need to have access to your money much sooner rather than later. If
you lose money, you’ll have less principal for living expenses and less time to get it back. The
longer you have until retirement age the more aggressive you can afford to be because you have
more time to wait out up and down market cycles.
To Be Proactive And Knowledgeable About Investing,
PRINCIPLE NO. 6
THE POWER OF COMPOUNDING
The following table shows how $100 a month would accumulate at different
compound rates and time periods:
Years 6% 12% 18% 24% 30%
10 $16,470 $23,234 $33,625 $49,802 $75,268
15 $18,838 $50,458 $91,921 $175,036 $345,104
20 $46,435 $99,915 $234,349 $585,932 $1,532,326
Source: The Art and Science of Successful Investing
20
L
Declaration of Financial Empowerment
steps
PRINCIPLE no.6
Develop an asset allocation model
Divvy up your savings and investments based on your age
and the amount of risk you can withstand. To figure out
how much you should invest in stocks, a rule of thumb is
to subtract your current age from 100% to target how
much of your assets you should allocate to more aggres-sive
investments. Following this guideline: If you’re 40
you should have 60% invested in stocks or stock mutual
funds, whereas a 60-year-old should have 40% of his or
her money invested in stocks or stock mutual funds. (See
charts as a guide).
Choose a broker
Deciding what type of broker to use should be based on
your individual needs and style. The biggest difference
between brokers is whether they are full-service or dis-count:
Full service. The more familiar household names such
as Merrill Lynch and Morgan Stanley Dean Witter fall into
this category. Full-service brokers provide a full range of
services including personal advice, retirement planning,
tax tips, and access to the company’s research as well as a
wider selection of investment products (e.g., in-house
mutual funds). All of which comes at a higher price than
other brokerage firms. Full-service brokers are compen-sated
based on how much you trade, not the performance
of your portfolio.
Discount. Buying individual stocks online and on a fixed
income is easier today thanks to discount brokers such as
Charles Schwab and TD Waterhouse. Typically, a dis-count
broker will work with your wishes to invest sums as
small as $20 per month over time. Online outfits like
Sharebuilder.com and BuyandHold.com will allow you to
buy fractional shares of an individual stock. Discount bro-kers
charge a reduced commission and the cost of trades
is lower than with full-service brokers. You find can find
plenty of investment information on these firms’ Websites
but there’s no handholding for those new to investing.
Money Management And Consumer Issues
21
ASSET ALLOCATION - TEENS
85% Stocks
15% International Stocks
85%
15%
ASSET ALLOCATION - 20’s
81% Stocks
14% International Stocks
5% Money Market
81%
14%
5%
ASSET ALLOCATION - 30’s
70% Stocks
10% International Stocks
10% Money Market
10% Bonds
70%
10%
10%
10%
ASSET ALLOCATION - 40’s
50% Stocks
35% Bonds
15% Money Market
50%
35%
15%
ASSET ALLOCATION - 50’s & 60’s
50% Bonds
40% Stocks
10% International Bonds
50%
10%
40%

To Be Proactive and Knowledgeable About Investing,
PRINCIPAL NO. 6
22
Check the background
Do a background check on the firm and/or broker. Use sources made readily available through
securities regulators. For example, The Central Registration Depository is a disciplinary and
employment database from the National Association of Securities Dealers accessible on its
Website. When dealing with a broker, write down your financial goals and have the broker sign
a copy of that document. Keep an eye on your monthly brokerage accounts and inquire about
all fees.
Identify quality stocks
Investors can identify quality stocks through fundamental analysis (a review of past records
of earnings, sales, products, management, and markets to forecast stock price movements), or
technical analysis (the reliance of stock price and volume movements, not a given company’s
financial data, to determine future performance).
HOW TO READ STOCK TABLES
You can find stock tables in just about any newspaper–most notably The Wall Street Journal and
The New York Times financial pages–to get a daily summary on what has happened in the market.
The tear sheet below shows activity on the New York Stock Exchange (NYSE).
When seeking a stock, make sure you identify the exchange in which it is listed.
The following breaks down the components of the information on a given stock:
The 52-week high and
low shows the price range
in which the stock has
traded over the previous
52-week period
The cash dividend per
share indicates an
estimate of the anticipated
annual dividend per share
in dollars and cents
The price-to-earnings
ratio (P/E) tells you the
relationship between
the stock’s price and
earnings per share
The high and
low columns
show a stock’s
trading range
for the day
The yield is the
percentage rate of
return paid on a
stock in dividends
The close
column shows
what a stock’s
price was at the
end of the day
The volume
column shows
how many
stocks were sold
on a given day
The stock symbol
indicates the
letters used to
identify companies
listed on the
exchange on
which they trade
The net change
column compares
the closing price
here with that of
the day before
NEW YORK STOCK EXCHANGE COMPOSITE TRANSACTION
Declaration of Financial Empowerment

Money Management And Consumer Issues PRINCIPLE no.6
23
on’t try to time the market. If you are investing for the long-term, as well you should
be, then day-to-day market fluctuations won’t stress you. Besides, it’s nearly impossi-ble
to determine all the economic and human factors that will cause the market to dip
or rise on any given day. However, as a proactive and informed investor, you should stay abreast of
economic indicators and follow the activity of indices:
Economic indicators
There are several indicators or signs of strengths and weaknesses in the U.S. economy that can impact
financial markets. Generally in a growing economy, people spend more, which bodes well for com-panies’
production and profits. You at least want to watch for three economic indicators: consumer
price index, which is a gauge of inflation that measures the changes in the prices of consumer goods
and serves as a basis for cost-of-living adjustments in pensions and wages; unemployment rate, if it is
too low, it is a sign of a weakening economy, whereas a falling number of jobless claims is a sign of
a growing economy; and, interest rates, a rise in rates means loans that businesses and consumers
take out are more costly, and as a result, the economy slows, while lower rates translate into cheaper
lending which helps spur growth in the economy.
Indices
An index is a composite of stocks, bonds, or other securities selected to represent a specific market.
There are more than 20 major indices that you can follow to measure the overall health of a specific
market and as benchmarks of comparison. For example, if you own a large-cap stock mutual fund you
can compare its total return to the Standard & Poor’s Composite Stock Index of 500 stocks. The S&P
500 represents the largest U.S. companies in terms of market value, sales, or profits. The most popu-lar
stock index is the Dow Jones Industrial Average of 30 actively traded blue chip stocks representing
a wide variety of industries, including energy, transportation, financial, and technology. The Nasdaq
Composite Index measures approximately 3,400 domestic and international common stocks listed on
Nasdaq. About 50% of the index comprises technology firms, followed by healthcare, financial,
telecommunications and media companies.
D
3M Corporation
Alcoa
Altria (was Philip Morris)
American Express
AT&T
Boeing
Caterpillar
CitiGroup
Coca-Cola
E.I. DuPont de Nemours
Eastman Kodak
Exxon Mobil
General Electric
General Motors
Hewlett-Packard
Home Depot
Honeywell
Intel
International Business Machines
International Paper
JPMorgan Chase
Johnson & Johnson
McDonalds
Merck
Microsoft
Procter and Gamble
SBC Communications
United Technologies
Wal-Mart Stores
Walt Disney
The following is a listing of the 30 stocks that currently make up
the Dow Jones Industrial Average: