Road map for a cautious investor

Novice looks to achieve her goals gradually, but needs to take on more risk

At age 27, Naeemah K. Abner is reaping the returns from a modest $3,000 investment portfolio, a strategy that is moving her several paces ahead of her peers. For Abner, her interest in investing began while she was pursuing her undergraduate degree in social work at Rutgers University in New Jersey. Like many college students, Abner was strapped for cash. “I cashed the [savings] bonds that my great grandmother bought for me at my birth and used the money to pay for my books,” says Abner. The total value of her savings bonds was $1,200, and she was intrigued that some of the bonds had tripled in value, yielding $75 for every $25 her great grandmother had invested.

Initially, after graduating in 1996, Abner had difficulty landing a job, but eventually she nabbed a spot as a program coordinator at Directions for Youth in Brooklyn, New York. Within 14 months, she was promoted to program director. Although the nonprofit organization doesn’t provide a retirement plan, Abner has a safe, built-in perk. Her job pays 15% per year toward her $5,000 student loan, allowing her to concentrate on clearing the other loans, credit card and miscellaneous debts she is saddled with.

Over the past two years, Abner has contributed $100 a month to two mutual funds-$50 to Washington Mutual Investors (Nasdaq: AWSHX) and $50 to New Perspective (Nasdaq: ANWPX), sponsored by American Funds Group. In that time, she has earned a tidy profit of $600. Not bad for a first-time investor who decided to try something other than the safe but boring passbook savings account.

Despite the low return on the money she keeps there, Abner also maintains a checking account with HSBC Bank, which she uses to take care of her monthly expenses. However, she admits to feeling more empowered when she reviews her monthly fund statements and sees how her investments have grown.

The question remains: is she willing to devise a more sophisticated investment plan? Not quite, despite the fact that she already has some exposure to stocks through her two mutual funds. “I’m very nervous about the stock market and prefer something stable like the portfolio that I currently have,” Abner says. As a result, because she isn’t invested in individual stocks, she isn’t as worried when the Dow Jones industrial average drops.

But this cautious approach won’t help Abner reap greater returns on her money. Financial advisors say Abner will do far better for herself if she moves toward a more solid investment approach. Putting aside a modest $50 per fund a month is a fine way to get your feet wet, they suggest, but after two years of socking away money in more conservative stock funds, it’s time to take a little more risk.

Abner is not really buying this sort of talk right now. With $17,000 in student loans and credit card debts eating up large chunks of her salary, she is sticking to the financial needs assistance program that she worked out with an advisor some time ago.

Pages: 1 2