Departments: Money
Investor Dilemma: Try the New Or Stick With Tried and True

Q: I'm a beginning investor. Should I be investing in the old economy or the new economy?

A: Excellent question. These terms have come into vogue this year as investors try to explain the split in the performance of different sectors of the economy. The Dow Jones Average of 30 Industrial Stocks is often considered an investment in the old economy, with its stocks like Coca-Cola, General Motors, Procter & Gamble. The Nasdaq 100 Trust, which invests in the 100 largest stocks on the over-the-counter market like Microsoft, Intel, Cisco, Sun Microsystems, is a technology-heavy investment in the new economy of computers, cell phones, and E-mail.

All investors must make their own decisions on what are the right investments for them. But I think most investors should include both old and new economy stocks. I often tell newbies to consider a very broad stock market index fund like the Vanguard Total Stock Market, which represents the entire market of all stocks that are traded, both old and new economy.

Q: All my daughter wants to do is shop. How can I teach her that money doesn't grow on trees?

A: I have a teenage daughter, too, and I decided last spring to teach her some lessons about money. What I'd really like to teach Krista is how to pick a stock or a mutual fund. But she'd be asleep in three minutes. So I decided a lesson on shopping was more likely to hit home.

What we need to teach our kids is how to incorporate values into money decisions: how to share and how to save, how to work hard, and how to enjoy what they buy. But you must tailor your lessons to your kids.

I decided to give Krista a budget for her spring wardrobe. I told her she needed to get out all her clothes from last year, make a list of what she could wear and a second list of what she needed, and estimate how much each item might cost.

Next, she'd have to make a presentation to my husband and me, arguing for the money she'd need. It turned out that she couldn't wear anything from last year, when she was a size 9. She'd shot up about four inches and now wore a size 6.

She figured she'd need two pairs of shoes, six shorts, two pants, six shirts, one dress, one skirt, one sweater, two swimsuits, and underwear. She made reasonable estimates of what these items might cost at The Gap or Express, where she shops, added it up, and was then too timid to mouth the words. Six hundred bucks. She couldn't believe it.

When I took her shopping, she walked straight out of the first store, Urban Outfitters, because it was out of her price range. She bought four items that day, refused to go over what she'd allotted for each, saved the receipts, and vowed to wait for the Gap Capri pants to go on sale.

When she went to the mall with a friend, she said: "I'm not going to use any of my budget money because I might want to get silly stuff. I'll use my babysitting money for that." By early summer, she'd spent $300 of her budget.

There's a money lesson that's right for every child. My 10-year-old son wouldn't give a hoot about shopping money, but he might want to know about the stock market.

Q: What is an exchange-traded fund (ETF)?

A: The simplest answer is that this is a fund that trades on a stock exchange. A mutual fund, of course, is a pool of securities, sliced into pieces and sold to investors.

Traditional funds are bought and sold by the fund companies.

Exchange traded funds trade on the stock exchange and you buy them as if they were shares of stock. They are priced throughout the day. ETFs have been getting a lot of attention because lots of new ones are being introduced.

For example, you can invest in an exchange-traded fund that invests in the Standard & Poor's 500 stock index, or in many different Dow Jones indexes like technology or Internet or financial stocks as well as the largest stocks on the Nasdaq exchange.

The ETFs are typically cheaper than traditional funds. The average traditional stock mutual fund costs 1-1/2 percent a year in expenses. In May, Barclay's Global Investors introduced an index fund to invest in the S&P 500 stock index that costs less than 1/10th of one percent.

The American Stock Exchange, which is where the ETFs trade, has information at its Web site at www.amex.com.

Barclay's, which introduced 15 new funds at the end of May with another 25 on the way, also set up a Web site at www.ishares.com.

--Mary Rowland

Rowland is an author and contributor to financial planning magazines.

Thrifty Educator

This month's tips come from Marilyn LaPorte, a computer literacy and earth science teacher at Merrill Middle School in Oshkosh, Wisconsin, and from Valerie L. Townsend, a fifth grade teacher at Flint Lake Elementary School in Valparaiso, Indiana:

LaPorte: "Instead of purchasing expensive racks to hold students' papers while they type, I use the wire book stands that are sold for school libraries. They can hold paper fine and are about one-third of the cost."

Townsend: "I provide a two-disk case for each student to store disks in for the year. This prevents some of those dirty fingers getting all over the disk and causing problems. One disk is kept for word processing and the other for projects that require a lot of memory like Hyperstudio stacks. I number the disks and assign each student a number. That way the disks can be used year after year with minimal replacements. All my disk cases are placed in a basket in the room for easy access."

Have a favorite money-saving tip that you apply in your workplace? How about sharing your idea with colleagues? Just send your tip along to neatoday@nea.org.

Heads Up from NEA Member Benefits

NEA members 21 years and older can rent a vehicle, with up to 25 percent off retail daily and weekly rates at all Alamo U.S. domestic locations for economy through full-size vehicles. No other association enjoys up to 25 percent off.

A daily surcharge applies for persons age 21-24.

The NEA program will be honored at over 100 Alamo locations in the United States. You can make reservations online at neamb.com.

When booking online, the NEA ID number is 613575. The rate code, "BY," will be automatically filled in in the appropriate areas.

Good news for NEA members seeking National Board Certification!

NEA Member Benefits will be extending the low-interest rate loan to members seeking National Certification for the 2000-2001 season. These loans continue to be available through MBNA America Bank, N.A.

The loans cover the $2,300 assessment fee for National Board Certification and feature an APR of 7.9 percent, no annual fee, a 90-day deferred payment option (payments continue to accrue), and no prepayment penalty.

Members can take up to 3 years to repay.

To qualify for this special rate, you must be an NEA member and you must use these funds for the cost of National Board Certification. For more information, call 1/800-603-3953.