Departments: Money
Looking Back on 2000 With an Eye on the Future

Q: What investment lessons can we learn from 2000?

A: It was a year of expensive lessons. Here are some of the most important ones:

• At the beginning of the year 2000, it was easy to say that things were different in the investing world. It's a new millennium, after all. So lots of investing pros argued that the old measures for valuing a stock were outdated and that the new economy was breaking new ground and writing new rules. Many people said that the old economy stocks, like those of banks, auto companies, and retailers, were "dogs"--now and forever.

  Of course, those investors who thought it was different this time turned out to be wrong. The stock market, and particularly the technology stocks that trade on NASDAQ, tumbled--first in the spring, and then again in the fall. The lesson here is to remember that the market moves in cycles, and it's a mistake to believe that it will always go up. Or down.

• Boosters of the new economy rejected the traditional value style of investing. Value investors look for companies that are beaten down by some traditional valuation such as the ratio between their stock price and earnings.

  For much of the year, we heard that value was dead and that it would never come back. But one of the interesting things about looking back on the investment year of 2000 is that just as technology stocks collapsed last March, the value stocks came roaring back.

  The lesson, again, is that history repeats itself and the market moves in cycles. It doesn't pay to get too caught up in the frenzy of the moment.

• Diversification matters. That is our best lesson for the year. During the tech frenzy in 1998 and 1999, investors wanted to be where the action was. That meant technology. Many of them threw caution to the wind and put every dime into the new economy, which means technology, Internet, and biotech companies.

  When those companies faltered, some investors were left with losses of 50 percent and more. One online investor told me his IRA portfolio went from $685,000 at the beginning of the year to just over $200,000 at the end.

  It's not foolish to invest in technology. Technology represents the future, and it's an important investment. But investors need diversification, too. For some investors that means mutual funds with a value strategy. For others it means bonds, or even cash.

The lesson here is a simple one. Don't put all your eggs in one basket.

Q: What do you think about teens having their own credit cards?

A: We had a discussion in our online newsgroup about the pros and cons of these cards. The card is not really a credit card. Instead, the parent "loads" the card with a specific amount of money, say $50 or $100, and the teen spends it by using the card.

I rather like the idea, although it depends almost totally on your child's personality. I have a 14-year-old daughter who is very careful with both her money and my money. I don't want her to carry cash at the mall. And I am toying with the idea of giving her a budget amount for spring clothes that I will transfer to the card. Once she spends it, she gets nothing else for the season.

I think that could be a good way to teach budgeting lessons. However, I know that she would not blow the entire amount on one goofy piece of clothing. She's too conservative. I also know that she wouldn't ask for more money, especially if she spent it foolishly.

Some members of my newsgroup thought it was a terrible idea, though. They said it teaches kids a sense of entitlement and causes them to think that money grows on trees. One mother said she'd be happier giving her teen a debit card on her own bank account. (I definitely wouldn't do this. My daughter is responsible, but we all have our limits!)

I do understand the entitlement issue. I would not give my daughter any extra money that was just for free spending. But I might put money I owe her for work or for her clothes budget on the card.

Q: What is a good mutual fund for beginners?

A: Unfortunately, there's no one magic mutual fund that can solve your investing problems.

One of the biggest mistakes I see beginners make is to solicit friends for the name of a top fund and then put their money into it without understanding how funds work. The best starting point for all investors is education, and a good place to do it is online. Check www.morningstar.com as well as www.moneycentral.com, where I write a column. Learn about how the stock and bond markets work and grapple with what volatility means.

In general, it's better to stick with a broad-based fund, such as one that invests in the entire stock market. The Vanguard Total Stock Market is one.

-Mary Rowland
Rowland is a contributor
to several financial publications.

Thrifty Educator

This month's tip comes from Thomas Chew, a media coordinator and TV production instructor at Perry High School in Perry, Ohio.

"Each of my students creates a fairly economical video autobiography using a VCR, TV/monitor, macro camera, and an audiocassette or CD player. Students organize material they've gathered--photos, awards, dolls/stuffed animals, and other 3-D items--into a logical sequence. Each item is placed under the macro camera and taped for three or four seconds. Then we dub in music and other audio with the cassette or CD player. We add titles by videotaping hand-drawn or computer-generated hard copies with the macro camera. This is a wonderful activity for students to learn more about their families and for the teacher to get to know their students."

If you have a favorite money-saving tip that you apply in your workplace, please send your idea along to neatoday@nea.org.

Heads Up from NEA Member Benefits

If you're interested in taking advantage of the reductions in interest rates, take a look at the NEA Home Financing Program.

Refinancing an existing mortgage is a popular option for homeowners who want to lower monthly payments, secure a shorter mortgage loan term, or obtain cash for home improvements.

To learn the benefits of refinancing, call the NEA Mortgage Quickline at 800/NEA-4-YOU (800/632-4968) for the latest rates. If you decide to proceed, everything can be handled by telephone up until closing.

You also can inquire about the "Driveway Getaway" vacation package available for those who close on a first mortgage or for those who refinance an existing mortgage through the NEA Home Financing Program.

The NEA Credit Plan has a new name: the NEA Personal Loan^SM. Based on the results of a survey of NEA members, NEA Member Benefits decided to make the name of the loan program more descriptive.

The new name does not change any of the features of the loan program. The NEA Personal Loan is a fixed-rate, unsecured loan offering low, competitive rates. NEA members can borrow between $3,000 and $25,000, with no collateral required. Repayment terms are 24-84 months, and there are no prepayment penalties.

Visit the NEA Member Benefits Web Site at www. neamb.com or call Member Services Center toll free at 800/637-4636, Monday-Friday, 8 a.m. to 8 p.m. ET (or Saturday, 9 a.m. to 1 p.m.) to find out more about the NEA Personal Loan.