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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Things are better than you think

Universal Press Syndicate The Spokesman-Review

With Thanksgiving here again, it’s appropriate to reflect on all we have and to realize that even those of us of modest means are still exponentially better off than billions of others on this planet. (To become more hopeful about the state of the world, visit www.Foolanthropy.com and learn about some amazing organizations. We’ll be launching our 2007 charity drive there soon.)

Reflect on your financial condition, too, and know that it’s not hopeless. Odds are, you’re not too young, too old, too poor, too risk-averse or too ignorant to invest in stocks. However, as Motley Fool co-founders David and Tom Gardner have pointed out in “You Have More Than You Think: The Foolish Guide to Personal Finance” (Fireside, $15), you might be overlooking some critical assets:

You have brains. Managing your money takes brains, but you don’t have to be a rocket scientist. A little reading (at www.fool.com and www.bankrate.com, for example) can help you avoid paying more than you need to for credit cards, mutual funds, homes, cars and more.

You have time. Even if you’re 60, you may well have 30 years ahead of you, so don’t write off investing. And if you’re a teen, it’s not too early. (Visit www.fool.com/teens for some guidance and www.lavamind.com for some fun, educational financial games.) If you plunk $5,000 in an index fund that grows at the market’s historical average of about 10 percent per year, in 30 years it will become $87,000.

You have other people. The taboo against talking about money is silly. Strike up conversations with friends and family. Your uncle might be a savvy, experienced investor. Your mother-in-law might know a lot about buying real estate. Perhaps a co-worker can recommend a terrific financial adviser (you might also find one at www.napfa.org). Or access online discussion boards (such as at www.boards.fool.com), where you can get advice and ideas from many people.

Finally, another nifty way to get savvy is to form an investment club. Learn more at www.betterinvesting.org.

Ask the Fool

Q: I am invested in a range of mutual funds. Is it worth adding some individual stocks to that mix? — B.W., Vail, Colo.

A: Individual stocks can indeed boost your portfolio’s performance, but they can also hurt it if you haven’t taken the time to learn how to evaluate and choose them carefully. For most investors, broad-market index mutual funds are best, delivering returns that roughly match those of the market.

Still, you can aim to beat the market by investing in individual stocks. They can counteract the extreme diversification of most mutual funds. If your fund is invested in 200 different companies, your money is spread very thin across many holdings. If one of them doubles in value, the effect on the fund’s value will likely be fairly minor. But if you’ve invested, say, 5 percent to 10 percent of your money in a single stock and it doubles, it will boost your bottom line in a noticeable way. (Though if it falls, there will also be a noticeable effect.)

Q: What’s business “shrinkage”? — A.K., Maryville, Tenn.

A: It’s the routine loss of inventory, such as through accidental breakage or theft. Shoplifting, for example, shrinks many retailers’ profits significantly.

My dumbest investment

Back in the early 1970s, I bought shares of a small company called Frontier Electric, as it was local and seemed to be expanding every day. Years later, I heard that the firm had been bought by another company. Since I’d never heard of the acquirer, some new upstart, I sold my stake in it. That company was Oracle. As they say, the rest is history (which was made without me). — Harry, San Mateo, Calif.

The Fool Responds: Ouch. Oracle went public in 1986, and in a little over 21 years, its shares have increased in value more than 100-fold. Still, it would have been hard to know in 1986 how the company would ultimately do.