Expert advises students on personal finance
Lucas Masin-Moyer | Wednesday, March 23, 2016
Tuesday evening in DeBartolo Hall, Carl Ackermann, professional specialist in the Mendoza College of Business, gave the second lecture in a three-part series on personal finance. Ackermann’s lectures focus on how students can best secure their financial future right out of college.
Ackermann began his talk with a brief summary of the previous talk, which discussed the benefits of investing in mutual funds.
“Investing in mutual funds is such an outstanding way to invest because a stock mutual fund, for example, has many stocks, so if you buy into a stock mutual fund, you now own a piece of every stock that that mutual fund owns,” Ackermann said. “[This] gives you instantly a widely diversified portfolio.”
Diversification of stocks is crucial in a portfolio, Ackermann said.
“If you buy a stock mutual fund, you should achieve about the same expected return as if you buy just a few stocks — but since when you buy a stock mutual fund, you hold a widely diversified portfolio of stocks. You achieve same expected return at dramatically lower risk,” Ackermann said.
Though students are young, Ackemann said it is important for them to understand 401(b) and 401(k) plans.
“You contribute an amount [of money] to one of these plans,” he said. “It’s taken right out of your paychec,k so you don’t even see it, and your employer often matches this contribution.”
Ackermann said these funds provide benefits to people who maintain them, as the government gives large tax breaks to those holding these funds. However, these funds have been largely ignored by many Americans, despite the funds’ ability to appreciate in value, providing a safety net for retirement.
“Financial advisors often suggest that 110 minus your age should be the percentage you put in stock index funds, with the rest in a U.S. Bond index,” he said, “Within the stock index portion, they recommend that you should have 60% in U.S. stock index funds and 40% in international index funds.”
There are two other types of investments that one could make in order to ensure their financial security, the first of these being an emergency fund, Acvkermann said.
“Take six months of your family’s living expenses and put it in a bank savings account that has a competitive interest rate, so if you lose your job or get sick, you have funds to live off of,” Ackermann said.
The other investment that Ackermann suggested as a way to ensure financial security is a Roth IRA, if it was within the investor’s means.
“If you still have money left over, you’re going to want to look into something called a Roth IRA — a Roth IRA is an individual retirement plan that works a lot like a company retirement plan, except there is no company match,” Ackermann said.
These Roth IRAs have numerous benefits, he said.
“There is no taxation along the way, accumulation continues to accelerate — also, you can take your money out later, completely tax-free,” Ackermann said.
Being in control of one’s finances is not only important for one’s financial stability, but allows one to be able to devote their time to worthwhile causes, Ackermann said.
“Freely volunteering your time, contributing to charities, helping people, traveling — imagine doing all of this good for society in what many would consider the prime ages of their life,” he said.
The three-part lecture series was sponsored by the Mendoza Student Leadership Association and aims to help students prepare to manage their money after college.