One convenient, albeit unscientific, method of charting the impact of continuing inflation at double-digit rates is the volume of telephone calls and letters from readers to The Washington Post's Business & Finance section.
There has been an obvious escalation in the number of such communicatons over recent months, and the questions reflect growing concern by many Washingtonians about financial planning -- or the absence of it, since many persons have made no disciplined study of their current and future financial prospects. h
But if there is one certainly about the coming decade, it is that individuals and families must start to work on their budgets and investment potential just an assiduousty as they plan vacations in Rehoboth Beach, New England or South America.
Americans are not likely to experience in the 1980s the sort of immense increase in affluence from which many of this country's citizens benefitted in the post-World Wars II years.
"We are ending the 1970s with new perceptions of economic scarcity and a growing awareness that our energy-intensive consumption patterns are too expensive to maintain," said University of Minnesota Associate Professor Janice Hogan last week, addressing the Agriculture Department's annual outlook conference here. She added:
"Socialized as American families have been to the belief that there is an endless supply of material and energy supplies, it has been difficult for many to seriously consider values encompassing conservation. However, as the balance between income and expenditures is disturbed and as families face significantly higher fuel bills as well as larger pricetags for other consumer goods, they will find news wisdom in the values of conservation, frugality, and ecoconsciousness -- an ecological orientation."
According to Hogan and other financial advisers, many individuals and families face three substantial challenges in working on their own financial management:
Changes must be made in the current levels of consumption.
They must increase the efficiency of their use of resources.
Income will have to be expanded to maintain current living standards if the ravages of inflation continue apace.
Not all persons really have such options, Hogan noted. Families experiencing divorce, unemployment, health disabilities or other crises may have little or no flexibility. Persons who already are frugal, who have cut back on waste in using resources or spending money and live on fixed incomes, are constrained.
In this environment, individuals are searching for answers about how to plan and how to invest what resources they here or will have. Readers of The Post ask for advice on picking a stock broker, whether a particular company is worthy of investment, what is IRA or Keogh plan, how corporate bonds are traded and whether they should buy gold.
Many of the questions are much more specific, asking for explanations of daily or weekly tables in the Business & Finance section, the most current Treasury bill rate or the latest Consumer Price Index. Clearly, people are paying a lot more attention to the value of their assests, under constant attack by erosion for a decade.
Giving tips on specific stock and bond purchases is not the job of The Washington Post, although articles and columns in the newspaper report on or analyze particular company problems and fortunes.
What follows are typical questions that can be answered, at least as a starting point for readers seeking better understanding of particular investments and how the newspaper's market tables reflect trading a activity.
QUESTION: Where can I learn about financial planning?
ANSWER: There are a variety of sources but a good first step is to start studying budget problems, taxes, the business world, investment issues and financial opportunities in a general way.
Colleges and universities in the Washington area offer regular classes (often at night) as well as special programs on investing, family budgets and taxes. The Alexandria campus of Northern Virginia Community College is offering a tax preparation course on Wednesday nights through Dec. 5, for example. Call registration and adult eduction offices at various schools for details about planned programs.
In addition, many companies, organizations and securities firms sponsor regular seminars and meetings on various topics. During the coming week, to cite several such gatherings:
Bache Halsey Stuart Shields is conducting seminars, on anti-inflationary investments in Tysons Corner, Washington, Silver Spring and Rockville. Topics include money market funds and certificates of deposit.
Women's National Bank will hold a night seminar on tax sheltered and tax advantaged investments and a noon "brown bag seminar" on taxes.
L'Enfant Business and Professional Women's Club will learn about "how to survive inflation" at a program open to non-members.
Many of these events are listed weekly in the Sunday section's "Economic Calendar."
Many books have been published in recent years and are available at book stores and libraries. Pass over the books you'll see that promise a secret strategy to make you an instant millionaire. Among the best books for general information are syndicated financial columnist Sylvia Porter's "Money Book" (Doubleday & co.) and C. Colburn Hardy's "Guide to Personal Money Management." (Funk & Wagnalls). For greater depth on investments, good general books include "Personal Financial Planning -- How to Plan for Your Financial Freedom," by C. Victor Hallman and Jerry S. Rosenbloom (McGraw-Hill) and Hardy's Dun & Bradstreet's Guide to Your Investments" (Thomas Y. Crowell).
Q: Who can I see for investment planning advice?
A: If you have the time and discipline, you can do it yourself.
In addition, there are investment advisory firms, individual investment counselors and investment companies that buy and sell stocks, bonds, and commodities. Many bank trust departments have advisory services.
In various fields, lawyers, accountants, insurance salespersons and mutual fund representatives also may be contacted. But investment counseling is loosely regulated by government, so be careful in your selection. Also there are so many options and viewpoints that seeking advice from a variety of sources will be helpful in making your own decisions.
Colburn Hardy, author of numerous articles and books on investing, says persons with limited time should rely on someone else to do the work -- a professional money manager or a mutual fund, for example. If you can systematically devote several hours a week to your investments, you may want to try some of your own money-managing.
Advantages to seeking outside help include broader diversification than an individual normally can obtain and (under good circumstances) closer supervision. One drawback is higher costs; fees for financial consulting vary but often are less than one percent of an investment portfolio's value.
Many Wall Street firms, suffering from a distinct lack of interest on the part of customers in the stock market for some years, have branched out into broad financial investment services, including insurance. An unusal example of this trend is a Washington office of E. F. Huton & Co., at 1859 K St. NW.
In business for two years, the Hutton setup looks like it belongs to lawyers. It's very quite. There are plush, individual offices for the registered representatives. The talk inside is about total planning and investment strategy.
According to Perry H. Bacon, who heads the office, it already is first in the nationwide firm in terms of sales per person. Attracted to this office are Washingtonians with annuals incomes in a range of $50,000 to $150,000 and a net worth of $100,000 or more (virtually every homeowner fits the latter category, in the wealthy D.C. area), as well as very wealthy individuals.
"We have eight or nine product specialists, since one person cannot be knowledgeable about all things at all times," Bacon said. Since the 1980s will be more complex, his office will have some people with insurance expertise and others deep into tax shelters, for example. They collaborate on various accounts.
"We wanted to create a very comfortable working environment for account executives," where the Hutton people draw on their firm's resources and computers to draw up "written plans for life" of individual investors, Bacon noted. Final plans often include such products as insurance, the sale of which produces income for Hutton.
Another type of individual financial consultant in bussiness here in Goodman & Associates, at 1720 I St. NW, headed by Barry Goodman. His firm provides a computer-assisted financial planning service that looks at budgets, income tax planning, investment, insurance and estate planning.
Unlike most financial advisers whose earnings come from commission fees on sales, Goodman & Associates charges a flat fee based on the complexity of the client's financial condition and ranging from $2,000 to $15,000 (no charge for an initial exploratory meeting). Goodman gets no revenue from selling securities or other products.
Q: What is a corporate bond?
A: Literally, it is a piece of paper that obliges a borrower to repay a lender, at a specific date, the full amount being loaned. Corporations issue these loan agreements and pay each year for use of the money, in the form of interest. Bonds provide continuing income.
Q: How do you buy government securities?
A: The Treasury sells bills, note and bonds. All have attracted great investor interest in recent months because of their high interest rates and backing by the federal government, which makes them about the safest investments.
Normally, Treasury bills are sold every Monday with 13-week and 26-week maturities available. On a monthly basis, 52-week bills are sold. They come in minimum denominations of $100,000 and are sold on a discount basis; the difference between the purchase price and ultimate redemption price is income. For example, if the average price of bills sold at the Monday auction was 97.3, the investor pays $9,730 per bill.
A one-year, 6-percent discounted bill would be bought for $9,400 and redeemed at $10,000 a year later. A check is sent to the purchaser at maturity although a deluge of small investor interest this year has caused the Treasury to be late in some mailings
Notes and bonds are offered by the government when it needs to raise money. They are solid with a coupon (fixed rate of interest) which is income. Minimum denominations are $1,000.
Noncompetitive tender offers to buy bills can be submitted by investors here to the Treasury, 15th and Pennsylvania Avenue NW, Room 2134, in person or by letter (postmarked at least a day before the bidding date). Bill bids must be submitted before 1:30 p.m. Mondays (on Fridays if Monday is a holiday), with a cashier's check or certified check for the full price and made out to Bureau of Public Debt." Forms also must be filled out. You will get a check for the difference between your check and the auction average sale price.
For note and bond offerings, after they are announced, individuals may go to the Treasury with checks in the amount of 5 percent of face value of the purchases. The balance is due within a specified number of days, when you're informed the bid is accepted. Government securities also may be purchased through brokers and usually with a commission charged.
Q: How do I read government securities tables in the newspaper?
A: Once offerings have been completed by the governement, the securities can be bought and sold by investors through government issue dealers. This trading forms the basis for daily quotations in the newspaper, where the buying price or bid is listed for securities after being sold by the government and prior to maturity.
This buying price is based on the hypothetical annual interest yield from the investment and the number of days left to maturity. The price changes in daily trading along with interest rates generally; if interest rates go up, prices on interest-paying securities head down, for example. There is a general rule you can follow: The current market yield is higher than the yield on the purchases price if there has been a price decline and lower if there has been a rise in market value of the security.
Q: What does "N.L." mean in the mutual fund tables?
A: The letters stand for "no load", a euphemism that means there is no sales charge connected with purchases of that particulr fund.
Some other confusion in the mutual fund tables comes from the headings "sell" and "buy." The selling price is the net asset value per share at which the securities are selling while "buy" is the net aset value plus sales charge. tThus, for a no load fund, the "buy" and "sell prices would be the same.
Q: Why aren't some local companies, with stock traded in the over-the-counter market, listed in the newspaper?
A: The National Association of Securities Dealers, based in Washington, is a self-regulatory organization for the OTC market. Nationally, NASD determines, periodically which firms have trading volume and meet other standards to qualify for the national OTC table. Locally, a NASD committee decides which companies have active market makers (brokers who sell the stocks) in the Washington area, as well as other characteristics about volume and company size, to see if a company should be listed in a separate D.C. Area Securities listing.
Sometimes, a company is moved from the local table to the national table. In any event, decisions on if and where a company stock is to be printed regularly in the press are made by NASD. Companies or investors who think their stock qualifies should contact the NASD directly.
Q: How is the yield figure in stock tables figured?
A: The yield, listed for New York Stock Exchange and American Stock Exchange issues, is the rate of return based on annual dividend payments, based on latest dividend declared. Estimated cash value is used for stock dividends.
Q: wHat are stock options?
A: oPtions, traded on five exchanges daily, are the right to buy (or call, as listed in the newspaper) or sell (described as put by traders) a given stock or security at a fixed price, on a specific date in the future. Options are sold in units of 100 shares.
Washington Post tables show the company issuing the security, the price ("striking price," in traders' parlance) at which the security will be bought or sold when the option expires, bid prices of options that will expire on the third Friday of the month listed at the top of the columns and the day's closing price for the underlying security of the options on the New York or American exchanges.
Q: In the commodities tables what does the column "chg" mean?
A: It means the change in price from the closing price on the previous trading day.
Commodities futures contracts are agreements to sell or buy a specified amount of goods in the future -- at a fixed date. But few owners of such contracts actually take delivery of, say, 50,000 pounds of Maine potatoes. A contract changes hands in daily trading and may be liquidated before scheduled delivery. The contract quotations often reflect future prices as professional hedgers (people who buy to protect themselves from wide price swings) and speculators seek profits through hourly price changes.