Note: I have decided to turn this into a more personal blog than teaching, although it will still center around studying accounting and beginning a career in accounting!

Monday (January 5th) is a big day for me! I will start my audit internship with a company in Atlanta. I am spending these last few days vacillating between being calm and being completely terrified. Terrified, because I have no idea what it’ll really be like, but then calm because, rationally, I know that none of the other interns know either, and of course we’re not expected to know anything.

It’s still hard to keep from getting anxious over the details–it’s the accounting personality type after all! For example, our orientation schedule shows that on Monday we will receive company laptops. They forgot to mention if we will get carrying cases along with these laptops. So I either show up with nothing, and have to cart an unbagged laptop around (on Atlanta public transit) or I buy a bag. And then what if I bring an (empty) bag with me, only to find that they provide one, so then I have to carry two bags around all day!

Also, what if I get lost on MARTA? Atlanta is like kryptonite to my ability to navigate my way anywhere without getting lost for at least 30 minutes. Sure there’s a stop with the name of the street I’m aiming for, but you never be sure…!

On a similarly anxious note, how many days can you leave brownies out for after you’ve baked them before they become poisonous?

Credit: sxc.hu/somadjinn

Sure, there is plenty to learn about investing, and all kinds of fancy investing strategies and terms. However, you don’t need to know all of them to be able to take advantage of the stock market. What you do need to know is that by NOT investing, you are missing one of the best ways to build a retirement nest egg.

Why the Stock Market?
Since 1925, no 10-year period has paid negative returns. On average, if you invested equally in every single stock on the NYSE for any 10-year period, you would earn 13% per year (source: lots of charts). Of course, some years you might lose huge amounts-notice that the Great Depression occurred after you began your investment. Luckily, other years paid enough interest to make up for those losses.

The Easy Way to Win
The easiest way to earn a good return from the stock market is to invest your money in as many different stocks as possible, then leave it there until you retire. It is also easy to buy into hundreds of stocks at once thanks to mutual funds-you never need to buy an individual stock. The idea is that if you can leave your money in stocks for at least 10 years or so, you should be able to ride out any big drops in the market, and make that average of 13%.

These days, you can’t count on the average 13% return. The stock market has changed since 1925 and some people think that the very high returns since then may never happen again. However, even earning 8% every year is far better than a savings account, even a long-term account like a CD.

Where it Gets Complicated
The complications come when people hope to earn more than average from the stock market. This is very difficult to do, and few people succeed at it. For most people, a strategy of contributing to their retirement savings and earning the average interest will get them to their retirement goals.

However, in the end, everyone must develop their own investment strategy based on their own goals and willingness to take on risk. Understanding the more complex parts of the stock market can help you figure out what you’re comfortable trying out, and who knows, you might find it fun!

In this NPR segment about “How to Weather a Rocky Economy” Melissa Block interviews Carolyn McClanahan, personal financial adviser and founder of Life Planning Partners. McClanahan says that while CDs and other savings accounts are good for very short term savings, the best place to put your long-term money is a diversified portfolio.

If you don’t want to worry about buying individual stocks to build a diversified portfolio, mutual funds can be an easy way to diversify. However, not all mutual funds are diversified. Just because your employer includes a mutual fund on your list of available investments in your 401(k), for example, doesn’t mean that it’s a good place to put your retirement money. In fact, I heard an interview on NPR once with a financial planner who said one company’s retirement plan that she had looked at had 10 funds listed. Of those 10, 3 were very high-risk funds, so an employee who just picked a fund at random might end up with their money in a more risky investment than they bargained for. (I couldn’t find the interview online, or I’d give you the link).

Don’t make the mistake of picking a fund at random! It’s not hard to do a little research, and it won’t take you much time either.

Before deciding on any mutual fund, take a quick look at its prospectus. At the very least, read the fund’s objective to determine if the fund manager’s goals sound similar to yours. For example, T. Rowe Price offers a Global Technology Fund, which invests in firms that “are expected to generate a majority of their revenues from the development, advancement, and use of technology”. This is great if you’re hoping for big returns, but it’s a very risky place to keep your retirement fund.

On the other hand, T. Rowe Price offers retirement funds specific to the year in which you are planning to retire. I think that this is pretty cool, because presumably the fund manager will change their investment strategy appropriately as it gets closer the the retirement year, so you won’t have to worry about moving your money to different accounts.

Of course, there are many other factors to consider when choosing a mutual fund, but reading the prospectus is a good place to start!

I started investing in mutual funds in September. So far, my investments have lost more than 12% of their value. So what’s my reaction? To invest even more of course!

But isn’t that throwing good money after bad? I certainly hope not. I have faith that the market will recover and I’m excited to have the chance to invest while the market is down.

If you invested a dollar in a diversified fund right before the Great Depression, you would have seen a gain on your investment just a few years after the end of the Depression. This is why young investors are advised to keep all of their money in stocks–a risky investment–becase they have enough time to ride out market turbulence before they will need to withdraw and use the money for retirement.

As an investor in the stock market, you have to be prepared to ride out big drops in the value of your portfolio. If your portfolio is diversified, you will eventually realize some gains on your investments. If I opted to cash out of my investments right now, I’d turn my paper loss of 12% into a real loss. As long as I hang on to those stocks, they will eventually regain that 12% and much more. So I’m going to continue making my monthly investments!

Balance sheets are one of the main financial statements that investors use to assess a company. You can easily access a public company’s balance sheet through a website like Yahoo! Finance, but before you do you may want to arm yourself with this simple tutorial on how to read a balance sheet.

The three types of balance sheet accounts are assets, liabilities, and equity.

• Assets show what a company has. Under assets on the balance sheet, you will find items such as cash, inventory, and equipment.

• Liabilities show how much the firm in question owes to other people.

• Equity, in contrast to liabilities, is how much the firm owns.

Assets must always balance with liabilities and equity, hence the name balance sheet. The items that the firm has (assets) must either be owed or owned, so assets always equal liabilities plus equity. This relationship is called the Accounting Equation, and is the basis of double-entry accounting.

How to Make a Balance Sheet

Read on to see a simple example that will help you learn how to read a balance sheet by seeing how to create one.

Ernie has decided to start a small business raising dairy goats. He names the business E-Dairy and invests $10,000 into the business.

On the balance sheet: $10,000 is now E-Dairy’s asset. It can be used to buy things, and make money. The $10,000 is also recorded under equity because E-Dairy does not owe any of it to anyone.

Assets = $10,000
Liabilities = $0, Equity = $10,000

Next, Ernie decides to build a barn. A local construction company tells him it’ll cost $20,000. Since he doesn’t have much cash, Ernie gets a bank loan for $20,000, pays the builder, and gets his barn.

The barn is now listed as an asset worth $20,000. Because the money used to pay for it is a loan from the bank, Ernie must also list a $20,000 liability on the balance sheet.

Assets = $30,000
Liabilities = $20,000, Equity = $10,000

Finally, Ernie decides to buy his first goat for $3,000. The goat is an asset because Ernie will use it to make money. However, cash must decrease. In this case, all of the changes to the balance sheet will be among the assets, so liabilities and equity won’t change.

Assets = $30,000
Liabilities = $20,000, Equity = $10,000

Now you know the basics of how to read a balance sheet! Now you can try to read this balance sheet from Google’s financial statements. Don’t worry if a lot of it doesn’t make sense- now you know the basics of the three categories, and you can tell how much of Google’s assets are owed to other people, or owned by Google’s shareholders.

Photo of Cash: sxc.hu/isouthpawi
Photo of Barn: sxc.hu/drouu
Photo of Goat: sxc.hu/cegie