With the amount of information and resources online, whether hiring an advisor is worth it to the trendiness of Robinhood, it can get confusing where in the world to place your money and let it grow.
Let’s face it, if there was less out there to research, scroll, wonder, and contemplate upon, we would have a much clearer sense and actually get something done that way.
It’s the same feeling I get whenever I start my 6th billionth essay for school.
Do you ever feel so lost with all the resources, articles, journals, opinions, you have to gather that you cannot form your own opinion and even get started?
Well, personal finance does not make this easier for us becuase for one, it isn’t traditionally taught at school, and two, if we have to ever learn something on our own, it takes a heck of a lot of convincing.
We are stubborn creatures and unless we are rewarded at the moment, we see no incentive moving forward with it.
But the earlier you start the better.
If you get anything out of this, it’s that time is your best friend with investing.
The more time you have, the better returns you make even if the indexes have been bearish for months and the stock price is volatile.
Waiting it out in the long haul with patience and courage will always lead you in the best direction.
I definitely felt this way when beginning my investing journey towards retirement.
I’m just kidding, but no seriously, through the use of compound interest and high yield savings accounts, you can earn great returns by investing as little as a few hundred dollars a month to be able to achieve your financial goals and freedom when you are older.
Call me crazy as a 19-year-old planning for retirement.
But when you get older, you will thank me.
It is easiest to live cheaply when you are younger, the older you get, the less energy, grit, passion, motivation, and strength you have.
Much easier to eat Ramen and live in a 1000 square foot studio with your pals now.
Don’t make yourself struggle when you are older just becuase of your mistakes today.
Sacrifice now to live freely when you deserve it later as grandma.
So with personal finance, there are no rules.
Whether you want to save up to purchase a home or pay off your student loans, we all use the same concepts and ways of going about it becuase in reality, the information overload only makes it confusing and we have the choice to block it out.
When I started investing back as a junior in HS when I was teaching tennis, I saw a great opportunity to use my $50 paychecks to my advantage.
As a minimalist and frugal teen, I’ve always loved keeping my expenses low.
I know a weird hobby but it’s made me extremely appreciative of the life my parents, immigrants from Poland have sacrificed for me to go to a great school and live in a neighborhood where a majority of the residents have inherited their wealth and lived in the same home for generations.
I knew that realistically I don’t need much in life and happy with less.
Food, water, shelter, and education, and I’m good.
Yes, you need to enjoy life through entertainment, traveling, fancy rip off Nobu sushi, and occasional splurges, but after that, your happiness will soon plateau and you will ride the hedonic treadmill.
At that point, the best investment is stashing that money into any account instead of swiping it at a store.
There is this assumption you need a large chunk of change to invest.
When you are starting out, that doesn’t need to be the case at all.
If you have anything, from your piggy bank to asking your parents to contribute a few thousand per month or year to a high yield savings account, your ROTH IRA or even IRA, that is perfect.
Compound interest is a miracle.
The truth is, if you plan for the worst during the best times, you will be much better off, cough cough, especially during a pandemic when unemployment is now at a staggering 11.8 million, recorded on October 1st and back in April hit 14.7% in April, at a high since the Great Depression, when it exceeded 25%.
With about half of the U.S. population jobless and temporary layoffs highest on record, this could all be prevented if we weren’t so optimistic about the future, believe it or not.
Yes, it is good to have high hopes, but with your finances, you have to be realistically pessimistic, as I like to call it because as much as the stock market is driven by consumer behavior, so are you.
Most of the population of the U.S. thinks it is so unrealistic that they will lose their job due to an illness from China, which we were all not expecting to be fair, and those who were careless, now are left on the streets.
Time is truly your best friend and planning for the future, regardless if you know what you want to do, cannot be emphasized enough.
All of us have goals and dreams.
From taking a trip to planning a wedding, the same way we stash away money for those special moments, we must save it in the day to day activities we do as well.
Okay, so you have the money.
You’ve either asked your parents, emptied your piggy bank, or gathered birthday money.
Let’s start out with a clean and simple number $1,000.
If you invest that today and with a hypothetical awesome interest rate of 10% which you won’t find many places but why not, you will have $117,390.85 in fifty years.
Now that is a nice chunk of change.
You could live off of that easily and buy a home in, the middle of Georgia for that!
A few more years and now move up east or out west!
Now you just contribute $1,000 every year to that initial investment, you will accumulate $1,281,299 at the end of 50 years.
Although that interest rate was hypothetical and a bit high for this example, it still comes to show why investing earlier than later will save you 10x more than if you waited 10 years later.
You can never go wrong from starting early.
Okay, I think we get the point about being early to everything.
Isn’t that always the hardest part?
97% of it is just showing up?
Anyway,
Now with this cash, presumably you had it stored somewhere.
Either at a retail bank or a credit union, that provide all the same services just are known to have a more personalized customer service and have fewer branches and ATMs.
With that bank account, you can open 3 types of accounts:
Savings account: Pay small interest, ideal for building an emergency fund, saving for short-term goals such as planning a trip or buying a car
Checking: Deposit account that is very liquid, that earns little to no interest. The most Liquidnet asset is cash.
High-Yield Savings: Another type of savings account that pays 25 to 30 times more than the national average savings account would do.
The only trade-off to earning more interest on your money…
-Bigger initial deposits
-Larger minimum balances
-More fees
Now after allocating as much money you are comfortable with taking out, deciding what you want to invest in and how much is tricky and depends on a multitude of factors including how old you are and what your risk tolerance is.
To invest, all you need to do is find a broker.
These are professional people who handle the traction for you or if you want to go the crazy route, which in fact, most people do, research yourself!
You will of course save thousands per month but mgiht not have the latest research and up-to-date information on trends in the market unless you watch Jim Cramer 24/7.
2 Types:
-Full-service broker
-Roboadvisor
Now, obviously, to invest, you need an investment account.
There are thousands of platforms from Fidelity to Vanguard that will help you set up an account and what to invest in to build your portfolio.
When I started, I used a robo-advisor, and as I’ve gotten more experienced, and by experience, I mean testing the waters and losing money on cough cough Tesla, I’ve gotten a better sense if a broker is even necessary or not since they really don’t have much else insight than I do since no one can time or predict the market.
But since it is their full-time job, it is a big time saver for me. You pay someone top dollar to do tedious research for you.
What a broker does is just do the research for you.
They invest your money on your behalf and make sure they are a fiduciary, working in your best interest!
There are management fees but with Robo-advisors, compared to regular brokers who are people not robots, the management fees are half the cost of what a human would charge.
Robo-advisors typically charge around .25% of your account balance but are great when starting out.
Inexpensive and helpful.
Now with the fun part, choosing your investments!
Think of it as Shark Tank.
You are placing your bets behind a company except all the companies that are in the tank trade on the indexes and these companies are already well established.
They must have had profitable cash flows and financials to back up the reason why they are publicly traded.
They aren’t just startups.
They’ve gone through the IPO cycle and all of that scrutiny.
Moderation
Next, diversification.
You always want to make sure you implement this because it can make or break you.
With anything in life, moderation is key.
If you eat too much ice cream, you will get a stomach ache, the same thing with too much cash, you are wasting it away through inflation and not putting it to good use.
When you are younger, you can be riskier because you have more time on your hands.
In my case, I have more stocks and ETS, little cash than my grandparents who primarily have their portfolio full of bonds and cash.
But always remember to have cash, preferably in CD, Cash deposits, or in high yield savings account instead of just in your traditional savings account at the bank so it can at least earn more interest that way than just sitting around depreciating.
To keep it simple, if you are choosing individual stocks as opposed to a pool of them like mutual or index funds, make sure you know three basic things about the company:
1) You understand what they do and how they deliver teh service/product
2) It has been profitable for at least 3 years
3) It isn’t trendy but rather long term investor worthy
Not to make this incredibly long and bore you, I will dive in next time to outline my best practices and the various types of investments that you can make.
For some background on what you can start investing in they include:
Stocks, bonds, ETFs, index funds, mutual funds to keep it simple.
You can choose to go crazy or keep it simple.
It doesn’t need to complicated unless you want to be a day trader pinpointing every move the stock ticker that eventually gets you nowhere.
Having patience, realistic pessimism, and faith will lead you to higher returns in the long run.
Now, what are you waiting for!
Get started!