Most of the time, being really rich is great (not that I’d know, but I assume).
Right now, I’m thanking my unlucky stars that I wasn’t fabulously wealthy when I took a sudden interest in investing $1,560 of fun money in a few Vanguard funds.
Because had I been really rich, I probably would be down a lot more money than I am right now (because I would’ve invested a lot more “fun money”).
I sure am feeling it in my 401(k), though; I track that balance month-over-month since Southwest matches at a very generous rate and it used to climb a lot faster than it is right now in my aggressive allocations. This is definitely not my "fun money," it's a sizable portion of my income that I absolutely need someday.
In short, the stock market is in a period of ‘corrections.’
The NASDAQ Composite Index hit an all-time high of 8,109.69 on Aug. 29 of this year, and is now—and this is an industry term—in the shitter.
Here's a blurb from an awesome daily finance newsletter I read that paints a nice, snarky picture (excerpted on Dec. 21):
It was another face palm-inducing day on Wall Street, where volatility has become as commonplace as Patagonia vests. Let's survey the damage.
Rather than trying to get into the nitty-gritty stuff (head to the MarketWatch link above for that), I want to talk about how I’m feeling about money and investing right now in the midst of this low period, and the implications for someone’s hypothetical impending retirement.
A big market drop when you’re 24 and have a couple thousand dollars invested is mostly a ‘shrug it off’ annoyance. Who cares? You don’t need this money for decades. If you just started investing this year like me and dipped a proverbial toe in the water, you might feel a little discouraged after seeing things reach an all-time high then drop lower than you started.
After all, here’s what my Robinhood balance looked like when I started (ignore the chart, just look at the numbers at the top):
There I was: optimistic, ready to roll—wanting to cut myself a slice of that free money pie. And for awhile, it seemed too good to be true. Here's what it looked like when things were riding high only a few months later (I was convinced investing was magic and I had found the secret to free money):
That was (mostly) it's peak for me. A nearly 11% increase. Alas, now we're here (this screenshot was taken on Dec. 20; who knows what'll happen by the time this gets published):
Wah. $108 (almost 7% down) for the year.
UPDATE: It's Dec. 26 and I'm down to $1,430.61, -8.29%. On Christmas Eve at the low point, I was down almost 13%.
Like I said, this isn’t enough money to really care about. It’ll pick back up. I’m not concerned. But it definitely woke me up to the reality that, had I invested my entire net worth in the market, I’d probably be a little more rattled.
It made my guaranteed 4% APR interest checking account with the credit union look a whole lot more attractive, because that account has paid out hundreds of dollars in interest over the last few months.
It’s almost akin to gambling—wanna go for a potential 8% (or higher) return with a risk of an equivalent loss (or worse), or go for a guaranteed 4% return? This is an oversimplification that depends on a LOT of factors like allocation and timing, but I think the analogy stands.
That’s the benefit of being young—timing doesn’t REALLY matter. You know you have all the time in the world (practically speaking) for things to rebound, if you’re saving the investments for later in life.
But if you’ve been planning to retire in a month or two and you’ve got hundreds of thousands (potentially millions) locked up in the market and there’s a big 8% dip with no recovery in site…well, that looks a little different.
It’s risky stuff. Overall, it’s probably a safe bet to place, and absolutely better than saving money in low- to no-interest savings accounts, but nothing’s ever a guarantee. Average returns—even if they’ve caused your investments to grow by leaps and bounds for decades—can be wiped out in a big market crash.
I know people personally who lost hundreds of thousands of dollars in 2008-2009 and took years to recover (I remember in middle school my parents told me, "You can go anywhere you want for college! Even Harvard! We've been saving for college for years!" and after 2008, it was, "OK, pick a state school,"). Roll tide.
The consolation is that they likely wouldn’t have had that much to LOSE in the first place had they not played the market, but timing matters A LOT when you’re going into retirement and banking on that nest egg being intact.
So while things are shitty right now, that means it's the best time for young people to BUY, BUY, BUY diversified index funds! They're cheaper than they've been all year, right now. Like a Black Friday sale on stocks.
And then, for the love of God, don't check your Robinhood accounts for a few months. Let it ride. If you want to start your own "fun money" side account in Robinhood, use this referral link and we'll both get a free stock (usually they're small stocks, but I know a few people who have gotten a free Apple stock and that's pretty cool).
Join me next week on Jan. 2 for my 2019 Financial Resolutions—we're getting specific about goals and how I plan to get there.
Just two college-educated girlies laughing in front of the President's Mansion about how their college experience didn't include learning (for me, at least) about the magical world of investing.
Y’all, I feel like I’ve undergone an investing crash course in the last couple weeks after posting my blog about attempting to buy real estate in Dallas. To me, this is one of the coolest things about sharing your life on the Internet—people reach out to share themselves and their relevant knowledge right back.
My friend Haley commented on my initial post, offering to chat about investing.
I practically jumped out of my chair. I’ve been interested in investing for a while (ever since I felt like I had enough money for it to matter; I was getting tired of letting it sit in my savings account and do nothing), but I felt so unempowered by my lack of knowledge. I think a lot of other young women can probably relate to this.
A few months ago, I was talking to Claire about it—why do young men invest aggressively? Or, honestly, at all, when young women my age seem to have no outward or obvious interest in it? Why is getting rich only for men?!
Almost all of my guy friends are avid investors. Haley is my only female friend, that I’m aware of, who invests. If you’re a female who’s into investing and you’re taking offense to this right now, maybe it’s just because men are far more interested in this topic of conversation than women. But the point is, I couldn’t name a single girlfriend of mine who had ever raised the topic with me.
I think we should change that, and Haley wants to help.
Minor soapbox moment: Why the hell don’t they teach personal finance, budgeting, and investing in school? I get ditching the home economics courses of the past (even though those are probably just as useful), but these are serious and consequential aspects of one’s life that are essentially left to the volition of the individual: in other words, figure it out, or be ignorant at your own fiscal peril.
The system is intentionally confusing, and our education system doesn’t do anything (widely, at least) to prepare young people for making smart financial decisions that can radically alter their quality of life.
Financial literacy is pivotal, and we’re left to fend for ourselves. I know I sound whiney as hell right now, so indulge me a little—I just think if you’re going to spend hundreds of thousands of dollars over four years (or more) at a major educational institution to learn about your future career, they should at least have a required 101 class on how the hell to manage your money once you start making it.
OK, I feel better. Let’s keep going.
So I’ll be honest, I still don’t know very much. Like, at all. And obviously so—there are entire finance and banking industries with knowledge at depths I know I’ll never plumb, and I literally started educating myself a week and a half ago.
This overview is going to be very basic—a ‘how to get started when you have no idea where to start,’ if you will. Before I launch into my own little week-long journey of learning how the hell to invest my $3 of net worth, let’s run through some quick terminology so we’re all on the same page.
I was super tempted to lace this piece with all this jargon to make myself sound far more informed than I actually am, but then I realized I’d be as bad as the finance bros and nobody needs more of that.
So, here’s my KG-style finance glossary:
Investing: Where you put your money into accounts and then let your money get taken on a wild (or absolutely boring) ride that could either leave you way effing richer or completely losing that money. Sounds fun, right?
Capital: This is the amount you start with. If you want to invest $1,000, $1,000 is your capital. We’re going to stick with this amount for our hypotheticals because it’s an easy one to manipulate.
Interest: This is the amount you earn. If you invest $1,000 and it grows by 10%, 10% is the interest rate and $100 is the amount of interest you’d earn. But here’s the hip and fun part about investing: You could be up $100 one day and down $300 the next, depending on how risky and volatile your investment is. But more on that later. I also think it’s funny to talk about ‘earning’ in this sense, because you’re legitimately not doing a damn thing except buying shares of something and then kicking back and watching the chips fall.
Stock: When you think about investing, think about stock as the ONE basket you’re putting a bunch of eggs in. If you just invest in one stock, you’re putting your eggs in this one basket.
Bond: TBH, I don’t know. Haley, help.
Haley says: A bond is a fixed income investment where an investor loans money to either a corporation or a government for a set amount of time at a variable or fixed interest rate. Bonds are used to raise money to finance projects, maintain operations, or refinance existing debt. This is a great story for another blog post! (Ex: WeWork’s bond issuance last week, and why U.S. Treasury bonds matter).
Phew. Did you get all that?
Mutual fund: A mutual fund is a COLLECTION of stocks. Sometimes it’s a lot. Sometimes it’s only a few. This is a very broad term. Imagine a shit ton of Easter baskets in one room and you’re just distributing your eggs equally among them. So, if one Easter basket spontaneously combusts, it doesn’t take all your eggs with it. I’m into this metaphor. We’re keeping it.
The other thing to note about mutual funds is that some dude in a suit actively manages them for you based on what the market does. Think of it like a dude in your room of Easter baskets watching which baskets are doing well and doing poorly and then moving your eggs around accordingly. This is a service you pay for.
Expense ratio: This is the price that you have to pay to play the investing game. I’m pretty sure it’s a broker fee; the broker is the dude in your room of metaphoric Easter baskets moving all your shit around for you. Expense ratios are expressed as percentages of the total amount of money, so if you randomly get really super great at investing and make $10,000 in your account but the expense ratio is 1% (that’s high, by the way), you’re going to have to pay $100 just for playing the game. This is why you should always look for low expense ratios. For example, one of the funds we’ll look at later has an expense ratio of 0.04%.
Index fund: This is like a mutual fund, but nobody manages it. So it’s your room of Easter baskets and eggs with nobody in there moving shit around. Thomas told me that in 2007 Warren Buffett (massively, record-breakingly wealthy investor) made a $1,000,000 bet that an unmanaged index fund of the S&P 500 would outperform managed hedge funds after 10 years. Here’s what Fortune said:
“Buffett officially “won” the wager on Friday, but said throughout 2017 that he was confident that he would win. Over the course of the bet the S&P 500 index fund returned 7.1% compounded annually, significantly more than the basket of funds selected by an asset manager at Protégé Partners. That basket only returned an average of 2.2%.”
OK YOU GUYS, I didn’t even read this quote before I started writing this, and they’re talking about baskets too. I think it’s clear I’m a financial expert now.
I tell you this to say: you don’t need some Wall Street grandpa managing your money. Let the market do its thing.
ETF: This stands for exchange-traded fund. This is basically like an index fund (all your different, unmanaged Easter baskets), but it trades throughout the day like a regular stock instead of having its value calculated at the end of the day like mutual funds. This means you can obsessive-compulsively watch it go up and down throughout the day!!! YES!
So, who’s interested? Hopefully my dope Easter basket analogy made this clearer and didn’t confuse you further. All I know is, now I’m craving Cadbury Eggs.
Before we keep going, if you’re interested in continuously learning more, Haley sent me this great reference called “Better Have My Money.” It’s a hilarious and helpful investing newsletter from a Buzzfeed writer; it’s brand new. Here’s the Twitter if you want to check it out, and here’s her Tweet where she explains (in an eerily similar fashion) how she became interested:
In the newsletter, she answers super basic questions that most of us probably want to ask but feel too dumb to do so. Or maybe we don’t know who to ask. Or maybe we didn’t even realize we should be asking those questions at all.
Like I said, my desire to buy real estate mostly spawned from my desire to make smart financial decisions. Make my money work for me, you know? Renting was doing nothing for me, and I wasn’t working toward owning an asset, so I felt like it was the right thing to do.
Fundamentally, though, to jump straight to real estate without setting up a basic investment portfolio feels very short-sighted. So I started talking to Haley a lot, and she sent me her Excel spreadsheet (my heart soared) of her Vanguard holdings.
*brakes screeching, glass shattering*
I know, what the literal f*ck does that mean?
So for the uninitiated, Vanguard is an investment management company. To show you how new I am to this and how slippery my understanding still is, before I typed that sentence, this happened:
If you feel clueless, I assure you, most of us are in the same boat. That’s why there are so many bpeople in the U.S. who are still broke despite working hard.
Vanguard is a great choice for investing because their expense ratios (remember, this is the amount you have to pay to invest) are super low. Haley owns several shares of VOO, the bread & butter ETF, which is a fairly high-risk S&P 500 index fund.
(The S&P 500 represents the 500 largest companies in the United States.)
Another fun fact I’m going to throw in here because I love opportunities for gratuitous bragging: LUV, the Southwest stock, was the highest performing stock in the S&P 500 from the last five years.
Back to VOO—that’s the NYSE ticker symbol name. The real name is Vanguard 500 Index Fund. (If I were a publicly traded stock, my ticker symbol would be KG.)
Here’s a screen grab of what this fund has done in the past five years:
This means that five years ago, if you had bought one share for $147.64, today you’d have $244.92. If you had invested $1,476.40, you’d now have $2,449.20. You can see how the ‘more risk, more reward’ thing works here. You could’ve made $1,000 over five years doing literally nothing, and if you’re young like me, you can pretty much count on that number climbing over time.
This isn’t some Bitcoin fantasy juju where you’re going to make $18,000 overnight, but you’re not going to lose it either.
I’m still learning about the different index funds and where I want to allocate my investment money that I have to play with. I’m definitely not going to sit here and tell you what to do, because I barely know what to do myself. But VOO seemed like a pretty standard example that kept coming up in my reading, so I figured I’d mention it.
There are also some big stocks (your ‘one basket’ scenario) that represent a more ‘get rich quick’ situation. Tesla, for example, was at $54 five years ago and is now at $294. If you had invested that same $1,400 in TSLA alone, you’d now have $7,600.
(Then again, the TSLA stock is tanking right now—but Elon Bae says the analysts are pissing him off and asking too many dumb questions so I say we all leave him alone and let him focus on fixing the world.)
See why this seems so fun and appealing? You’re turning a little money into—potentially—a lot of money. But in order to have the foresight into which new companies with low stock prices are going to skyrocket, you’d have to pay pretty close attention and have pretty good vision. I don’t think that’s for me.
So play around with it. Do a little research. As I continue this investment journey, I’ll continue to record what I learn here. For a long time, I’d ask my friends who seemed well-versed in this stuff to essentially tell me what to do. I didn’t want to figure it out myself, I wanted someone to say, “Invest $500 here and $500 there and then do this!” and nobody would.
It took me a while to realize that there’s really no way to do that for another person (even if you’re a financial adviser, your advice is basically educated guessing)—especially when you don’t know their full situation, risk tolerance, and can’t predict the damn future. The basics can be learned, but the execution is more or less educated trial and error.
But before we wrap up this first foray, I want to talk a little bit about this app called Robinhood—because I’m a Millennial, dammit, and I want investing to be hip and sexy!!! (And using the Vanguard website kinda makes me feel like I’m 57.) This UI looks like it was designed by my boyfriend Elon Musk himself.
Robinhood is basically the tech startup approach to investing. It claims to “let you learn to invest in the stock market for free.” Yep, you heard ‘em. Free. It costs nothing. You literally make an account, add some money from your bank (it let me add $1,000 in a matter of seconds; nearly suspiciously quickly), and then it’s as easy as scrolling and searching through stocks and funds. Then you can just buy shares and watch your balance change.
Here’s a screengrab:
I have yet to actually invest anything in… well, anything, because I’m not entirely sure what overall strategy I want to take. I have a general idea, though, so stay tuned. And in the meantime, do yourself a favor and open a Robinhood account. Even if you don’t load any funds into it or don’t feel ready financially to start, it’ll be good to familiarize yourself.
I hope this was at least marginally helpful, and if not, at least now you have some dope resources at your disposal.
The young woman's money guide for all the things you're too embarrassed to ask your friends. Build the life you thought you were too broke to afford through managing your spending habits, travel hacking, and simple, smart investing.
Full-time Brand marketer at Southwest Airlines, part-time Yoga Sculpt teacher, occasional Waffle House Model and reformed materialist.
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