Here’s why you should care about investing: because stashing your money under a mattress is ridiculous. Not only because it doesn’t make you money, but because you actually lose money. Yes, you lose money. No, I’m not surmising that a robber will come and steal your cash—but a little thing called “inflation” will.
Even if you are more sophisticated than my family was and save money in a bank account with a little, measly bit of interest, you’re still losing money in the long run. “Hey, it’s better than nothing,” you might be thinking. Well, yes, if you don’t care about making money. But, it’s like saying walking on the treadmill for 5 minutes is better than not working out at all. That’s true if you don’t want to lose weight. If you do, sorry, you have to do more. The same goes for investing.
Inflation is the reason that movie tickets are $10 now and were $5 twenty years ago. If you found $5 you put under your mattress twenty years ago, you wouldn’t be able to buy that ticket today. And, inflation is here to stay: assume 3% over the next 10 years. So, if you are making 1% interest in your savings account, you will actually have 2% less “purchasing power” – so you will have lost money in inflation-adjusted terms.
Investing in the market over a long period of time will make you about 7%. So, adjusted for inflation, you are making your money grow. Yes, it can be a rollercoaster ride if you watch it every day, but that’s why I say you will likely make money “over time,” i.e. not freaking out during the dips along the way.
Capital One Investing’s 2016 Financial Freedom Survey recently found that 56 percent of female investors say that a lack of investing knowledge or experience is holding them back, and 44 percent say that the financial jargon makes them feel less confident about investing. Well, now is the time to change that.
Feel like you know nothing about stocks? I bet you actually do! Investing isn’t all about complicated numbers, it’s about you and me as consumers. Consumers drive sales and thus profits and thus stocks. So, before you need to open a single balance sheet just go shopping. Pay attention to which stores are busiest, the amount and array of inventory on the shelves, the types of discounts being offered, the customer service experience. Trust yourself. Invest in companies you like and believe in. If you have a good experience as a consumer, others will, too, and that particular company’s stock will feel the love.
This sounds way more easy than you thought, right? That’s because it is! But, before you hit the mall for some “research,” answer these questions:
- Do you have an emergency fund of 3-6 months of living expenses in the bank; more if you have a precarious job like a freelance writer or real estate broker?
- Are all of your credit cards are paid off, in full?
- Are you working off any other debt (student debt, car loans, a mortgage) on time and don’t anticipate struggling?
- Do you have a retirement system in place and on track to maxing out your contributions?
- Do you have money saved to start investing (typically the minimum is $500-$2,500)?
If you can answer “yes” to all five of the above, then congrats! — you’re ready to join the investors’ club.
But, wait—is your significant other ready for the investment club, too? Investing in your future is something you definitely need to talk to your spouse about, and soon. After all, arguments about finances are one of the leading causes of divorce in this country, not to mention the day-to-day stress of being in the dark about your other half’s money situation. And this problem is getting worse: the same Capital One Investing survey found that, compared to 2014, fewer non-retired Americans are discussing retirement planning with their spouse or significant other (down 8 percentage points in 2016). So if you have a special someone in your life, have The Talk now.
Once you’ve had The Talk (or if you’re flying solo, once you’ve answered “yes” to the questions above) there are different options for getting into the game. The first is going to a discount brokerage, like E*Trade, TD Ameritrade, or Fidelity. These are typically do-it-yourself operations (although some have offices in large cities where you can sit down, talk to a representative, and get help opening the account). They cost around $4-5 per trade. I also like Capital One Investing’s PortfolioBuilder for getting started. It’s an asset allocation tool that lets you create diversified portfolios of 6-8 ETFs (that’s financial lingo for “exchange traded funds”) for just $18.95 (with a $200 account minimum). It’s a good way for investors seeking a low-cost, self-directed approach to investing to get in the door.
You can also head to a full service brokerage, like Morgan Stanley, Merrill Lynch, or Wells Fargo Advisors, where an actual professional manages your account. This option is more expensive, so you hope your advisor will add enough value to make up for the extra cost, and, thus not eat into your profits—but this is not guaranteed. You’re looking at more like $150 per trade here.
And remember, just because you choose to work with an advisor doesn’t mean you can’t also use digital investing tools. Some companies, like Capital One Investing, offer access to both and this combination of DIY money management and professional advice may help you feel most comfortable and confident.
Now, pick up the phone and get to it. Yes, you can call from your cell phone on the way to the mall.