Everyday Finance and Economics with the Siglers

EP 05: Investing? What? Part 3

May 06, 2021 Glenn and Christina Sigler Episode 5
Everyday Finance and Economics with the Siglers
EP 05: Investing? What? Part 3
Show Notes Transcript Chapter Markers

Hello! and welcome to Everyday Finance and Economics with the Siglers! The podcast where we discuss what you need to know about personal finance and economics and give you practical advice on how to get started and be smart with your money.


This episode is the final part to our introductory investing series. We're covering good places to start investing and things you should look out for when investing in this episode as well as debunking the myths that investing is an exclusive financial tool. We also have some specific listener questions to answer. Even though our investing series is over, you can still ask us questions! And be sure to join us next time for a discussion about credit.



Come engage with us!

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Email: efespodcast@gmail.com

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Intro music: 

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Speaker 1:

Hello, and welcome to everyday finance and economics with the Sigler's the podcast where we discuss what you need to know about personal finance and economics, and give you practical advice on how to get started and be smart with your money where your host Glen and Christina.

Speaker 2:

So Christina, what's going on in the economy this week,

Speaker 1:

What matters this week is GDP numbers. The gross domestic product for the United States during quarter one of 2021 was released this past week and it increased by 6.4%, which is the largest increase the country has had since the third quarter of 2003. So that's, that's a big number for us. Uh, this number is a reflection of increased faith in the economy. As more people get vaccinated and ready to open up for the summertime, and many economists are optimistic about how well the economic recovery is going based on this number. Our economic term of the week is GDP, which stands for gross domestic product. As I mentioned before, we talked about it briefly a couple episodes ago as an indicator of economic growth, which it is, but let me tell you where that number comes from. The formula that I learned, um, in my intro to economics class and most economics students will tell you is C plus I plus G plus N X, which stands for consumer spending plus investments. Plus government spending plus net exports and net exports is calculated by doing the total amount of exports. A country has minus the total number of imports. A country has. So everything that a country sends out minus everything that a country brings in from other countries, um, and that's for the whole country. All those numbers are for the whole country. The GDP number for this quarter was mainly driven by increased consumer and government spending. And with that, let's round out our series on investing. What are some good places to start investing? If I'm a beginner? I know nothing about it. Just starting out, no prior knowledge.

Speaker 2:

So places there, if you're beginning, if you're working, does your company have a 401k start with that? And when a reason say, I say, start with that is if they have an, a company match and you put your money and they match your money with some of their money, well guess what, that's free money. And so that's an, that's almost an instant return for the money that you've put in. Uh, other other options are, you know, robo-advisors, you know, you can, you can get to those through, um, through investment companies or even some of the, uh, apps that will, you know, you put your money in and they will put the money in various investments based on some questions to you, uh, target date mutual funds. This, this is an older product and says, okay, how old are you? When do you think you want to retire? All right, based on how, how old you are. Um, this is what recommend, and they're going to change the mix of those investments based on your age. So you don't have to do anything. They, they changed the mix of, uh, bond stocks, whatever, whatever else they've got in there through time. So that as you, as you get older and your risk profile changes, then uh, then it adjust accordingly. That's convenient. That's why, yes, it is, uh, index funds. So this is another way to invest on autopilot. So instead of picking one company or a few companies, uh, stocks that you like, you're going to buy an index. And the reason people like buying index is that historically indexes have, have shown to you, maybe not be the best investment, but they're going to be 80% of all of all the other investments in that space. So an index mutual fund can, or can be 70, 80% of actively managed funds. And what do I mean by that? So in, in other mutual funds, in, in traditional mutual funds, you have an, a management team that says, Hey, we know better. We're going to pick the stocks that you should invest in. Well, there are some folks that showed over time that just buying the index and what I mean by an index, the S and P 500 index, the Dal, which is really an index, the NASDAQ 100 index just by all of them. You, you, you, you know, in buying that index fund, you get everything in that index. The S and P 500 index is beat, you know, 80% of them, 80% of the managers that are investing in S and P um, um, companies, so shows that they know and right. And so when they typically do it at a lower cost, yeah, that makes sense. Okay. And we've, we've talked about exchange traded funds before very similar to mutual funds or index. Then you can have an ETF, uh, index fund as well. Um, and again, that can trade throughout the day. That's the bigger, the biggest difference there. And then the investment apps, um, there are several for beginners, acorns, betterment, um, um,

Speaker 1:

They're all over now. Robin Robinhood is out there, but also there's like, there's stuff on like cash app that you can invest on. And most people, but everybody, my age, I think has cash up. If you don't Ray-Ban.

Speaker 2:

Yeah. I, I, I tend to like, um, acorn a little bit, You know, and look now I'm not, I'm not on a corn top, I'm going through more traditional investment firms.

Speaker 1:

Uh, but there's also like Charles swab, right?

Speaker 2:

Vanguard, fidelity, and hundreds more,

Speaker 1:

So many. Yeah. Literally all of them go on Google for one time. You'll have like a hundred pages. Yes. All right. What, what are some things that I should consider a lookout for when I'm investing?

Speaker 2:

All right. So I'm going to run through this timeline. What's the timeline for this investment? What, when will you need that money? Are, is this an investment for, or are you putting this money away for something that you need in the next three to six months, the next three to six years or 10 years plus, because where you put your money will change based on when you think you're going to need that. If you, if you need money in three to six months, put, put that in a savings account or something that's really more, that's really easy to get really easy to access with no risk, right? If you're looking at three to six years, then you might, you, you know, you, you know, you can do it either way. You could put some money in, in, in an investment vehicle. You could, uh, put some money in, uh, in a savings vehicle or, uh, or higher interest bearing, uh, uh, vehicle. If the, if the horizons 10 years out or more, that's a different story. Um, and, uh, you know, then you've got, uh, there are other things that will come into play and we'll get to those later. The next one is, what's your risk tolerance? Can you, can you accept higher risk? One of the axioms and investing is there is a relationship between risk and reward. And in most cases, um, the higher, the risk, the higher the reward, the potential reward. Yes. Now that's not always true. And so, you know, uh, good investors are always looking for, can I get nearly all of the reward with half the risk? That's what you're looking for, but that, that takes homework and, and some understanding, but in general, you got to understand what, what your tolerance for risk is, you know, can you, can you handle, uh, swings up and down, uh, year to year, day to day, right? And the value of that asset, how much money do you have? There's going to be certain investments that you can't start unless you have a certain amount of money. And so that, that, that will rule out some things for you. But the one thing I can say, uh, over the years, those minimum investment values have come down quite a bit

Speaker 1:

Because investing has become a lot more, there's

Speaker 2:

Been more democratization of investment, um, now to get access to, you know, advisors, you know, and things of that nature that you might need to have a little bit more money. Right. But, you know, we're talking about things for big, for beginners, how much help do you need? That's a good question, too. Right. So, uh, is this something that, you know, is this an, is, are you looking at investments that require a lot of knowledge or something that you can pick up on your own? And, uh, and so if you need a lot more help, then, uh, you're going to need to go to somebody that specializes in, or just start small, or, or just start small.

Speaker 1:

If you need a lot of help, you might, you're not starting with ETFs or options, you know?

Speaker 2:

Well, I, I, I'm just going to say, no, I don't think any, anybody that's listening to this should not start out with options. That that is not a, um, that's not a beginners tool. Um, and then I'm going to come back to, to this. Do you fundamentally understand the investment? There are many complex investments around, and you may not be prepared for the full set of risks of the, those investments. But if you can understand the, the investment, the, the business model or how they make money, that gives you a better idea of whether you, uh, how, um, whether you can invest, whether you should invest in that.

Speaker 1:

Yeah. And what even you would be doing if you did invest. Right. So what I'm hearing is do your research. If it, if it's something that you can't understand, don't do it because that's, that's a bad idea to put your money into something you don't understand. Right.

Speaker 2:

Oh, and one more item, how much does it cost for the investment? Are there transaction fees and things of that nature? And, and, and so you'll want to understand that as well. Okay.

Speaker 1:

Okay. Is there a minimum amount that I could invest

Speaker 2:

With new tools and apps? You can probably start with like five,$10 out there. Online brokers investing apps can, uh, can charge service and maintenance fees. You got to understand that, um, and the investment choices can, can, um, very, uh, some allow you to invest a pre in, into predetermined portfolios of exchange, rate of funds while others offer individual stocks. Um, and remember each individual, uh, investment can carry fees. And one of the new things out there now is fractional share investment where you can, yes. I share a Tesla costs three grand. Well, you, if I got$50, I can still have a fractional share of Tesla.

Speaker 1:

Yeah. That's what Robin hood cash up ACOR. And that's what they do. They do. Fractionals there's cause there's some stocks that like Apple Berkshire Hathaway that I'm never going to be well, not never, but I cannot afford right now, but exactly. I don't have$10,000. Even if I did have$10,000, I'm not putting no. So I will, I would put 50,000 or not 50,000,$50, or like$20. Um, and to a fractional share that still aren't your money, but you don't own like a full share of it. That's what fractional stocks. Right. And that's something that you can do. Like we talked about in our budgeting episode, you just put aside 10, 20,$30 a month and just put it into like a fractional stare of a stock. Anyway, that's, that's my investing advice. All right. Why should I invest if I don't have a lot of money,

Speaker 2:

Even when you don't have a lot of money, you want to establish investment behavior. And the earlier start, the better you will be through the power of compounding the 35 45, 55 year old, you will be thankful that the 20, 25, 30 year old, you put away 10, 20, 50 bucks on a regular periodic basis into something, that'll be something that generates more money. So somebody that starts with$50 a month at age 25 will, will have more money than someone who can start 10 or 20 years later. They can invest more. These are facts.

Speaker 1:

All right. Is it a good idea to invest? If I still have debt,

Speaker 2:

This can get a little complicated in general financial planners, ask for folks to pay down their debt as quickly as you can, before you start investing, right. Uh, you know, when you delay paying debt, you can actually end up costing yourself more money because of interest charges. However, there are situations where it may actually may be beneficial to start investing while you're still paying down debt. You know, I'm sure people that, you know, um, had debt and invested in, uh, Bitcoin are, are happy, right? They're really happy right now. Or people that had Tesla are happy right now. Uh, but those things don't come along every day. And for, for most of us, um, again, following the standard rule standard, not they're not rules, the,

Speaker 1:

The, the standard measures

Speaker 2:

Are probably good ideas, but here's one where I think it really absolutely pays off to invest while you're paying down debt. And that's, you know, if you see you're working at a company and it has a 401k match yep. Again, at least the vest T get max out the match. You know, that, that, that might not be a lot that might be, you know, just a couple of percent, you know, 50, a hundred bucks, you'll get, you know, another 5,000 bucks from the employer, from, from the employer. And then go ahead and, you know, put the rest toward paying down your debt. Okay.

Speaker 1:

Now we have some more specific questions, uh, from, from listeners. If I am in my early thirties and my only debt is a car payment, I have a 401k, should I make other investments? Someone told me about something called a Roth IRA. Should I consider this? What else should I consider?

Speaker 2:

So, yeah, there's a lot here. I'm going to assume that you already have an emergency fund of some time, some kind to protect you from life events, life events. They look tires, people get flat tires, people get sick, people get sick, uh, stuff in your house breaks. You gotta have some money to help you get through those things. After that, now we can start talking about what else we want to do. Could you put more money in your 401k? Yes, she could. But a Roth IRA is a great tool for young investors. Especially if your tax rates are low.

Speaker 1:

Yeah. Cause that's the one where you put it in and

Speaker 2:

You put it in after you paid the tax and then you it'll grow tax-free for you. Okay. So now as your income rises, maybe the standard 401k becomes more important to you, but you know, for right now, no go, that's an that's an option. Okay.

Speaker 1:

And what other, what other things should they look up

Speaker 2:

ADA after that? There's the whole range of other things that we've talked about, right? Investment apps, mutual funds, index funds, equities, um, and the recommendation would depend on short-term goals, long-term goals, risk tolerance, and how much cash, how much money we're talking about for your investment as well. So that's where it starts to get complicated.

Speaker 1:

All right. What if after I pay all of my bills, I only have$50 left at the end of the month. Should I put it in savings? Should I try to invest a portion of it? What should I do?

Speaker 2:

All right. I'm going to go back to some of the answers I had for the last question, right? First step, build yourself an emergency fund emergency fund. Yeah. Use that 50,$50 a month to create a cushion for life's emergencies. And again, financial planners typically call for three to six months of expenses saved up like basic expenses, basic expense. Now I don't go to, to that length, you know, Hey, once you get to, to two months of savings, now you can start splitting up that$50 into, Hey, I need to continue putting some money away from, uh, for emergencies. So I get to the number that I really need, but I've got a little bit saved up for mercy. Now, let me start putting that the rest of that$50 into an investment pool. Okay. Now you can continue funding both until you've reached your savings goal and then, um, put everything else into your investment. Um, and then you can choose any of the investments that we've talked about before. If you're starting at 50, then some of the apps may be really helpful for you, but again, start early. Um, and, and the, and the more you get into this behavior, the better off you will be. You will start getting to, into behaviors that will help you build wealth and help you with your financial security going forward. All right. That's it for our show. Thank you so much for listening and be sure to join us again next time when we discuss credit.

Speaker 1:

Yes. And if you have any questions for us, you can email us@efespodcastatgmail.com and follow our Instagram at E F E S podcast. Thank you so much for listening. Take care, everyone.

Introduction
Economic News
Economic Term of the Episode
What are some good places to start investing if I'm a beginner?
What are some things I should consider/look out for when investing?
Is there a minimum amount that I can invest?
Why should I invest if I don't have a lot of money?
Is it a good idea to invest if I still have debt?
If I am in my early 30s and my only debt is a car payment, I have a 401 k should I make other investments. Someone told me about something called a Roth IRA. Should I consider that? What else should I consider?
What if after I pay all of my bills I only have $50 left at the end of the month? Should I put it in savings? Should I try to invest a portion of it? What should I do?
Outro and contact information