About 2 years ago I decided to write a book about investing but stopped due to several problems. I finished the book into a rough alpha but ultimately shelved the project. Today I happened to be reminded of it and I decided to release it on steemit. So without further ado, here is its first chapter.
Chapter1 -Just Another Boring Introduction
Welcome to A Millennial’s Investing: Micro-Savers and Robo-Advisors. Finding a good title for this book was surprisingly difficult because I needed to find a way to show what this book was about while also showing its limitations. This book is not going to be a how-to guide on investing, though by necessity some of the chapters will cover that, instead, this book actually stems from a gap that I saw in those books. The gap I am referring to is a certain blindness about new technology and programs with most of the books about investing or saving skipping this knowledge, instead of wedding themselves to traditional investing. These company’s & programs that this book will be covering have been mentioned by the likes of Money magazine, New York Times, CNN and their innovative programs are made by millennial’s for millennial’s and are designed to make it easy to save and invest.
A Millennial is someone who has become an adult or entered the workforce after the turn of the century and being a millennial actually makes it a lot harder to save and invest than someone who became an adult 20 or 30 years ago. The news for millennials is very depressing since 2003 the median household income has grown only 26% but medical costs have grown by 51%, rental costs grew by 31%, food prices have increased by 37% and the price of college has increased by 35%. It is no wonder that the average household now carries$130,000 in debt and that 76% of Americans are living paycheck to paycheck. The one glaring exception to this rising tide of bad news, housing prices haven't changed much from 2003 but it only took the greatest market crash since the Great Depression to do it.
This bad news doesn’t even cover all the new ways to spend money, things like cell phone bills, internet bills, video streaming service bills, etc. With all these ways to spend their hard-earned cash, no wonder 80% of millennials are not investing with 40% saying they don't have enough money and 36% saying they don’t know how. This is very bleak and disturbing picture, while it is not the only way, investing is one of the biggest keys to financial success. Archimedes once said, “Give me a lever long enough and a fulcrum on which to place it, and I shall move the world.” Saving and investing is your lever and fulcrum, something needed for your future.
Most people when they think about investing think of something like Leonardo DiCaprio in The Wolf of Wall Street or various other Hollywood movies that feature investing. That Hollywoodized vision has become ingrained in the American psyche and is only a half-truth at best, a half-truth called Trading.
There are two very different methods of attempting to profit in the financial markets, Investing and Trading. Investing is what this book will cover and the goal of investing is to gradually build wealth over an extended period of time through the buying and holding of stocks, mutual funds, bonds and other investment instruments. The goal is to take advantage compound interest, dividends, and stock splits over years or decades.
Trading involves frequent buying and selling of stock, commodities, currency pairs or other instruments, with the goal of generating returns that outperform traditional investing. While investors may be content with 10% annual return, traders would prefer a 10% or more return in a single month. Trader’s are usually defined by how long they hold the stock, a Day Trader, for example, will hold stocks for a day or two while Scalp Trader’s hold stocks for mere seconds to hours before selling. Trading is a very high risk, high reward, and it takes specialized knowledge and tools that won't be covered in this book.
If your company offers a retirement plan and you are using it, then you are investing. Yes, retirement plans offered by a company is a type of investment plan and if your company offers it you are going to want to take advantage. Not only does using a retirement plan lower your taxes but if your company offers a match it's basically handing free money to you. If your company offers to match's up to 5% then you are going to want to put a minimum of 5% of your paycheck to take advantage of it. Of course, it's a retirement plan, so that means that unless you want to get hammered with tax’s your going to have to leave it alone until your 59 ½ years old or so.
Now we come to the part that is covered in every single book about investing. Invariably, to begin investing you are going to have to build a foundation but I don’t plan on delving too deep into this because it is covered by many books. Building a foundation is the key to investing but for some people, this isn’t building a foundation and instead, it's more like a barrier that keeps them from investing.
The first foundation or barrier is changing the way you think about money. Yes, it's cliché but you need to start thinking about money and yourself in a different way, you need to start thinking about terms of Net Worth. Net Worth is simply the total value of everything you own – your home, car, valuables that could easily be resold, the balance of your checking, savings and investment accounts and then subtract the total sum of any and all debts you like mortgage, credit cards, students loans, etc. So if you have a home worth $100,000 and a car that is worth $10,000 but you owe $50,000 on the house still, your net worth would be $60,000.
It might seem like a simple thing, but it’s not. You may not have actually thought about it in this way but it's actually one of the biggest differences between the poor and the well off. Someone who is focused on money in their checking account, worrying about having enough to cover the bills and how much money is left is over for the month has a short-term perspective that doesn’t help with building for the future. They will still be worrying about the same things 20 years later. On the other hand, someone who is focusing on Net Worth is focusing on a long-term perspective and 20 years later they will own their own house, vehicles and will no longer need to worry about money. The more Net Worth you have, the more leverage you have to do what you want to do.
Another barrier to investing is having debt, especially credit card debt. Google it online, talk to your banker, close friends or a financial advisor and it will be the very first thing those financial gurus will tell you. Don’t get too stressed out about this, there is a reason why Micro-Savers is in the title.
Being aware of how hard it is to get out of debt, most people or books are likely to suggest getting a 2nd revenue stream, something like starting your own business or getting a second job. It's actually good advice but its a lot easier said than done. 8 out of every 10 businesses fail within the first 18 months and there is a potential for extra debt to be added on, though thankfully something like a well-run Kickstarter or GoFundMe can help ameliorate that problem. A 2nd job is possible but you're likely going to run into difficulties with relationships and friends since you are constantly working. Having a 2nd job is basically sacrificing the present for the future. Another route you could take is donating plasma for $200+ a month or participating in medical studies for money. Of course, this would be potentially sacrificing your health to make money. Either way, the path to financial freedom is fraught with difficulty and you must weigh the pro's and cons if you decide to try for a 2nd revenue stream.
Another brick in the foundation is to make sure that you have a clear goal when you begin to invest.
1st step, What is the goal? Why are you going to invest? What are you hoping to achieve?
2nd step, What is the plan? How exactly are you going to invest to achieve your goal? Does the investment choices make sense?
3rd Step, If you have a spouse make sure that it's something that you both agree on. It’s a very bad idea to begin investing without consulting them, you don’t want them coming to you with questions about missing some money.
The final brick to building your investing foundation is having a healthy understanding of investment options. You need to know the basics stocks, bonds, mutual funds, ETFs, index funds, precious metals and real estates. The good news is that with the programs this book is going to be talking about you can get started first and then slowly learn about what you need to know. I highly recommend reading a book like The Bogleheads Guide to Investing to obtain this knowledge.
By now you are urging this author to get off his lazy ass and start talking about those innovative programs that have lowered the barriers to investing. Collectively these programs are called Micro-Savers and Robo-Advisors. Micro-Savers are just what they sound like, programs designed to help you easily and painlessly save money for investing, get out of debt or to save for that important purchase. Micro-Savers do this in various ways, some by simply changing the way you see a checking account, others by combining savings and investing at the same time.
Robo-Advisors or automated investment platforms as they are sometimes called are investment programs designed to simplify, lower costs and make it easy to invest. They do this by removing the need for a human financial investment advisor to be involved, no advisors mean low fees and it makes Robo-Advisors the perfect tool for the beginning investor. When you first begin using a Robo-Advisor you will be asked a series of questions that are designed to tell it how much risk in the market you are willing to tolerate. Once those questions are answered it will develop a portfolio of stocks to buy based on your risk assessment, don’t worry though they do allow you to change it if you so desire. Please remember that the higher the risk, the higher the potential profit to be made but that high risk could mean losing money so choose wisely.
Some people may be scared to trust a computer with their money but don’t be, this is investing not trading. Remember that investing takes a long-term view and follows the market, something that a Robo-Advisor is perfectly capable of doing. If you're still hesitant about this idea, you may not be aware that when Wall Street talks about Algorithmic trading they are actually talking about trading done by computers and Algorithmic trading now comprises over 80% of allmarket transactions.