The Clueless Millennial

The Millennial Midyear Check-In

We’re halfway through 2019 which gives us a good opportunity to take a look at our financial checklist for the year and see how we’re doing. Okay, we’re a little more than halfway through 2019. That’s my bad, I’ve been a little busy.

The important point is that a once a year check-in of your finances is not enough. A lot can happen over a 12-month period and it’s not enough to just take a look every December to see what’s been going on with your money.

The summer, when we’re more relaxed, on vacation, and not in school, offers a perfect opportunity to analyze our finances.

Note that there’s a difference between taking a look at your finances and taking a look at your budget. Your finances encompass all of your accounts: your retirement accounts, investment accounts, budget, credit cards and credit scores, flexible spending accounts, etc. For example, you don’t need to check on your credit score every week, or even every month. You should, however, take a look at your budget every month, how much money is flowing in and flowing out. How much you spent vs. how much you took in.

Now, with that out of the way, let’s talk about what a mid-year financial checklist should actually look like.

1) GOAAAAAAAAAAALs

At the beginning of the year, you hopefully took a look at your finances and your accounts and said to yourself, this is what I want to happen with my accounts by the end of the year, like:

Increase my net worth by 10%
Up my 401(k) contribution amount to 15%
Pay off all of my credit card debt
Save up enough money to pay for my three-week vacation to Hawaii

Or something like that. The half-way point of the year is a great time to see if you’re half-way to your goals for the year. Maybe you’ve only paid off 30% of your credit card debt. This could be a good reminder to increase the amount you pay off your credit card every month. Or maybe you’re still just paying the minimum due on your balance. Knowing that your goal is 15%, this is a good point to remind yourself to keep going towards your goal.

2) Da budget

Wait, you just said your budget is something you should like at at the end of every month, now you’re telling me to look at it in the middle of the year as well?

Yes, but in a different way.

At the end of every month, sit down and look at how much money you took in in that month and how much money you spent and then move on with your life.

On the other hand, the half-way point of the year is when you should take a look at your spending habits over the last six months. Maybe you consistently spend more on eating out than you’ve budgeted for, but less on entertainment. Consider transferring some money in your budget from one bucket to the other. Or maybe you’re underspending on groceries and don’t need to allocate that much money every month to your grocery bill.

Analyze your budget and spending over the last six months and move money around in your budget accordingly.

3) Retire away!

The half-way point of the year is also a great time to take a look at your retirement accounts and see how you’re doing.

Your account should be automatically rebalancing your investments for you. That means that if you’re distributing 40% of your contributions into a large-cap (big company) stocks, your 401(k) account should be roughly 40% that fund. If it’s not, it could be time to rebalance your account.

And if you have leftover money in your budget every month, the half-way point of the year is a good time to increase your contribution amounts.

4) Quick check of your other investments

Check in on your non-retirement investment accounts as well and see how they’re doing. Look at your balance of stocks, bonds, and other investments like gold and real estate and make sure you’re where you want to be . If your balance is out of whack, then this is a good point in the year to move money around between different asset classes.

Even within a specific asset class, like stocks, your portfolio could be out of balance as well. Maybe one of your stocks has done really well in the first half of this year and now represents 25% of your portfolio. That’s probably too much for one specific stock, so it might be time to sell some of that stock and move the money into something else.

5) Make a plan, Stan

Now that you’ve reviewed your goals, your investments, and your budget, the mid-point of the year is a great time to analyze the plan you made at the end of last year and make any changes if necessary. It could be that you’re right on track and don’t need to make any changes, but more likely you’ll need to tweak a few things here or there. Feel good knowing where you are and make a plan to finish the second half of the year strong.

It’s worth it

Goals, investments, retirement, budget, and plan. Those are the five things you should take a look at in your mid-year checkup of your finances. Doing this in the middle of the year, and not waiting until the end of every year is worth it as you’ll put yourself in a better position for financial success in life.

GameStop and the Rise of the Retail Trader

If you’ve been following the news over the last few weeks, you’ve likely heard about the meteoric rise in stocks like GameStop and AMC. The price of GameStop Corp. is up a whopping 7,905% in the last six months, meaning an investment of $1,000 at the end of last summer would be worth $79,050 today. The price of AMC Entertainment Holdings, Inc, is up a more modest 219% in the last six months, but 525% since the beginning of the year.

GameStop sells video games in malls and AMC is a movie theatre chain, but both businesses have tanked during COVID and in the last few years. Why go to the mall to buy a video game when you can just buy it online and have it shipped to your door? Why pay $20 for a movie ticket and popcorn when you can just watch a movie on Netflix? Malls have been largely deserted during the pandemic, and movie theaters aren’t allowed to open in most places. These two businesses suck, to be frank.

Wall Street knows these are terrible businesses to be in right now.

Thus, hedge funds, institutional investors, and other professional investors have been shorting the stock for quite awhile. That means they have been betting against these stocks, hoping their prices go down. To short a stock, an investor borrows a stock, sells it to another investor, and then waits for the price to go down. When the price falls (hopefully), the investor then buys back the stock and pockets the difference in price. This Motley Fool article gives a pretty good example: Let’s say that you decide that Company XYZ, which trades for $100 per share, is overpriced. So, you decide to short the stock by borrowing 10 shares from your brokerage and selling them for a total of $1,000. If the stock proceeds to go down to $90, you can buy those shares back for $900, return them to your broker, and keep the $100 profit.

That’s where this story gets interesting. Retail traders (think you and me) know that Wall Street is shorting these stocks. Whether through nostalgia (I used to buy video games at GameStop as a kid), genuine belief in the value of these companies, or a desire to stick-it-to-the-man (Wall Street), retail traders have been buying these stocks over the last few months. This discussion has been initially through a Reddit forum called wallstreetbets, but has since spread through the virtual watercolor. Commission-free trading apps like Robinhood and Webull have facilitated the easy (and most importantly, free) trading of these stocks. Would you buy a $14 share of GameStop if you had to pay a $9.99 commission charge? Probably not, so that last part is key to why so many retails traders have been frequently buying and selling these stocks.

https://www.tmz.com/2021/01/28/robinhood-gamestop-traders-blocked-amc-hedge-fund-battle/

As retail investors have been buying these stocks, the price rose. As the prices rose, Wall Street investors who had been shorting the stocks have had to cover their shares (buy them back) at a higher price. The higher the stock price goes, the more short sellers are forced to cut their losses by buying back the shares they sold. This frantic buying leads to an even higher share price, squeezing more shorts out of their positions. This is known as a short squeeze and is the main reason for the spectacular rise in these stock prices and leading to their extreme volatility.

It has certainly been fun to watch and talk about these stocks over the last few weeks, but savvy investors should stay very clear. The key word being “investors.” Buying a stock and hoping the price goes up in a short amount of time is not investing, it’s gambling, akin to picking a horse at the racetrack or betting on a team to win the Super Bowl. Investors buy and hold (good) companies over a long period of time and stay clear of stocks like GameStop and AMC. To say where the prices of these stocks will go next is anybody’s guess.

-Zack

The War on Cash and the Rise of Electronic Payments

When was the last time you used cash? Think about it for a second. Yesterday? Last week? A few months ago? Can’t even remember? Honestly, me neither. It’s been awhile. When I go grocery shopping, I use a credit card. When I go out to eat or order take out, I use a credit card. I pay rent from a direct withdrawal from my bank account. Even the places I used to always use cash (farmers market and getting my haircut), I now only pay with my credit card. I might have to use cash at a street vendor in New York City or a food vendor pacing the stands at a baseball game, but (ignoring the fact that I haven’t been to New York City / my office since March), these are vary rare occurrences.

And I don’t seem to be alone. According to a survey by Pew Research Center, about 3 in 10 Americans said they make no purchases with cash in a typical week, up from a quarter in 2015 and the share who said that all or nearly all of their purchases are made using cash fell to 18% from 24% in 2015. Overall, about one-third , or 34 percent, of adults under the age of 50 make no purchases in a typical week using cash … Pew found. It’s not just young people who don’t use cash anymore either. I asked my 91-year-old grandma the other day if she uses cash to pay for anything, she said: “no, not really.” While age can be a factor in whether you use cash or not, wealth also plays a role. Adults with an annual household income of over $75,000 were more than twice as likely as those making less than $30,000 to say they do not make any purchases using cash in a typical week. On the flip side, lower-income adults were about four times as likely as higher-income adults to say they make all or almost all of their purchases with cash.

There are a lot of reasons millennials don’t use cash that often. First of all, paper currency, especially in Covid, is gross. Why would we want to touch something that a hundred other people have touched? Cash is also bulky to carry around and it makes our wallets unecessarily thick. It doesn’t earn any interest or appreciate in value. Most importantly, all of our daily purchases can be done electronically, so there’s no need to pay with cash anymore. As this article from Politico put it, “what once seemed like the oldest, most reliable way of paying now seems fraught: A physical object changing hands, bringing people closer than 6 feet, covered in who knows what.”

This is not to mention, of course, that a lot of our shopping has shifted online anyways. Why bother going all the way to the store when you can just buy what you need from Amazon or Chewy and get it shipped straight to your door. Why bother going all the way to a restaurant when via Grubhub or Seamless or UberEats you can have a driver bring it to you while still in your pajamas. Daily transactions that we used to use cash for can now be done entirely via credit card. Even if we used to tip our delivery drives with cash, we can just add the tip when we pay online with our credit card. And this trend is likely to continue. E-commerce is growing 5x as fast as face-to-face transactions.

Instead of using cash or a physical credit card, we might use a digital wallet instead. Think Apple Pay or Google Pay. You can hook up credit cards to your iPhone, Apple Watch, Android Phone, or Fitbit and through Bluetooth technology, pay using your device. There’s no need to take out your credit card and run it through a credit card reader. Why touch a credit card reader when you can just whip out your device and scan it over a reader? This trend is catching on amongst millennials. More than 1 in 10 millennials use their digital wallet for every purchase, according to a separate report by Experian, especially on food, rent and Uber rides.

Not so fast. Cash is still the most popular form of payment in the world and will be for the foreseeable future. And cash usage around the world, as a percentage of GDP, has actually held steady recently, despite the increasing usage of digital payment methods. Among cash’s strengths is that it’s universally accepted and difficult to track. It can be a great way to budget (the envelope method) because you have a higher physiological effect when you pay with cash v. just swiping your credit card. Though declining, cash is still integral for many while tipping. Cash still remains the most frequent method of payment in the country overall, representing roughly 31 percent of all consumer transactions. As many cities pass legislation banning merchants from only accepting credit cards, it’s likely that cash won’t disappear for a long time. As Fortune outlines, going cashless excludes the millions of unbanked and underbanked people in America, most of whom are people of color.

So where do we go from here? What happens next? Likely, it’ll get easier and easier to use non-cash forms of payment, and that, for most people, will likely become the default (if it isn’t already) mode of payment, while some Americans still use cash for all or most of their daily transactions.

Until next time,

-Zack

Sources:
– https://www.fool.com/investing/what-investors-need-know-about-war-on-cash.aspx
– https://www.cnbc.com/2019/01/15/more-americans-say-they-dont-carry-cash.html – https://fortune.com/2020/06/25/cashless-society-coronavirus-cash-america-fintech-unbanked-privacy/
– https://www.politico.com/news/magazine/2020/04/17/coronavirus-cash-economy-cashless-paper-money-business-190405

Target Date Retirement Funds

Example of a target date retirement fund

What is a target date fund?

A target date fund (TDF) is a mutual fund made up of other mutual funds (otherwise known as a “fund of funds”) that adjusts its investments over time from an aggressive to a conservative investment strategy as you get closer to retirement. The year listed in the name of the fund corresponds to the date you plan to retire.

Example of a target date fund

The picture above is an example from my retirement fund, the “flexPATH Index + Moderate 2055 Fund”. You would buy this specific fund if you planned to retire in 2055, 35 years from now. My 401(k) plan also offers this 2055 fund in “Aggressive” and “Conservative” modes, which either make this fund a little more aggressive or a little more conservative.

This fund is made up of 47% U.S. stocks, 42% non-U.S. stocks, 1% bonds, 1% cash, and 9% other (think real estate, commodities, etc.). That’s pretty aggressive, meaning this portfolio is better suited for younger investors not anywhere close to retirement. 42% in non-U.S. stocks is interesting as that’s significant international exposure. The 2025 fund, for example, is 45% invested in bonds, so much more conservative.

The thinking is that you can take more risk while at a younger age, but as you get closer to retirement, you want to make your investments more conservative. If you’re 25 years old and the stock market shrinks by 25%, you have, let’s say, 40 years in the workforce to make up that difference. You don’t have to worry about making your investments more conservative the closer you get to retirement, the fund does that for you.

Buried at the bottom of the disclosure document is the most important part…the fees. This fund isn’t terrible, but it’s not great. either. Its net fees are .359%, meaning for every $1,000 you invest in the fund, you will be charged $3.59 a year. On the other hand, the main mutual fund I invest in for my 401(k) plan has net fees of 0.03%, meaning for every $1,000 I invest, I get charged $0.30 each year. That’s a $3.29 difference in fees each year (per $1,000), which can really add up over a 40-year career.

https://vanguardinstitutionalblog.com/2019/05/28/tdf-adoption-sparks-evolution-in-portfolios-of-young-investors/

What are the pros?

These funds are truly a “set it and forget it” type of investment. You can put 100% of your contributions into one fund and forget about it as the the fund adjusts its investments automatically for you. This requires minimal effort on your part. So if you know that you need to save for retirement, but don’t really want to think about it, TDFs are the perfect option for you.

You also don’t have to pick from sometimes hundreds of options in your 401(k) plan to create the perfect diversified portfolio. This one fund will do that for you. All you have to know is your expected retirement date, pick the fund with the corresponding year, and voila, you’re done. Pretty easy.

What are the cons?

The fund you pick might not be the right asset allocation for you. The example from above is 47% U.S. stocks, 42% non-U.S. stocks, 1% bonds, 1% cash, and 9% other (think real estate, commodities, etc.). That’s a pretty decent place to start for somebody expecting to retire in 2055, but not exactly what I would go with. For starters, at the moment, I don’t want anything invested in bonds. I have so much time ahead of me that any money invested in bonds will significantly lag the stock market over the next 40 years. If I’m five years away from retirement, that’s a different story (bonds could outpace stocks over a five year period), but certainly not over 40 years. The 1% in cash is fine, and the 9% “other” category is fine, but the 42% in non-U.S. stocks is my biggest problem with this model portfolio. While international exposure is an essential part of a diversified portfolio, for me, 42% is way too high. Maybe 15% – 20%, max 30%, but certainly not 42%. Again, if you don’t want to think about the nitty gritty details of your retirement plan, that is absolutely fine, but once you do, you might not like what you see.

What can be a “pro” for some people can also be a “con” for others. The one-size fits all approach is a con for me. I picked a 2055 target date retirement fund as an example, but I’m just guessing that I’m going to retire in 2055. I might retire in 2050, I might retire in 2060, I might never retire, who knows. This fund can’t assume anything about my specific situation, because it doesn’t know anything about me, except that I expect to retire in 2055. It doesn’t know that I also have a Roth IRA, it doesn’t know how much money I have in my savings account, or otherwise in the stock market, or otherwise in other investments. Saving for retirement should be about individualized solutions, of which a target date retirement fund is not one.

Bottom Line

If you want a set it and forget it type of investment for your retirement plan, don’t enjoy thinking about your finances, but know that you need to save for retirement, then a TDF is a perfect option for you.

If you enjoy thinking about your retirement investments and want an individualized solution, then a TDF is not a good option for you.

Ultimately, it’s great for lots of people, but you can probably do better.

Resources / Sources

-Zack

Millennial Financial Management During Covid-19

The coronavirus is ultimately about our health, but as the economy has ground to a halt and millions of our fellow Americans have lost their jobs, our finances are intertwined with the current crises.

When personal finance gurus warn about making sure you have an “emergency fund” of six months of living expenses, they probably didn’t have a crisis of this caliber in mind. But, if you can, this is a really good time to make sure you have an emergency fund of at least a few months of living expenses stocked away, just in case you lose your job or get furloughed. Preferably this emergency fund is in a high-yield savings account, like Discover or Ally, not in your regular checking account, and definitely not invested in the stock market. Remember, money that you’ll need in the next few months or years shouldn’t be invested in the stock market. Short term “investing” in the stock market is really just gambling.

And maybe let’s not pay attention to the stock market right now. Up 7% one day, down 5% the next day, down another 6% the next day, it’s just been ridiculous. Remember, the past few days, weeks, and even months are just tiny blips on the calendar of our long term time horizon. We’re in this for the long hall.

Remember, we’re dollar cost averaging (buying a little bit in regular intervals). We have a long term time horizon. Stocks fall harder than they rise, but stocks go up more than they go down. We certainly shouldn’t panic sell our investments (I’ve definitely done that before) and again, we have a long term time horizon (we don’t need the money for many, many, years).

I have no idea where the “bottom” will be, you have no idea where the “bottom” will be, so there’s no use in guessing. Nobody knew that March 2009 was going to be the bottom of the Great Recession. At that point, the market was still all doom and gloom. The Great Recession was pretty scary too, but we came out of that better, just like we will this time. We might as well take this for what it is, a chance to load up on the usual stocks or indexes that we had been buying, just for cheaper.

One of the benefits (that feels weird to say) or this crisis, is that you’re probably spending less money than you used to. Most of us are not commuting anymore. For me, that’s $210 a month I don’t have to give to New Jersey Transit. Or we’re not driving to work and spending as much money on gas (plus gas is really cheap). We’re not going out and spending money at the movies, concerts, or sporting events. We’re not going out for lunch at work. No more Starbucks runs. And no more Friday or Saturday night dinners at restaurants.

Even if we still have a job, we’re worried about losing the one we have and we’re probably not willing to spend money on things we don’t “need”, like new cloths. The only thing we’re really spending money on is groceries and other essentials at the pharmacy.

Those job loss reports are scary. 3,000,00 jobs lost one week, 6,000,000+ lost the next two weeks in a row (and those are just the people who were able to file for unemployment). Those are just ridiculous numbers.

In the coming weeks, many of us will start to receive $1,200 checks from the government, free of charge. So what the heck should we do with that money? Well, that really depends on your specific situation. Might be a good idea to put some of it into your emergency fund, maybe pay down any credit card or student loan debt, and put anything leftover into your investment accounts. It’s not often that we just receive $1,200 in our bank accounts overnight, so this is a unique opportunity.

And if you have the money right now, start thinking about where you want to donate to. There are lots of issue-based organizations that need money right now, so pick your passion (women’s rights, food banks, medical supplies, the environment, etc.) and donate what you can. If you know somebody who has COVID-19, chances are somebody that loves them has set up a GoFundMe page asking for donations, so that’s a great way to donate too.

Stay safe out there.

-Zack

The best way to make more money is to get a new job.

But aren’t we supposed to be loyal to the company we work for, pay our dues, and wait for a promotion? Maybe in our parent’s generation, but that’s just not how things work anymore. Even though wage growth has picked up recently, “wage growth” means you’re only going to make about 3% more every year. With rent increases, taxes, and inflation, you’re really making the same amount of money year after year. That’s just depressing.

All things equal, how much control do you actually have right now over how much money you make? Sure, you could get a side hustle and make more money that way. You could also ask for a raise or wait until your salary goes up at the end of the year. But those things happen maybe once a year and a $2,000 raise really isn’t a $2,000 raise since a lot of it goes to the tax man, inflation, and your landlord.

Actually, the best way to increase your take home pay is not to get a side hustle, or ask for a raise, but to get an entirely new job instead. You may make a few thousand dollars here or there from a side hustle, or your raise might be worth a couple of thousand, but from talking to fellow millennials, the best way to increase your take home pay is to get a new job that just pays you more, like thousands of dollars more.

That being said, getting a new job is a total pain in the butt. You have to perfect your resume, then start filling out applications, then go on interviews, and hopefully after a few months you have a new job. A lot of work though.

We get criticized a lot for this. We hop from job to job and can’t be counted on to stay at a company for very long.

But do you blame us?

When wage growth is this slow and we end up with the same take home pay year after year, what are we supposed to do? Some of us get a side hustle, but that takes up a lot of our valuable free time. Some of us stay the course, but that just means we end up in the same place at the end of the year.

And some of us switch to jobs that pay us more to jobs that value our time. And then when they stop valuing our time, we move on to something better. And on and on it goes.

-Zack

Your Cheat Sheet for Smarter Investing

Here’s a link to the podcast I’m going to reference in this blog post: https://www.npr.org/2018/12/12/676158680/your-cheat-sheet-for-smarter-investing – I’ll include the link at the bottom of the post as well.

I wanted to share some notes on a podcast I listened to recently from NPR. The podcast is called “Life Kit”, which, as the name suggests, sends out short podcasts/advice on how to be human, often with a personal finance theme.

In “Your Cheat Sheet for Smarter Investing”, released on December 15, 2018 Life Kit interviewed David Swensen, Yale’s 33-year $29 billion endowment manager, who went through his “Cheat Sheet for Smarter Investing”, six tips to teach you a smart, simple and powerful way to invest over the long term.

These are his tips with my comments below:

1) You have to be invested in the stock market

Stocks over the long haul have much better returns than bonds or other investments.

That does not mean you should be invested in individual companies like Amazon, or whatever seems to be the hottest company at the time.

Here’s a dirty little secret of Wall Street – it’s almost impossible, even for professionals, to pick individual stocks that will outperform the market. 80% – 90% of mutual fund managers fail at this. It’s basically a fool’s errand to try and beat the market.

Don’t buy individual stocks. Buy the entire stock market using index funds.

So why do very smart, very wealthy people invest their money with fund managers, who are most likely not going to beat the market? Why not just pick their own investments?

2) Don’t performance chase!

The biggest mistake David Swensen sees with individual investors is performance chasing – buying what has gone up and selling what has gone down (the opposite of what you’re supposed to do). Don’t buy more stock after the market goes way up and especially don’t sell after the market has gone way down.

Human impulses lead us to make really bad decisions when it comes to money, like selling after the market crashes. Losing money feels really painful. A loss feels twice as bad as an equal-sized gain.

If you sell your stock at the bottom, you are locking in your losses. If you stay the course, you can ride the roller coaster right back up (where it always goes).

The stock market isn’t the only place you should put your money, there are lots of other types of investments…

This is so hard for most people to do – we simply want to buy the stocks that have been going up and sell what we’ve already lost money on.

3) The model portfolio is…

David’s model portfolio goes like this:

30% in U.S. stocks
15% in developed countries (like Great Britain, Australia, Canada)
5% emerging market stocks (like China, India, Brazil)
20% is U.S., domestic real estate

The 70% of the portfolio listed above is higher risk, higher return.

To couple that, David adds a lower risk cushion for the remaining 30%:

15% in U.S. Treasury Bonds
15% in U.S. Treasury Inflation Protected Securities (bonds that are indexed to inflation, have U.S. government backing, and pay investors a fixed interest rate)

I wouldn’t necessarily put 30% of my portfolio as a 26-year-old in bonds, but this is a good place to start in terms of thinking about the different types of investments out there and how to allocate your portfolio into certain buckets of investments.

4) Avoid the four-letter word that starts with F….FEES

Do you know what you’re paying in fees for your investments?

Many people don’t realize that there are fees associated with their investments because fees are not charged as a separate line item. It’s hidden in the fine print somewhere.

If you don’t know, do some digging and take a look next time you look at your portfolio – you might be surprised at how much you’re paying in fees.

Our brain thinks that a 1% or 2% fee is really tiny. Because relative to 100%, a 1% fee seems like a small number. But in investing, the right benchmark is not 100%, it’s the overall return of your money. A 2% fee off of a 7% return is a big chunk.

Say you earn a 5% annual return on your investments, a 1% fee would eat up 20% of your investment return. This can have a huge impact on how quickly your money accumulates.

You shouldn’t be paying more than 0.015% in fees in your mix of index funds and annual investments.

Especially when looking at two index funds that track the exact same index, I go with the fund that has the lower fee.

5) Go with passively managed index funds

You can try and beat the market by investing in an actively managed fund, but you’ll most likely fail. In a typical mutual fund, a fund manager is actively picking a bunch of stocks that s/he hopes will beat the market. Remember, 80% – 90% of fund managers who try and beat the market, fail.

Or, you can match the market with a broad based index fund, designed to mimic the market return at a low cost. An index fund doesn’t pick stocks because it thinks those stocks will beat the market, it just buys an index (a list of stocks, like the S&P 500 – the 500 biggest companies in the US).

Index funds are super low cost and are the overwhelming best choice for investors.

One major firm, Vanguard, excels at this. Jack Bogle, the founder of Vanguard, set up the company as a non-profit with a mission to give people a range of index funds and advice that’s in the customer’s best interests.

90% of my index funds in my 401(k) and Roth IRA are Vanguard – they simply have the best, lowest cost funds.

6) Balance is important

It’s important to remember to rebalance when things get out of whack. The world changes and certain parts of your portfolio will get bigger than they should. You want to get them back to where they’re supposed to be, at the percentage of your portfolio you set them at.

Essentially, when you rebalance, you sell stuff that went up in value, and buy what went down in value, which is the essence of the mantra buy low, sell high.

Do this at least once a year to make sure your portfolio is where you want it to be.

Some employers’ retirement plans do have an automatic rebalancing feature, so keep this in mind when you’re looking at your own portfolio.

I rebalance my portfolio twice a year, more than that isn’t really necessary. My 401(k) through work is automatically rebalance, but I have to manually rebalance my Roth IRA.

That’s it!

Here’s the link to the podcast again. Enjoy!

-Zack

Who’s got the check?

Money and Relationships for Millennials

So you’ve got somebody special in your life. Congratulations! Mazel tov! A huge pat on the back.

As your lives become intertwined, or even if you’ve just started dating, money will inevitably become a point of discussion, and often a point of friction.

Who’s going to pick up the check when you go out to eat? If you live together, how are you going to split the rent? Does one of you make significantly more money than the other? Do you keep separate bank accounts or have a joint account?

These are things we didn’t really have to think about as kids. Our parents took care of “rent”, fed us, clothed us, and paid for all of our other expenses. As we got older and started having some disposable income, we started paying for a few things on our own, but largely still relied on our parents.

Now that we’ve grown up, have jobs and apartments, and are in serious relationships, we have to be on the same page with our partners in terms of money.

So how do you do that? In other words, how do you be a millennial in a relationship, and deal with money all at the same time?

Numero Uno

You should probably talk about it with each other.

Wait, what? Isn’t that obvious? That’s how you work through any problem, you talk about it.

Yes, but it’s important to keep in mind and first on the list. If you’re going to build a life together, you have to be open and honest about your financial life.

If you have a lot of credit card or student debt, your partner needs to know that relatively early on in the relationship. If they’re the right person for you, they’ll still love you for who you are and could very well be in the same situation you are. When you go to do big adult things like rent an apartment or buy a house together, all aspects of your financial life will come up. It’s better that your partner knows about your financial life BEFORE you go down that path.

Talk about money, together, on a regular basis.

This is actually something that we as a generation do really well. A full 75% of millennials in committed relationships talk about money with their partners on a weekly basis. There also seems to be a correlation between talking about money at least on a weekly basis and being happier in your relationship.

Numero Dos

You should both know how to do everything.

You know how men used to handle all of a household’s finances? Yah, that’s not us. We’re a new generation, more equal, and better. Adults ages 65 and older, for instance, are more likely than younger age groups to say that a man should be able to provide financial support for his family.

Both partners in a relationship should generally know how to pay the rent/mortgage and how/when all of your bills are paid, and have access to all of your utility accounts (not solo bank accounts).

This is a way to protect yourself. If something bad happens to you, your partner, or between the both of you, you’ll be better prepared if you both know how to handle all of your joint financial activities.

Numero Tres

Learn from each other.

This is related to numero dos, but goes a little bit further. You shouldn’t just know how to manage all of your finances, you should learn from each other and teach each other your (good) money habits.

Is one of you really good at saving but the other not so much? Great, take the opportunity to learn from your partner. Maybe one of you is really good at investing or really good at sticking to your budget.

As cheesy as it sounds, you’re sharing your lives together, so you might as well learn from each other.

Numero Cuatro

Find a way to split the check (rent, bills, meals, etc.) that works for the both of you.

Assuming you live together, you could keep separate bank accounts, have separate bank accounts and a joint account, or only have a joint account (not recommended).

The tricky part is how to make sure you’re even – that you and your partner are spending roughly the same amount on all of your combined expenses (groceries, meals, rent, utilities, etc.).

I keep entirely separate bank accounts from my girlfriend and use an app called Splitwise to literally keep track of every single penny she or I spend together. If she pays for dinner (say it cost $40), she’ll log in the app that she spent $40 and I owe her $20.

Splitwise then keeps a running tally of who owes whom what. We could at the end of every month balance it out, but it usually comes out pretty even. And if we know that she owes me $100, she’ll pay for the next couple of things.

There are a lot of other apps that you can use to track shared expenses, but I like Splitwise the best (it’s also free).

Numero (what comes after cuatro?)

Make a plan.

Where do you want to be in five years, ten years, or even just by the end of the year?

If you’re saving for the down payment on a house, trying to get out of debt, or just trying to manage your monthly budget, making a plan together will help you get there.

Making a plan means having an end goal in mind. We want to have $50,000 saved in two years for a downpayment on a house OR we want to be debt free by the end of the year.

Sit down and actually make a plan together. How are you going to achieve your goal? Make sure it’s a SMART goal (Specific, Measurable, Achievable, Relevant, and Time-Bound) and work on it together.

So who’s got the check?

Well, that really depends on you.

To be a millennial in a committed relationship, you should be open and honest about your financial situation, both know how to handle all of the finances, learn from each other, find a way to split the check that works for you, and make a plan together.

Simple enough right?

-Zack

Credit score basics for millennials

What is a credit score?

Your credit score is a three-digit number that encompasses all of the various financial information in your credit report. Banks use your number to evaluate how risky it will be to lend money to you and the likelihood that you’ll pay it back on time and in full.

There’s a few different credit score models that banks use, but most people just use the FICO (Fair Isaac Corporation) credit score. FICO credit scores range from 300 to 850. The higher your score, the better.

Components of a credit score

There are five categories that make up your credit score, each with a varying degree of impact on your score.

Payment history (35%) – Can a bank trust that you’ll pay them back? Basically, do you pay your bills on time and in full every month?
Amounts owed/credit utilization (30%) – How much of your available credit limit do you use? If your credit limit is $10,000/month, banks want to see that you’re not maxing that out, that you’re only spending a little bit (like $1,000-$3,000).
Length of credit history (15%) – How long you’ve been using credit. The age of your oldest account and the average age of all of your accounts. This is often why millennial’s credit scores suck.
New credit (10%) – How many new accounts you’ve opened recently and when the last time you opened an account was. Whenever you apply for a new line of credit, lenders do a “hard inquiry” to check your credit information. This’ll temporarily lower your score.
Types of credit in use (10%) – The types of accounts you have, like credit cards, a mortgage, student loans, etc. Don’t worry if you don’t have accounts in all of these categories and don’t open new accounts just to increase your credit types.

Why your score is probably not so good

Millennials are young and haven’t established a long credit history yet (length of credit history)
Millennials don’t have mortgages and as varying types of credit as our elders (types of credit in use)
Millennials are unknown variables to banks. They’re not sure if you’ll pay them back in time and in full (payment history)

How to check your credit score

Your bank or credit card company will most likely let you check your credit score whenever you like for free, so start there

You can get one free credit report each year from each of the major three credit reporting companies, Equifax, TransUnion, and Experian by visiting http://www.annualcreditreport.com (they legally have to do this, so you might as well take advantage of it). You’ll get a different score from each company since they use slightly different algorithms.

There are lots of other free websites like http://www.creditkarma.com that let you check on your credit score for free

Additional resources

I realize this post is missing a lot, but I wanted to start with the basics and build up from there. I’ll share some strategies on how to improve your credit score next week.

-Zack

You only need $5 to start investing

We perceive investing as something that has a high barrier to entry. Shares of companies we know and use like Amazon, Google, Facebook, and Netflix can cost over a $1,000/share. Amazon, for example, costs $1,631.56 a share as of today. Most of us don’t have that kind of money to throw around. Luckily, you really don’t need that kind of money to start investing.

$5, or the amount of a coffee at Starbucks, is really all you need to start. There are all sorts of apps that make investing really easy for beginners and don’t require thousands of dollars of capital. I’m going to highlight three of my favorites (two I use, one I don’t) that require $0-$5 to start with.

But why?

But before I do that, it’s important to talk about why. What’s the point of taking money I would have used for that cup of coffee or a movie with friends and putting it in some app on my phone?

Because that’s how you’ll build wealth.

Your money will compound (build on itself) for years and years, so that down the line when you need the money, you’ll have more of it.

$100 in the stock market, at a 7% growth rate per year, with nothing else added to it, becomes $1,497.45 in 40 years.

$100 spent today becomes $0 in 40 years.

$100 stuffed under the couch cushion becomes $100 tomorrow (though actually worth a little less than that because of inflation).

Acorns (a piggy bank meets the 21st century)

My favorite investing app, and the one that I’ve been using the longest is called Acorns. Acorns is basically like taking a piggy bank into the 21st Century and then investing that money for you. The app is linked to your credit or debit cards and every time you make a purchase (say $5.50 for coffee) it rounds up that purchase to the nearest dollar, so $6, and takes the $.50 and stuffs it away. Once you get $5 of “round-ups”, Acorns invests the money for you into a broad array of ETFs (baskets of stocks and bonds, basically). You set how risky or conservative you want your investments to be – risky, meaning more stocks, and conservative, meaning more bonds. Otherwise, you basically just set it and forget it. Any dividends you receive from your investments are invested back into the funds for you. Any additional funds you put into your account are invested for you based on your risk tolerance.

Takes $0 to start investing
Costs $1/month for a taxable investment account
Acorns is for young, would-be investors who don’t have that much money to invest yet

Acorns is a really great hands-off app if you’re just getting started in investing.

Here’s a link to get started: https://acorns.com/invite/T765M9 You’ll get $5 from Acorns for free to start off with (note: i’ll also get $5).

Stash (teaching you how to money)

Stash is another great app that I’ve recently started using. Unlike Acorns, Stash is not linked to your debit or credit cards. You set a recurring investment amount (I invest $5 every Monday) and invest that money in individual companies or thematic investments. As of now, Stash has 206 investments that you can pick and choose from. I basically just pick a different one every week. Some of my favorites include:

Roll with Buffett – Warren Buffett is one of the most successful investors of all time. Own a bit of his company (Berkshire Hathaway)
Water the World – Don’t take water for granted. Water changes everything and these companies supply it.
Small but Mighty – Stand up for the little guys. Small but spirited, these companies have room to grow.
Doctor, Doctor! – Give global healthcare a shot in the arm. These companies help us live longer and better lives.
Young Money – 80 Million strong. Powerful, opinionated, and optimistic. Companies, meet the Millennial generation.

Those names are just Stash’s way of getting you excited about investing in something. They’re actually just fun names for specific ETFs (baskets of stocks) that have to do with a specific theme. “Young Money” for example, is actually the Global X Millennials Thematic ETF (Ticker: MILN).

You can also invest in specific companies like Amazon, Chipotle, Boeing, Costco, etc. This helps buy a piece of a company that I want to be invested in (say, Tesla) without having to buy a whole share of that company (with all of the risk that entails).

Takes $5 to start investing
Costs $1/month for account balances under $5,000
Stash is for investors who want guidance when selected investments

Mostly, Stash is about educating you in how to get started. Stash also has a podcast you can listen to called Teach Me How to Money and sends out a newsletter about investing.

Here’s my link to get started: https://get.stashinvest.com/zachary8a82j You’ll get $5 to get started (note: i’ll also get $5)

Robinhood=green skin-tight pants not required

I don’t use Robinhood, but i’ve heard great things about it. Robinhood is a free-trading app (note the italicized word). It’s great if you want to trade things like stocks and bonds and also fancier stuff like ETFs, options and cryptocurrency.

This is not the app I would use if I was just getting started in investing.

The best part of Robinhood, and I think what draws the most people to it, is that it’s completely free to use. Fidelity, Merrill Lynch, TD Ameritrade, Charles Schwab, and E*TRADE all cost between $4.95 and $6.95 per trade. If you are more advanced and into trading investments, it’s easy to quickly rack up commission fees. Robinhood removes that barrier to entry. Trading on it’s platform is completely free.

Takes $0 to start investing
Costs $0/month and $0/trade
Robinhood is for experienced investors who are trying to avoid commissions

Here’s a link to get started: www.robinhood.com

The end (almost)

Those are three of my favorite investing apps. Acorns is great for investing small change and for those who just want to set it and forget it. Stash is great for impact investing and is a great platform for learning how to invest. Robinhood gets rid of commissions, so it’ll save you a bunch of money if you’re a frequent trader.

It really doesn’t take that much money to get started or that much time or energy to keep up with it.

So what are you waiting for?

Until next week,

-Zack