Financial Feminist - Financial Foundations #5: How to Start Investing

Episode Date: October 19, 2023

In this episode of Financial Foundations, brought to you by State Farm, host Tori Dunlap breaks down the basics of investing, debunks common myths, and highlights the crucial two-step process of investing. Whether you're new to investing or looking to broaden your knowledge, this episode is the perfect starting point on your financial journey. Learn more about Stock Market School: https://treasury.app/herfirst100k/investing-101-workshop Get our free debt payoff worksheet: https://herfirst100k.ac-page.com/debt-payoff-freebie Read transcripts, learn more about our guests and sponsors, and get more resources at https://herfirst100k.com/start-here-financial-feminist-podcast  Not sure where to start on your financial journey? Take our FREE money personality quiz! https://herfirst100k.com/quiz Learn more about your ad choices. Visit podcastchoices.com/adchoices

Welcome to Financial Foundations, a mini-series of Financial Feminist brought to you by State Farm. During each episode of this limited series, we'll be tackling financial basics like budgeting, investing, debt, and what it really means to be a financial feminist to help you get on track no matter where you're at on your money journey. Through short, actionable episodes and simple homework exercises, I'll help you build a financial plan you'll actually want to stick to. Thanks again to our sponsor, State Farm, for making this series possible. Like a good neighbor, State Farm is there. Welcome back, financial feminists, to our Financial Foundations series. If you are new to this series, what we've been doing is going step-by-step through a lot of the financial basics.

A lot of the too-long-didn didn't read versions of personal finance in order. So this is episode five, all about investing. And if you haven't listened to episodes one through four, I need you to do that before you listen to this episode. These are primers. These are meant to be consumed literally episodically. Please don't dive into season five of the show before you've watched the other seasons. I also want to thank our friends over at State Farm who are allowing us to do this incredible series. So if you like this series, have gotten some benefit from it, feel free to share it. Feel free to let us know. All right. Let's talk about first some homework from last week. You might recall that we asked

you to write down our thoughts about investing. Write down your common beliefs or your common narratives that you've heard about investing. Maybe they're things like investing is gambling, or it's too late for me to start investing, or investing is complicated and I should just have someone do it for me so I don't have to worry about it because I've been told that I can't handle it myself. Or maybe the all too common one, the stock market is too risky, it's too scary, and I could lose it all. I could lose all of my money. All of these narratives I have heard time and time again, both from our community and from people who have gatekept this information from me. I mentioned this more in the investing chapter of my book, Financial Feminist, but my not-so-conspiracy conspiracy theory is that this information has been gatekept from us to keep a multi-billion

dollar industry afloat. The Wall Street chads have told you that investing is complicated and scary and risky and that you should just hand over all of your money to them so that they can literally keep their jobs. We know from statistics, and I've talked about this before on the show, that financial professionals who manage investments, the Patagonia-vested Wall Street finance bros, right? They are bad at their job. You are a better investor statistically than the people who are actually getting paid the multi-billion dollars to manage investments. You can and should manage your money for yourself. You can and should manage your investments for yourself. You can and should manage your investments for yourself. You don't need a Wall Street Chad to come save you.

And all of these myths you've been believing, that investing is just gambling, investing is too scary, investing is too risky. I've debunked all of these in my book and we're going to debunk most of them today. Investing is one of the only ways we're able to build our wealth. It's one of the only ways that the average person is going to be able to retire. So if you would like to retire someday, if you would like to stop working

eventually, you're going to need to learn how to invest. You're going to need to understand how to navigate the stock market in a way that is focused on long-term gains. The definition of the word invest, right, is to put energy and money into something for a long period of time, right? When we say the phrase investing in ourselves, we don't expect to go to the gym once and walk out looking like The Rock. But yet with investing, we expect that. We expect, okay, cool. I can put money in and the next day I'm going to be rich or the next month I'm going to be rich or even the next year I'm going to be rich. That's not how this works. Investing is not meant to be sexy. It's supposed to be stable and consistent and over a long period of time. So one of the things people get wrong

is they focus on the short-term investing, this kind of get-rich-quick kind of investing. That is a gamble. That is risky. People who day trade, people who are viewing investing as this money-in, money-out kind of game, will lose. We know from statistics, we'll lose. So what this means is that investing isn't this get-rich-quick scheme. It is an ongoing practice.

So what investing is not is, again, day trading. this means is that investing isn't this get rich quick scheme. It is an ongoing practice. So what investing is not is, again, day trading, gambling. That is day trading. See above. And also at this time, crypto. Also see above. Anything that sounds too good to be true when it comes to investing probably is. And anything that makes your gut turn a little bit where you're like, that seems suspicious, it's probably risky. There's plenty of people out there who under the guise of the word invest, and I'm putting that in quotes, are the people who are talking about day trading and the sexy hot stock and buying AMC and GameStop at its all time low and then selling it. There is a movie coming out with like a bunch of A-list stars about the GameStop craziness in early 2021. And I already know what's going to happen, which is this movie is going to come out and a bunch of people are

going to watch it and they're going to be like, oh my God, I'm going to do the same thing. And then they're going to put a bunch of their money into stupid shit because the media doesn't help. That's the other thing is that the media showcases the wins. They showcase the people who actually were able to take this huge risk and have it pay off, but not the 98% of people who ended up losing money off of something like GameStop trying to short that stock. And again, you don't need to know what shorting a stock is. It was kind of bullshit anyway. So let's talk more about some stock market statistics. Over the last 100 years, the stock market on average has grown at a rate of 8% per year. Now, what this means is that there

were some years or some periods that were exactly at 8%. There were some years or periods that were lower than that and sometimes lower than zero, right? We're thinking about stock market crashes. We're thinking about like 2008. We're thinking about the dot-com boom and bust. We're thinking about like the first, you know, period of COVID times. But like I said before, we also had periods of time where the stock market was at 12%, 15%, 20%, sometimes even more than that. So the average that we've seen over the last 100 years is 8%. What does that actually mean for us? Well, that means, again, if we treat investing as a long-term game, we are going to get on

average an 8% return. Again, some years it's going to be lower, some years it's going to be higher, but statistically it's going to settle at that 8%. And if there's one thing you take away from this episode, if you are scared of losing money, if you are scared of losing out, if you are scared of putting money in the stock market and then losing it all in a crash. I want to frame what I just said about thinking about investing as a long-term game with my favorite statistic about the stock market. If you put your money in the stock market for only one day, meaning that you put money in today and then you took it out tomorrow, you're going to make money half the time, 50% of the time. That means half the time you're going to make money, half the time you're going to lose money. But if you waited a year, if you put money in

to the stock market, waited a year to pull it out, your percentage increases to 68%. Over every 10 year period, your likelihood of profiting is 88%. Meaning you put money in and you take it out after 10 years, you're going to make money 88% of the time. And get this, over every 20-year period on the stock market, yes, even a 20-year period that included 2008, even a 20-year period that included any sort of crash or really difficult, turbulent financial time, you have been 100% likely to make money. So what is the answer to not losing money? Patience. What is the answer to not losing money on the stock market? Using investing as it was intended. Stable, consistent,

and over a long period of time. I love being able to cite my own book. It's such a fucking flex. Let's talk about when you're ready to start investing. You are ready to start investing when you have paid off any debt over 7% interest. This is all your credit cards and this is some student loans. We've talked about before why 7% is the magic number on whether we pay off debt or start investing or do other things, please see previous episodes of Financial Foundations for why 7% is that number. We are also ready to start investing when we have an emergency fund of three to six months of living expenses in a high-yield savings account. And we are ready to start investing if your company offers a 401k match. Now, a 401k match means that your company basically doubles

your money for no additional effort. So if your company offers a 3% match, that means if you contribute 3% of your salary to your 401k, your company will match it at 3%. So now you've just contributed 6% of your salary to your 401k, but only done half the work. If you get a 401k match through work, take advantage of it. It is free money. There are very few places in this world that just give you free money. And if you don't know if you have a 401k match, or if you don't even know if you have a 401k available, ask. Ask your benefits person, ask your HR person at work, or just ask your boss if you have a 401k match or if you don't even know if you have a 401k available, ask. Ask your benefits person, ask your HR person at work, or just ask your boss if you're at a smaller company. You have three options when it comes to investing, when it comes to how to actually start

and where to start. Your first option is DIY investing. This is exactly what it sounds like. You are doing it yourself. You are navigating the stock market. You are choosing your investments for yourself. You are contributing to your retirement accounts on your own. DIY is not as complicated as people make it seem, but I will say that for the average beginner, this is not a good option for you. This is going to complicate you and freak you out and cause you to hit the bail button way too early. Some DIY companies include Fidelity, Charles Schwab, Vanguard. The pro to these companies and the do-it-yourself approach is that you're saving money. You're not paying somebody else to do it for you. You're not paying a service to do it for you. You're saving money in fees. The con though is you kind of have to

know what the hell you're doing. I feel confident completely managing my own investments on my own. The average person doesn't. And I understand that. So that's option number one and probably not the best option for you listening. Option number two is what's called a robo-advisor. A robo-advisor is a company that for a fee will invest for you. These are companies like Ellevest, Betterment, Acorns, Wealthfront, Wealthsimple. There's a bunch of them out there. So what's happening is that you sign up with them. They ask you some questions like your gender identity and

your age and your goals and your risk tolerance. And then based on your answers to those questions, they set you up with investments and they do it for you. The pro to these kinds of platforms is that they're doing it for you. You don't have to worry about it. You don't have to come in with prior knowledge. They will do it all for you. The con though, the cons are twofold. One is that you're paying somebody a fee to do this. And typically this fee is a percentage of your investments. Now a half a percent in fees doesn't sound like a lot, but we all hope we're millionaire someday.

And a half a percent of a million dollars is a lot of money. My biggest issue though with brokerage accounts is that they are fishing for you rather than teaching you to fish. The amount of community members that we have had come to me, come to HFK and say, I've been with this robo-advisor and I still don't know any of the terms. I don't know why they're choosing the things they're choosing for me. I'm still just as confused as I was when I started three or five or 10 years ago. So we built what I lovingly call the Hannah Montana of investing platforms because it is the best of both worlds.

Get it? Did you get it? Did you get? Okay. So I didn't like that DIY was too passive. It wasn't helpful. It wasn't step-by-step in guidance. And I didn't like that

robo-advisors just kind of threw you in off the deep end without giving you any sort of information. So I built a platform with technology called Stock Market School. We will put the link in the description. You can literally learn step-by-step how to invest from me and other finance experts and actually invest within the app. We do monthly coaching. We do quarterly workshops about investing. It is a year of investing education taught by me and the HFK team.

And I built it because I didn't like the other options that were out there. I wanted a way to teach you how to manage your investments for yourself, but with a safety net, with guidance from someone you can trust, and with a lot of the emotional support that comes with a lot of new information. So if you're interested in that, you can check it out below. All right. One of the things that I really need to highlight, I've said it on the show before, I say it in my book, but we see thousands of people end up losing millions of dollars from a very simple mistake. And that is not understanding that investing is a two-step process. What I mean by that, if you open a savings account, you put money in and you're done, right? You take $1,000,

you put it in a high yield savings account, you're done, right? With investing, the investing account itself is not the investment. The 401k, the Roth IRA, the actual investing account is the thing that holds your investments. You have to not only put money into the account, but you have to go purchase investments. I liken it to a gift card. It's like you put $50 on a TJ Maxx gift card. Now you need to go buy your plants and your candles and throw pillows. This right here is the number one mistake I see people make. They put money in that Roth IRA or in that 401k or in that general investing account. And they're like, cool, I'm done.

And then they wipe their hands and then they move on. You are not actually invested though. Your money is in what I call financial purgatory because it's just sitting there waiting for you to invest it. You have to do step two. If you do not do step two, you are losing out on thousands, hundreds of thousands, even millions of dollars. I tell this story in my book about Rose, a cute little 65-year-old teacher who put her money diligently in a 401k with every single paycheck for her entire career, for her entire life. And then she got to retirement and realized that she had never done step two because nobody had

taught her. And if there's one thing I'm trying to do in this world, it's trying to prevent more situations like Rose. So please do step two. Please do step two. First, we're going to choose our basket, right? We're going to choose our account, like a Roth IRA, a 401k, a general brokerage account. We have previous episodes that talk about what your investing account options are. So please go listen to those. And then second, we're going to choose what goes in our basket. If you've been following us for a while, you know that I am an index fund girly. Index funds are my personal favorite investment. Those are what I choose to invest in. And again, in Stock Market School, I give more detail about what these are,

about how to make the decisions in what to choose and how to choose them. But index funds are a great diversified investment where I can invest in a bunch of different companies at once. So that's why I personally love them. Now, how do I know what money should go where? How do I know if I should save this certain money or invest this other money? Savings are for your short-term goals. You 100% need to save, not invest your emergency fund because you need your emergency fund readily available

for, you guessed it, an emergency. Under no circumstances should you be investing your emergency fund. Some other things that I would save for rather than invest for are more short-term goals. Things like a vacation, a down payment on a house fund, a wedding fund, a I want to start a business in three years fund. Things that are longer term that we want to invest for. 100% we want to invest for retirement. That is the primary goal that people invest for. Keeping that in a savings account while better than doing nothing is still not enough to be able to afford retirement someday. And for a lot of people, retirement accounts are also great for children's education costs, right? Things like college, things like, you know, a 529 is the perfect example of this.

529 is the perfect example of this. The general rule of thumb is that any goals seven to 10-ish years out, those need to be invested. Goals under that seven-year mark are better off having been saved for rather than investing for. All right, let's do a little homework as we wrap up. I'm pulling this from my own book from our chapter on investing. But one of the things that I have loved doing is picturing 65 year old me. And I call this Nana you. Nana Tori, she is very infamous already. She is drinking South Blanc with lunch. She is flirting with her much younger Pilates instructor named Luca. She is adopting dogs in the Tuscan countryside.

She is somehow more badass than I am right now, which I don't know how that's possible. And I'm so excited to meet her someday. But the only way Nana Tori gets to have the best life possible and be able to be the badass Nana and grandma I know she is, is if I take care of her right now. And this is the final thought I'll leave you with is that so many people, especially if you're younger, it's very hard to imagine 30 years from now or even 20 or 10 years from now. It's very

difficult to get yourself to care when you're like, I have all of these other things to think about. I have all of these other things to think about. I have all of these other things like debt and my current expenses to think about. And why would I save for retirement? You're saving for retirement for 65 year old you. You are saving for retirement so she can have the most kick-ass life possible. You are making sure you're having a great life right now and a great life in 10, 20, 30 years. So I would like you to imagine the best version of your older self. She is retired. She is financially stable.

She is happy. And she's got the cutest little wrinkles you've ever seen. Where do they live? What do they do? Do they work part-time for fun or do they enjoy their time on a beach somewhere? Use this future version of yourself to remind you why you're investing. Maybe even write a letter to future you.

Why are you taking care of her or them? Why are you making sure to take care of them? And when, again, that goal seems really far away and you're not sure how to keep going, how to keep investing, remember the vision of Nana you or of grandparent you. Remember what that vision looks like and use that as motivation and as a reminder that you're really just taking care of yourself and you're taking care of the cutest, but also sometimes the most fragile version of you and making sure that they have the best life possible.

All right, team. That wraps up episode five of the Financial Foundation series all about investing. If you would like more education around investing, there is information on how to join Stock Market School below. There's also an entire chapter on investing in my book, Financial Feminist. Market School below. There's also an entire chapter on investing in my book, Financial Feminist. This is a quick hit of information for you to start feeling better about your financial journey, get a little bit of education, but this should be your jumping off point. This is the first step in learning more about money and about investing and about how to grow your wealth. So we have a bunch of further reading, further options for you for learning linked down below.

A reminder to come back for the next episode. We're going to be talking about side hustles, starting a business and making more income to help you reach your financial goals faster. We appreciate you being here and we hope you have a great rest of your day. We'll talk to you soon. A huge thanks to State Farm

for supporting our mission here at Her First 100K and making the Financial Foundations series possible. Like a good neighbor, State Farm is there. Neither State Farm nor its agents give tax or legal advice. Thank you for listening to Financial Feminist, a Her First 100K podcast. Financial Feminist is hosted by me, Tori Dunlap, produced by Kristen Fields, associate producer Tamisha Grant, marketing and administration by Karina Patel, Sophia Cohen, Khalil Dumas, Elizabeth McCumber, Beth Bowen, Amanda Lefeu, Masha Bakhnikeva, Kaylin Sprinkle, Sumaya Molokurio, and Harvey Carlson. Research by Arielle Johnson, audio engineering by Alyssa Midcalf, promotional graphics by Mary Stratton,

photography by Sarah Wolf, and theme music by jonah cohen sound a huge thanks to the entire her first 100k team and community for supporting the show for more information about financial feminist her first 100k our guests and episode show notes