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Tag: Education

The Two Formative Experiences That Helped Me Grow as an Investor

Written by support@seostats.com on . Posted in Behavioral Finance, Education, Investing.

Who doesn’t like getting insights into the balance sheets and investment portfolios of other people – especially when those other people are successful professionals or financial experts?

CEO and co-founder of Ritholtz Wealth Management, Josh Brown, recently compiled a collection of exactly that in his book, How I Invest My Money, edited by Brian Portnoy and illustrated by New York Times’ columnist Carl Richards.

The book shines a light on 25 financial pros and how they use their own money to invest in capital markets. It’s a great look at how people who often give financial advice actually manage their own assets.

That inspired me to share my own strategy. I recently produced a video about how I invest my money. In telling my story and experience, I realized there were two specific events that helped shape the investor that I am today.

 

Developing My Current Investment Strategy Was a Process

Today, I invest for the long-term using a broad basket of ETFs that track broad market performance. I don’t try to time the market, and I don’t try to pick individual stocks.

Developing this investment strategy didn’t happen overnight. It took time to develop my personal investing style.

It also took two formative experiences that I can credit as the big reasons I am where I am today. In short, I learned the hard way why trading individual stocks is not the best way to grow wealth for the long-term.

 

My Investing Experience with Webvan

If you remember the early 2000s, you likely remember the dot-com bubble. A lot of investors felt overly confident in the futures of tech companies that were riding the wave of growing adoption of the internet and the spreading of personal computers in households all over the U.S.

I believed the hype; I was fully immersed in the boom and believed that it would never end. At the time, I worked as an analyst in Morgan Stanley’s Private Wealth Management division. It seemed like investors were simply printing money by jumping into IPOs.

Anyone could get rich by holding onto anything with a .com after its name. Of course, I wanted to do the same.

The company I got behind was Webvan Group, an online grocer that looked destined for success (but was, in reality, at least two decades before its time).

Webvan had an all-star management team and funding to back it up. At one point, its shares soared 65% over its initial offering price. And then they started to fall.

Justifying that this was just the stock going on sale, I bought in. And I kept buying. I bought shares at $15, $10, and $5. And I held them all the way to the company declaring bankruptcy.

 

Failing to Buy and Hold with Amazon

I made mistakes on the other side of the coin too. Instead of hopping into a bad bet and riding it to the bottom, I bet on a big winner… but didn’t stick around to see it pay off.

I bought shares of Amazon in 2012, when the share price was about $250. Over the next year, Amazon’s stock price shot up to over $300 a share.

I sold my shares in 2013, feeling pleased to get out before anything bad happened – and with a 20% profit to boot.

Fast forward to 2021 and we can clearly see that what seemed like a brilliant move at the time was actually a pretty terrible idea. Amazon now trades at around $3,000 per share.

That’s roughly 1100% higher than when I originally bought it!

 

What My Misadventures in Stock Picking Taught Me About Investment Strategy

These two stories illustrate a clear point: without the benefit of hindsight, it’s almost impossible to tell which individual stocks will turn out to be winners and which will go all the way to $0.

It’s easy to look back and laugh at my investment in Webvan. Clearly, that was doomed to fail as part of the dot-com bubble… right?

The truth is, that’s only obvious today. It’s easy to forget that Amazon was also an internet/tech company of that same era.

The problem with individual stocks is that you must know precisely when to buy. And that’s only half the equation. You also need to know exactly when to sell. Again, you can only know either, with certainty, when you look back with the benefit of hindsight.

This is why I no longer engage in the guessing games that individual stocks require you play. I also invest with intention and a plan, and don’t let emotions (like fear of a stock price dropping) make my decisions for me.

Instead, I rely on sound strategies based on my goals, time horizon, and risk tolerance. I combine those specifics about my own situation with experience and education about market history and new research and data that supports more passive, long-term approaches to investment management.

We use this same facts-based approach for our clients, too, to design investment strategies that meet their needs and take into account unique factors like their individual appetites for risk.

My process for investing will continue to evolve, but it won’t be influenced by randomness, chance, or emotions. Instead, we’ll continue to refine and hone our approach based on the facts and studies that highlight smart ways to grow wealth over time.

It’s a New Year — But You’re Still Not Working with a Financial Planner?!

Written by support@seostats.com on . Posted in Fiduciary, Financial Planning.

We’re a few months into the new year (and new decade!) now. How are your resolutions to “do better” holding up so far?

If you’re like many people, despite your best intentions, there are probably a few things that have fallen by the wayside. There might be some bad habits you still haven’t broken, or some goals that you really want to achieve but still haven’t started working toward.

You might have even told yourself that 2020 was the year you were going to get your financial life together… but you’re still not working with a financial planner.

We might be coming off the excitement of a new year and settling into the gloom that hit in during the cold, dark months of February and March (at least in the Northeast!) — but it’s not too late to get your financial life on track and make great progress this year.

 

Why People Start Working with a Financial Planner

When I first meet someone who is interested in working with us , I always ask why they want to start taking better care of their financial well being now.

I want to know why they reached out when they did — and what changed or entered their life to motivate them to take the action of finally hiring a planner.

You can probably imagine some of the most common answers revolve around major life transitions. They started a family, got a new job, changed careers completely, moved across the country, or came into an unexpected bit of money from something like an inheritance or equity event at their company.

Other people start working with a financial planner because they simply get tired of feeling stuck (or worse, going backward). They say they’re losing track of everything as they try to manage it all on their own; they don’t feel in control or they’re really unsure of whether or not they’re on the right track (or how to get started at all).

These are some of the reasons people want to work with a financial planner. But what about the reasons people avoid having that conversation and beginning the process of putting a plan in place?

Here are the 3 main reasons why I hear people don’t want to work with a planner — and why I believe it’s worth reconsidering.

 

1. You Prefer to Avoid Talking or Thinking About Money

We all cope with discomfort and fear in different ways. For some people, their finances can feel scary (even when there’s nothing actually wrong!).

That fear can actually motivate people to reach out and ask for help… but for others, their coping mechanism is avoidance. They want to stick their head in the sand and pretend their money fears, worries, or concerns will simply go away if they ignore them.

Of course, this is never the case with our problems in life. And when it comes to money, ignoring your finances only makes problems bigger and harder to deal with when you do finally start paying attention.

If you prefer to avoid thinking about your mounting debt, bad money habits, or lack of action with your finances when you know it’s time to do something, you are creating an even more challenging situation for your future self.

Don’t put yourself in a difficult position later in life. The sooner you sit down and face the financial planning you’ve been avoiding, the sooner you’ll get yourself on the right track and moving toward success. It’s never too late to build better habits and pay attention to your money.

 

2. You Want to Do It Yourself

Some people don’t like the idea of working with a financial planner simply because they don’t see a need. Why not just manage your money yourself?

I understand the preferences of the do-it-yourself crowd the best out of all the people who tell me why they don’t want a planner. At one point, I thought I knew my own financial situation better than anyone else. I certainly cared about my financesmore than anyone else, too!

And why would I, a financial planner, need help? Wasn’t I the expert I was looking for? I had all of the training and certifications — I might even have had more than the person who I would hire!

But I quickly realized that the reason even financial planners need financial planners is that it’s really hard to objectively make decisions around your own money. We’re all much too close (and too subjective) to consistently think rationally and unemotionally about our own finances.

My wife and I needed someone to remove the emotions from the conversations around money, and to keep us grounded in reality. Having an independent, third party involved — who is also a fiduciary and is looking out only for our best interests — is priceless.

I understand the desire to DIY. But I think that says quite a bit, that even myself as the trained and certified expert needed to hire another trained and certified expert to ensure I made all the right decisions within my own financial plan.

 

3. You Don’t Have a Lot of Assets Yet

Many times, I’ll talk to people who truly want to work with a financial professional, but believe they don’t have enough money to do so. I understand why people think this — but it’s just not true anymore.

Traditionally, getting financial advice from an expert was something that was reserved for high net worth individuals. You could only have your own financial planner if you had a lot of investments and assets that the planner could manage.

Luckily, that has changed and the options for hiring a financial planner look radically different. There are now more ways than ever for people to get financial planning!

If you’re not sure where to start your search for a planner who will work with you, try professional associations like NAPFA, XY Planning Network, or Garrett Planning Network. All of these groups will help connect you with fee-only, fiduciary CFP’s who may not require asset minimums.

XY Planning Network’s members all specialize in serving Gen X and Gen Y, do not charge asset minimums, and who you can hire for a monthly fee that can range from as little as $50 to as much as $500. Don’t need ongoing help? Garrett Planning members offer hourly planning services.

No matter what your excuses have been in the past, know that the best time to get a financial plan created for you is now — and a financial planner can help you do just that. Working with a financial planner gives you access to knowledge, resources, and accountability to develop the habits and strategies required to reach success.

Looking for more specifics? Click here for our free guide to help you understand the questions you should be asking a potential advisor.

Prefer a quick video? Check out Episode 2 of our planning series “The Build” below to learn more about if you should be working with a financial planner.

Educating Your Kids About Finances

Written by support@seostats.com on . Posted in Kids.

Did you know that when it comes to teaching our kids about money, we may be doing it all wrong? Here’s what you should be teaching them instead.

In an effort prepare the next generation for making better personal finance decisions, schools are starting to address financial education in their curriculum. In general though, schools have been slow to adopt personal finance as a top priority with only 2 additional states since 2014 adopting personal finance standards in their K-12 programs. While more states are implementing standards in personal finance, the number of states that require high school students to take a course in personal finance remains unchanged since 2014 – just 17 states (source).

Despite efforts being made on the part of educators, children are still growing up and making the same financial blunders their parents made. Just look at all the young people in debt. According to a Rent.com study reported in Time Magazine, more than 75 percent of late teens and early 20-somethings who rent spend more than they earn each month! The study reports that, to keep up with their expenses, young people are financing everything with credit cards- the worst kind of debt you can have because of high interest rates.

More needs to be done beyond financial literacy to help prepare our youth to make good financial decisions in real life. It starts at home and it involves real-like application of financial concepts and healthy money behaviors.

 

What Can You Do?

As a parent, you can help your child avoid this scenario later in life by teaching a few core principles… and teaching them the right way. Here are the basics of “finance for kids” that you can work on at home.

1. It’s never too early to start. In a study done in the UK, it was found that our money habits may be formed as early as age seven! Not only that, but some researchers say that even toddlers can comprehend the very basic concepts of saving. Why not go with your child to open his first savings account when he is young. This way you can teach your son or daughter how to save first and spend what is left. This is a great and simple exercise that helps your child start a lifelong healthy financial habit.

2. Teach Gratification Delay. This is a general life concept that holds wonderfully true in financial scenarios, too. “If you want something, sometimes you have to wait!” Delaying gratification is a useful skill in almost any role in life, and has even been linked to success in adulthood… that’s overall success, not just success in making financial decisions.

3. Teach goal-setting. This, like the tip above, can be taught to a preschooler. Having goals works in any area of life, not just finances, but in money matters it’s particularly useful and effective. An idea for a child’s goal might be a new toy. You’ll probably have to set up an allowance for your child so he or she has a way to reach the goal. Have them add money to the pot and monitor their progress towards the goal. It’s fun for everyone.

4. Teach timeliness. There’s not really a metaphor for this one except health care. The sooner you start taking care of your health, the larger the reward you’ll reap later on. As for finances, it’s all about compound interest (we’ll let you figure out the healthcare parallel!). Kids can start comprehending this concept around age 12, which is when they start to really be able to wrap their heads around long-term goals.

5. Show examples of real-life informed financial decisions. The supermarket is ripe for teaching opportunities. Explaining your reasoning for choosing one type of cereal over another can lead to a conversation about sugar… or it can lead to a conversation about generics vs brand names and value. You decide! Just don’t combine both lessons in one day or your son or daughter will never want to go grocery shopping again.

 

Conclusion

Whatever it is, teach it at the appropriate time. One of the reasons researchers think school finance classes aren’t working is because they’re teaching lessons whose practical applications are years in the future. Teach your lessons at home shortly before or after your child is about to encounter the issue in real life. The lessons will sink in much deeper that way!