The ‘Broke Millennial’s’ Guide to Investing Is a How-To for Lasting Wealth

Investing isn’t just for the rich—and Erin Lowry’s new book proves it.

Have you ever felt like investing is for a certain type of person—say, rich, old, and predominantly male—and that person isn’t you? Well, a new book by personal finance whiz Erin Lowry would beg to differ.

In “Broke Millennial Takes on Investing,” Lowry wants you to level up your money. (She even has her own hashtag—#LUYM.) She moves beyond the personal finance principles of her wildly popular debut book, “Broke Millennial,” and offers a how-to guide for investing.

While “Broke Millennial Takes on Investing” speaks specifically to millennials, her tips are good for anyone who’s interested in investing but doesn’t know where to start. She covers the basics but tackles advanced topics, too, providing a crash course that’s informative, easy to read, and, most importantly, useful.

While writing her book, Lowry finagled her way into rooms with ultra-wealthy investors to figure out the secret of long-term wealth. Want to know what she discovered? Here are five key takeaways to get you started—if you want to know the rest, you’ll have to buy the book!

5 Key Takeaways from “Broke Millennial Takes On Investing”

Title: “Broke Millennial Takes On Investing: A Beginner’s Guide to Leveling Up Your Money”
Author: Erin Lowry
Publisher: Review copy courtesy of TarcherPerigee
Release Date: April 9, 2019

#1 Emergency and Retirement Funds Are Investments

Investments aren’t only cash, stocks, and real estate. Savings accounts, emergency funds, and retirement funds are all types of investments. The sooner you learn this the more credit you’ll be able to give yourself for being ahead of the game.

When you start thinking of short- and medium-term investments as viable, legitimate forms of investing, then you’ll realize that you most likely have already tested out the investment waters in some capacity. Chances are you know what an emergency fund is and why it’s important, even if you haven’t saved up a large amount of money yet. Emergency funds are a perfect first step in investing, because they allow you to have a flexible nest egg stored away—while still earning interest—in case of unexpected emergency costs. The same goes for savings accounts, despite them not being the best way to build wealth since they have some of the lowest interest rates.

Additionally, many employers offer company-sponsored retirement funds with match. Opt in to these long-term investment programs if you haven’t already. They pull directly from your paycheck either pre- or post-tax to fund a 401(k) or IRA. When we talk about asset allocation, diversification, and rebalancing, you may not realize it but many employer retirement fund servicers either already do this for you or offer the option to customize your portfolios. It’s important that they or you consistently modify your investments to balance risk and reward.

Are you hesitant to jump into long-term investments that you manage on your own? If market fluctuations make you skittish, it’s most likely due to your risk-aversion writes Lowry. Knowing that the nature of markets go up and down doesn’t necessarily prevent you from having an emotional reaction. Lowry stresses the importance of maintaining a level head in the midst of down periods and employing the “buy-and-hold, long-term strategy” for investing. Create some space between yourself and your investments. Don’t monitor them every day. Lowry recommends checking only once a year, in most cases.

#2 Being Rich is Different Than Being Wealthy

Lowry makes a clear delineation between someone who is rich versus someone who is wealthy. There are plenty of get-rich-quick schemes and high-risk ventures, such as certain stock trading strategies, that promise to make someone rich. Real wealth, however, is built slowly, often generationally. But anyone can build sustainable wealth by taking advantage of financial knowledge, such as how compound interest heavily works in your favor.

According to Lowry, high-risk investments—like picking individual stocks—shouldn’t be your primary form of investment, and in many cases, they should be avoided altogether. But if you’re going to do it, be smart about it. The most important question to ask yourself is if you could financially withstand losing everything you invested. Diversification, risk tolerance, asset allocation, and goal-setting play a large role here, in that you should have several other types of investments with varied levels of risk before diving into the stock market. Lowry talks about these factors throughout the book, precisely because they are “critical parts of building an investment portfolio that will weather the ups and downs of the stock market.”

Likened to gambling, individual stock picking doesn’t guarantee a return. Unlike gambling, however, being an investor means that you own a piece of a company. Further, the name of the game with investing is riding the ups and downs by staying in the stock market, as opposed to cashing out while you’re ahead at a casino.

A good way to start individual trading is to choose an online investing service that offers fractional shares. This is often a cheaper and less risky investment. Although buying in fractional shares isn’t common (“the stock market doesn’t trade in fractions”), some companies will buy whole shares and then divide them up among its clients.

Stuck on which company to invest in? Do some solid research and answer the following questions:

  • “Is it profitable?”
  • “Is it reputable?”
  • “What’s the history of returns?”

Then, go from there.

#3 Invest Even While Paying Off Student Loans

There’s this pervasive idea that investing should be the last step in your personal finance journey—after paying off debts. This is a dangerous misconception that can have you missing out on several years of wealth building. While it’s true that some debts, like credit card debt, should be paid off as quickly as possible due to high interest rates, others, like student loans or mortgages, shouldn’t hinder you from investing.

In fact, the amount of money that you can earn in compound interest will probably outweigh the amount of money you’d save in interest by using that money to pay off your student loans more quickly. Yet, this topic is still fiercely debated in personal finance circles, so Lowry suggests some serious number crunching to find out where you stand.

“It’s the only way to make a compelling case for why it’s in your best interest to start investing before paying off student loans,” she writes.

First off, student loan debt and credit card debt are not the same. Lowry gives two scenarios to illustrate this.

Consider this: You invest $3,000 that earned an 8-percent return for two years. That totals $499.20 for simply investing. But, if you carry a $3,000 credit card balance with a 22 percent APR (credit cards have some of the highest APRs) while paying the minimum $120 a month, it will take just under three years (34 months) to pay off. That would cost over $1,000 in interest. If you were to invest instead of pay more of the balance of your credit cards in this scenario, you’d lose over $500! This is a clear case in which you should pay off your credit cards first.

Lowry’s second scenario portrays a person with an ideal situation investing in order to buy a home in the next 10 years. Let’s say you have a total of $18,000 in student loans with an average interest rate of 5.58 percent. The monthly minimum is $196, but you’re able to pay $250 while also paying all of your bills, saving money, and contributing to your employer-sponsored 401(k). Basically, you have it all together. You have an extra $200 a month to either pay off student loans or invest.

Fast-forward eight years. You’ve paid off your student loans with your extra $54 a month payments. This reduces your repayment period from 10 to seven years. You paid $3,969 in interest. However, if you had used your extra $200 for student loans then you would have paid off your debt in only four years and paid about $2,000 in interest. Then at four years, you’d have $450 freed up to put toward investing. If you went the investing route, you’d have invested $19,200. With an average 7 percent return rate ($5,423.53) the total would be $24,623.53. Don’t celebrate just yet—Lowry warns that there are three very real factors to consider:

  1. By investing, you paid nearly $2,000 more in interest on student loans. This makes your true return about $3,500 ($5,423.53-1,969).
  2. Further, if the investment goal was to save for a home in 10 years, you most likely would have moved your investments to a more conservative option halfway through. The resulting portfolio would’ve totaled $13,800 with a return of $1,800.
  3. Finally, we can’t predict the market. If you had bad luck with a remarkably low market for five years, your return would be even lower.

In this scenario, the line between whether to invest or not invest is murky. It all depends on your investment goal and timeline. Generally, longer investment timelines will earn you more with less short-term risk.

What if your finances aren’t all together and you don’t have a discretionary income like the person described above? It’s okay—most people don’t. According to Lowry, the most important factors to consider before investing while you’re in debt are goal setting, time horizon, risk tolerance, and asset allocation. Decide when you need this money. Depending on your timeframe, decide on whether you’re willing to risk that money or if it’d be better served paying off debt. If nothing else, you should be contributing to an employer-matched retirement account, if that’s an option.

Ultimately, if you have a low student loan interest rate (3 to 5 percent) and expect your portfolio to earn at least 6 to 8 percent in returns, then you might be better off investing. Any debt over 7 percent? Definitely pay it off asap.

#4 Socially Responsible Investing Exists

Yes, you really can make money without compromising your ethics or beliefs.

The sad truth is that by investing in most funds (mutual, index, or ETF) you may inadvertently be financially supporting and benefiting off a company that partakes in morally or philosophically ambiguous practices. The S&P 500 index, for example, includes companies that profit from casinos, alcohol, oil, and pharmaceuticals.

The solution? Lowry suggests impact investing.

Impact investing is defined as a company that is earning revenue aligned with at least one of the U.N. Sustainable Development Goals. The U.N. Sustainable Development Goals include, but aren’t limited to no poverty, zero hunger, quality education, gender equality, affordable and clean energy, responsible consumption and production, and climate action.

Similarly, SRI is an umbrella term for socially responsible investing, of which ESG (environmental, societal, and governance) compliance is at the forefront. No matter the compliance classification, it’s important to do further research to make sure that each of your potential index funds meets your value criteria. This is especially true for those who want to invest while adhering to certain religious beliefs. Halal investing, for example, is a faith-based approach that aligns with Islamic beliefs. Lowry writes that halal investing “instantly eliminates a lot of common index funds” like the S&P 500 which “has Molson Coors Brewing Company (alcohol) and MGM Resorts International (gambling).”

Lowry breaks down the most important steps for those interested in impact/SRI investing with a handy checklist.

  1. Conduct thorough research to be sure that your investments aren’t involved in anything you deem nefarious. Don’t take the ‘ESG compliant’ label at face value.
  2. Understand that your standards and those of a brokerage may be drastically different.
  3. If you can, avoid relying solely on impact investing for the sake of diversification. While returns may be similar, you’ll inevitably be opting for higher risk.
  4. It’s smart to choose SRI- or ESG-compliant funds! They actually help diversify your portfolio in addition to being more morally fulfilling.

#5 Where to Find Investment Management

Robo-advisors and apps are the future, but what about the value of human advisors?

Lowry makes a great point that the term ‘robo-advisor’ is a little misleading. Most online services branded as robo-advising, because they automate a number of the financial processes, do in fact have a human advisor tweaking the calculations or providing support to high-tier clients.

Even so, any type of online financial advisor you may choose will come with pros and cons. First off, make sure to pick a firm with a SEC and FINRA registration to ensure that they’re insured and safe to use. Then, decide if you prefer tax-loss harvesting, automated rebalancing, and a somewhat fool-proof portfolio protected from your own anxieties. On the other hand, robo-advising may not be for you if you don’t like the fees, lack of complete customization, and would rather be more hands-on and form a long-lasting relationship with a single human financial advisor.

It’s hard to beat the convenience of robo-advisors, but Lowry points out that “[t]echnology can only take you so far, and eventually it just may be time for you to speak to a human.”

Don’t be discouraged if you don’t have a large sum of money to invest but still would prefer a human advisor.

According to Lowry “size doesn’t matter to all advisors.”

Bottom Line

Erin Lowry knows exactly who her audience is. She’s a young, well-educated millennial woman who proves that mastering your finances can actually be a reality. Her “Broke Millennial” series continues to provide a solid foundation to understand unnecessarily complex financial topics.

Despite its length, this book is an easy read in part thanks to Lowry’s casual tone and simple, yet effective, advice. She excels at explaining wealth-building strategies for the mature adult who’s disillusioned with get-rich-quick schemes. Further, she explains the ins and outs, as well as the pros and cons, of investment tactics. There are plenty of charts and graphs to have you doing some actual number crunching, which many readers will appreciate. Lowry instills the belief in her readers that with confidence and patience, they too can take on investing.

So what are you waiting for? Pick up her book and start learning about healthy investment strategies!

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