Young Money: Investing in Your 20s

By Michael Berkowitz, Guest contributor

Common mistakes and the proper ways to invest in young adulthood told by financial experts

As we head into July 4^th weekend, I hope you have a great time with family whether in person or virtually. Inevitably the subject of money will come up as the different generations get together over some fireworks, grilling and downtime.

Several of our clients, including Dr. Guy Baker, Ph.D, founder of Wealth Teams Alliance (Irvine, CA),   Mark Rioboli, CFP, CFS,  Director of Wealth Management, Independence Advisors (Wayne, PA) and Matt Topley, President of Lansing Street Advisors (Ambler, PA) have been interviewed in the national media lately about investing advice for 20-somethings. Here are excerpts from their interviews.

Is now a good time for 20-somethings to be getting into the market? Why or why not and what are the consequences of waiting to invest?

Baker: Absolutely. Markets go up and markets go down. Now is the time to buy via dollar-cost averaging. There is nothing to make anyone think the markets won't increase over the next 50 years. The key is to NOT watch the markets day today. Invest in a widely diversified market-based fund and let it ride. Add as much as you can over time.

Rioboli concurred: No matter how high you think the market is, it will never be as high as it may be later in your life.  You can't time markets. Young people have such a long time horizon that moving into the market now is fine. If you are concerned about market volatility, you can dollar-cost-average into this market.

What are your best tips/rules for investing in your 20s?

Baker: Do not invest in target date funds. Invest in an all equity asset allocation fund. Be mindful of expenses and look for funds that buy both international and domestic.

Topley: Don’t get carried away with free stock-trading apps. Thanks to free online trading ups, young people and other inexperienced investors are jumping into this artificially supported market that is not based on fundamentals. Instead it’s being supported by record government spending on subsidized loans to businesses, extra unemployment checks and Federal Reserve purchases of trillions of dollars in investor debt. The stimulus programs that are supporting this market will not last forever.

Why do you recommend this strategy and why is it suited to a 20-something, rather than someone in their 30s, 40s, etc.? 

Rioboli: After stocking your emergency fund with 6 to 12 months of living expenses, I generally recommend a fairly aggressive allocation for 20-somethings. Early investors do not always have a good understanding of their cash flow. That’s why I suggest a slightly less aggressive allocation in the early years in case they underestimate their expenses and have to dip into their portfolio.

Baker has a different viewpoint: The investment strategy should be the same for anyone with at least 20 years to invest. When people get inside the 20-year mark, that is the time to change allocations and begin segueing towards a less risky portfolio.

Are there any investing mistakes that 20-somethings need to avoid?

Rioboli: Yes. Too often advisors recommend that young people load up on tax-deferred accounts. I generally don’t recommend investing solely in tax-deferred accounts. Twenty-somethings may face some capital-intensive years as they purchase a car or home or start a business. For this reason, tying up your money in tax-deferred accounts may not be the best idea.

Topley: Armed with free trading apps like Robinhood, the rush of new investors into the market is like the day traders who fed the dot.com boom of the late 1990s, before the market’s epic 2001 collapse. This will not last long.

Baker: Don't spend capital to pay off debts, especially student loans or credit cards. One dollar today at 7 percent will be worth $32 by age 70. So, every dollar that is taken from your long-term investment account to pay down debt or buy a car, or pay off student loans costs $32. Assume a car costs $20,000. If you use $20,000 of your investment capital to pay for the care, you are really paying $640,000 for that vehicle when you consider the opportunity cost of not having that $20,000 to invest.

Conclusion

All three of our experts agree on two things:

1. Never try to time the market, and
2. Focus on long-term holdings.

It’s perfectly okay to have a more aggressive portfolio when you’re young and already have a fully funded emergency fund. Making risky investments while you are young is beneficial for many reasons: a potential large payoff, enough time to recover from a loss, and self-educating. It’s vital to learn about investment opportunities and involve yourself in the stock market. Scared money makes no money.

What’s your take? We’d like to hear from you.

#Investing #stocks #younginvestors #MarkRioboli #GuyBaker #MattTopley

High Performing Advisors Work the Press

Our newly released Wealth Advisor Confidence Survey™ 2020, shows that cultivating media relationships is something that high-performing firms do a lot better than low-performing firms. Garnering press was once again among the Top 4 thought leadership tactics for CPAs, Wealth Advisors and Estate Planners in 2020 with nearly four out of five respondents (78%) rating it effective. In fact, that number jumped 9 percentage points since the outset of the COVID-19 pandemic.

Even more striking, firms expecting strong double-digit growth were nearly twice as likely as low-performing firms to consider media attention an effective thought leadership strategy. Case in point, here are some recent media hits from our clients who use our Just in Time Media Program:

• Kyle Walters (L&H CPAs) was published in Accounting Today: What Happens When You Apply the 8020 Rule to the 80/20 Rule?
  
  
• Randy Fox (Two Hawks Consulting) was published in Trust & Estates/Wealth Management.com: No Better Time to Cover Your Ass(ets)  

• Greg Bryant (Bedford Cost Segregation) was profiled in New England Real Estate Journal 2020 Ones to Watch  
  
  
• Dr. Guy Baker (Wealth Teams Alliance) quoted in Forbes: Will Coronavirus Quarantine Convince You To Retire Early?  
  
  
• Blake Christian (HCVT, LLP) was featured in Globe Street: How Opportunity Zones Can Give Shelter to CRE Investors During the Coronavirus
  
  
• Randy Fox (Two Hawks Consulting) quoted in Legal Zoom: What Changes Should You Make To Your Estate Plan During the Coronavirus Pandemic? 

Conclusion

As Marie Rourke noted in Smarter MSP (5 Tips for Working with the Press), getting mentioned in the “right kind of media outlet” can provide external validation for your products, solutions, and/or services. She also believes these earned media placements “tend to boost company rankings in popular search engines,” such as Google and Yahoo! as they carry more weight than paid or placed media, including press releases and company blogs—and they’re read and seen by customers and prospects. All this results in “increased relevance” that could lead to more business or new relationships, Rourke added.

What’s your take? We’d like to hear from you.

#Wealth Advisors Confidence #Media hits #Practice Management #Press mentions #thought leadership

Reader Feedback on SpaceX Delivering a Badly Needed Win for the U.S.

Last week’s post (SpaceX Delivers a Badly Needed Win for the U.S.) generated a wide range of responses. People saluted everything from the honesty of senior citizens (“They don’t make ‘em like your neighbor Fred anymore” ), to the lessons learned from mowing your own lawn (“Yes, Jews can and do mow!”) to the triumphs (and potential dangers) of letting private industry take over the U.S. space program.

Tom Hedberg, MSc, PhD, Executive Director of the International Medical Crisis Response Alliance, and a proud Hebrew lawn mower commented: “The only cold water I'd throw on your post from last week comes from my agreement with astrophysicist, Neil Tyson, about private industry's involvement in international efforts at space exploration. The difference is between the space program as it has been--which was a purely scientific endeavor--and what it could turn into, which is a for-profit endeavor.”

Hedberg said the Falcon launch and docking “(which we all watched avidly, start to finish) was picture perfect.” But he said “it was more of a demonstration than a tactical mission” and it accomplished nothing that hasn't been done before and as much as 15 years ago by NASA in collaboration with multiple contracted companies.  “It's a great ego-trip for everyone but what was really accomplished?” Hedberg asked. 

“When we start talking about lunar stations and colonies on Mars, are WE going to need massive infusions of capital to fund research and development,” Hedberg wondered, adding that we’ll also need a focus again on pure science rather, than on the profit motive. “Imagine MuskMars, Inc. immediately starts mining copper ores and ‘accidentally’ contaminates and kills residual subsurface Martian lifeforms. Further, what kind of competition is this going to engender between megacorporate entities? How is that going to impact the safety of astronauts and the data they collect?” asked Hedberg.

The fact is that diverting 1/10th of our nation's military budget (over $721 billion) to space science would move us toward the moon and Mars faster and more safely that tossing this bone to the corporate hounds,” Hedberg concluded.

What’s your take? We’d like to hear from you.

Conclusion

In the 1960s—another time of tremendous turmoil in our country—President John F. Kennedy famously said: “We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win.”

History tends to repeat itself. Occasionally that’s a good thing. We can only hope.

#SpaceX #NASA #Falcon rocket #Falcon  #Elon Musk  #Neil Tyson  #IMCRA

SpaceX Delivers a Badly Needed Win for the U.S.

I was chatting with my 80-something next door neighbor over the weekend. Fred’s a conservative, no-nonsense ex-marine who lived through World War II and served in Korea. I don’t think we have the same political views, and he’s a lot better with tools than I am. But I’m okay in Fred’s book because we both sent our kids to public schools and because I’m the only other guy in our rapidly gentrifying neighborhood who still mows his own lawn.

Fred hasn’t seen the U.S. on a losing streak like we’ve had in 2020 since he was a kid during the Great Depression. We’re both hoping last weekend’s well-executed SpaceX launch will get us out of our collective funk.

The what launch?

Lost amid the 24/7 coverage of urban riots and pandemic resurfacing was a monumental leap forward in human space travel on Saturday and Sunday. For the first time ever, a private company (SpaceX) launched astronauts into orbit, nearly a decade after the government retired the NASA space shuttle program in the aftermath of the Challenger tragedy.

On Saturday afternoon, two NASA-trained U.S. astronauts lifted off from the same Florida launchpad that once served Apollo missions and the space shuttles. But the rocket and capsule they were piloting was built and operated SpaceX (not NASA). After bad weather scrapped the launch midweek, liftoff and orbiting followed the plan to perfection. Then on Sunday, the Falcon 9 rocket successfully rendezvoused with the International Space Station (ISS).

As The New York Times reported: “It was a moment of triumph and perhaps nostalgia for the country, a welcome reminder of America’s global pre-eminence in science, technological innovation and private enterprise at a time its prospects and ambitions have been clouded by the coronavirus pandemic, economic uncertainty and political strife.” 

My son is a college student majoring in Mechanical Engineering and Aerospace. He’s also a hard-core basketball fan, but I hadn’t seen him this excited since his school was blowing through the March Madness brackets over a year ago. He and his classmates were glued to their various screens and monitors all weekend whooping and hollering after each successful phase of the Falcon 9 mission. It’s another kind of passion the young generation has. But since they didn’t take their exuberance to the streets, the SpaceX/NASA mission—and young people’s excitement over it-- went widely unreported by the news media.

Historic firsts

Saturday’s mission was the first launch of NASA astronauts from the United States since we retired our space shuttles in 2011. Over the past decade, NASA has paid Russia’s space program an estimated $90 million per seat to transport our astronauts to the ISS. Acknowledging its own limitations, NASA has encouraged SpaceX and other private companies to take the lead in commercializing space flight and furthering scientific exploration.

While our space program has always been pretty good at launching huge things into the sky, it was not until 2015 that SpaceX figured out how to reuse the massive launch boosters rather than dumping them into the ocean--expensive and toxic trash never to be seen again. Watching the boosters coast to a pillowy soft landing on top of the waiting drone ship—completely intact--was arguably more impressive than the launch itself. This aspect of the public-private partnership is great for the U.S. space program, great for the environment and great for taxpayers. The massive cost savings can be passed on to future space travel customers.

More impressive than the technology and the public private partnership was SpaceX founder Elon Musk’s relentless pursuit his Falcon rocket vision. He has suffered numerous a very public embarrassing string of failures (YouTube) that would have been career enders for most government or corporate bureaucrats. But, he never stopped fighting and never made excuses.

Conclusion

Fred told me over the din of his weedwhacker the other day: “Two things I never thought I’d see in my lifetime: Figuring out how to re-use a rocket and a Jewish guy mowing his own lawn.”

Whether it’s race relations, politics, public health, space travel or lawn care, the more you can see the other side’s point of view, the faster we can get over our differences and become a productive society again. NASA figured it out. Why can’t the rest of our so-called leaders?

#SpaceX #NASA #Falcon rocket #Falcon  #Elon Musk