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Trading vs Investing

 

How many times have you been around the break room or with your friends and someone mentions an investment that they’ve made that is “making so much money” for them?  Do you ever ask how long they have owned it? It could be something they’ve owned forever or a stock they just bought last week and sold today for a nice profit. Was it truly an investment or was it more of a speculative short term trade? So what is the difference between trading and investing anyway? Aren’t they interchangeable?

 

Let’s dive into trading first. If you’ve been around me much, you’ve probably heard me say “a good trader is like a good hitter in baseball, they are right about thirty percent of the time.” Everyone will tell you about the three they hit on, but no one wants to talk about the seven strikeouts they had along the way. The basic trade consists of choosing a stock, deciding a price you want to buy in, then figuring out a price you would like to sell it to make a profit. Hopefully you are buying at a dip in value and selling at a peak to make money. This is normally done over a short period of time. Some people will trade the stock just for the day, while others will hold it for a week, month, or longer. Your goal is to have a plan for the trade before you buy in, stick to that plan, and over the long term, hopefully your successful trades will outweigh your losers. Tools like technical analysis (chart reading) can help you find some short term trends to guide your strategy. There are thousands of different trading strategies that coupled with discipline can help you have success trading on any stock. With so many unknowns, trading is inherently risky.

 

Typically, investing on the other hand, is over a much longer period. We are trying to work with things you can control to offset risks of the market. You are looking out to the future, setting a goal, developing a portfolio of stocks, ETF’s, mutual funds, and bonds over time that will help you create the desired return necessary to reach that goal. Generally speaking, you will be spreading your money across many different asset classes like large companies, small companies, international companies, and fixed income vehicles. The idea is to find the sweet spot of risk reduction to return that will guide you to success. You may not always outpace the overall market, but hopefully you won’t be losing as much as the overall market on the down years, and make no mistake, there will be down years. Investing is not looking to hit the ball out of the park. We are hoping to hit singles, doubles, and maybe a few triples here and there to help us win the game. Think of it as that baseball team that isn’t flashy on the field, but when you look at the scoreboard at the end, they have scored ten runs and pieced together a victory.

 

Keep these two strategies separate in your mind. It’s great to do one, the other, or both, but never take a trade and try to stretch it into an investment. It’s like trying to stretch a single into a double and getting thrown out at second. Be happy with your single and have a chance at scoring on the next few at bats. On the same token, never take something you bought as an investment and turn it into a trade. Its difficult to keep your emotions out of this. You will inevitably buy-in right before a downswing in the market and you will want to sell. Generally, these down periods don’t last long, so trust why you bought that investment in the first place. As I always suggest, take advantage of an objective eye of a trusted advisor to help keep you disciplined whether you are trading or investing.

If you are keeping up with these articles so far, we are taking a journey through some of the biggest events in life. Graduating from college, moving out on your own, getting married, and now building a family. These are all big changes in your life and times that can be the most stressful on you both emotionally and financially.

Picture that moment you find out your are pregnant or have your first baby. A flood of emotions comes over you; excitement, fear, anxiety, and relief, sometimes all in the same day! What are you going to do? Are you really prepared for this? As much as anyone can say they are ready, it’s of my personal opinion that no one can be truly ready for what’s to come. I mean, think about it, you were just getting the hang of taking care of yourself, now you are responsible for another life! No pressure.

As with most other things in the life, money becomes an issue very quickly. Kids are expensive. According to the USDA in 2016, it currently averages about $245,000 to raise a child in the US. That’s not even considering if you want to help your child pay for college. That’s a shocking number! Now, my intention is not to cause you to panic, but rather be aware. Understanding what it takes is the first step to preparing. Where do you go from here? Lets take a look at five tips to help ease your life as a new parent. My hope is you will be able to spend more time enjoying your kids and less time worrying how you are going to afford everything they need.

 

1. Get organized!

I recently heard a story from a friend of mine that was traveling with her kids. Just the thought of trying to manage that can make a normal person anxious. She had everything ready to go, a new car seat and caddy, baby carrier, and backpack. Just when she thought everything would be smooth sailing at the airport, the car seat was broken and wouldn’t snap into the caddy. Now her hands are full and she’s struggling through the airport looking for help getting to her gate, feeling like breaking down the whole time. Life is crazy enough, throw a baby in the mix and everything becomes chaos. Worrying about your finances on top of this just makes things worse. Get organized with your bills, budget, and savings. Take advantage of websites like mint.com to keep track of where you are spending your money. Set up automatic bill-pays to make sure you don’t miss a bill payment. Take this one step further to set up automatic saving; if you don’t see it, you won’t miss it.

2. Set Goals

 Think about when you take a vacation, you don’t just jump in the car and go. We reserve hotels, map out our drive, and book activities. You should think about your family’s future in the same way. Would you like a bigger house for your growing family, the minivan (or SUV for you dads!), or trips to help your kids learn and grow? These are all goals, we just don’t always think about them in that way. We normally think about goals in terms of a sports team or our careers; how do we want to finish this season or where do you want to be with this company in five years. We have to have something to shoot for to base our progress on. It’s not always easy to think about goals in terms of your everyday life. Dream a little bit, talk about them out lout, and most importantly…..write them down! Set some realistic goals that can help you gain some momentum for a bigger stretch goal. It can be as simple as being able to buy your child their first car or something bigger like paying for college  or a wedding.

 

3. Start Early

 Just like saving for retirement, saving for you child’s education is most effective when you start early. Take advantage of the time value of money. This is the exponential growth of your dollars over time. There are a lot of different ways to save for schooling, whether it is for a private high school or college. There are state programs like 529s that allow you to take advantage of tax credits, as matching grant and scholarship opportunities, protection from creditors and exemption from state financial aid calculations, all along with tax deferred growth. These also allow other friends and family to contribute as well. It makes for a great birthday or Christmas gift! Keep in mind you don’t have to use your state’s plan, you can pick from other states as well, but generally you will get the most benefits from your own state. Along with the 529, you can establish a UGMA/UTMA custodial account for minors that would take advantage of their lower tax brackets. A financial professional can help you decide which route is best for you and your family. These are just two examples of common tools.

 

4. College or Retirement?

 Not to negate the importance of tip number three, but the question of saving for you or your child first can be a difficult one. Everyone wants to help their kids have more opportunities than you did and maybe that means making sure they aren’t burdened with student loans later in life. On the other hand, you also don’t want to work until you’re eighty years old. It’s a difficult balancing act. We’ve seen in recent years, more parents taking from their retirement savings to help pay for their kids’ schooling. Most financial advisors would agree, this is a bad move. You need that money to live on down the road and as much as a college education is becoming the norm out there, it is still a luxury item. They may lower costs by earning a scholarship, staying at a great state school (ahem..Boiler up!) or even decide to take up a skilled trade instead. Pay yourself first.

 

5. Ask for help

 Kids are certainly a lot to handle. We’ve all heard the old saying, “it takes a village to raise a child.” You will need help along the way, so don’t be afraid to ask for it. Whether it is to pick the kids up from school or someone to watch them so you can have a date night with your significant other, reach out to those around you. You don’t have a lot of time to enjoy your kids while they are young. Allow yourself more time to focus on your family and what is important by asking for professional financial help.

 

Every generation is given a title, the greatest generation are our grandparents, then the Baby Boomers, and the slacker generation for the Gen-Xers. Millennials have been given many titles, but the one that strikes me the most is the Boomerang Generation. The generation that finds themselves living back home with their parents all too often. Is it failure to launch syndrome? Do the Millennials refuse to grow up? What I believe is more likely, is many of us (millennials) just aren’t sure how to take that next step.

 

You’ve done all the work, put in the hours to graduate from college with a degree you hope will lead you to the life you have always dreamed of. A nice house, a nice car, vacations, but where do you even begin? All you know is you have thousands of dollars in student loans and you start work at your first real job on Monday. You were taught a lot of skills to help you excel in your new role, but there weren’t any classes about balancing a check book or paying back your student loans. What about buying a new car or this thing called a credit score? How did you miss all of these important learning experiences at college?

Don’t worry, its not as scary out there as you might think. Let’s break down a few quick tips.

1. Start with the basics:

How much money are you bringing in net of taxes on every paycheck? (Oh yeah, did I forget to mention you get to pay taxes now…) The dollar amount the company is paying you on paper sounds great, but don’t let that figure stick in your mind as the amount you are bringing in and able to spend. That mindset can quickly land you in a situation of trying to figure out why you are living paycheck to paycheck and hoping your parents haven’t turned your room into the home gym. That downtown apartment may be really nice, but lets make sure you can buy groceries too.

2. Know your interest rates:

Look into how much interest you are paying on each loan. Whether it is your student loan or a car loan, its important to know what the company is charging you to have that debt. Which one has the highest rate? Is it possible to consolidate some of the loans at a lower rate? How much of your monthly payment is going towards the principal vs interest? If you are asking yourself, “What’s the principal?”, no, its not the one not at your high school, it’s the original value of the loan you took. Knowing these details can help you in deciding which one to pay down first and move towards getting that weight off your shoulders.

3. Take advantage of employee benefits:

HR has told you its time to sign up for benefits. First off, what does that even mean? What are benefits? Do they mean trips, ice cream socials, and after work happy hours? Alright! I’m in! Unfortunately its not quite as exciting, but it is much more important. Benefits are things like your medical insurance plan, your 401k option, and employee stock purchase plans. No one has prepared you to chose what will be right for you and there are a lot of choices, so take the time to research each one. Be sure to take advantage of those that can help you be in a better place down the road, like the 401k. If the company will match some of what you put in, do it, its free money towards your future.

 

It can seem like a lot to handle right out of the gate and this is just the beginning, but trust me, you will get the hang of it. The biggest piece of advice I can give to anyone is to ask questions, a lot of them. We have all been where you are and you aren’t expected to know everything. Indy Wealth Solutions can be a great partner in guiding you down the right path and supporting you in this new journey. Let’s make sure adulting doesn’t boomerang you back to your parents.

Here we are, midway through the summer and in the heart of wedding season. It’s a great time to spend with family and friends, celebrating one of the greatest joys in life. Take a moment to look back on the first year of your own marriage. There are quite a few big changes in your life, right? Changes like, buying your first house together, taking your first vacations as a married couple, and who keeps leaving the cap off the toothpaste! With all of the exciting new things you do together, there are also a lot of stresses in that first year, especially when it comes to your finances. You are combining incomes for the first time, sharing bills, and most likely paying down student loans together. On top of all of this, you probably don’t share the same spending and saving habits as your new marriage partner. It can quickly become one of the biggest issues you will face throughout your marriage together. How many times have you found yourself struggling to voice your concern to your partner, without sounding like a mean parent trying to ruin their fun? Its important to keep communication paths open regarding your finances as a couple. We are so used to only having to worry about ourselves before we get married, that it can be a struggle to manage combining your financial lives. Where do you even begin?

              A great place to start is with your budget. Creating a simple budget together can set your married relationship off on the right foot. Sit down together and lay it all out there. Where do you spend most of your money month to month? How much debt do you currently have? What’s your personal splurge item? Its important each person understands how the other views money in their lives. Its alright to have differing views, in fact, that can lead to some of the best outcomes down the road. Combining those views can help break one another from poor habits or aversions that could hinder our financial success later in life. This isn’t the easiest conversation to have and it may take a few times of sitting down together to work through truly understanding one another. This is a great time to bring in a professional to help guide that conversation down the right path.

              So this wedding season, while you are enjoying  your time connecting with your family and friends at that beautiful wedding, I challenge you to reflect on your own marriage and relationships. What obstacles did you face in those first few years? Where did you turn to get help? What do you wish you would have known to make things a little easier on each other? Share those with the newly married couple. As their friends and family, we have a duty to help make their marriage as successful as possible. When you are thinking about what gift to give from their registry, consider how impactful it could be to the married couple to help them find time with a trusted advisor . Contact Indy Wealth Solutions to begin the introduction.