Financial planning is difficult when the economy, and likely you too, are constantly in crisis. Making smart investments is an important part of financial planning. How does one have the confidence to invest in a retirement plan when they do not know if they will have a job in the near future?
Let’s work through this together.
In this post, I am going to: examine a few common bits of financial advice, quality ones, and review basics of investing by going over stocks, bonds, ETFs, and mutual funds.
Bear with me for a moment as I qualify myself to write on this topic. I am a relative beginner in investing. I started just over a year ago, in late 2019. If you count purchasing a home, almost three years ago.
When I look at quality financial advice columns on the internet (as opposed to the ones with pictures of money and luxury apartments), they cover some very basic elements of financial planning. This gives me confidence that I know what I am talking about.
I am a researcher. As a researcher, knowing what I am talking about is important. I not only consult free sources on the internet. I use my position to get behind the paywalls to access better resources that are not freely available to the public.
Live Below Your Means
A quality financial advice column is realistic. They say things like live below your means. Ok, but are we not all doing that? Is it just us downwardly mobile middle class kids? No, it is definitely the already lower or working class folks as well.
Living below your means means not buying a house you cannot afford. It means minimizing spending while also ensuring things are convenient for you.
Prioritize what works for you, but buying lots of clothes or shoes is not minimizing spending.
Tell your pyramid scheme Mary Kay, Arbonne, Tupperware, Pampered Chef, or whatever selling friends no. Not really, just don’t go overboard with it. Again, prioritize what works for you. Those pyramid schemes listed above are a bad idea. Do not invest in them. Any program that forces you to spend money is not going to earn you money.
Buying a House & Investing in Real Estate
Buying a house is tricky. You want to have knowledge of what you are getting yourself into and be able to maintain the house. You have to remember you will need to furnish it. Also, you likely do not have the best knowledge of home maintenance. We didn’t.
Some financial experts–ahem, Dave Ramsey–are wrong. Dave Ramsey annoys me. Some of what he says is ok, but he is serving his own self interests. He told people that buying a house was a bad idea because it puts you in debt, so you should rent because then you do not have debt. Bad advice.
You want the equity. Every mortgage payment is an investment in yourself. You are paying the bank and in turn that money becomes something of value to you every month. When you sell, you get that money back. If you’re renting all you do is lose your deposit and every payment accrues to the landlord.
Our financial institution, a credit union, was able lower our rate once COVID hit for a $1000 fee rather than going through a full refinancing rigamarole. This lowered our overall payments to that financial institution by over $30,000.
Our home is a step above renting. When we moved to our present city, we had a hard time finding rental housing. It came down to a $950 3 bedroom versus a $1250 3 bedroom.
One option had an unheated kitchen addition. This is the option we chose. The pipes froze in the winter because they were not buried so we had to have a space heater for the pipe that went across the ground into the kitchen area from the bathroom.
The other option we did not choose had a kitchen without doors on the cupboards and it was dark. They were both shitty options. I chose the cheaper of the two so we could save money more quickly.
The option I chose was in an area that the landlord said was up and coming, but really it was proximate to several drug dealers. Overall it was a lovely working class neighborhood a little too close to the main streets where racism locates our black neighbors. Residential segregation in the United States is real.
Anywho, some of the unsavory elements of that location really upset my spouse. As people who only recent accepted adulthood he was not a fan of being that close to reality. I myself love it. The ghetto feels like home, good people live there. But the fucking landlords should all be offed in public reconciliation ceremonies.
What convinced me to buy a home was the landlord, not the neighbors. The landlord called public safety on me when I repeatedly complained that the washer in our unit was broken. Since he never believed me, I’d send videos with proof. All I got was misogynistic condescension from this scumbag lawyer.
I do not apologize for the value judgements I am making toward these people. They well deserve to be judged because they are horrible people as demonstrated by their words and lack of action. A quality they demonstrated repeatedly. Horrible people get judged.
Anyway, this piece of trash called city authorities to inspect our living accommodations on the assumption that we were the problem. We told them what was up when they showed up unscheduled, violating the law. Did I mention this dude was a lawyer?
So the city dwelling inspector leaves and schedules something with us. When he comes back, we tell him about the carbon monoxide problem from the HVAC system which was not connected to the chimney and filling the house with carbon monoxide and the complete absence of fire and CO alarms in the house. That issue only got half repaired, just enough for it to pass code. The HVAC guys were none too pleased about that since the issue needed to be repaired and half-assed fix would quickly break down.
Public Service Announcement: Always buy your own fire and carbon monoxide alarms! You cannot trust landlords, ever. Safety first.
Don’t be that real estate investor. We will come for you.
So my spouse wanted the suburbs and a house. Fine, as long as it is closer to work.
We ended up buying a three bedroom one bath in a beautiful suburb. It turned out it needed a lot of work, but we did it and almost went bankrupt doing so. Nonetheless, the market just keeps getting more competitive in our whole state. Last I checked insurance had our home insured for a value $60,000 above what we bought paid and that was just two years ago.
Now my spouse wants to sell it but the market is so competitive there are only incredibly depressing options in our price range. When we do find something, we know we will have a few extra dollars from the sale of our place to leverage ourselves into something better suited for us.
Personally, I want to get involved in real estate investing. I just do not want to turn into the blood sucking scum of the earth landlord. I also do not want to encounter filthy irresponsible college students (whose parents won’t pay for damages) or any other gross demographic.
As someone renting out properties, I think it super important to maintain those properties and treat people humanely. We’ve got at theme over there at Hangover Throat: treating people humanely.
Basic Information on Investing: Types of Investments
A brokerage account is your taxable investment account. You transfer money into it and the choose which assets to invest in.
Asset classes have a more specific definition than I will provide here. What I want to refer to as assets are mutual funds, ETFs (Exchange Traded Funds), stocks, and bonds.
Bonds kind of suck. They pay a little more than your bank account in interest but are more risky. People say you should invest in these, but they’re wrong in my opinion.
Remember, I am not a professional trained financial analyst. I am well-informed and have done my research, which is more than a lot of these assholes who shame poor people and calling it “finance tips” on the internet.
As a lower income investor, bonds are kind of a waste of your resources. If you have one to invest, go for it. I will talk about risks in a moment. First let’s review these other three things: stocks, ETFs, and mutual funds.
Stocks are the “riskiest” asset. They come in all sorts of varieties and lots of bad advice exists on the internet. The best way to choose stocks is by learning about the company.
Oh, by the way, perceptions are everything in investing. If a stock is perceived as valuable, the price rises even if it is a useless stock. Part of knowing about a company is looking into what other investors are saying about it.
One way of learning about a company is by looking into perceptions people have about it. Another way of learning about a company is looking at what they sell and making your own evaluation of how marketable the company is in terms of the product sold to make its profits.
What are they selling?
Sometimes you will not understand what a company is selling. Some people say this is a reason not to invest. But listen, I don’t understand how the stock market actually works yet I invested in it and made a 20%+ interest/growth on my investment. That advice is hogwash.
I started researching the market as a student and my knowledge is rooted in understanding my academic learning about financial crises outside of a narrow economic frame of thought. This has prepared me little for knowing about investing, but it has given me important knowledge that a lot of other people do not know.
A third thing to consider with stocks is what I am going to call the “technicals”. For me technicals includes the daily high/low price for a stock, 52 day high/low price for a stock, dividends, the actual price of the stock today, price performance (as a percentage and as illustrated in the graph), and the news.
There are a lot more considerations to make, but for beginners start here.
Here is an image of Fidelity’s research site for Apple. It has all the information a beginner needs to start investing. Now, I am speaking to lower income investors. I am not here for those with large sums of money but maybe my advice works for them too.
I started investing with $500. I had more I could invest, but I quickly realized how fast your money grows with investments.
Fidelity is a great company because they allow you to invest with small amounts of money. They have low fees. Hell, they have no fees on their robo-advising account Fidelity Go if you have less than $10,000. I still have less than that in my combined accounts!
Let’s turn to ETFs and mutual funds. These have fees because they are managed. You want passively managed investments. Why? Because they are more secure.
Mutual funds are priced once daily. ETFs are like mutual funds except they operate like stocks and the price for a share is constantly changing throughout the day.
As with stocks you are concerned with: the daily high/low price, 52 day high/low price, whether the fund/ETF offers dividends, the actual price you pay today, price performance (as a percentage and as illustrated in the graph), and how it is rated by e.g. Morningstar.
Mutual fund fees shift based on who is investing so you want to pay attention to the turnover rate on mutual funds. The higher the turnover rate, the higher the fees you pay when you sell. Look for lower turnover rates.
ETF fees are standardized and you alone control those.
Sure depending on others is scary, but mutual funds are awesome. Especially important to invest in are index funds. These average out market growth so you are not losing money on inflation in your bank account.
Side bar, this idea of keeping up with inflation is more complicated that we are led to believe. I have not quite figured the truth out but when I learn, I will be sure to share.
Mutual funds are ideal for retirement accounts. There are lots of long term investments in mutual funds that pay off. Personally I think it is a great store of money, but there is always that notion of risk.
Risk and Ethical Investing
Risk is a weird subject in investing. Why? Because we know the market has its ups and downs. The general trend however is growth. Capitalism is a world system based on growth. Investing is investing in the system of capitalism.
This also means that your investments promote things like slavery and genocide, but does that mean you should not invest because you have a social conscience. I wish I could say that were the case. However, I can not. It pains me to recognize this.
At one point in my investing, my logic was: what are the most horrible companies, invest in those. Horrible for me meant known to violate human rights, engage in slavery and massacres, union bust, and destroy the environment.
There are ethical investing indicators listed in the investment profiles for stocks. There are asset classes of ETFs and mutual funds that have social and/or environmental considerations. In the end, you will see they are still invested in the big giants: Google, Facebook, Apple, Microsoft, Tesla.
Ethical investing is kind of a joke. I always say that investing in those ethical oriented funds and ETFs is at least encouraging the leadership in these companies to do the right thing. Unfortunately, I am a cynical person and the best they offer is pretending to do good in the world.
I think I’ve written enough so I will leave it here. There are many more elements of investing to look into today including dividends, REITs, and more. I have advice and warnings about the marketing happening on many popular financial advice and investing websites, blogs, vloggers, podcasters, etc. as well.
If you have questions about stocks, bonds, ETFs, or mutual funds, post them below.