Category Archives: Investing

Investing Options for Newbies

Investing used to be a privilege reserved for the Wall Street crowd and the few others who already had enough money and were able to afford hiring a stock broker. The digital revolution of the last 20 years and some changes in laws and regulations have opened this coveted field to people of all walks of life who are interested in creating passive income and increasing their financial net worth beyond a paycheck. Nevertheless, investing is still a very risky undertaking and if not done carefully, it could very well result in a terrible financial situation.

If you have been thinking about getting in on the action but unsure where to start, keep reading – we have compiled a list of a few investment options that are well suited for newbies in the field.

Certificates of Deposit – Play it Safe

CDs (Certificates of Deposit) have been around forever, and to this day remain as one of the safest investment options. Most banks and credit unions offer CDs with various terms and APYs. As a general rule of thumb, the longer the term is, the higher interest rate it offers. Keep in mind that there are penalties for early withdrawals so only choose a term you feel comfortable with not having access to this money. The APYs offered vary widely from one financial institution to the next, so take the time to shop around for the best rates. In our experience, local credit unions offer much better rates than large national banks.

Wealthfront – Get Started With Automated Investing

Wealthfront is where I do all of my taxable investing. I invest in index funds anyway, where fees are very low, but Wealthfront has the added bonus of Tax-Loss Harvesting, which takes advantages of market volatility to help reduce your tax bill, leaving you more money to invest. And right now, you can get $5,000 managed for free!

There are many other robo-advisors to choose from, including Betterment, which has offerings similar to Wealthfront. It doesn’t matter which service you choose, as long as you do something productive with your money!

Robinhood – Commission-Free Stock Trading

Robinhood will make you feel like a real stock broker – with this app you can invest in actual stocks, in addition to cryptocurrencies, ETFs and options, all commission-free. That’s right, Robinhood offers free stock trading! The standard $10 per trade fee charged by most other brokerages is no longer a deterrent to the new investor who may be wanting to buy just a few shares while learning the ropes.

Fundrise – Invest in Real Estate

Fundrise is a platform that allows you to invest in real estate. The company manages a diversified portfolio of real estate properties, and your investment is spread amongst dozens of assets, thus minimizing the investment risk and optimizing your investment returns. The current minimum to invest is $500, and even though this may sound like a significant amount compared to some of the options we discussed earlier, keep in mind that real estate is expensive and without platforms like Fundrise most of us would never have the capital to invest in real estate independently.

Rule of Thumb – Diversify Your Investments

Whatever options you may choose to get started, do not forget the cardinal rule of investing – diversify, diversify, diversify. Split your investment money between several options you feel comfortable with and continue educating yourself on each in order to ensure your long- term success as an investor.

Investing 101: It’s Not That Hard

If you’re new to investing in the stock market, the terminology and numbers might scare you at first sight. Fancy math, charts with patternless lines, PhDs in fancy suits. I have news for you: it’s all a facade. The secret is that over 90% of these guys with their quantitative models and algorithms can’t even beat the benchmark index with any consistency. If you’re out trying to get rich trading marijuana stocks and alt-coins, the data shows that the odds are so stacked against you that it’s not worth the time or the stress. The failure rate is around 98%. Here’s a quote from famous investor Warren Buffett:

“The 21st century will witness further gains, almost certain to be substantial. The goal of the non-professional should not be to pick winners — neither he nor his ‘helpers’ can do that — but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal.”

The reason why active managers are so bad at doing their job has nothing to do with their intelligence. In fact, it’s the most brilliant guys that are susceptible to failure at short term investing or trading. The reason is that human nature and trends are so unpredictable and random in the short and medium term that it turns stock picking into nothing more than guessing using fancy math and fundamentals. If you throw in human emotion, in only compounds the problem further. The market has a way of exploiting ego and eating alive the folks that are 100% certain of their picks in a completely uncertain environment. Here’s another quote from Uncle Warren:

“By periodically investing in an index fund, for example, the know-nothing investor can actually outperform most investment professionals. Paradoxically, when ‘dumb’ money acknowledges its limitations, it ceases to be dumb.”

So how do you make money in what seems like a floating casino? It’s pretty easy, actually. Just keep it simple. Let’s use my mother, for example. If you asked her to give you the ticker of any company in the S&P, she probably couldn’t do it. She’s also made, on average, about 12% annually over the past 15 years. Past performance is not indicative of future returns, but on average the market returns around 8.5% annually. The key word here is average. There will be bumpy roads ahead, and the headlines will not help.

stock market chart

Here’s a chart of the overall market since 1900. Through thick and thin, we’ve weathered every war, crisis, disease, political scandal, and bubble to date. That’s not to say there’s no significance in the issues that I just previously listed, but they are issues that aren’t capable of knocking the overall market off of it’s long term trajectory. They are issues that are of tremendous value to media outlets in efforts to catch eyeballs and clicks while at the same time stirring up some entertaining water cooler material.

A solid investment strategy really revolves around keeping it simple and detaching yourself from the short-term noise. Buying a simple index fund, or portfolio of safe large cap stocks on a recurring basis is a proven investment method. Whether it’s on a monthly or quarterly basis, with $100 or $10,000, the return on your investment over a longer time frame will surprise you, and there’s no better time to start than right now. Vanguard and Fidelity are the popular places to buy cheap index funds, but be on the lookout for some special offers that you can take advantage of. Brokers are at war with each other in customer acquisition.

My 9 Month Old Daughter Is Funding Her Roth IRA

My daughter is the newest start of the CW show Jane The Virgin. For those that don’t watch, it’s a satirical comedy-drama telenovela that is currently in its 3rd season. While Gina Rodriguez is the lead, the show needed some serious star power, so the producers called baby Elianna in.

How Did She Get Involved?

We live in Los Angeles, so at the hospital, babies are assigned an agent as they exit the womb.

I kid, we signed up with an agent her cousin used a few years ago. We were hoping for a few print ads, maybe get her picture on a product box, and frame that. Lauren took a few months off from work, so it was sort of perfect for her situation. Every few weeks, we received an email for an audition, and Lauren and Elianna went in and posed for a few pictures. Those never turned into anything major, but then we received the email for this opportunity.

I guess they needed a white baby with blue eyes and she fit the bill. There was no audition, they must have seen her picture and known that she was born to play this role. In the show, there are a set of twins, and Elianna plays one of them. She’s already been in two episodes, and may appear in another one or two episodes later in the season.

How Much Does She Make?

Not enough! We went into contract negotiations with a very hard line stance and came out with exactly what they give as standard to all background baby actors: $250 for each taping, which can last up to 4 hours. Sometimes she would be filmed for 15 minutes, sometimes they’d have to do the same scene over and over because one of the babies was babbling, and sometimes they wouldn’t even use her and she’d take a nap in another room, counting her hard-earned cash in her dreams.

In all, she went in 9 times, earning herself a cool $2,250 (minus 10% to her agent).

Starting A Roth IRA

What are we doing with this money? First, we created a separate bank account for her, to keep it separate and easy to track. Then, it goes directly to a Roth IRA for her. You can contribute all income earned from work (up to $5,500) to a Roth IRA in 2016, so everything she earned will go straight to her account. We’re opening an account for her in Vanguard, and since we don’t plan on touching this until she’s at least 18, we’ll invest it aggressively and hope that the magic of compound interest works wonders for her.

What’s Next For Her?

For now, she’s going out on top. She gave it all she had, but with Lauren being back at work, Elianna has retired to the comforts of sipping milk in daycare, and we don’t have any plans for additional work. It was a fun ride while it lasted and I find it hilarious that she’s been on TV, but it’s time for some younger actors to have their chance.