“I’m tired of seeing so many kids coming out of college without even the basic skills for living a free life for themselves.” ~ Vincent Pugliese
If financial investing is foreign to you, read this article all the way through. Your thirty-year-old self will thank me.
I started investing money in the stock market when I was twenty-years-old after my Music Appreciation professor gave an impromptu lecture on the topic. In retrospect, I’m amazed that it took so long for me to be exposed to it.
Here’s the gist: By putting money into a mutual fund you can become independently wealthy. You put a little bit of money in the fund each month, and thorough compounding interest that money grows all by itself. The process is simple, but most people wait too long to begin.
I asked Max Ross, a senior on the Fredonia men’s ice hockey team, to help me explain these concepts. Ross began investing after working as an intern at a credit union in Washington D.C.
Neither I nor Ross are financial advisers. Please consult one before making any investment decisions of your own.
Jon-Ryan Maloney: I think a lot about how to get more young people to understand this. I don’t want to say everybody should be doing this, but. . .
Max Ross: Well, everyone should be doing it. People think that you need a lot of money to do it, but you really don’t. There are no-fee accounts you can open: You could put $50 into an investment and never look at it again. Over time it’s going to turn into something, even if it’s not a lot.
Maloney: Is that what you did?
Ross: Well, when I was a baby my grandmother bought stocks for all her grandchildren; I have shares in McDonald’s and Disney. I look back to what the stock prices of those companies were then versus what they are now, and it’s wild how big a difference it is. That’s another reason how I know about this. I’ve been getting $5 dividend checks from McDonald’s and Disney since I was little. Now, every time I have some money I put some in my investment account first.
Maloney: If you were to get a $100 paycheck, how much of that would you put in your investment account?
Ross: That depends. This summer I would invest 10-12% of my paycheck, $100 or $200 here and there. Everything I’ve read says, “Pay yourself first,” which is an odd concept because everyone thinks, “I’m going to pay my bills and do this and that.” You think you’re paying yourself, but in reality you’re going to pay all your bills, then treat yourself with what’s left. Instead, you should take that money, and before you even do anything with it put some in an investment account. A small 10% isn’t even noticeable to most people. You do that right away and then you worry about the bills and all that. All the books say that’s the best way to do it. That’s how you’re going to accumulate wealth, because if you wait until after all your payments there’s a good chance you won’t even put it in there. You’ll end up spending it.
Maloney: Are there any simple readings or books that you could point someone to to start with?
Ross: I like Audible. Have you ever heard of Audible?
Maloney: Yes, audiobooks.
Ross: Audible is definitely the way to go. Every time you get in the car you listen to a book for 20 minutes, and you’ll finish one in a week. You’ve got to find the right ones–some of them can be really dry–but that’s a simple way to go about it.
Maloney: Is there any particular book you’ve really liked?
Maloney: I’ve never heard of that one.
Ross: A financial adviser gave it to my sister, and my sister left it for me. I finished it in a few hours; it was nothing hard to read. It talks about how investing doesn’t need to be as hard as you think. The thing that screws people up is their own emotions. The media scares people. You put your money into an investment and you hope it’s going to grow, but some days the market will dip, or something will go bad in India, and the stock market will dive and people will pull all of their money out. When in reality, you should buy as much as you can when it goes down. When you look over time–yes, there are crashes and recessions–but the stock market always comes back. Most of the time it does even better than it was doing before.
Maloney: It’s a hard concept for people to understand: that the stock market always grows.
Ross: And until you actually see the numbers and graphs, people can’t really understand that. It always grows.
Maloney: On a graph the Great Depression looks much smaller.
Ross: The market goes up, then it dips, and then it comes back even better.
Maloney: When I was twenty-years-old I invested $3,000 into a Vanguard account. It was in 2008 right before the recession and I lost $1,000 immediately. Then I turned on CNN and they had someone on who said, “The market is always going to go up.” And so I bought more of the fund, which was really smart in retrospect.
Ross: When it comes to investing you can only learn so much by reading. A lot of it you’re going to have to pick up by doing it. It’s like anything: When you do something you’re going to learn things you can’t pick up through reading.
Maloney: Tell me about how you transitioned from investing in individual stocks to investing in mutual funds.
Ross: I started with an app called “Robin Hood“, and honestly, it’s a good place to start for people that are thinking about investing. There are no commission fees, nothing. You just put in your money and buy and sell shares of stock as much you want. You can see how it goes up or down.
Maloney: Just to experiment with?
Ross: It’s just a really simple tool, whereas I have an account with Charles Schwab and it’s complex. It’s professional level, and some of it I have no idea what’s going on. I started with Robin Hood over the summer and I’d only put a little bit of money into it just to see what would happen. It became very stressful, because if you’re investing in individual stocks there are so many factors that drive the price up and down, and so you’re watching it all day. There were days that I’d have a share of stock at $60, and then all of a sudden it would drop to $30 and I’d freak out. I’d look at my account balance and see it drop $40 and think, “What do I do?” Then it could take a couple weeks or months to get back to that price, or it could never get back to that price.
Maloney: Or the company could fold.
Ross: Or the stock could start getting valued lower–investors realize the price was too high so they stop paying so much. That was stressful. It’s hard to watch your money fall. After reading that Simple Wealth, Inevitable Wealth book I learned that the basis of it all is that you invest in mutual funds that grow over time. It’s very diverse and a lot less risky than one particular stock. So now if I see my account balance going down it’s because it’s a bad day in the market.
Maloney: And everyone is having a bad day.
Ross: It’s just a bad day. Now I don’t worry about it, but investing in individual stocks is a lot to handle all day long, especially if you have ten or twelve of them. The only way to know if it’s going to go up or down is by constantly reading news articles. I have an app on my phone that’s constantly going off with news about certain stocks.
Maloney: So now that you have this base of mutual funds, what are you going to do with your money in the future?
Ross: My money is for the long-run. I don’t even consider it money right now; it’s just there, and I’m going to keep pumping money into these funds until I need it. I think it’s hard for people my age to think about retirement because it’s so far away. But it’s like you said about compounding interest: The longer your money is in the account the more it’s going to grow over time. You could put a big sum of money in when you’re 50, but it’s not going to be nearly enough. My goal is to have a lot of money, because I don’t want to worry about money when I’m older, ever.
Maloney: It’s also hard because you can put a lot of money into these accounts for a long time–for five or ten years even–and not see it grow that much. But over time it will start to snowball.
Ross: A lot of working Americans don’t have a plan for retirement. They don’t think about it until it’s too late and then they’re scrambling. That doesn’t sound appealing.
Maloney: The national savings rate is something like 1% or 3%. It blows my mind.
Ross: For example, my sister worked at a company and was offered a 401K, and she didn’t know how much of her paycheck she should put in. Usually it’s 12%, but she thought that would be too much. I said, “Go for it. Just do it. Do 12% and see if you can live.” She came back and said, “I don’t even notice that it’s gone.”
Maloney: You just get used to your paycheck being that amount and you manage your life around it.
Ross: You don’t even notice it. It might be a couple extra hundred bucks, which seems like a lot in that moment, but once it’s taken out you don’t even notice it was there. You don’t even realize it.
Maloney: Is there anything else that seems important to mention?
Ross: When it comes down to it, the earlier you start the better. If you’re confused there are so many people that can help you out that won’t charge you for their services.
Maloney: Like who?
Ross: I could ask you. I’m not saying you have the best advice, but there’s always someone out there that knows a little bit more than you know. There are guys on my team– like Tommy Martyn–he’s huge into it. He knows a ton and if I have a question I’ll ask him. When it comes to money we’re told not to talk about it. Nobody wants to tell you how much money they make, but you’ll never get anywhere without asking people.