Our current economic climate has put a spotlight on the fragility of our finances. Weathering a recession can lead many people to confront financial mistakes like poor investment strategies, delayed retirement savings, a stale portfolio and lack of emergency funds. Victor Wang, the CEO of Stockpile (a popular investment app), walked us through some of these common mistakes and how to recover from them.
Q: What are some key financial moves people should be making right now?
Everyone’s financial circumstances are different, so it’s best to find investment advice specific to your situation. As with any improvement effort (be it fitness, finances, or learning), it is always best to lay out a realistic plan that keeps your long term goals in mind and is realistic for you to stick with. But the most important step is simply getting started.
[ Read: Is 2020 a Good Time to Invest? ]
Q: How would you predict personal finance and our economy will change post-pandemic?
I see the pattern trending toward simplified long term investing rather than short term day trading behavior. During the pandemic, people had time to continuously watch their stocks and make frequent, highly speculative trades with more complex tools like margin and options. But there is growing sentiment that investing with unfamiliar tools or hyper-reaction to market changes creates a high degree of risk and ultimately worse portfolio performance. This is not to mention the incredible stress of persistently staring at the volatility in the market.
Once working and social patterns get back to normal, I don’t see people having the time to persistently look at their phones to check their brokerage accounts. They will want longer-term stable results that don’t require a ton of work since they will likely be spending their time reconnecting with friends and family.
Q:With apps like Stockpile, the entry barrier has lowered and younger people are taking an active interest in investing. Can you speak to his movement and the impact these models might have on the stock market?
A: Yes, investing has been out of reach for most Americans for a lot of reasons. It was not only complicated and intimidating, but it was also costly to invest in the most popular stocks — like Facebook, Netflix, Google and Amazon. But more importantly, the brokerage industry did not value or welcome new investors with lower balances.
New investors were not only financially excluded; they were also emotionally excluded. If you look at the extreme underrepresentation of lower-income families, women, and people of color, it points to the lack of interest from the financial industry overall. Fintech is working toward welcoming everyone, providing financial opportunity and inclusion that didn’t exist before. With fractional share investing, everyone can choose to invest in companies they are familiar with, and even diversify with less money than ever before.
[ Read: 12 Things to Know Before Investing in Stocks ]
Q: Younger people probably feel like investing is for expendable wealth and that they’re too broke to bother. How would you advise people to reallocate their budgets and prioritize investing?
A: Hoping for leftover capital at the end of the month is usually wishful thinking. To have funds to invest, there are two simple choices:
1. Have a budget and stick to it. That way, you will have a plan to keep money set aside each month to invest or save. But keeping one’s budget on track is a challenge for everyone.
2. Set aside money to invest at the beginning of the month. So you don’t have to worry about how much you’re spending because you have already committed money to your investments and savings.
Common financial mistakes from Stockpile
“Thinking you don’t have enough to invest”
Some Millennials are cash-strapped because of massive student loan debt, the effects of the Great Recession and the lack of jobs for college graduates. Yet, investing is still possible even if you’re going through financial hardship. The earlier you invest, the more money you make. No matter your income or assets, start by putting away a little at a time on a regular schedule. You may be surprised how quickly you can make a significant investment tailored to your available capital base; don’t focus on investing mistakes.
“Only focusing on a retirement plan”
Those who plan for their financial future concentrate on a 401K, a long-term investment with relatively low returns. Although retirement funds are secure and vital, young investors can enjoy higher return rates from investing in the stock market by putting money into bonds or mutual funds. Modern retirement plans have evolved to include productive investment and earlier returns, but millennials need to optimize their return rate as much as possible. We need money for weddings, vacations, moves and to help our families, not just for the distant future of retirement.
[ From Trent: Thinking About Investing? Start Here First ]
“Lack of diversification”
Millennials tend to believe in tech company stocks more than traditional stocks. This fallacy is leading people to make high-reward, high-risk investments. Exchange-traded funds (ETF) are one way to minimize risk since they operate like mutual funds but trade like stocks and typically track the index. Whatever methods you choose, remember that diversification is the key to a successful investment strategy and will help minimize investing mistakes.
“Prioritizing debt repayment”
Millennials are often tempted to pay off all debts before saving money away for the future, which is a crucial investing mistake. Smarter money would invest and use profits gained to service current loans. This strategy takes off some pressure as your money works for you and helps you with investment mistakes.
“Not using available resources”
In the current climate, there are many ways young people can invest. An investing app like Stockpile lets you buy your favorite stocks for as little as $ 5 or $ 25. Fractional shares give access to stocks once thought as too expensive. For those wanting to learn the ropes, online training programs and content sites like The Ticker offer knowledge for beginners. With the requisite desire, millennials can easily venture into the stock market using their current knowledge and capital base. If you start small at Stockpile and invest a little at a time, allow the magic of compounding to take place and keep learning with The Ticker, you will find yourself in a better situation.
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