Financial Feminist – Financial Foundations #5: How to Start Investing

Intro

In this episode of the “Financial Feminist” podcast, titled “Financial Foundations #5: How to Start Investing,” Tori Dunlap explores the world of investing. She emphasizes the importance of understanding how to navigate the stock market for long-term gains and debunks common myths and misconceptions about investing.

Main Takeaways

Investing Basics

• Investing is one of the only ways to build wealth and retire.
• Investing is not a get-rich-quick scheme; it’s an ongoing practice.
• Day trading and gambling are not investing; they are risky.
• Anything that sounds too good to be true in investing probably is.
• The media often showcases the wins in investing but not the losses.

The Power of Long-Term Investing

• Over the last 100 years, the stock market has grown at an average rate of 8% per year.
• Investing in the stock market as a long-term game yields an average 8% return.
• If you put money in the stock market for only one day, you’re going to make money half the time, but if you wait a year, your percentage increases to 68%.
• Over every 10-year period, your likelihood of profiting is 88%, and over every 20-year period, it’s even higher, despite market crashes.

Getting Started with Investing

• Start investing after paying off any debt over 7% interest, having an emergency fund of 3-6 months of living expenses, and if your company offers a 401k match.
• Three options for investing: DIY investing, Robo Advisors, and traditional brokerage accounts.
• Robo Advisors do the investing for you, but they charge fees and may not teach you about investing.
• Hannah Montana of investing platforms offers step-by-step guidance and education.
• Investing is a two-step process: opening an account and purchasing investments.

Choosing Investments

• Index funds are a great diversified investment option.
• Emergency funds should be saved, not invested, for short-term goals like vacations or down payments.
• Retirement is the primary goal for investing, and retirement accounts can also help with children’s education costs.

Summary

Investing Basics

Tori Dunlap challenges common beliefs and narratives about investing. She highlights how the industry has been gate kept from people to maintain the profits of a multi-billion-dollar industry. She encourages individuals to manage their own investments, as financial professionals who manage investments are statistically bad at their job. Investing is not a get-rich-quick scheme, and it’s important to be wary of anything that sounds too good to be true. The media often only showcases the wins in investing, creating a skewed perception of the reality.

The Power of Long-Term Investing

Dunlap emphasizes the power of long-term investing and the historical growth of the stock market. Over the last 100 years, the stock market has grown at an average rate of 8% per year. Investing in the stock market for the long term yields an average 8% return. By waiting longer periods, such as a year, the likelihood of profiting increases significantly. Despite market crashes, the probability of profiting over 10-year and 20-year periods remains high.

Getting Started with Investing

Dunlap provides guidance on when to start investing and the different options available. It’s essential to prioritize paying off high-interest debt, having an emergency fund, and taking advantage of employer 401k matches before investing. She explains the three options for investing: DIY investing, Robo Advisors, and traditional brokerage accounts. While Robo Advisors can do the investing for you, they may lack educational guidance. Dunlap recommends a platform that offers step-by-step guidance and education, likening it to the Hannah Montana of investing platforms.

Choosing Investments

Dunlap discusses the importance of choosing the right investments. Index funds are highlighted as a great option for diversification. She advises against investing emergency funds, as they should be saved for short-term goals. Retirement is emphasized as the primary goal for investing, and retirement accounts can also be utilized to save for children’s education costs.

Conclusion

Investing is a crucial step in building wealth and securing a comfortable retirement. Tori Dunlap dispels common myths and provides valuable insights into the world of investing. By understanding the power of long-term investing and making informed choices, individuals can take control of their financial future.