by Erin Lowry
ADVANCE PRAISE FOR
Broke Millennial Takes On Investing
“A great intro for newbies to the terribly complicated financial world, mixed with personal advice on how to handle debt and emulate the mindset of the wealthy. A wonderful resource.”
—Danielle Town, author of New York Times bestseller Invested and founder of The Invested Practice
“Erin is uniquely capable of making even the most difficult-to-understand financial concepts into something you actually want to talk about, and investing is no exception. If you are intimidated (or, frankly, bored) by the idea of investing, let Erin prove you wrong on both counts with this fantastic book.”
—Chelsea Fagan, cofounder of The Financial Diet and coauthor of The Financial Diet
“Erin delivers exactly what she promises in this easy-to-digest, conversational book. If you’re a millennial who wants to invest but don’t want a boring tome to put you to sleep, this guide gets you started without drowning you in technical jargon. ‘Level Up’ your money by reading this book!”
—Kristy Shen, cofounder of Millennial Revolution and coauthor of Quit Like a Millionaire
“Broke Millennial Takes On Investing is the beginning investing book you’ve been waiting for. Not only does she break down investing terms, but she also explains ‘the why’ in a way that will resonate with millennials and non-millennials alike. What most impressed me is Erin’s ability to explain how to invest in a way that is easy to understand and implement. As a former preschool teacher turned financial educator, I can say that this book has all the hallmarks of a great, transformative read. If you’re starting your investing journey, bring this book along with you.”
—Tiffany “The Budgetnista” Aliche
“Erin compares asset classes to craft beers. Need I say more? She explains investing in a way that’s simple and easy-to-grasp without being simplistic. She entertains you with stories of Dutch tulips and Ask Jeeves, introduces you to new technologies, walks you through ethical investing, and explains the investment landscape so well, you’ll feel like an expert by the time you finish reading this book.”
—Paula Pant, founder of AffordAnything.com and host of the Afford Anything podcast
PRAISE FOR
Broke Millennial
“It’s the youthful perspective that makes this book so refreshing. It’s well written and researched by a millennial for millennials. You hear their voices and their concerns without the judgment, sarcasm, and superiority we older folks too often convey when we talk to young adults about money.”
—The Washington Post
“Erin Lowry’s Broke Millennial is a charismatic guide to personal finances for people seeking a modern, thorough introduction to the topic.”
—Refinery29
“A new book about money that teens and millennials will actually read. . . . This not only has great insights and tips about handling money, but it’s written in a casual, relatable way.”
—Time
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Copyright © 2019 by Lowry Media LLC
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Library of Congress Cataloging-in-Publication Data
Names: Lowry, Erin, author.
Title: Broke millennial takes on investing : a beginner’s guide to leveling up your money / Erin Lowry.
Description: New York : TarcherPerigee, 2019. | Includes bibliographical references and index.
Identifiers: LCCN 2018050287| ISBN 9780143133643 (paperback) | ISBN 9780525505433 (ebook)
Subjects: LCSH: Finance, Personal. | Investments. | BISAC: BUSINESS & ECONOMICS / Personal Finance / Investing. | BUSINESS & ECONOMICS / Personal Finance / Money Management. | SELF-HELP / Personal Growth / Success.
Classification: LCC HG179 .L6963 2019 | DDC 332.6—dc23
LC record available at https://lccn.loc.gov/2018050287
This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If you require legal advice or other expert assistance, you should seek the services of a competent professional.
While the author has made every effort to provide accurate telephone numbers, Internet addresses, and other contact information at the time of publication, neither the publisher nor the author assumes any responsibility for errors, or for changes that occur after publication. Further, the publisher does not have any control over and does not assume any responsibility for author or third-party websites or their content.
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To Peach, my partner in building wealth
Contents
Praise for Erin Lowry
Title Page
Copyright
Dedication
Preface: Is This Book Right for You?
Introduction: The Case for Investing
Chapter 1: But Are You Ready to Start Investing?
Chapter 2: Let’s Establish a Common Language
Chapter 3: Grabbing the Bull by the Horns When You’re Risk Averse
Chapter 4: I Have a 401(k)—Do I Need to Do More Investing?
Chapter 5: Should I Invest When I Have Student Loans?
Chapter 6: I Want to Put Money in the Market—How Do I Start?
Chapter 7: I Like Gambling—Isn’t That Like Individual Stock Picking?
Chapter 8: Investing—Of Course There’s an App for That
Chapter 9: Robo-Advisor or Human Advisor—Which Is Better?
Chapter 10: Impact Investing—Making Money Without Compromising Your Ethics or Religious Beliefs
Chapter 11: Riding Out the Panic of a Market Crash
Chapter 12: Sniffing Out a Scam
Chapter 13: So, You’re Ready to Sell an Investment
Chapter 14: Tactics the Wealthy Use to Make and Preserve Money
Chapter 15: Where Can I Get More Investing Advice (Because I’ve Been on Reddit . . .)?
Conclusion: Now It’s Time to Level Up!
Acknowledgments
Notes
Index
About the Author
Preface
Is This Book Right for You?
HELLO THERE,
Are you someone who is already maxing out your 401(k), making use of multiple investment apps, running a net worth update once a quarter, and reading Morningstar’s website for fun? Awesome! You’re crushing the game and are certainly more than welcome to read this book, but it’s probably fairly rudimentary for you.
Or are you a rookie investor who may not even know what a brokerage account is but really wants to learn how to level up your money game in order to build wealth? Great! Welcome to the perfect beginner investing book.
Infomercial-like start aside, this book is my response to all the emails, DMs, and tweets I’ve received since publishing my first book, Broke Millennial: Stop Scraping By and Get Your Financial Life Together. People go
t their financial lives together and then they wanted to do more, and “more” meant investing. But I couldn’t just say, “Start investing,” because then the next, logical question was “Okay, but seriously, how do I start?”
I pondered that same question myself once, and I found it more difficult to answer than it should’ve been. Too many of the investing books on the market are jargon-heavy, assume that the reader has a base-level understanding of the markets, or, frankly, don’t address Millennial-specific pain points like whether it makes sense to invest while paying off a student loan. (Yeah, there’s an entire chapter dedicated to that question in this book.)
There will be jargon in this book. There will be stats and numbers. But we’re also going to take things from what I consider the actual beginning: determining if now is truly the right time for you to start investing. We’ll talk it out, and if it’s not the right moment, then this book will still be here for you when you’re ready.
If it is time, well, you’ve got 221 pages of fun waiting for you.
Yours in building wealth,
Erin
Introduction
The Case for Investing
ON A MILD summer day in Buffalo, New York, a simple conversation turned a risk-averse twenty-one-year-old woman into a bullish investor.
The year was 2010. America was just starting to pull out of one of the worst recessions since the Great Depression, but honestly, I couldn’t have told you much about it. I was heading into my senior year and living in the spectacularly insular bubble that college so often tends to create. There were rumblings about it being tough out there for employment prospects, but as a journalism/theatre double major, I already had fairly low expectations. No one spoke of the housing crisis. People’s parents were certainly being laid off, and yet that never trickled into dinners in the dining hall or late nights chatting in the dorms.
I was in the car with my dad. He drove while I sat shotgun. We were making small talk about the internship I’d worked that summer, which I’d accepted despite it initially being unpaid. To subsidize the cost of working for zero dollars, I saved up my resident assistant money, and I stocked up on pasta and Costco-size jars of peanut butter in preparation for scraping by. But a series of fortunate events transpired—namely, The New York Times published a piece questioning the legality of unpaid internships, and the company where I was interning announced on my first day that interns would now be getting paid $9 an hour for our forty-hour work weeks. Eight weeks later, I had much of my initial savings left, plus the money from the internship itself.
I’d started watching The Clark Howard Show during lunch and breaks. Even though I’d been money-motivated from a young age, and an avid saver, I’d never read about or researched how to build wealth. I figured I would just keep being a diligent saver (putting my money into a savings account) and keep working hard until I made a six-figure salary, and somehow the combination of those two things would mean I’d one day be wealthy.
Clark Howard mentioned in one of his episodes that it’s smart for college-age kids earning taxable income to open up something called a Roth IRA.
That fact bubbled up in my brain as I told my dad how much money I’d managed to accumulate since I didn’t have to raid all my savings to survive during the summer.
“A money show I watched mentioned it’s a good idea for college students to open a Roth IRA. Should I do that?” I asked.
“Sure, it’s never a bad idea to start investing early,” he told me.
“Wait, that’s investing?” I asked. “I thought it was a way to save for retirement or something.”
“It is a way to save for retirement, but it’s also investing,” he explained.
“Oh, I’m not sure I’m ready to invest yet,” I responded.
Then he told me a story about investing that still guides how I behave as an investor.
Before I share his story with you, it’s important that you know I am generally a risk-averse person. I never went through a serious rebellious phase and rarely broke a rule at home or school. You couldn’t even get me on a roller coaster until well into my teenage years. My brain, to this day, likes to quickly compute the consequences and figure out how to mitigate any fallout before I take a risk. Given this information, logic dictated that I’d be a cautious investor. And I probably would’ve been, if not for the following story from my father.
“Here’s what you need to understand about the stock market, Erin. It’s cyclical. It goes up and it goes down, but you need to hang on when it goes down and wait for when it goes back up. In 2008, the stock market went through a big crash and remained volatile for a while. When that happened, some people panicked and tried to pull out their money by selling their investments. On paper, your mom and I lost a lot of money during the months the market was down. I say ‘on paper,’ because we didn’t sell those investments. We held on to them. Instead of panicking, we actually put more money in the market. When it’s down, that’s usually a good time to buy, because the stocks are essentially on sale. Then you just wait for things to turn around. Today, we not only have back what we lost on paper when the market went down, but we have even more because we were able to buy more at a lower price.”
* * *
• • •
IT’S OKAY IF a lot of what my dad told me sounds like jargon to you. I felt the same way on that summer day in 2010. I did, however, get the overall point: the market goes up and the market goes down, so you need to have a long-term vision for your investments. And I got the distinct feeling that investing was what I needed to do in order to become wealthy. It became apparent that working hard and having the optimistic belief that I’d one day make a lot of money wasn’t an effective wealth-building strategy. After all, having a big salary doesn’t always translate into wealth. High income earners can live paycheck to paycheck, too.
The story from my dad deliberately oversimplified how the stock market works. It wasn’t until later that he explained how you need to be strategic and diversified in your investments so you can weather the ups and downs of the market. That it’s important to have an emergency fund, make a budget, and live below your means so that you don’t have to raid your investments when life sends you some curveballs. He later talked about the emotional reaction you’ll have when you see the angry red numbers on the screen telling you your investments have gone down and your net worth isn’t as high as it was yesterday. And it wasn’t until later that I asked how to even pick investments and where to actually go to put money into the market.
That’s what this book is for.
* * *
• • •
WELCOME TO THE true beginner’s guide on how to start investing and building wealth. I’m hoping you opened this book because you have at least a vague interest in investing, but like so many investors before you, including myself, you just have absolutely no clue how to start.
Here’s your first step. Quiet the inner voice that’s telling you some version of these excuses:
“You’re too young to worry about investing. That’s a grown-up thing. Like married with a house and a yard and a dog and a kid kinda grown-up.”
“You’re not smart enough to figure this out.”
“You’re too broke to be able to invest in the first place.”
You are grown up enough. You are smart enough. And we’ll get to whether it’s the right financial move for you to start investing now.
The fastest way to silence that inner critic is to clap back with why you need to be investing.
WHY YOU NEED TO INVEST YOUR MONEY
The simplest reason is this: it’s an efficient way to build wealth.
Seasoned investors, personal finance writers, financial advisors, and pretty much anyone doling out money advice will wax poetic on the advantages of starting young and being consistent as an investor. The reason for this isn’t wishful thinking about what co
uld’ve been if they’d only started sooner or been a little more aggressive with their contributions to the stock market. It’s simple math.
Reason 1: Compound Interest
“Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it,” Albert Einstein, allegedly, once remarked.
Regardless of which wise man (or woman) made the statement, truer words were never spoken. Compound interest and the principle of compounding are essential reasons why investing early and consistently are touted as the means of wealth creation.
In short, compound interest is earning interest on interest. In extremely simple terms, it works something like this:
On January 1, 2019, you invest $1,000 in an index fund. (We’ll get to what that is shortly.) By December 31, 2019, you’ve earned an 8 percent rate of return, so a total of $1,080 is now in your account. Starting in 2020, you begin earning interest on the $1,080 in your account, not just on the initial $1,000 investment. In 2020, you earn a 6 percent return on your $1,080, so you now have $1,144.80 in your index fund. Year after year, your money compounds, and you earn interest on your interest.
An increase of $144.80 in two years might sound like chump change, but imagine how quickly you can take advantage of compounding if you’re contributing to your investments monthly or even annually? In the scenario just described, you didn’t put in another penny after the initial $1,000 investment and you still earned $144.80 in two years.
Or try this example:
Instead of starting with $1,000, you begin investing $100 per month in an index fund. Over the course of twenty years, with the fund receiving an average 7 percent return, you will have earned $49,194.59. It only would’ve amounted to about $24,000 if you’d put the same $100 in a basic savings account each month instead of investing it.