b&b102 Investing for Dummylekt, Part 2

For the last several months, we’ve been using Dramatic Dyalekt as a guinea pig for different investment platforms to see how they feel when you use them in real life. We explore Dyalekt’s trepidation with the stock market in general, how to make it feel less like gambling, and have some practical ideas for how to get started if you’re nervous about investing or have your own moral dilemmas about it.

In Part 2 of this accidental two-parter, we go deep on how exactly to invest, what you’re investing in, and why it’s so important to get in the investing game, especially if you’re hesitant about it for whatever reason. Let’s go y’all!!

The apps we explore include Motif Investing, Inc., Digit, Acorns, and GoldBean.

Episode Highlights:

Pam: Hundreds and thousands of companies are actually all potentially owned by ten giant conglomerates. It takes away a lot of your choice. Like, oh, I don’t wanna buy Nike I wanna buy Converse because they’re better, but it’s the same guys. Nike owns Converse.

Dyalekt: I realized if I’m a part of this system, that I’m part of the system. And I can’t act like “Oh, I can’t invest in that.” I’m already paying these guys mortgages.

Pam: Robo-Advisers: create algorithms that basically are saying “Hey, you’re probably not gonna beat the market as an average investor. Let’s be real. So, why don’t we just make your portfolio as efficient as possible, numbers wise, so that you can make sure your portfolio’s diversified, take advantage of the upside, and not get hit too hard on the downside.”

Pam: Here’s the industry’s dirty little secret: honestly, the average investment adviser who is trying to service the mass market is most likely using a robo-adviser on the back end. They’re called tamps: Turnkey Asset Management Portfolios.

Pam: So these Robo Advisers are basically saying “Okay, so you have this much time to invest, and you are pretty okay with risks, so we’re going to invest in a couple different mutual fund and ETF options for you.” And an ETF is basically the same option as a mutual fund except much cheaper to administer. And  mutual fund is basically a collection of different stocks or bonds, or whatever the theme of the mutual fund is.

Pam: Really for the majority of your portfolio, most of these companies are probably putting you into the S&P500.

Pam: Everyone thinks that they should be investing, but not everyone should be from a financial planning standpoint. You need to take care of a bunch of other stuff before you start investing. You need to have some sort of foundation in place.

Pam: The nice thing about Acorns is you pay a dollar a month to start to understand what investing looks like.

Pam: In terms of the safest stock market investments, the S&P is considered that. People use that as a benchmark.

Pam: There is an index fund that basically follows the S&P500. So the S&P500 is this collection of stocks that is monitored by Standards & Poor (S&P) and they basically move stocks in and out of the 500 positions based on whether they’ve merged, whether they’ve been acquired, whether they’ve dropped off, whether they’ve gone bankrupt, who knows what could happen. And there’s companies like Vanguard and Fidelity who have S&P500 mutual funds, or index funds is what they call them, where they’re literally just saying “The S&P500 is saying to do this. We’re gonna do that.”

Pam: The stock market is a leading indicator because, when the stock market goes up, that means that people are starting to feel good about the economy in general. That doesn’t necessarily mean that there’s more jobs or that unemployment is going down, or that the economy is necessarily gonna turn around tomorrow, but it is telling you that people are starting to get more comfortable putting money back into the stock market.

Pam: Part of how the investing system works now is it feels like you don’t have much choice in the matter. You’re investing in these large companies that are trading publicly, that are already big, and so are you just fueling the fire.

Pam: One of the only ways to invest in a private company as an individual is to be what’s called an accredited investor. And to do that there are actually pretty high barriers to entry…You have to have a net worth of over $1 million or you have to make $200,000 of annual income a year to be accredited. And the amount of money you invest can’t be more than 10% of your net worth. As you have more money you have more choice in what you can invest.

Dyalekt: People who do want to know what it is they’re investing in, what’s happening, and why, and I think a lot of us are the type of people who are interested in long run, in broad scope, in being the type of people who are accredited, and being the type of people who can pick and choose how they invest, and be part of the thing that creates new S&P companies, because really if you’re not doing that then it’s a whole different discussion. Small businesses that wanna stay small businesses, that’s a beautiful thing, but that’s very far from this type of investing. That’s one of the things that I don’t think work about our current crowdfunding types of companies, because you’re not a part of it. It’s just donations.

Pam: Kickstarter could never do what it does if you could actually invest in the companies, because there’s these accredited investor rules.

Dyalekt: A cat like Magic had to go through the steps of understanding what investing was, and then he was able to invest in the way he wanted to.

Dyalekt: People love to talk about MC Hammer, and how Hammer made a whole bunch of money and “Oh he blew all his money.” I don’t think he blew his money. I appreciate and respect that Hammer put his money into his community. He gave it to people. He helped out folks. But, it wasn’t sustainable because he didn’t understand the basics of investing. He didn’t understand what it meant to invest versus just to give people money. There’s a big difference. You’re either Kickstarter or you’re putting money in the stock market.

Dyalekt: It’s up to you guys. You can go and make your however-amount of money you wanna make and give it away, or you can create a different circle. And I think that’s the point of Brunch & Budget.

Pam: That’s the point of Brunch & Budget. That’s the point of learning how to invest and learning how the system works now and being a part of it, and understanding what the current cycle is. What it should look like and what you want it to look like based off of that.