Start investing young

I had a Zoom call with my niece a few weeks ago. She saved up a little bit of money and was ready to invest it. It was so much fun to explain to her how investing works. She’s 10, so the main point was that she can buy ownership in companies. I think she really liked that:

  1. Everyday thousands of people are going to work to earn money for her.
  2. Every time someone goes to McDonalds, buys a Hershey bar, or buys something on Amazon, she makes money.

It will be a few more years before I explain how to pick wise investments (she’s off to a good start with mostly index funds). For now, the key is to get her started. Compounding returns are powerful. Most of the reason Warren Buffett is so successful is because he’s compounded returns for 80 years (credit to Morgan Housel and his The Psychology of Money for pointing that out to me). Warren started at age 10 too. He would have been successful either way, but a long time-period got him to $80 billion+.

Low investment minimums and fractional share trading make investing attainable for young family members. Get them started early. They too can wake up every morning knowing people are going to work for them. 

About the Author:

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2020.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.

Investors have spoken

Investors have spoken. They are looking forward to at least two years of gridlock in Washington. The stock market rallied strongly following election day (even before the Pfizer/COVID news). While it’s always dangerous to attribute stock market movements to any one thing, I believe that investors like the prospect of a divided government.

I think we know what we are going to get with a divided government, which is to say there will be no major changes. Why is that good? It gives companies two years to plan with relative certainty. They haven’t had that in a while.

I’m optimistic that both parties can agree to any no-brainer improvements that need to be done over the next two years. It would be great if they could find some middle ground to work together on things, but I don’t think that’s likely. I’ll settle for nothing too disruptive. The market seems to agree.

p.s. Yes, it seems likely that Georgia’s senate seats are going to a run-off. My best guess is at least one of them goes to a Republican.

About the Author:

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2020.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.

Your Mood Affects Your Financial Decisions

My friend Tony described the current state of things as “moving through molasses.” It’s a fitting description for things. Everything takes longer right now. Life just feels hard. People react to that in different ways. Some of us get angry. Some of us get sad. Did you know that this (your mood) can affect your decision making?

Schlomo Benartzi and John Payne wrote about this in a recent Wall Street Journal article (How Covid-19 May Be Unconsciously Affecting Your Financial Decision). They say sadness may make you more pessimistic and impatient. That matters if you’re deciding when to start collecting Social Security Benefits (a decision that doesn’t get put on hold for the pandemic).

Anger can make you risk-seeking. Can you afford to invest in that risky marijuana company? Maybe not, but you might be more inclined to try if you’re really upset. Interesting, right?

How do you combat these emotions? Slow down and do some self-reflection. Acknowledge your emotional state. Consider if you’d react differently if you were in a different state of mind. Imagine you were giving advice to someone else about the issue you’re considering. Talk through your issue with someone else.

Let me know if I can help.

About the Author:

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2020.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.

Private Equity – All that Glitters is not Gold

A friend of mine was offered an opportunity to invest in a late-stage private equity company last year. The story he was told was that he could invest at $2.25 per share. They expected to complete a final round at twice that price within a few months and then go public. It sounded like an opportunity to double his money in short order. To me it sounded risky.

There are cases where companies have a short-term funding need and are willing to give a sweetheart deal to tide them over. There are also cases where companies desperately need cash but getting it might not change their fortunes.

How do you tell the difference? It’s extremely difficult to do the due diligence needed to properly evaluate opportunities like this. Most people in this situation accept that they will either double their money or have their money cut in half. Knowing this, they only invest an amount they can afford to lose (my friend did that).

The company in this story did go public last month but did so at a 50% loss for my friend. Ouch! I’m telling this story not to fault that company or its investors. I’m telling you that story because you won’t hear it from your friends. They only tell you about the ones where they double in money.

About the Author:

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2020.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.

Values-based bond investing

Each year that goes by, more investors are interesting in aligning their investments with their values. There are several names for this (ESG, SRI, Impact investing, etc.). I prefer to call it values-based investing because that sounds less jargony.

Values-based investing either avoids buying stocks/bonds of questionable businesses or proactively searches out businesses that embody values important to you and invests more in them. When you apply this to stocks, there’s an argument to be made that you may enhance returns. Companies doing the right thing may attract better talent and grow faster than other companies.

With bonds, you are giving up returns to support your values. That may not be a bad thing, but the math is clear. A company will issue a bond at the lowest interest rate possible. Say Target wants to invest in solar panels to power its stores. They can finance this project with bonds and get a lower interest rate by telling people that they are supporting renewable energy.

Likewise let’s say Phillip Morris wants to issue a bond. Many investors will be turned off because they won’t want to support tobacco. With less buyers for its bonds, Phillip Morris would pay a higher interest rate.

This is not to say that you shouldn’t align your bond investments with your values. It is to say that doing so is likely to lower your returns. Know what you’re getting. 

About the Author:

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2020.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.