T (my husband) is back with another guest post. In this piece he writes a little about a subject he’s done a lot of reading about in recent years – the markets/economy. He can’t stress enough that he’s far from any kind of an expert. In fact he feels he’s only scratched the surface on the complex topic. That being said, he’s put together a little collection of some of the main points he’s learned.
Probably about five years ago I took up a new hobby of sorts. A co-worker of mine was very much into finance and the markets and I found myself wanting to learn more about it myself. I sort of dove in and began reading about it on a daily basis. As is the case with many things, I’ve realized that the more you learn about a subject the more you understand just how complex it is, thereby revealing to yourself how little you actually know. I’ve definitely gotten a bit of a grasp on some things, though, and I thought I’d share a few things I’ve learned during my little exploration of the subject.
1. Picking individual stocks should be left to professionals. Many of us who dabble in investing would love to believe that we can find the next Apple or Amazon and make a fortune. That’s certainly possible, but picking individual stocks should just be something you do for fun with money you’re willing to lose. The money you want to save and use to grow wealth should be managed wisely and put into a diversified portfolio. The average Joe simply doesn’t have access to enough information or have the tools to compete with the data processing/computer algorithms that the professional traders use. We are always a few steps behind when it comes to the information necessary to know that we’re buying a stock for a good price at the right time.
2. Track your spending. It’s never fun for any of us (well maybe a few unicorns) to sit down and take an honest accounting of where our money is going. It’s uncomfortable because most of us aren’t exactly proud of all of our choices (I have a Starbucks problem for instance). By really digging in and seeing the numbers with your own eyes, though, we often can find ways to cut here and there without actually making huge sacrifices. Often our spending gets away from us just because we aren’t paying close enough attention. There are plenty of apps that can help us track more efficiently. Mint is a great one.
3. Stay in the game. If you want to grow wealth over time the biggest key is to get into the market and stay in it. Over time things like the Top S&P 500 Index Funds (a diversified basket of stocks) have historically performed very well, but there is volatility. Trying to “time the market” is a fool’s errand for amateur investors. Enduring the dips (both corrections and bear markets) are the way to go. It’s when the market is low that you often pick up stocks at bargain prices which pays off down the road.
4. Politics are overrated. We live in a hyperpartisan and politics-crazed society right now it seems. It can be a touchy subject and many folks are very passionate about their viewpoints when it comes to who holds power and how they use it. The truth, though, is that the party or person in power doesn’t have as much influence on the direction of the economy as many believe. Big policy changes through legislation is really difficult to pass through in our system of government. The President can take executive actions but those rarely have much teeth to them at all. Most of that stuff is just noise. The things that really move the markets are things like big technological innovations (on the positive side) and corruption that is uncovered too late (on the negative side). What markets really like is predictability and stability and, policy-wise, our system usually obliges.
5. Interest rates and taxes. As boring as these things are it’s really important to get a decent understanding of them if you want to be wise about how you move your money around. Up until 2022 we were in a very low interest rate environment. That made borrowing cheap and allowed people to lock in historically low rates on home mortgages. That “good debt” is a nice thing to have and can mean that even if you acquire the ability to pay off your home it’s not always the best decision. (Here’s a great article about that). Mortgage rates are now much higher which completely changes that calculation should you buy a home in the near future. With regards to taxes, changes in the tax code could affect which type of tax-protected retirement account is best for you. (That is covered here).
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6. Time vs. money. There was a time when I believed that anytime I did something myself instead of paying someone to do it I was saving money. Of course upon further inspection this is not absolutely true. It comes down to a calculation of which is worth more to you in a given situation: your money or your time. Added into that equation is the fact that we can also turn our time into money. Probably now more than ever we have numerous opportunities to monetize our skills if we look hard enough. These things are, of course, completely personal and individualized. The point is not to assume that paying someone else for your time is always a foolish financial decision.
These are just a few things that have sunk into my head over these few years of educating myself on this subject. RealClearMarkets is my go-to daily Web site. Each day the site links numerous articles on the state of the markets and the macroeconomy.
I want to close with probably the most important thing I’ve read with regards to this subject. Investing your money and growing wealth for yourself is all well and good. Money is useful and can bring security and freedom into our lives. More importantly, though, we should be investing in our health (mental and physical) and in our relationships. Money won’t matter as much to us if we don’t have health, and nurturing relationships with people we love is what gives our lives meaning.
*Click HERE to read more of T’s Guest Posts.