Category Archives: Investing

Why you don’t have to be Gordon Gekko to Invest in the Stock Market

Before I really understood the stock market, I always assumed investing was reserved for highly intelligent finance geeks, who read textbooks on the in’s and out’s of trading. As if they specialized in a secret science, an opportunity only available for the privileged that had the wealth needed to invest and grow. Like my unrealistic, childhood dream of becoming a celebrity, the thought of trading stocks was always desirable, but always seemed unattainable. However, after attending Bentley University and living amongst many other finance majors for the first time, I started to understand what it actually meant to trade different securities in the marketplace.

One of the biggest game changers was when I realized that I didn’t have to be a chic trader on Wall Street, finance professional or an economics professor to trade stocks. Really anyone can do it, and I mean everyone. Even you! All you really need is a computer, access to the Internet and about $200 dollars to invest. I was very unaware of just how accessible the stock market was. My classmates were pouring money into these brokerage accounts, buying and selling stocks in the dorms, during class and even on their smart phones walking around campus. My intrigue spiked one day, when my friend told me he had been paying off his college tuition by trading securities. He was very successful in his endeavors and had even bought a car with some of his yearly proceeds (not everyone is this successful). After that I knew I had to start putting money aside so I could finally take a chance of my own, and invest myself in the market. I told myself that even if I completely failed and lost everything, it would be a great learning experience. The decision proved to be worthwhile.

My first step, which was a very important one, was to choose the right brokerage online. Obviously I had seen various commercials and advertisements for brokerages of these types, but I wanted to do some comparison before I settled. It is important to choose a company that caters to your exact personal investment needs. This is especially important because every time you trade, you have to pay a percent fee known as commission. Commission is a rate fee that is tacked on to the cost of purchasing or selling stock, and every company has a different commission rate. This rate also tends to vary depending on stock type and/or amount invested. Investors also have to pay for the options in addition to the account, such as consultations, personal attention, branch locations, etc. These additional costs can add up, so it is important to keep all of this in mind when figuring out a brokerage to use. there are many sites that can give you a breakdown of pros and cons for each site.

As a millennial we aren’t the most trusting people when it comes to other people handling our money so I skipped out on a brokerage house that offered expensive advice. I wanted to learn about the market myself. We have an endless heap of knowledge known as the internet at our fingertips. I just figured I would research all the stocks myself and this would help me understand the market better and further my knowledge. Also with such low commission rates it makes sense for us millennials because we don’t have all this extra money to just toss around, the fees do tend to add up if you trade a lot.

What I learned after my first few weeks of trading was that once you put some skin in the game, you are more motivated to learn and understand where your money is going and how the system works. It was definitely one of the big motivating factors. You tend to watch the news more and pay attention to worldly events and the market. I always wanted to know what the market was doing. You will quickly learn that stock prices are more heavily influenced by the news rather than how the company may actually be doing according to numbers. So if you pay attention you can make predictions on when you may want to buy a certain security or sell, sell, sell.

The first $200 I ACH’d into the platform bought me a learning experience that I really don’t think I could’ve gotten anywhere else. It was worth every penny. This blurb of an article is just a little piece of insight to get anyone who is thinking about trading stocks or learning more about the process to consider the benefits and the knowledge that you can gain from learning to invest and what I wish someone told me before I knew anything about investing. Good Luck!

Finance Like A Pro: Buying A Car, What To Know

So you want to buy a car!? You’ve seen Dan Bilzerian’s recent Instagram photos and have already binge watched all seasons of Top Gear. Not only that, but you’re sick of driving your mom’s minivan to work. All things considered, it is time you had a little hot rod all for yourself. The only problem: now that you are living on your own, you have to pay for the car on your own as well. For most of you, this will be the first big purchase of your life, and this will be very exciting. One of the many milestones into adulthood is buying your first whip. While fulfilling this dream may bring you back to childhood, it will be very important to think maturely and be well informed in making this important financial decision. Below are some things you need to know before taking this step:

  • Talk to your bank about financing a car. Talking to a professional should be your first step. Being experienced with clients who have been in the same position, they can work with you to analyze your past statements and finalize a budget. You will want to know exactly what term you are able to afford, with the appropriate interest rate and how much you can fork over for the down payment. This step is crucial because in theory, as long as you are making money, you can afford any car with a loan. However, the amount you are making and/or able to pay forward will dictate just how long the term will be. In this sense, the longer the set term, the smaller the payment amount. However, the smaller the payments, the longer you are paying interest on the loan. A five year loan payment vs. a three year loan payment could be the difference of $200. This is something to strongly consider. Buying too expensive of a car may not take priority over other expenses you have to pay, no matter how long the term or how small the monthly payments. This leads me to my next point.
  • The price of the car isn’t the only cost you will have. Lest you forget you have to afford the interest, car insurance, gas and maintenance on the car to keep it running smoothly for the entirety of your ownership. When considering the cost of the car all of these factors must be remembered. Choosing a car in your price range is crucial and this price range should be determined keeping these other equally as important factors in mind. Just because all of your friend’s parents bought their kid a 3-series BMW, does not mean you can afford one yourself.
  • Car payments and loans have two parts: interest and principal. The principal is the amount you need to pay off the car or the balance. The interest is the additional cost of borrowing money. The APR is the rates, fees and other costs that come with the loan in the form of an annual percentage rate. My rule of thumb is three years; if it takes you longer you can’t afford the car.
  • When you want a loan you basically have two choices: dealership loans or bank loans. You will almost always pay additional interest if you go through a dealership. The dealer will get the loan through a bank, so they are just a middleman. That is why I suggest going straight to the source.
  • When you go see a lender, he will be assessing your credit score and credit history in order to make sure you will be able to pay off the loan. Essentially, the lender will be analyzing and predicting your future cash flows and budgets. If you have bad credit, you will likely pay higher interest rates or you may even be denied a loan. If a bad credit score is your reality, you will likely have to put a generous down payment on the car. The ability to pay a percentage upfront demonstrates to the bank that you are financially responsible which could help to lower your payments. When you are approved for a loan, the bank hands you a check to pay for the car and you will soon owe the bank a payment each month. Your new car will become what is called ‘collateral.’ In case you can no longer afford the monthly payments, the bank can seize your car to recover the money that is owed. Having the bank take your car will not only leave you riding a bike to work, but it will destroy your credit score, which will strongly decrease the likelihood of you ever being able to borrow money again. I know this sounds serious, but being a financially responsible adult is serious business.
  • Read consumer reports. In order to minimize these external expenses, you may want to consider a car that is more reliable in terms of average breakdowns or miles to the gallon. Legitimate consumer reports could help you save significantly. As long as looking at the resale value of certain cars.
  • Consider the pros and cons to buying a new vs. a used car. New cars have lower interest rates, but lose intrinsic value almost as soon as you drive the car off the lot. When the back tires hit the road, you have already lost up to a few grand. Buying a used car may mean that you can afford the quality brand you trust and essentially get more for your money. Buying new from a dealership usually means you have to pay for a salesman commission on top of the price of the car.
  • Be a savvy negotiator. The marketplace is still a marketplace, and therefore the concept of sales will apply. Many times salespeople have more leeway in terms of prices than they initially give off. These bottom line prices tend to be far below the advertised price of the car. This is important to keep in mind if you find yourself feeling pressured by a sales employee to buy a specific car. In actuality, you could put pressure on the salesman and turn things around, by negotiating and trying to get the lowest price available.

Lastly, make sure you take care of resale value, change the oil, rotate the tires, don’t drive recklessly, put a protective coat of wax on your car, and change the air filters regularly to keep mpg high. This will also save you a lot of money. So if you are buying a car, enjoy your new whip but be smart with your money at the same time! It will all pay off down the road, literally and figuratively.

 

The Real Winning Lotto Ticket

As a Millennial myself, I know that there is one aspect of life that we are always thinking about, and that is the present; the now, the YOLO, and the ‘if I have cash lets blow it now’ mentality because why not? I’ll just figure it out later. Well this may be all fun and games, but there is something you can do. Something that will allow you to feel justified about spending money freely like this, and that is setting yourself up little-by-little for the future.

As a kid, whenever I received any amount of money, whether it was an allowance or a paycheck, my dad made sure that I always put a portion away in savings for the future. At the time, this seemed like a cruel punishment, but he wanted to ensure that I would have money set aside for college when the time came. Upon receival, I was always inclined to blow this money on candy, electronics or the latest trends, but I am really glad that I did choose to save. When I was finally ready to go to college, I had a large lump sum saved in a separate bank account that was allocated to help me avoid copious student loans.

This same concept can be applied to your 401k. If you are able to put small amounts of money away, you can retire comfortably, with 40ish years to really live your retirement out to the fullest. Many companies in corporate America offer 401k plans that can even MATCH your contribution by up to 4-6%. In the long run, this is HUGE! This means that whatever money you put into your account, up to 4-6% of your salary, your employer could match about half or all of that amount. This means that you could have the potential to double the amount you ultimately save in the early stages and create a snowball effect of interest and returns.

So let’s do some more math here.

According to my 401k Calculator:
Say you are currently making $40,000 per year, and your salary is expected to grow 3% every year (inflation, promotions, job changes),then if you are putting 10% away every year ($4,000: Year 1), after 40 years you will have amassed an amount close to $2,100,000. Much of this money will be relegated pre-tax, meaning you will have more money available to put away that doesn’t have to go to taxes. The best part of this deal is that with this example, almost $410,000 of this amount will be FREE MONEY, money you get from a good Rate of Return (RoR) and/or employer contributions. So everyone, please take my advice and ask your company or current employer about the 401k plans they offer. Please take advantage of these! Your future family and self will thank you. I promise.
Thanks to BankRate.com the screenshots can be found below.

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Screen Shot 2014-04-27 at 2.37.44 PMImages from Tumblr, Bankrate.com