I spent a while this morning composing the below email to a family member interested in doing something more with their money.  I figured since I wrote it and it’s (potentially) useful, it was worthy of posting here!   

Hey!

It’s exciting that you are thinking of getting into some new “products” (or tools) for your money.

Though I’d been listening to Marketplace daily for many years (and still do!), my true start to learning about money was when, about 3 years ago, J explained to me what inflation was. Though I’d nominally understood it before, what clicked for me—and spurred me into immediate action—was that for several years I’d been putting my savings into Bank of America or Capital One (formerly ING) “savings accounts.”  What J’s story informed me was that, despite several years of diligent saving (“Look at me, I’m saving!”), my “savings” accounts were not keeping up with inflation at all.  This meant I was in essence losing money (actually, losing “purchasing power”).  Every minute I kept a dollar in there, it was worth less and less in the real world!

Thus began a mad dash to get my savings into a higher yield savings account as I continued to learn more about where my money could be most profitable.

Here are some resources I’ve found helpful as I’ve continued on my path to NOT LOSE MONEY TO THA MAN!!!  This is a long read, though is certainly not an exhaustive or complete survey. My hope is that it piques your curiosity, rather than overwhelms. 🙂

Good luck, and remember: There’s always money in the banana stand.
With love,
Molly 

SOME BASICS:

“Money: Master the Game“ (book by Tony Robbins): Gives a comprehensive look at different types of investments, what they mean, why people use them.  This was my textbook as I began learning (read: highlighter and marginalia!), though it’s had its detractors. He does try to push his own products but he also has a philanthropic lens that I find refreshing.

Ray Dalio’s “Economic Principles”: A medium-length animated video about how the economy works; also, I just like him.

Investopedia and NerdWallet (also MotleyFool) are great sites for researching any financial topic and getting a layman’s answer.

SAVINGS ACCOUNTS:

High-Yield Online Savings Accounts: Read up on which accounts have the highest yields and other parameters, and open an account!  It’s very simple to do. Yields are not very high right now because interest rates are falling, but because inflation is not climbing either, it’s kind of a wash.  (I’m currently in Marcus and Synchrony.)

In normal times, inflation is about 3% (hence why many people get a “cost of living” increase of 3% to their annual salary).  My online savings accounts have been as high as 2.55% during our more robust economy years, though right now they’re down to 1.55%.

By contrast, right now the Bank of America savings account rate is 0.03% (!!!) and Capital One 360 is 1.5%.  You can imagine my chagrin when I learned I’d been keeping all my hard-earned cash in such measly accounts under the illusion that it “at least was something.”

These types of accounts are where I keep my 6-9 months of emergency funds (or “Prudent Reserve”) as the money is insured and safe.

OTHER WAYS TO MAKE YOUR $$ WORK FOR YOU:

If you’re not needing the cash right away, and you already have about 6-9 months of Prudent Reserve/Emergency Cash in a savings account, you can look at putting the “extra” into other products.  A few that are relevant are here, in order of payoff from least to most: 

CDs: It’s funny that this is one of your first ideas, as it was mine, too! And while it is entirely true that your cash is completely safe, this also means that its returns are inversely beneficial — read: totally safe = hardly existent returns.

I did “experiment” with putting some $ in a 12-month CD at Marcus at 2.1%, and at the end of that year I moved it to their savings account — which was then  earning 2.25%! Moral: interest on a savings account will change throughout a year — sometimes down, so your CD money may be “winning the game” but sometimes interest will go up and your CD money will be “losing the game.”

Personally, I won’t be using a CD anymore as there are more advantageous places to put my $$. (Unless I use a CD ladder, which is a specific strategy.)

Short-term Treasuries: One way to get your money into “the market” with very little risk is to purchase a US Treasury bill, note, or bond (listed in order of length to maturity from shortest to longest). One recommended to us by our financial advisor is USFR, which is currently yielding just shy of 2%.

ETFs: Exchange-traded funds are one of the best tools to take advantage of the stock market.  This means that you are purchasing a portion of the entire stock exchange, such as the S&P 500.  One advantage of this is that the exchange (and therefore the fund) is constantly adding and subtracting companies who fall into the top 500 earners, so you’re never saddled with a losing company and you don’t have to keep track of which individual companies you’re holding.

Because this strategy is relatively simple for the investment company to manage, ETFs generally have a very low expense ratio (see below; and if your ETF does not have a low expense ratio run away quickly!)

Another advantage is that they’re relatively cheap to purchase.  Some examples of common S&P 500 ETF stocks are SPY (~$280) and VOO (~$250).  Anything owned by Vanguard or Fidelity are generally good bets.

Owning an ETF is one of the top strategies for investors, as is discussed here on Investopedia and at length in Robbins’ book.

OTHER THINGS TO NOTE:

Expense Ratios

All investments, from retirement to stocks, have an “expense ratio.”  This is how much the company that’s investing your money is taking from your earnings.  As Tony Robbins goes into at great length in his book, while a 1% expense ratio seems tiny, the amount they take is compounded (read: exponential), meaning that 1% can be an exorbitant amount in the end. (See the chart in this Investopedia article.) You always wants the lowest ratio possible and below 0.30% is one watermark for me.

Real-life examples:  My employer-sponsored 403b expense ratio is 0.45% which I consider to be very high, but it is the lowest one I found on offer.  I investigated which fund they’d automatically put me into and the expense ratio was even higher. I researched what other funds of theirs I could go in to and moved into a lower expense fund.  Yet, when I met with my 403b representative she was crowing that their 3% products were “so low” — luckily, by then, I knew that was WRONG!

By contrast, my Fidelity Roth IRA has an expense ratio of 0.015% (and yes, those zeroes are correct!).

Therefore, it is critical to look at what the expense ratio is for your investments.

How to buy a stock

Simply open an account!

I’m using Robinhood (an app with website access, too), which has 0% commission, meaning that I don’t pay Robinhood anything to buy or sell a stock for me (another important “hidden” fee to look out for).  It was easy to set up and to fund from my bank; it’s easy to monitor, buy, sell, etc. You can buy specific companies’ stock or an ETF.

For a more robust tool, etrade is a strong choice.

Bonus Read:

Quit Like a Millionaire.  Even though J and I are not in this boat (yet??), reading their strategies is helping us to frame our financial future.  We started down this line of thought by reading from others in the FIRE (financially independent retire early) movement.

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These are some basics for how to take your money out from under your mattress safely.  And, perhaps it goes without saying, but: I am not a financial professional by any stretch and YMMV — your mileage may vary!  Carry on!