Great Information for New Investors

Today we'll be discussing great information for new investors. Hello and welcome to Money Talks. My name is Ken Wink with Summit Financial Consulting. If you'd like more info about what you hear during the show today, give us a call at 586-226-2100. Or you can visit us online at summitfc.net. While you're at the website, be sure to check out the podcast page. You can check out our past shows and also subscribe on Apple Podcasts, Spotify, or Amazon Music. So there are so many different ways to invest, so much information out there when it comes to investing. There's a ton of salespeople out there who would be more than happy to take advantage of new investors. IRAs, Roth IRAs, non-qualified, what we call liquid accounts, crypto index funds, just so much information. To explore and so many options to consider. So today we're going to be sharing some great info for new investors. But before we jump into this topic, let me introduce my co-host, Tony Shore. Tony, you're the best dressed man in the United States today. I just thought I would lead with that. For our viewers, for our listeners, you're really missing out today. Tony is festive and in the Christmas spirit today, and I appreciate that.

Yeah. For those listening to the audio only of the show, they might want to go to YouTube and type in Money Talks Wink or Money Talks Summit. Money Talks can wink and it'll pull up the show so they can see this because I think it fits in with our topic for today because. Information for new investors. And some of this is going to be mistakes for new investors to avoid. And one thing that new investors should avoid is investing in jackets like this. Probably not the best investment. Um, uh, and actually I was telling you before the show, it was a gift, uh, and, uh, for, uh, I had to host a Christmas party and, uh, the guy that brought me in to host his Christmas party gave me this jacket. So I've, it's the only really festive Christmas. Christmas-themed or green, red, silver, gold. I thought I should wear it going into the holiday season here. I wanted to try to bring some festivity to the show, Ken. Plus, the staff here, I'm in the office with the studios, and a bunch of us were taking a Christmas photo today. So I feel like I'm going out of my way to justify it, but I would be remiss if I didn't admit I love the jacket. I love wearing it. On the holiday scale, you're a 10 out of 10. You're nailing it for sure. Yeah. And then we had to start a few minutes late because the snow, we've gotten about seven inches here overnight. How much snow have you had there?

We had like four or five inches. So we had a snow day for the kids. So they were all excited and got to sleep in a couple extra minutes. So that was okay. Not that the beauty sleep helped me, but yeah.

I was probably good for what what ails me, as my mom would say, to get out and shovel the driveway. And it was pretty heavy snow and there was a lot of it. And then clear off my wife's car for her and get that started. So I've been up since 5 a.m. working on this snow situation. Yeah. Minnesota. I'm up here in Minnesota at our lovely palatial imitation gradient metroplex in beautiful downtown Arden Hills, Minnesota. Coming to you live from the Arden Hills studios here. I absolutely love it. Ken, I really thank you for having me on the show each week. How have you been? Did you have to, here's the question though, Ken, and be honest, did you personally have to shovel snow today at

Not yet. No, I'm just letting that rest. I'm fighting a cold. So I'm being a big baby about it. I might do it later after work. I might. I'm letting that rest. I love that line. I'm going to try that with my wife.

You know what? I'm letting that rest. We'll see how that goes. Relax out there. Yeah. It'll melt by spring. It will. That's true. And if it's still snowing, I always argue my wife is like, we got to clear the driveway. If there's an inch or more, you got to go out and scoop it immediately. And I'm like, we're going to get like eight inches. Scooping the inch right now isn't going to help us that much. No. That's just I said, let's let it. And I scooped the driveway this morning, got up early to do it. And I shoveled out the end. But the plows haven't come yet. So when I pull when I pull up to go home after work, there's I won't even be able to pull in my own driveway.

Because there will be this huge mound of heavy snow.

So I'll have to fire up the Toro and hit that thing hard or back-breaking shoveling going on. So that's always fun. I love that. I love shoveling the driveway knowing as I'm scooping out the last of it at the end of the driveway going, this is all going to be full when I get back because the plow hasn't gone yet.

Well, in dedication to our listeners and viewers, Tony, we should try to avoid heart attacks tonight when we get home from work. Yeah.

Yeah. I'll take. Don't worry, Ken. I'll take it easy. Trust me. And maybe I'll just, you know, I'll get the snowblower out. We'll let it rest until then. All right. Good plan. So great information for new investors. Good info.

What do you have? So let's start with the big, you know, initial question is why should you invest? So investing is just one of the best ways to grow your money over time. If you put it in the bank, like a lot of parents sort of default and put their kids' monies in a bank account, but those typically don't offer very high returns. So if you invest in stocks or bonds or ETFs or real estate and maybe even crypto in some cases, the whole goal is just to beat inflation. And then also grow the money, grow your wealth. So it depends on what your goals might be, but it could be retirement at a very young age. A lot of people are shocked at how small of an amount you can invest on the front end and have it end up providing for retirement down the road. Buying a home, buying a car, funding education, there's all these different goals that can be set.

Yeah. So setting goals and understanding them. Right. But but we also have to understand why you invest and you invest for the future. You invest for your family, future generations. There are many reasons you invest to meet your goals. Right. So maybe your goal is to buy a really expensive RV and travel once you retire. Right. You better be investing if you want that to happen, right?

Right. Yeah. And specifically for new investors, I think it's really important to set goals and figure out, is this a short-term goal? Is this a long-term goal? And what's my time horizon? So, you know, if you're looking to buy a first car, if you're looking to help pay for college, if you're looking to buy a house eventually, for young investors, I I feel like the number one thing that we run across with our clients is just saving for a car. And if mom and dad are going to supply that, that's great. But then maybe just some extra spending money during college. It could be for a baseball bat. When I was a kid, I used to shovel driveways to be able to pay for my baseball. I liked playing baseball and my parents loved Um, we're like on the fence and I was like, well, I'll go shovel driveways until I raise enough money to pay for it. And then they, you know, then they couldn't argue with me. So that's whatever your new investor goal is, whether you are a teenager or in your twenties or even in your forties or fifties and just getting going. Figure out, is it a short-term goal? Is it a long-term goal? Because that is one of the most important things because you'll invest a little bit differently if it's a short-term goal. If it's a short-term goal, you're not going to typically take as many chances and may invest in more traditional things. If it's a long-term goal, there are some additional things that get added to the table of options, including real estate and perhaps some more volatile things.

So you're saying, for our listeners and viewers out there, what you're really saying, Ken, is that... What you invest in makes a difference and depends on what the reason is you're investing. So why do I want to save money? Why am I investing the money? What is it going to be used for? That's what you're talking about when you talk about a goal. But you can't just invest the same for every goal and every reason. There are different ways to save for legacy or estate planning. Like if your goal is to leave money behind, Behind for your kids, or maybe your goal is to pay for your grandkids college. Well, you're going to invest that differently or your kid's college. You're going to invest that differently than you would if it's for your own retirement or if it's for something else, or if it's for, you know, I'm going to use this investment for when I turned 62, I'm buying an RV, you know, the, the, the way you invest is different. And it, it also, uh, I know another thing you're probably gonna talk about here is time horizon, right? That changes how you invest too, doesn't it?

Yeah, so I had a, when my kids were younger, we had a babysitter that was in college. And I remember her boyfriend posted online and said, if there's anything I could change in my entire life, it's that I wish I never heard the word crypto. So he had lost a fortune investing in crypto in 2022, like basically his life savings. So he had that money set aside for specific purposes and he was investing very, very aggressively. There's no such thing really as a safe crypto investment. That's very, very speculative and you could lose it all and you could double it too. So yeah, your time horizon, if you think you're gonna need this money in a few years, Then you might want to choose lower risk options. If you think you're going to need this money in 40 years, well then you can afford to ride the ups and downs of different asset classes, including potentially crypto or a stock index funds, or maybe technology or maybe AI or maybe a quantum computing. Like there are all these options out there that are really, really risky and it might be worth taking the chances if you don't have to touch the money for 10 years, 20 years and have time to let it play out. But yeah, if it's for a short-term goal and you know, you're going to need it sooner rather than later, I would argue time horizon is the most important factor when determining what you invest in. And most kids, they're just going to download an app, you know, start investing in Bitcoin and all these, or maybe AI, you know, they're trying to hit home runs. And what I really try to tell new investors, regardless of ages, this is not about hitting home runs. This is not about how quickly you can double your money. Because when you take on that much risk, it usually doesn't work out. I would say in my own experience in our practice, eight or nine out of ten times when people are trying to hit home runs, they strike out. They lose most of it or they lose all of it.

It's just like pro baseball players. You watch them and you can tell when they swing or the situation base is loaded. They need two runs to win the game or to tie it. They're swinging for the fences. And usually when they do that, they strike out. Right. Yeah, that's been my experience in our business. And, you know, and you might be the one or two out of 10 that connects with the ball and gets the home run. But the majority of the time it's going to be a strikeout. So you've got to be careful. But that really illustrates why can that you and the team there at Summit, why you don't offer personalized or not personalized. Why you don't offer just blanket advice about, you know, is what to invest in. You're not telling people don't invest long term or don't take risk. You're saying everybody's situation is different. So that's why you need to get to know, OK, what are your goals? Which ones of them are long term? You know, if you're not retiring for 20 years. You got a lot more time to save money for retirement. So you might want to be a little more aggressive with that money. Or if you're retiring in the next three years, you're probably going to want to make sure it's not all at high risk and that you have some principal protection, right?

Yeah. I just met with someone yesterday who wants to retire in a few years and they're not there yet. And he wants to invest in CDs. And I can tell him mathematically, the CD is not going to make enough to help him reach his goal. And so, you know, I told him we have to take some risk or else this just isn't going to work out. Mathematically, there's, you know, Santa Claus is not going to show up and make an extra deposit in your retirement account. Like, no, you know, the most likely scenario in his case was he's not going to have enough money to retire on time. But if he takes just a little bit more risk, there is a chance. So, yeah. All this stuff is so important. So when it comes to choosing investments, just like a quick synopsis of different investment options that are out there. So one is stocks. And that is probably the most commonly, I guess, understood option. Way to invest it. And for the beginners out there, when you buy a stock, you are part owner of a company that that's literally what a stock is, is part ownership of a business. So if that business performs well, now you're going to get effectively a portion of those corporate profits. Most oftentimes you get that from the stock price going up in value because its earnings are increasing and it's making money. But sometimes they'll pay dividends too. And that's just basically sharing the profits through a cash distribution. So stocks are great, but this is where we see a lot of people strike out is because they'll pick stocks that are very, very risky and that can end up backfiring. So again, depending upon your goals, depending upon your time horizon, there are lots of different stuff, you know, high flying technology, AI, quantum computing stocks are very risky and they can make a lot of money or they could lose a lot of money versus, you know, a utility company where they're just, People are paying their electricity bill or their water bill. You know, you can invest in utilities. Those typically do pay dividends. Those are not high flyers. So even within stocks, there's a really, really big range of risk. There are. Yeah. Yeah. For most people, we're saying, you know, let's spread it out a little bit and not put all of our money in one sector, like all technology or all utilities or all consumer staples or all... consumer discretionary like Nike and restaurant stocks, you know, a diversified portfolio has a better chance of avoiding a strikeout.

Yeah. And performing consistently over time. That's what you want. So, I mean, you know, you could take a risk with the riskier stocks and the quantum computing or Bitcoin, and they might have days where, wow, it doubled. See, I was smart. Yeah. But you didn't double your money unless the minute it hit double, the minute it doubled, you took it all out. And that's not always so easy with Bitcoin either, getting it out. And it's not always safe. So you got to watch out. But even with these riskier stocks, they can go way up. I remember the digital portfolio that Grady Houses, I mean, the first year it did 124%. It was crazy. Right. But but they can go up 50, 100 percent. But they then they will also go down. I mean, those things will go way up and they'll go way down. Yeah. So so, you know, are you going to ride it out? Are you going to try to and then you have to try to time it, which isn't a good idea either. Timing the market is not good. You usually lose time. If you try to time the market, you'll lose every time. I think Warren Buffett said that. And they also say, Ken, I've heard you say, it's not timing the market, it's time in the market, right?

For most people, we recommend dollar cost averaging, which takes that risk away. So basically, you contribute a dollar amount Every week or every month into your investments. And just naturally that helps make an investor successful because when prices are high, you're going to buy less shares. And when prices are low, you're going to buy more shares because if it's the same dollar amount, you know, that just naturally happens. And human emotions. I mean, if there's anything new investors can take from this show, it's, Your human emotions work against you. They tell you every single time when things are going good and you're just as greedy as can be, and you're making money hand over fist. Most humans say, you know what? I'm going to buy more of this. This has gone fantastic. On the flip side, when things are terrible and things are low and you're very fearful, um, That's when people will sell. And the whole goal of investing is actually to buy low and sell high, not buy high and sell low. That is right.

That's what most investors who try to invest on their own, especially new investors. That's typically what they end up doing because they get emotional. And they see something going way up, so they want a part of it, so they buy in. And then when something tanks, they want out, they're panicking, so they get out. So they're buying high and selling low. And that's, I forget the stat, but the majority of investors do that if they're not working with investors. Someone like yourself who has managed investment accounts where you're looking at it daily and you're professionals, you don't have to worry about it because you know you're properly allocated and you've got professional money management, right?

Yeah, we'd be happy to help people. Feel free to give us a call at 586-226-2100. Whether you're in your 50s or you're a teenager, if you want us to just give your portfolio a once-over, we'd be happy to give it a once-over, look at what fees you're paying or you're not paying. We can tell you how you're allocated, what sectors, how much in stocks versus bonds. All this stuff could be useful in helping you reach your goals.

Yeah, there you go. Well, I think that's great. So that's stocks. What else do we need? What other types of investments do we need to know about?

So bonds. So bonds haven't been very popular the past few years. When you invest in bonds and interest rates go up, you typically actually lose some money or your rate of return is reduced. When interest rates go down, then bonds typically actually make a little bit more. And over the past five years, roughly since COVID, interest rates have been going up. So that's been a headwind to bonds. But when you buy a bond, you're basically loaning someone money. So whether it's Google or the US government, you give them your money. And then in exchange for that, they give you interest payments. And then at the end of the term, whether that's one year, five years, 10 years, 30 years, they give you back the original investment back. So it's basically a loan at the end of the day. And sometimes this makes sense for people. Typically, there's less volatility in bonds than there is in stocks. So this is a potential solution for people that are not wanting to be too risky and really want to avoid striking out. It could be your whole portfolio. It could be a portion of your portfolio, but it's an option.

Yeah, there you go. Yeah, I know for a while, you know, like in 2022, when we had a down year, that was a down year for the stock market and bonds. And it used to be you could rely on, you know, the old 60-40 stock bond, you know, 60% in stocks, 40% in bonds. And the bonds were your safety because when the stock market was doing poorly, bonds usually did better and vice versa. But it doesn't work that way anymore anymore. And we really saw that in 2022 when both stocks and bonds were both way, way down, not good. Bonds weren't great. Stocks weren't great. You know, the interest rates weren't great. So, yeah, that really came to a head then. So I'm glad you talked about bonds. Not saying bonds are bad for everyone, but you have to be more careful. You can't use the old rules of thumb anymore. You have to work with a trusted professional who knows what's going on.

No, I mean, I had college classes about that 27 years ago, but that's called modern portfolio theory, where you can have a mix of stocks and bonds. And yeah, all the modern portfolio theory advocates were very, very much in pain in 2022. But that really was an anomaly. Yeah.

Yeah, but modern, it was called that a long, long time ago. It was. When it was a fresh, you know, the old 60-40 rule, that's the old rule, and that was a while back. Now there's nothing modern about that theory or rule of thumb. You've got to look at other things. You might still want a 60-40 risk of risk and safety rule, That 60-40 rule might work for you depending on your time horizon and it changes for everyone. It might be 50-50 for you. It might be 70-30 or 30-70. You have to figure that out and a great way to do that, I know you have tools to help people figure out what their risk tolerance is and by looking at their goals, OK, you're going to need more in safety because of your time horizon. And you can be a new investor at 21 or you can be a new investor at 50. You know, some people. But you have to you have to look at it. And most people are investors, whether they know it or not, with their 401(k)s or 403(b)s or whatever. whatever their work or TSPs, whatever their work retirement plan is, they're invested in the market probably. And are they properly invested? Most people have no idea. And that's what they can figure out by coming to you, right?

Yeah, yeah, absolutely. We'd be happy to. Everything you just said more, figure out risk tolerances, figure out what allocation might make sense to them. When Tony says 70-30 or 50-50, the first number is how much you have in stocks, and the second number is how much you have in bonds. And when people invest in a retirement account through work, most cases are just getting defaulted to what's called a target date fund. So they look at what date you were born, And then they figure out at what date the average person that was born that year will retire. So it'll be like a 2050 or a 2060 fund. And they automatically adjust the mix every single year for how old you are. We don't like those because the stock market doesn't care what year you were born.

Plus, you're not going to retire at the exact same year and day that your neighbor did or that your buddy did. That's a rule of thumb, which is it's a starting point. And if you know nothing, okay, that's what's happening in my 401(k). But boy, you start to realize how serious it is when you, you should realize it much earlier. But like my wife and I realized that, okay, we're in our late forties. Where are we allocated? Where's this money? And, you know, we better figure this out. And that's when it's really smart to, if you're in your fifties, especially, you got to be working with a trusted financial services professional, right? Especially if you have any type of amount, you know, a decent amount in your 401(k), you should probably look at, you know, capitalizing on that or moving it somewhere where there's more control and it can be more diversified or adjusted properly for your situation. Right.

Yeah, everybody's situation is different and we'd be happy to make personalized recommendations. And what I was just talking about with these target date funds, that was actually one of the last things I was gonna mention about types of investments. So those are called mutual funds. So a mutual fund is just, You're hiring a manager basically who is going to pick a bunch of stocks and or bonds and then put them together into one fund. And then that, that has a ticker symbol. So the ticker symbol is just how you can look up investments. So if you go to, um, Yahoofinance.com or any other finance website out there, you can type in the ticker and see how the fund's done, what percentage it has in stocks, what percentage it has in bonds, and then also what the fees are. And there's a sort of a cousin to the mutual fund, the way I would describe it, is what's called an ETF. So with an ETF, it's typically not managed. So it typically has lower fees than mutual funds. And most of those are going to follow some kind of an index fund. So an index fund is basically someone out there, whether it's S&P or the Dow Jones, somebody selected a group of stocks and put them together in a bundle. So because you're removing that management piece out, sometimes the fees are reduced 90 percent. So we really like ETFs and our managed portfolios. We use ETFs. 100%. An added bonus of the ETF is that you can buy or sell it at any time for any reason during the time that the stock market's open. A limitation to a mutual fund is that you can't sell it until four o'clock. So if you put the sell order in at 9.30 in the morning when the market first opens, it won't actually get sold until four o'clock with a mutual fund. So that is a restriction potentially on 401(k) investments because those are almost all mutual funds.

So That's going to keep you from timing the market. I'll tell you that. If the market tanks at noon, you know.

And if a plane hits a building at 930, you know, you're going to wish you were in an ETF versus a mutual fund, if you ask me.

Right. Yeah, for sure. And yeah, that's a, yeah. I mean, that's a real, you know, we experienced that. And so people need to be aware there are black swan events, COVID things happen. You know, somebody sneezes in China. Yeah.

Can take the markets at this point.

So yeah, it is interesting. So let's, um, uh, let's wrap up. I know there's one more type of investment and that's real estate. I think there's, there's good and bad with real estate and for a new investor, I don't know, they might want to, uh, I don't know. Uh, what do you think about that?

If you're really handy, you could do, you know, purchase real estate and then rent it out. Or sometimes people will buy their first house and then when they're getting ready to move into their second house, they'll rent out the first house, especially if they have a good interest rate on the mortgage. But you typically got to be handy because it's a lot of work to have a rental property. That's what our clients do. Consistently tell us. I do have clients that have rental real estate portfolios, and you know, they start with one and then take the money and start investing in a second one, and it can create a nice income stream. But, oh yeah, most people are retired, they're almost always ready to sell them all because it's just so much work. But if somebody's handy and stuff, yeah.

Yeah. People don't realize the cost. The upkeep of a house is in especially if it's apartments or duplexes, fourplexes. But you see people, wow, they made really good money by flipping that house or by renting that house or by owning that building or a fourplex. Yeah, you can make really good money on real estate. A lot of people do. But you also have to have the money to fix it up. And most people don't think about those costs when they go in and start investing in that and the work, the personal physical labor. Do you want to be a landlord? Do you want to get a call at 3 a.m.? Pipes burst or the plumbing isn't working or the electricity went off, toilet running, you're going to get those calls because my dad chose to when he went into assisted living, rented out his house and he's not able to take care of anything. So I get the calls and I never wanted to be a landlord and I'm not even making money.

It's a great deal for you.

Oh, it's great. Cause I get calls all the time. Hey, this isn't working. Hey, that isn't working. Hey, you need to replace this door because the hinges broke. It's like, I get those calls and then it's just like, wow. And I'm three and a half hours away too. So that makes it tough. That makes it hard. So you got to watch out. That's all I'm saying. But let's let's and we've already talked about risk and diversion. Let's talk about really quick before we go the the how to get started. Go over those points for our listeners out there.

Yeah. So you want to set goals and determine your time horizon. And then I suggest you set a budget because you want to do dollar cost averaging if you can so that you're investing every single week or every single month. So create a budget so you know what you can invest. You typically want to have an emergency fund before you start investing just because you got to have money there when you need it. Then you choose an investment account. Most people are going to choose a brokerage account or a retirement account, like a Roth IRA. Roth IRAs are great because you put money in now, no matter how much it grows, you never have to pay taxes on it ever again. So if you can set it aside for retirement, that's a great option. Next is just start small. You know, you don't need to start with a million dollars, just whatever you can afford to invest, just get the ball rolling. It's, it's, In most cases, really fun investing, watching it grow and continuing to learn about how you can grow your wealth. And then, you know, work with a financial advisor, but also educate yourself, you know, read books, listen to amazing podcasts. You got to be careful. Money talks.

I'm sorry. I just had something on my throat there.

Yeah. So, yeah, if you follow those steps, there's a really good chance that you're going to be successful and reach your goals.

Yeah. Yeah. And we've talked about a lot of the common mistakes to avoid. So before we go, though, I have a question for you for a lot of new investors. And this is a good question, I think. I ask, how much should I invest each month?

Yeah, that's that's a great question. So it totally depends upon your budget. And what your goals are, whether they're short-term or long-term, but even small, consistent investments will really add up over time because of compounding. I'd love to dive in during the show, but I don't wanna make the show too long today, but Google search the power of compounding and see how tens of dollars, hundreds of dollars, thousands of dollars can literally turn into millions of dollars down the road.

Yeah, it's huge. Compounding interest. That's why they call it the eighth wonder of the world, right? Yeah, absolutely. Yeah, that's really good. Well, hey, give us your final thoughts on this topic.

So it doesn't have to be really complicated. Try not to put all your eggs in one basket, especially if one of your winners is winning. Don't dump all your money into that. Set very clear goals. Set a very clear time horizon, diversify your investments, and just keep learning. I think that's the best thing that our listeners can do to achieve their goals.

Excellent. Well, Ken, great show today. I packed with great information. A little longer today. I rambled on. I think my jacket was a distraction early on in the show. You don't think it's too subtle, though. You don't think people watch the show and didn't notice.

No, I think we'll be just fine. Good.

All right. Thanks, Ken. Great topic. And listeners and viewers, we really appreciate you tuning in. Now, before we go, though, Ken, let our listeners know how they can get a hold of you to set up a no charge, no obligation consultation to ask all their questions about investing, about making sure they're properly allocated.

Yeah, if you'd like a complimentary phone call or meeting, we'd be happy to meet with you. We can talk about risk tolerance, goals, how to invest, whether stocks, bonds, mutual funds, crypto or real estate make the most sense for you. Give us a call at 586-226-2100 or visit our website, summitfc.net. We'd love to help you protect your savings and feel confident about the road ahead.

All right. And that does it for today's episode of Money Talks with Summit Financial Consulting and our host, Ken Wink. Thank you for joining us for Money Talks. Don't head into retirement without a strategy that addresses both income and taxes. For more information, please contact Ken Wink at Summit Financial, working with people you trust. Call 586-226-2100 or visit summitfc.net. Join us again soon for another episode of Money Talks.