January 2021 NewsletterSubmitted by Dorval & Chorne on December 31st, 2020
Keagan Kinsella | January 1, 2021
Happy 2021! A new year, and a new newsletter is coming your way… I hope you all had a great Christmas and New Years. A few newsletters ago I talked about my favorite Amazon purchase of quarantine, but I now have a new winner! Since the gyms shut down for another span of time, I splurged and treated myself to a mini treadmill! It makes me so happy to be able to walk and jog from the comfort of my spare bedroom (walking outside in the dark, cold evenings was becoming less and less enjoyable!)! So, it was a big quality of life enhancement. Anyway, welcome to the January newsletter, today we are talking about:
- Question of the month: “Shouldn’t I be buying stocks?”
- The power of paying off debt: An inspiring story of tackling student loans!
- Quiz time! Test to see if you are part of the 16% of “financially literate” Americans
Question of the month: “Wait, shouldn’t I be buying stocks?”
We met with a twenty-something nurse a couple weeks ago who wanted to know if she was on track financially for someone her age. After listening to her background, she explained how peers, society and social media have been bombarding her with the "right way" to invest. She thought she needed to buy individual stocks like Tesla and Amazon in order to be financially successful. Her friends all talk about how much they’ve made in the past few years, and she felt like she’s been missing out on that success, since she has only been contributing to her 401k through work. (Side note, none of her friends ever mentioned losing money…of course that’s no fun to brag about!).
What she didn't know is that there is NOT one definition of investing success! She had graduated from college debt free, purchased a condo, has over $20,000 in her savings and has plenty of cash flow every month. She already is successful and so far ahead of so many people her age!
When we asked if she actually wants to play around with buying and selling stocks in a brokerage account, she said “Absolutely not! I’d much rather do other things.” So, she didn’t have any interest in it, it was only something she thought she should be doing!
We started by explaining how mutual funds work, and how she has already been buying those stocks through her 401k! We explained how a mutual fund (ie: S&P 500 ETF) has small bits and pieces of all the biggest companies she knows and hears about. You just can't see the breakdown when it all is combined in one fund! Same thing goes for a target date fund (ie: Vanguard 2050 Target Date retirement fund). We’d say you can choose to buy and sell individual stocks, but only if it it fits into your goals, and brings quality of life!
The power of paying off debt: So long student loans!
Student loan debt is an overwhelming challenge so many new grads face coming out of school. I’ve seen totals equivalent to the size of a small mortgage! Right now, due to the CARES Act, payments have been deferred at 0% for many borrowers to help those who lost their job or income make it by month to month.
One concerning thing is how many people are deferring loans whose income or situation wasn’t affected at all by COVID! It becomes easy to just spend that payment you were making on other things… but, eventually payments will resume— and you want to be prepared to fit that back into your budget.
We recently met with a nurse who was a great example of doing the exact opposite of this. A few years ago she came out of school with over $75,000 of student loans. She got a great start living at home for a year after graduation, but eventually she moved out and began to pay rent for an apartment she shared with roommates. When COVID hit, she had the option to defer payments…but instead she took advantage of the 0% interest being charged and continued paying $2,000-3,000 per month towards the principal of the loan.
Now she just turned 26 and is completely debt free! Not only is she no longer paying 4-5% interest on her loans, she now has THOUSANDS of dollars of freed up cash flow each month. That’s the beautiful thing about paying off debt, your financial situation improves immediately the next month. We are now able to talk about building savings for a new car, maxing out a Roth IRA, and/or investing in an individual investment account for a future home down payment in 5 years. All the hard work and determination paid off, and now she has a $75k burden lifted off her back!
Quiz time! Are you part of the 16% of Americans who can pass this financial literacy test?
If you’re anything like me, you love a good, fun quiz! What’s more fun than financial planning concepts?! I found a report conducted earlier this year on financial literacy. Americans were asked three “very fundamental questions” to test their knowledge… and I found it interesting that among millennials, only 16% answered all three correctly! Let’s see how you do…
- Suppose you had $100 in a savings account, and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow?
Answers: a) More than $102 b) Exactly $102; c) Less than $102; d) Do not know
- Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, how much would you be able to buy with the money in this account?
Answers: a) More than today; b) Exactly the same; c) Less than today; d) Do not know
- Please tell me whether this statement is true or false. “Buying a single company’s stock usually provides a safer return than a stock mutual fund.”
Answers: a) True; b) False; c) Do not know
The answer key is: A, C, and B. How did you do? Maybe the fact that you’re even choosing to read a financial planning newsletter puts you in an elite tier of smart Americans ;). What if the questions on the quiz were things like: What is the Pythagorean theorem? What is the difference between a noun and a verb? Or what is the atomic symbol for water?
I bet a much larger percentage of quiz-takers would be 3 for 3 on those kinds of questions! The point of the financial literacy quiz isn’t to make you feel stupid, but it’s interesting that we aren’t taught financial concepts about money, inflation, stocks and bonds when these are issues that have an impact in our day to day lives. I think it is very important for the education system to enhance the curriculum to start to teach students basic concepts and lessons of financial planning!
The good thing is, we all have our specialities- that’s the beauty of careers like nurses, mechanics, law enforcement officers who can do things some of us could never get ourselves to even imagine doing. If finances aren’t your “thing,” and you could care less about the questions on the quiz…you’ve discovered the reason why financial advisors and planners exist! We are here to help you learn what is important based on your goals and your quality of life!
All right, that’s it for this month. Stay tuned for my next newsletter where I will continue to share and inform in new and creative ways. If you want to sign up for the newsletter email, click here (and let others know they can sign up.) Last but not least, let’s connect on LinkedIn!
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