PDF Summary:Broke Millennial Takes On Investing, by Erin Lowry

Starting to invest early is crucial for building wealth over time. Yet many millennials remain hesitant due to market volatility fears or misconceptions around investing. In Broke Millennial Takes On Investing, Erin Lowry presents a straightforward guide to overcoming psychological hurdles and getting started with low-cost investment options.

Lowry covers key investment principles like asset allocation, analyzing fees, and ethical investing. She shares strategies for utilizing workplace retirement plans, balancing competing financial goals, and adjusting your portfolio as life circumstances change. With practical tips for navigating market volatility and investment risks, this guide aims to help millennials embrace long-term investing for steady growth.

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Responsible and ethical investment approaches

Lowry underscores the importance of devising investment strategies that are more sophisticated than merely channeling money into options labeled as socially responsible investments or those that meet environmental, social, and governance criteria. She advises thoroughly investigating to ensure your financial commitments align with your personal moral values.

Investigating strategies for investment that prioritize ethical considerations.

Lowry opens with a narrative about a conversation with a musician that establishes a solid foundation for comprehending investment strategies that prioritize social responsibility. After the disastrous 2010 oil spill involving BP's Deepwater Horizon, the artist was left wondering who would consider putting their money into BP shares during such a period. This event prompted Lowry to consider the broader consequences of wealth accumulation, particularly in terms of the possible sacrifices one might accept to bolster and safeguard their financial standing.

Lowry delves into the idea of directing investments toward companies that not only seek to generate measurable beneficial effects on society or the environment but also strive for financial gains. Lowry highlights the unique aspect of this concept, explaining that it differs from more general investment strategies that are less stringent in eliminating a wide range of companies, such as those identified by criteria related to environmental, social, and governance concerns, or what is commonly known as socially responsible investing.

Investments aligned with personal principles and convictions.

Lowry acknowledges that many potential investors postpone their start in stock trading because of concerns that their investments might inadvertently fund companies that go against their moral or ideological principles. Erin Lowry cautions that investing in what seems to be a stable index fund or ETF could lead to unintentionally supporting and gaining financially from a company whose practices are at odds with your personal values. If you're having trouble finding a detailed list of a mutual fund's assets, Lowry recommends contacting your brokerage firm for a complete breakdown. Erin Lowry advises that just because a brokerage firm labels a fund as ESG or SRI compliant, it doesn't necessarily mean it matches your individual values.

Other Perspectives

• While diversification is generally a sound strategy, it can sometimes lead to over-diversification, where managing a large number of investments dilutes the potential for higher returns and increases complexity and costs.
• Diversification does not eliminate the risk of loss, especially during market downturns where correlations between asset classes can increase, causing them to fall in value simultaneously.
• Investing in real estate and other non-liquid assets can introduce other risks and complexities, such as property management challenges and lack of liquidity, which might not be suitable for all investors.
• Some argue that active management can outperform passive management strategies, especially in less efficient markets or during times of increased volatility where active managers may better navigate market conditions.
• Exchange-traded funds (ETFs), while offering instant trading, can sometimes trade at a premium or discount to the net asset value of their holdings, which can introduce additional costs or risks.
• Expense ratios are just one component of the total cost of ownership of an investment; other costs, such as transaction fees, tax implications, and bid-ask spreads, can also impact overall returns.
• The concept of socially responsible investing (SRI) and environmental, social, and governance (ESG) criteria can be subjective and vary widely between funds, making it difficult to ensure investments align with personal values.
• Some critics argue that ESG and SRI funds may underperform compared to traditional investments, as they may exclude profitable sectors or companies based on their criteria.
• There is a debate about whether investments can truly be ethical or if the pursuit of profit inherently involves some form of compromise on values.
• The availability and transparency of information regarding the holdings of mutual funds and ETFs can vary, making it difficult for investors to fully understand where their money is being invested.

Building a financial foundation for future security and making arrangements for post-career sustenance.

Maximizing the benefits of the retirement programs offered through your employment.

Lowry underscores the significance of prioritizing employer-sponsored retirement programs as an initial step in investing, equating the neglect of these opportunities to turning down free money. She provides detailed guidance on how to fully utilize employer-sponsored and personal retirement savings plans, emphasizing the importance of understanding when one gains complete control over these investments.

Leveraging 401(k)s, 403(b)s, and IRAs

Lowry highlights to her audience that participating in employer-provided retirement schemes, such as 401(k)s and 403(b)s, is a way of investing. Erin Lowry explores the decision to invest using funds that are taxed beforehand in a conventional account or to opt for a Roth account where investments are made with earnings after taxes, a choice that typically depends on whether a person wants to decrease their tax burden now or in retirement.

Lowry advises that for those who aren't provided with employer-sponsored retirement plans, establishing individual retirement savings is a sensible option, despite these options being subject to an annual contribution limit of $5,500, which is lower than the $18,500 permitted for 401(k) or 403(b) plans. This approach offers freelancers, who often have fluctuating incomes, a chance to save for their future retirement needs.

Lowry emphasizes the need to start investing early and highlights how to maximize the benefits of retirement accounts by incorporating charts and diagrams. The author demonstrates that if Kim starts setting aside $300 each month in her retirement fund at 21, with an annual return adjusted for inflation of 4%, she will have amassed close to $500,000 by retirement. If Kim delays starting her savings until the age of thirty-one, she'll need to save approximately $500 monthly to amass a similar sum by her retirement. The idea of interest accumulating as time progresses. Lowry highlights to her readers the remarkable benefits when it operates to your advantage.

Strategies for managing and maintaining pension savings schemes.

Lowry conveys advice from Colleen Jaconetti, a Certified Financial Planner at Vanguard Investment Strategy Group, on starting to save for retirement: it's crucial to decide on the sum you plan to save, particularly focusing on allocating sufficient funds to take full advantage of any matching funds provided by your employer.

Second, identify investment choices that match your comfort level regarding risk and the timeframe you have established for achieving your financial objectives. If you find the array of investment options overwhelming, Lowry suggests initially allocating your finances to a comprehensive fund, such as a target-date fund, which is structured to progressively transition your holdings to more secure investments as you near retirement.

Third, Lowry advises assessing the costs linked to the funds, emphasizing that higher fees can greatly diminish your returns. She also motivates her audience to confidently seek assistance from their brokerage's advisor for advice on optimally configuring their accounts and selecting investment options. Lowry describes feeling overwhelmed by the numerous choices within her retirement plan, which led her to ask for advice from her father, a step not commonly taken by others in her age bracket.

Planning for long-term investments while also taking into account immediate financial goals.

Lowry recognizes the challenge of setting aside funds for retirement amidst the need to concentrate on other pressing objectives. The author advises readers to carefully plan their investment approach, considering the time frame of their financial goals, their risk tolerance, and how these factors influence the selection of investment vehicles to achieve long-term objectives.

Aligning the allocation of your assets with the time frame of your investment objectives.

Lowry emphasizes the significance of acknowledging that, although it is essential to allocate money for retirement, many Millennials must also focus on immediate financial goals like building a fund for purchasing a car, planning a vacation, or saving for a house down payment. She makes it clear that despite the compelling temptation to focus on paying off debts, particularly those with interest rates exceeding 5% or 6%, one must understand that these debts won't vanish without deliberate action.

Sometimes, you need to let your financial resources work to produce earnings for you. Lowry suggests that a time frame of one to two years should be used to assess if it's wiser to chase investment goals rather than keeping money in a deposit account. Money earmarked for objectives expected to be achieved within a short timeframe, particularly for individuals with a lower risk tolerance, ought to be securely kept in savings to ensure protection from any possible risks.

Erin Lowry explains that the strategy for investing with the objective of achieving a target in a period ranging from four to ten years depends on how adjustable the timeline for the goal is and the level of risk the investor is willing to take. As you approach the decade milestone of your financial goal, start with investments that carry a greater risk, such as equities, and gradually shift towards options that offer greater security.

Investigating methods for diversifying capital into different types of investments aside from retirement accounts.

Lowry explains that while maximizing your 401(k) contributions or putting as much as possible into an IRA makes sense on paper, because of the tax advantages, in reality it may not align with your financial situation and other goals. She uses the narrative of a young individual from the generation known as Millennials who managed to amass an emergency fund of $80,000, showcasing her remarkable financial savvy. Jessica's initial venture into the world of investments was limited to her secure 401(k) because she didn't have any guidance in navigating the financial markets. Lowry observes that individuals such as Jessica often feel anxious and unsure when considering investment opportunities that go beyond those specifically intended for building a nest egg for their later years.

The author highlights that to reach financial goals by merely saving necessitates allocating a significantly greater fraction of one's earnings than when adopting a strategy that blends saving with investing, as demonstrated through the narrative of a woman named Lillian. Lillian allocates $500 each month with the objective of accumulating $1.5 million for her retirement. If Lillian consistently saves $500, she could amass a sum of around $341,000 by the time she retires. Expanding one's investment portfolio beyond solely retirement accounts also provides flexibility, as Lowry points out. Erin Lowry suggests that by settling the necessary taxes, you can access the earnings and growth from your investments without incurring the typical fines associated with early withdrawals from standard retirement funds prior to turning fifty-nine and a half.

Embracing the financial tactics commonly utilized by wealthy individuals.

Lowry has always had a profound fascination with the narratives of self-made individuals who have accumulated considerable wealth, as depicted in various media, a status her father achieved through personal endeavor. The author shares investment tactics employed by wealthy people, as described by a varied panel of specialists comprising CEOs, creators of automated investment platforms, financial consultants, and finance teachers, emphasizing the advantages these methods offer to investors across the spectrum of expertise.

Prioritizing the accumulation of savings over time rather than pursuing rapid wealth accumulation strategies.

In her early twenties, Lowry humorously set a personal objective to achieve millionaire status before her father did. Lowry noted that her parents accumulated considerable wealth by living below their means while working overseas, and her father's intentional strategy to make himself a vital asset to his employer by becoming proficient in Japanese due to the firm's commercial activities in Japan. Eventually, after moving back to the US and getting laid off, her father started his own consulting business and now earns even more than he did when working for the company. Lowry credits her parents' financial success to beginning their savings journey early, consistently allocating funds for savings despite it appearing superfluous, making strategic career choices, and demonstrating steadfastness.

Brandon Krieg, the co-founder and current CEO of Stash, advises, "Don't think fast money is real." Krieg stresses the importance of recognizing that wealth can disappear quickly and underscores the fact that investing is not a quick path to amassing wealth. Numerous strategies that claim to rapidly build wealth often prove to be fraudulent schemes similar to Ponzi operations or are not in accordance with legal standards. I rely on methods that have demonstrated success over time. Other experts that Lowry engaged with stress the importance for those with substantial wealth to prioritize the long-term security of their financial resources over immediate gains, by creating legal entities that protect their family's wealth for generations to come.

Focusing on preserving wealth and ensuring tax effectiveness.

Erin Lowry's parents demonstrated not only the growth of their wealth but also the skillful enhancement of their financial situation through economical living. They instilled financial wisdom in their daughter, prompting her along with her sister to seek out opportunities to generate income during their childhood. Lowry recognizes that she and her sibling understood, without it being explicitly stated, that their parents' financial backing was available if necessary, an advantage that afforded them more flexibility in selecting their professions. Lowry underscores the significance of adopting approaches that minimize tax liabilities.

Erin Lowry elucidates the strategy for optimal fund allocation. Ashley Fox, drawing on her financial education expertise and experience with high-net-worth individuals, shares insights from her time on Wall Street, focusing on her involvement in discussions where clients utilized art acquisitions as a strategy to build and protect their wealth. Transferring art across international boundaries may act as a method for wealth preservation and minimizing tax obligations. Fox acknowledged that the crucial element lies not in the magnitude of one's monetary assets, but in their perspective on their financial situation.

Other Perspectives

• While prioritizing employer-sponsored retirement programs is beneficial, it may not always be the best option for everyone, especially if the investment choices are limited or have high fees.
• Investing in pre-taxed or post-taxed retirement accounts depends on current and future tax rates, which are unpredictable, so the choice may not be as clear-cut as it seems.
• Individual retirement savings are important, but the annual contribution limits may not be sufficient for some people's retirement goals, necessitating additional investment strategies.
• Deciding on the amount to save for retirement is complex and can be influenced by many factors, including life expectancy, health, and personal goals, which may not align with standard advice.
• Matching employer contributions is beneficial, but employees should also consider the vesting schedule and their own job stability before counting on this as part of their retirement plan.
• Investment choices should match risk tolerance, but individuals' risk tolerance can change over time, and they may need to reassess their investments periodically.
• Assessing costs associated with funds is important, but low fees should not be the only consideration when selecting investments.
• Seeking advice on configuring accounts is useful, but it's also important to ensure that the advice is unbiased and not influenced by the advisor's potential financial gain.
• Balancing long-term investments with immediate financial goals is a sound strategy, but some may argue that certain immediate financial goals, like paying off high-interest debt, should take precedence.
• Allocating assets based on investment objectives' time frames is a standard approach, but market conditions and personal circumstances can necessitate a more dynamic asset allocation strategy.
• Diversifying investments is generally wise, but too much diversification can lead to diluting potential returns and may complicate one's financial strategy.
• Accessing earnings from investments by settling necessary taxes is an option, but it may not always be the most tax-efficient strategy, especially if tax laws change.
• Embracing wealth accumulation strategies over time is prudent, but some individuals may have opportunities for rapid wealth accumulation that are both legal and ethical.
• Prioritizing the accumulation of savings is important, but so is investing in oneself through education and career development, which can lead to higher income potential.
• Focusing on preserving wealth and ensuring tax effectiveness is smart, but overly aggressive tax avoidance strategies can be risky and may not be in line with one's ethical beliefs.

Navigating Challenges, Risks, and Market Conditions

Building endurance against market fluctuations and downturns.

Lowry acknowledges that it can be quite unsettling to witness a rapid decrease in the value of one's investments, but she also notes that these variations are an inherent part of the investment process. She shares insights from experts on maintaining composure during market volatility, navigating through financial slumps, and adhering to investment approaches that remain unaffected by emotional reactions.

Understanding historical context and patterns of market cycles

Lowry clarifies that predicting future shifts in the stock market is not feasible, but understanding patterns from the past can help remain steady through the inevitable market declines. She offers an uncomplicated overview of economic downturns and speculative booms, underscoring the significance of historical perspective in assessing how the media reports on present-day financial climates. For example, certain news outlets exaggerated the situation with dramatic titles like "The Largest Ever Fall in Points!" when, at the start of 2018, the Dow Jones Industrial Average experienced a substantial fall, shedding over 1,000 points amidst a period of financial market realignment.

While technically accurate, Lowry highlights that the reports lacked crucial context, especially the fact that the Dow Jones Industrial Average attained its highest closing value on January 26, 2018, before it underwent a substantial decline. While the measure had declined from the prior week's level, it still stood higher than where it was five weeks prior. Lowry reiterates the wisdom imparted by her father, stressing the inherent fluctuations of the stock market and the tendency for an investor with a focus on long-term objectives to recover from downturns more swiftly than their financial reports may indicate.

Strategies for ensuring steady management of your investment assets while managing emotional reactions.

Lowry advises investors that their primary duty in times of market downturns is to avoid making any moves. The experts she spoke with offered advice on how to handle the anxiety that comes with market declines. Kelly Lannan from Fidelity Investments demonstrates that by analyzing historical financial records, especially for visual learners, it's possible to understand how their financial contributions might expand over the years, even with the ups and downs of the economy. Lowry underscores the necessity of being vigilant about attention-grabbing headlines and remaining informed about worldwide and regional happenings that could sway the financial markets. Seeking advice from a trusted individual, whether it's a confidant, advisor, or a savvy financial guide, can also offer more clarity.

The author emphasizes the significance of retaining your investments because liquidating them would confirm any deficits and eliminate the opportunity to regain those losses upon market recovery. Erin Lowry advocates for the strategy of regularly allocating specific sums into investments, a method referred to as "dollar-cost averaging," in her book. Erin Lowry describes a strategy where an investor consistently invests money into a particular asset at regular intervals, leading to acquisition at diverse market prices, sometimes high and sometimes low. Lowry advocates for this strategy as it deters efforts to predict market fluctuations and simultaneously encourages a gradual integration with investment techniques.

Navigating the investment landscape while avoiding fraudulent schemes and deceptive tactics.

Lowry underscores the importance of investors sharpening their judgment and remaining vigilant against exaggerated promises, especially as technological progress has broadened the availability of investment choices. She emphasizes that various investment approaches, especially those involving day trading and certain cryptocurrencies, often benefit the seller more than the investor.

Assessing the qualifications of financial advisors, the dependability of brokerage firms, and the caliber of investment options available.

Lowry shares her own experience of buying an investment product, a mutual fund, without doing much research (because she "didn't know what [she] was doing") to highlight the importance of vetting potential investments and the advisors selling them. She underscores the necessity of recognizing personal risk tolerance and establishing clear goals before committing to investments that are not thoroughly understood. Lowry shares an anecdote about Peach, her boyfriend during that period, who eventually married her. Choose financial options that align with the needs of you and your family.

Cultivating a discerning eye for unrealistic promises or high-pressure tactics

Lowry highlights how a significant number of consumers often buy products merely due to the influence of marketing. She conveys an important lesson from her college guide: "Commit your resources to an endeavor only if you're able to articulate its workings comprehensively; if not, it's prudent to avoid it." Several industry leaders from investment firms and robo-advisory services, whom Lowry consulted, imparted their wisdom on the most effective strategies to avoid fraudulent schemes and evaluate potential financial opportunities.

Sallie Krawcheck, the CEO of Ellevest, suggests that one should be skeptical of opportunities that seem excessively promising, while Douglas Boneparth, the head of Bone Fide Wealth, recommends exercising prudence when evaluating the diverse array of investment options, each carrying its own level of risk. He also informs readers that the industry operates under stringent regulations... No mutual fund or exchange-traded fund is designed around principles of deception and rapid disengagement. If you're still uncertain, Jennifer Barrett suggests delving deeper into the investments under your consideration. If your inquiries are not satisfactorily addressed, consider it a significant warning sign.

Adapting investment approaches throughout life's changes

Lowry underscores the importance of cultivating a flexible strategy for investment. As we progress through various phases of life, our investment approaches must evolve to align with the shifting financial needs and conditions.

Adjusting one's investment mix to remain in step with changing objectives and an appetite for risk.

Lowry characterizes investing as a tool with the potential to somewhat equalize economic disparities. In her book, Lowry emphasizes the importance of creating an investment portfolio that aligns with a person's financial means and their tolerance for the inherent fluctuations of the market. A representative of the Vanguard Investment Strategy Group observes that while individuals of greater financial substance may gravitate towards riskier investment opportunities, they sometimes also ponder whether it's essential to pursue further risks after accumulating considerable assets. She suggests that individuals with substantial savings typically have a portfolio concentrated solely on bonds with minimal risk. Lowry underscores the importance for readers to initiate their journey into investing by selecting options that resonate with their unique financial goals and personal risk tolerance.

Life's significant events influence investment decisions.

Make it a point to meticulously evaluate your investment portfolio on an annual basis. Erin Lowry stresses the importance of conducting an annual financial assessment, especially during major life events such as getting married, changing careers, or starting the process of parenting. "If you have financial advisors or brokers handling some or all of your assets for you this is an excellent time to re-establish a conversation with them" and ensure that your plan still reflects the way in which your life and goals have shifted over the past year.

Other Perspectives

• While understanding historical market cycles can be helpful, it can also lead to overconfidence in predicting market behavior, which can be risky.
• Maintaining composure and avoiding impulsive moves during downturns is generally good advice, but there may be situations where quick decisions are necessary to prevent further losses.
• Dollar-cost averaging is a widely recommended strategy, but it may not be optimal for all investors, especially those who are more sophisticated or have different financial goals.
• Vigilance against fraudulent schemes is important, but over-skepticism could lead to missed legitimate opportunities.
• The process of assessing financial advisors and investment options can be complex and overwhelming, and investors might still make suboptimal choices despite due diligence.
• A discerning eye for unrealistic promises is crucial, but even savvy investors can be misled by sophisticated scams.
• Adapting investment approaches to life's changes is sound advice, but too much adjustment could lead to excessive transaction costs or tax implications.
• Adjusting one's investment mix based on risk appetite and objectives is important, but this advice assumes that individuals have a clear and correct understanding of their own risk tolerance, which is not always the case.
• Life events certainly influence investment decisions, but personal biases and emotional responses to such events can lead to irrational financial choices.
• An annual financial assessment is useful, but for some, it may not be frequent enough to catch and respond to rapid changes in personal circumstances or market conditions.