A World Where Not Only Rich People Get Richer

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  1. So what did I do?
  2. What can we do?
  3. So let’s break down the issues…
  4. Issue #1
  5. How can we start to solve this?
  6. Issue #2
  7. What you need to do is assess your risk profile and time horizon.
  8. So we want to AVOID this situation.
  9. What is Risk Tolerance?
  10. Issue #3 — Part one
  11. Issue #3 — Part two

Let’s imagine a world where not only rich people got richer. What if regular people, like you and me, had access to the education, resources and advice that rich people have.

My first encounter with this was a couple of years back, when I was looking for a financial advisor. I called an investment advisory firm that was recommended by Nefesh b’Nefesh (an organization that helps new immigrants to Israel). I called and spoke to the secretary at the firm and asked to speak with the advisor that was recommended. She asked me if I had over $100k to invest (which obviously I didn’t have), and when I said no, her tone changed… I’m not sure what I heard next, but I just remember her rushing me off the phone and then the abrupt sound of her hanging up in my face.

So what did I do?

At the time, I was studying business and finance at University and had recently studied investment theory. I was really interested in having the money I saved up from working start to grow and start to build wealth. I wasn’t going to give up so easily.

I asked around and looked at all the relevant Facebook groups and found out what the situation is here in Israel (and I’ve seen it’s pretty similar in the US):

There are almost no financial or investment advisors that will be willing to speak with you if the following conditions are not met:

  1. You have over $100k (These advisors usually work off of a % basis)
  2. You are willing to pay crazy hourly rates for one-on-one meetings with the advisor

Listen, I get it. Financial advisors aren’t willing to manage less than $100k because of market volatility. But this leaves those of us that need help with our investments with very few options.

But what gives?

Why is no one willing to help us millennials? Will we ever have enough money to buy a home?

Why don’t we have access to the resources we need to make intelligent financial decisions?

Honestly, I wish I had the answer to these problems, but I don’t.

All I can do is work with what I know and with the tools at my disposal.

What can we do?

First of all, we need to talk more about money. My family (apologies in advance to my family) is very secretive about money. They won’t even let me know how much money I have left in a college savings account that is in my name. Almost none of my friends talk about money or investing. Most of my friends know nothing about investing and when they hear about the stock market, they either say “that’s too risky for me” or they stop listening (and sorry to the females reading this) and let me discuss the details with the males in the room.

So let’s break down the issues…

Issue #1

We never learned about investing.

Yes, that’s true. The education systems in most countries in the world have no mandatory finance or investment classes.

What did I learn before studying Business and Finance in college?

How to balance a checkbook. Yes. That is it.

My ability to understand how to manage my money correctly did not exist until I had a wake up call when I had spent all of the money in my bank accounts and went into overdraft at my bank using a credit card (this is pretty similar to getting yourself into Credit Cards debt in the US).

Having frugal parents did not rub off on me at all. Yes, my mom clipped coupons, but never not once did I check the price of anything at the supermarket. You may say that I was shielded from financial issues at home. Was I? Maybe. Did that contribute to my lack of financial understanding? Most definitely.

My mom was clipping the coupons. She just didn’t involve me, so I never knew that I should be checking the prices of the products.

Let’s not shame my family too much…but let’s just say that once I got started investing I tried to talk to both of my parents about investing.

My mom: “Yes my money is managed by such and such a company. I don’t like to get involved. Your dad does the rest. He likes it.”

My dad: “I usually get nervous and sell when things start going down…but I like doing it.”

(He’s selling low and buying high. When you invest, you try to buy low and sell high — that’s how you make money. If you do what my dad does, you are finalizing your losses, also called “locking in losses”)

My uncle: “You shouldn’t be taking advice from your dad. He usually sells low and buys high.”

My brother: “I don’t want to risk any of my money in the stock market, I worked hard for that money.”

How can we start to solve this?

Let’s share our knowledge

Have you started budgeting or investing? How do you feel about what you’re doing? Are you sinking or swimming? What resources did you use? Was it a person? An online resource? A book? An app?

Talk to your friends about what you’re doing, or what you’re not doing yet. Help eachother, you may find out a lot.

Start learning about investing. Some resources I find helpful are:

Issue #2

The stock market is risky.

Umm, yes. The stock market is RISKY. Driving is risky, flying on a plane is risky, walking down the street is risky.

Why do we take these risks? For the REWARD.

In investing, the theory is that the more RISK you take, the more REWARD you get.

Am I saying that you should invest all of your money in cryptocurrency or high risk stocks? Absolutely not.

What you need to do is assess your risk profile and time horizon.

Let’s break this down.

What is a Risk Profile?

A risk profile is based on how much risk you are willing to take in your investment portfolio. Your risk profile is made up of two components: (1) Time Horizon and (2) Risk Tolerance.

What is a Time Horizon?

Your time horizon is how long you are planning to invest for.

If you have money that you want to use to pay for a down payment, building a business, large purchase or event or for in the next 5 or so years, this money has to be liquid. (Liquid means that you can withdraw it at any time) It also should be invested in less risky assets. Because if you find your dream home in 4 years, but your investment portfolio has dropped 20%, you are going to have to either:

  • Give up on that specific dream house or
  • Sell your investments at a 20% loss

So we want to AVOID this situation.

How do we avoid this?

We invest in less risky assets, for instance, money market funds, or very short-term bonds (the least risky are ultra short bond funds).

You can also put the money in a dedicated savings or money market account through your bank.

Another example, if you’re saving for retirement already (kudos if you already are!).

So say you’re 27, like me. The retirement age in Israel for women is currently 62 (hopefully it will be changed to 65 soon — We can talk about gender equality another time.)

You can find the retirement age for your county here.

That’s a time horizon of 35 years. That’s a very long time and in the long run, the market usually goes up. So here, you have the flexibility of investing in more risky assets.

There are lots of risky assets, but let’s name a few: high growth stocks, commodities, IPOs, etc.

What is Risk Tolerance?

Risk Tolerance is what it sounds like: how much you can tolerate risk. How much up and down (volatility) from your portfolio can you handle?

Some people can leave their investments alone and won’t be bothered if their portfolio goes down 2% one day or is down 10% for the year.

Other people check their investments everyday and get anxious when they see that the value of their investments has gone down by a large percentage.

First of all, if you get anxious from looking at your investments daily, DON’T LOOK AT YOUR INVESTMENTS DAILY. If investing makes you anxious, you either need to figure out the underlying causes and learn more about them and how to handle these feelings or misconceptions about investing…or you need to get help investing.

You can get help investing from:

A roboadvisor:

This system will automatically readjust your portfolio based on certain conditions and maximizes tax savings. You need to set this up one time, you can also set up an autopay from your checking account to be invested each month.

A financial advisor:

An advisor will help you achieve your financial goals and help you with many aspects of your finances including insurance, retirement accounts, estate and tax planning.

If you are anywhere in between then you should have a good balance of stocks and bonds (and other assets, if you want), according to your risk profile. You can take a very simple test to check your risk profile here.

Issue #3 — Part one

We don’t want to be involved, we’ll let the men take care of it.

I don’t have much to say about this, other than…if you’re a woman, GET INVOLVED!

THIS IS YOUR FINANCIAL FUTURE TOO!

I hear too many of my friends tell me that their husbands take care of their finances.

I also hear very sad stories of when there are health issues with one of the partners in a marriage and the partner who is left to deal with the finances has no idea where their retirement accounts are or how to pay the bills.

Issue #3 — Part two

We don’t want to be involved: What’s out of sight is out of mind.

We don’t want to know or hear about it. A lot of this stems from Issue #2 — The stock market is RISKY.

We have enough worries in our daily life, why do we need another? Good question. We don’t need another thing to worry about.

But let’s try to change our mindset. We don’t need another thing to worry about now, but we will have less worries in the future if we plan well now.

What could help you become more financially independent?

Please let me know in the comments below or contact me if you have ideas of how I can help you learn more about personal finance.

Also keep your eye out for my next article about how to get started investing and gain financial independence. I may also cover some different tools and products. If you have any questions or special request for what will be included, please let me know.

Feel free to also reach out to me at [email protected] or via Linkedin.

Disclaimer: The above references an opinion and is for information purposes only. It is not intended as tax or investment advice. Seek a licensed professional for tax or investment advice.