First making her name as the ‘broke millennial’ blogger, Erin Lowry has grown up since her early twenties. With a personal finance book under her belt, as well as TV spots, snazzy profiles and guest-spots on podcasts, Lowry turned her focus from money 101 to investing…and boy are we glad she did.
With succinct prose and personal anecdotes, the personal finance writer aims to demystify investing with her latest tome, “Broke Millennial Takes on Investing: A Beginner’s Guide to Leveling Up Your Money.”
Written as a prescriptive advice, the book progresses from the basics (like, what exactly is an ETF?) to more advanced concepts (like the best way to whether a market downturn). The millennial wanted to write something both for the person who didn’t know the first thing about a 401 (k) as well as the person who knows about investing but wants to advance their knowledge.
Fresh off her book tour, I caught up with Lowry over the phone. Our interview was edited and condensed.
Alexandra Talty: In the book, you talk about the concept of being risk adverse. There are countless studies on how women can be more risk adverse than men when it comes to investing. Do you have any tips to over come that initial fear?
Erin Lowry: It’s natural to be risk adverse in the beginning…regardless of gender
You don’t know what you’re doing yet. It’s not something that we are taught in school. There’s not often someone there to hold our hands.
Most of us start investing with our retirement accounts. I don’t know about you, but I was not given any sort of assistance by my employer. It was just me and the name of a ton of different investments options. That’s a little overwhelming and intimidating.
There are a couple of things you can do when you are first getting started. One thing to consider is a target date fund which is sometimes known as an all-in-one-fund or a lifecycle fund.
The advantage of doing a target date fund when you’re getting started is that it makes sure your money is actually invested. There are horror stories of people just leaving their retirement money in cash, thinking that it was invested.
A target date fund is simply put, a fund that is tied to an approximate year when you are planning to retire. It removes the burden of having to make a decision of what you’re investing in. So hypothetically, if you’re planning to retire in 2045 then it’s automatically going to invest more aggressively in the beginning, then a bit more moderately and then to the more conservative investments towards your 2045.
The downside of the target date fund is that the fees are typically higher. It’s not tailored specifically to you and your goals and your risk tolerance.
If you have no idea what you’re doing and just want to make sure your money is invested, a target date fund is a good option. You can always re-balance your portfolio at a later date. There’s no rule that says once you go into a target date fund that you have to stay there forever.
Another thing that I recommend people do is to go to Investor.gov. Go to the compound interest calculator play around with the numbers. See how much less you have to save if you are investing your way to a million dollars. It’s really hard to save your way to wealth.
AT: You’ve talked about some tools like micro-investing or practice investing apps. Do you think using those can help people become less risk adverse?
EL: I think they can. The only concern I have is if you get into the market at a bad time. Say your first three months of investment are a time when we happen to be going through a market correction. You’re just seeing negative numbers and negative returns and red arrows pointing down. I would hate to have someone’s first at bat be a very negative experience like that.
Couple whatever you are doing with a lot of reading and education. I love going through the history of the stock market. It is cyclical. There are ups, there are downs. That is part of the economic growth cycle.
With micro-investing, put in at least $25 to $50 a month into the app to make sure that you’ll actually see returns. Because it is easy for us to say, oh it only costs $1 a month, it’s a great deal. If you’re only investing $5 a month, that $1 month is eating up all your returns.
Also, micro-investing shouldn’t be your primary means of investing. It is a good way for people to get started and get some learning.
ACT: You use this term in the book “having your financial oxygen mask on” to refer to people who’ve paid off most of their student loans or at least the ones above 5% interest, who have an emergency funds and aren’t carrying any credit card debt.
Sometimes, these people will just be investing in their retirement and not investing in other things. What advice would you give to someone who is ready to make that pivot?
EL: If you’re ready to be investing in what’s called taxable accounts I would say the very first step is setting your goals.
What do you want this money to be doing? Because that is going to dictate how much risk you are putting on your money and what kind of investments you are selecting. Without that information, you cannot be making educated choices.
It is also easy to say, ‘oh my car is going to quit on me in the next two to three years, well I want to be earning more than my average savings account, let me invest this money.’ Truthfully, you probably don’t want to invest that money that you know you’re going to need in two years.
If it’s a goal that is seven to ten years away – then yeah, it makes sense to be investing at least in the beginning. Get some growth on it and then you can get it into something a bit more conservative as you start to reach the end of what we call your time horizon.
ACT: There’s a lot of talk about the gender pay gap and the retirement saving shortfall for women. But there’s also this idea of getting in the investment game early on as a way for women to offset these economic realities.
EL: It would be wonderful for the wage gap to close. For all sorts of inequality for parity to take effect. But we can’t wait around for that to happen.
Investing is one of the great wealth equalizers. Now, thanks to technology, it is easier than ever toto start to invest. You don’t need large sums of money to start. You just need to be consistent about it.
The advantage of starting young is huge. Then you’re taking advantage of time and compound interest.