It’s All Subjective Anyway, Isn’t it?
The afternoon financial channel conversation started out by cautioning young investors “not to use their stimulus money” to invest in that single volatile stock you’ve been hearing a lot about lately. When the pros voiced their suggestions, here is what they had to say:
“If you are in a position to do so, spend your stimulus check.”
“If you don’t need it to live on, pay down your outstanding debt.”
“Invest in your child’s 529 savings plan or make your maximum IRA contribution.”
“Consider putting your stimulus check into a well-balanced portfolio meant to grow over time. In fact, let it sit there for 20 years.”
What advice aligns with yours? Spend and pay or save and grow? It’s all subjective anyway.
“Finding balance, Grasshopper … the balance between spending and saving … so that in the end, you have benefitted greatly from both.” Master Kan, a wise man, could have said that.
Spending versus saving. Saving versus investing. What is the balance? Is it 50 percent toward expenses, 20 percent toward savings, and 30 percent toward things you want but don’t necessarily need? This is commonly called the “50/20/30 rule of thumb.”
Finding balance is both personal and essential to knowing when to spend and when to save. Think about the return you get from spending, and then think about the return you get from saving. And then, think about what the most influential people in your life had to say about it. All of which, of course, comes from the heart.
There is the classic: “Money doesn’t grow on trees and there’s isn’t one in the backyard.”
There is the conservative: “You should always save for a rainy day.”
There is the intimidating: “Don’t mishandle your money or you will lose it – and you won’t get it back either – because I sure as **** aren’t giving it to you!” Yes, tough love works too.
Advice is There For the Taking
You might be thinking, “So, why would a 21-or-25-year-old need advice on what to do with a stimulus check – or even a tax refund? Anyway, if you think back to your own 21-year-old, did they listen to your advice, or what you called, your “suggestion”?
There were two investment professionals who weighed in on the topic of what to do with a stimulus check, and it was easy to spot their quotes. What they said is subjective, based on personal opinion, belief, knowledge and experience. Basically, it came directly from their world – the world of growing assets for clients. They’ve had success – as we have at Hefren-Tillotson, based on guidance from the experts to shape what we know, what we have learned, what we’ve seen and how we implement our recommendations.
But anything subjective is subject to interpretation and is neither right nor wrong.
How the young investor interprets the opinions before he or she makes the final decision is ultimately how the end justifies the means. Aren’t we all kind of like that?
Are You A Spender or A Saver?
With some clients, the way they spend or save says more about them than whether they have self-control or not. Researchers’ preliminary data suggests that people tend to pick up spending habits from a parent – their mothers – more than other family members.
Scott Rick, associate professor at the Michigan Ross School of Business says your family upbringing and individual life experiences likely play a role in your splurging or saving. He adds the amount of money you make doesn’t impact whether you are a saver or a spender.
“If you lost a large amount of money at a key moment in your life, it might make you stingier. Or if you went through a period of time when your money was tight, you might hold onto those habits even when your situation improves,” Rick told Cory Stieg at CNBC.
This Shark Rose to the Top, but Not All Do
We’ve all heard the “rags to riches” stories of celebrities and powerful businesspeople. Shark Tank’s Barbara Corcoran quit her New York City diner job while in her early twenties to start a real estate brokerage business with $1,000 in savings. When she started selling apartments she realized the key to her business wasn’t sales, it was marketing.
Corcoran grew a phenomenal business and then sold it for $66 million. On Shark Tank, she invested $50,000 in a sweatshirt company that netted her a reported $30 million in a year-and-a-half, according to SoFi – who also reported that 56 percent of millennial women say fear holds them back from investing.
Ellevest reported that of all the assets controlled by women, 71 percent is in cash – aka “not invested.” They say, statistically, women are less likely to invest, and even those who do invest tend to wait until they are older to start. We don’t see that at Hefren-Tillotson but do understand the challenges that some women face when it comes to investing.
A woman CEO, Kim Tillotson Fleming, CFA®, leads our company and encourages men and women to take the first step toward their financial futures by choosing a personal strategy that works. We won’t tell you how to spend your stimulus money or your tax return.
We will give you rock-solid advice in how to properly plan and efficiently achieve your goals in the years ahead. If you have questions or would like a second opinion regarding your own portfolio, contact us at Hefren-Tillotson today. We would be happy to help.