Majoring in Finance and as someone who has the had the opportunity to manage my own portfolio, I would say when it comes to stocks and any risky asset, it all depends on your own risk tolerance. I'm a millennial for example and any analyst out there would tell you that I have time on my side. They would then direct me to the risky assets and tell me how much it would be better for me in the long because even if the market crashes, it would correct itself right on time for retirement. Yeah, well tell that to the people were about to retire in 2009 thru 2011. They just stopped working in 2018, since the market crashed on the eve of their own retirement. See the issue I have is, I can't stomach more than a 2% loss on any asset of mine. I recently purchased a handful of shares of Dropbox when it's IPO came out. I was lead to believe through my own research of course this stock would take on a solid future. Well that was six months ago, and I've lost about 33% of my money since then. I've purchased stocks, mutual funds, and ETFs in the past and as soon as I see a -2% net loss, I start to panic. The good thing about any of this, is that I keep forgetting the passwords to my investment accounts, so it's not easy to panic when can't actually see what's going on right away.
What is your Risk Tolerance?
The bottom line of what people have to understand is protecting your assets in the stock market all depends on what you're risk tolerance is. If you can stomach more loss than most people, I would even argue the stock market is for you along with even more aggressive assets. However, if you are anything like me, you may want to leverage some assets and be conservative on others. I usually re-balance all my investments to a moderate level or according to my financial adviser at Northwestern Mutual, level 3 in risk. I hate the thought of losing money but I understand the need for big gains and high returns especially when you are in a bull market. The other concept I would think about is, how much cash do you want to hoard? As a finance major, I would like to advise always keep no more than 20% of your financial assets in actual hard cold cash. It's really easy to get caught up in saving, trust me,I get it. However, there is no way you will find true wealth accumulation through just a regular savings account because inflation is a real thing. In fact, if you aren't keeping up with inflation in any of your investments, well you're throwing money away. So it's best you invest in something that will give you at least a little return even if it's hoarding cash in a CD.
What to do with your cash?
When I get a little bit of cash, I always ask myself would this be better in a savings account, used to pay down debt, or put towards my investments? It's honestly a difficult decision. I also have buyer's remorse when I do invest even the smallest amounts of cash because I want to hoard a little more cash and build more liquidity overall. One thing I will say about investing is always remember the S&P always gives a descent rate of return. Throughout history we've learned, even from the depth of the Great Recession in 2011, the market will correct itself one way or another. I would say investing a percentage will only seem like a gamble, if it's all your money, but a portion will truly feel like an investment.
Investing in CDs and Online Savings Accounts
Try putting your money in a CD ladder, if you really are uncomfortable with a more aggressive or riskier product. As I've stated before, CD ladders are a good way to keep your cash savings while putting a better interest rate than a regular bank savings account. Also with a ladder, you can rest assured that your money is safe in the craziest of financial times and still be able to stomach a financial hit. The only thing about CDs is making sure to not take your money out before the maturity date, as to not have to pay the penalty fee. However it's usually a 1% fee, if you really need your money before the term ends.
Another safe asset is an online savings account. I swear by these and truthfully, I think you would be a fool to have most of your money at the local bank picking up a .10% interest rate. Since they are not the traditional brick and mortar financial institutions, they can afford to give you more bang for your buck. I also encourage it, because it's a little harder to transfer the funds out of these, since it take a day or two. This is ideal for those impulsive spenders, who need a minute to process if they need that new pair of shoes. Just saying!
Investment Accounts and Apps
Brokerage Accounts are definitely a good way to get your feet wet in the world of finance and investing. I think when you are new to the game, it only make sense you take $500-$1000 and open a brokerage account. I would recommend doing it through a bank or even a firm like Fidelity. That way you can have someone guide you through the process, until you are comfortable managing your own portfolio and building it up.
For Stock Apps, I recommend Acorns and Stockpile. These are some apps that I use to get myself started. I opened a custodial account on Stockpile for my son. I'm not super aggressive on there since he is a baby and has time, but for me I want to get into the habit of contributing on a monthly basis, so I opened one for myself as well. What I love about Acorns, is that they invest your change and so you barely notice the money gone from your account. With Stockpile, I love how you can purchase partial stock, so, yes even you can own a piece of the infamous Berkshire Hathaway .
For those starting off in the world of investing, don't be discouraged. It takes a lot of consistency, diligence, and patience to see the fruits of your labor. I also believe like most things, if you wait long enough, good fortune will happen to you. The whole paranoia about investing is the fear of losing. That's why it's important to not confuse luck with expertise. Even in the best of the bull markets it can all come crashing down. You have to remember too what comes up, must come down. So be safe out there folks when it comes to managing your assets and remember everything is not guaranteed.
Author's Bio: The Lioness is a financial blogger based in the Midwest. After spending most of her career in accounting, she decided to leap into the world of small business, investing and savings. As she is on this journey of juggling both her career and small business, she wants to share what she is learning along the way, as she builds her passive income.