Generation Y Investor » Generation Y Investing

Gen Y Investors View Investing As Fun

Stephen Kline — Thu, 15 Oct 2009 23:32:13 +0000

Apparently the majority of 20-something investors view the process of investing as fun. This is quite an interesting finding seeing as though we just lived through one of the biggest market busts in history.

Kimberly Palmer of the U.S. News & World Report writes: Gen Y: Investing Is Fun, Not Scary

“Online brokerage company Scottrade is out with some surprising findings about 20-something investors: It turns out they consider investing an enjoyable activity. Unlike older generations, they’re more likely to manage their money on their own and to feel confident that they will recover their losses from the recession. In fact, one in three of those surveyed said they invest because it’s fun, an increase from about one in four last year.”

“Other experts and surveys have suggested that the financial crisis has left Generation Y permanently scarred — untrusting of banks and financial institutions, and less likely to invest in the stock market as a result. But this survey suggests 20-somethings aren’t all retreating to their apartments to stuff bills in dark places. At least a significant portion of them are jumping into the stock market, which, given historical patterns about returns following market dips, is probably a good idea.”

I guess the caveat here is that the survey consisted of Gen Yers who are currently investors. As opposed to a random sampling of Generation Y in general. I think if you were to sample a number of random 20-somethings you would definitely find a more cautious stance towards investing.

Nevertheless, it’s great to see that a portion of individuals our age have taken matters into their own hands and started investing for themselves. It’s always been my opinion that people are better off taking the time to learn about investing in order to handle their own financial affairs, rather than handing the matter off to a financial advisor. I’ve said it before, but no one cares as much about your money than you. By starting early, young investors can learn from their mistakes and overcome them so they don’t hamper future financial goals such as retirement.

Do you think of investing as an enjoyable activity? If so, why?

Benjamin Graham’s Advice For Young Investors

Stephen Kline — Tue, 25 Aug 2009 01:25:58 +0000

I’m in the process of re-reading The Intelligent Investor and found some words of wisdom from Ben Graham to young investors. In his chapter entitled, “The Defensive Investor and Common Stocks” Graham states…

Let us not ignore human nature at this point. Finance has a fascination for many bright young people with limited means. They would like to be both intelligent and enterprising in the placement of their savings, even though investment income is much less important to them than their salaries. This attitude is all to the good. There is a great advantage for the young capitalist to begin his financial education and experience early. If he is going to operate as an aggressive investor he is certain to make some mistakes and to take some losses. Youth can stand these disappointments and profit by them. We urge the beginner in security buying not to waste his efforts and his money in trying to beat the market. Let him study security values and initially test out his judgement on price versus value with the smallest possible sums.

This is some great advice if you ask me. I’m a big proponent of investing on your own, and think that everyone should always start out small. For my own investments I have a two pronged approach… For my retirement accounts, I follow Graham’s advice in that I don’t try to beat the market. Instead, I use a portfolio of index funds that I rebalance whenever my asset allocation is out of whack. This conservative route for my retirement accounts is then balanced out by my discretionary portfolio that is comprised mainly of individual dividend paying stocks. I like this system because I know my retirement funds will never receive less than the market return and yet I can still try to outperform the market by picking my own stocks with my discretionary funds.

Gen Y Needs To Save

Stephen Kline — Fri, 07 Aug 2009 01:04:53 +0000

Here’s a pretty bogus article from marketwatch that says, “Impatience and financial illiteracy” “Could stunt a good retirement for young adults”.

The article is full of broad-based hogwash such as…

“Almost half — 47% — of Americans born between 1977 and 1994, also known as Generation Y, are below average when it comes to financial literacy, with little understanding of how to budget and save efficiently.”

Another gem is…

“There’s a mindset that is possibly generation-wide that is ‘instant gratification,’ you Twitter just so you can find what someone is doing today. You microwave, you have Easy Pass.”

My main problem with this author’s writing isn’t that her points are inaccurate. In fact, I’d agree with most points that she does make; however, they don’t just apply to Gen Y. You could re-write this whole article and change “Gen Y” to “Baby Boomers” or just “Americans” and it would still be completely accurate.

The bottom line is most Americans in general aren’t financially literate. Gen Y has learned their poor financial skills from their baby boomer parents with poor financial skills. You can’t just single out the young generation without realizing that we’re merely a reflection of the older generations.

How Much Is A Billion?

Stephen Kline — Fri, 09 Jan 2009 02:12:02 +0000

I was reading a forum totally unrelated to investing today (Cigar Aficionado if you must know), and someone posted the joke below. I just thought it was funny considering all the politicians blurting out how many billions are needed for this bailout… and that stimulus plan… and that bridge to nowhere… well, you get the point.

A billion seconds ago it was 1976.

A billion minutes ago Jesus was alive.

A billion hours ago, our ancestors were living in the stone age.

A billion days ago nobody walked on two feet on Earth.

A billion dollars lasts our federal government about 8 hours and 20 minutes.

Be Weary Of Leveraged ETF’s

Stephen Kline — Wed, 07 Jan 2009 01:24:19 +0000

Over the past year or two the popularity of leveraged ETF’s has increased tremendously. These ETF’s seek to double or triple the returns on various stock indexes. Leveraged ETFs function by using financial derivatives, such as options, swaps, and index futures to magnify the returns on a particular basket of stocks. (Sometimes leveraged ETF’s will even seek to return double or triple the inverse of an index)

I was planning on writing a whole post about the pitfalls of these funds. However, it would have been too hard for me to explain their dangers without getting into complicated compounding math. This video explains why these ETF’s don’t give investors the returns they may be expecting…

The bottom line is leveraged ETF’s aren’t a good choice for long-term investors. These funds are meant to be used by professional traders with short term holding periods. I’d highly recommend that amateur investors stay away from them.

Obama’s Stimulus Plan To Include Tax Cuts

Stephen Kline — Tue, 06 Jan 2009 02:25:16 +0000

The News

President-elect Barack Obama announced today that his economic stimulus package could include up to $300 billion in tax cuts. The announcement came as a pleasant surprise to some Republican lawmakers, who previously thought the stimulus would consist mainly of infrastructure investments. Many believe this was a smart political move by Obama, since most Republicans appeared apprehensive about passing a stimulus package based solely on government infrastructure spending. The addition of tax cuts to the plan could entice some lawmakers to change their mind on voting in favor of the stimulus package. The tax cuts said to be included in the plan include…

A $500 payroll tax credit for low/middle income workers
Tax write-offs for 2008/2009 business losses
A 1 year tax credit for businesses that hire new employees or forgo laying off current ones

Reaction

I was happy to see the news regarding the tax cuts this morning. It’s clear we need some sort of stimulus to kick start the economy, however a package consisting of only government spending would probably be inefficient to say the least. Washington always finds a way to waste taxpayer dollars despite any good intentions they may have.

Adding the tax cuts to the stimulus package is a good way of diversifying our attack on the recession. These tax cuts will allow individuals and businesses to keep more of their hard earned money and let them spend it in the manner that’s best for them. Another plus to the revised plan is that it will create an incentive for strong companies to hire and grow their businesses rather than holding back and remaining defensive. Hopefully the coming stimulus will work as expected and boost the economy out of this recession.

Quote Of The Week 01/04/09

Stephen Kline — Mon, 05 Jan 2009 02:36:38 +0000

”Never invest in any idea you can’t illustrate with a crayon.”

-Peter Lynch

Happy New Year From Generation Y Investor

Stephen Kline — Fri, 02 Jan 2009 03:04:00 +0000

I was going to have a 2008 year end review post for the site, but then I figured it’d be too depressing. So here are a few cartoons that sum up the year better than I ever could. I honestly don’t know whether to laugh at them or cry. You can be the judge.

Either way, 2008 was a rough year for investors both young and old. Luckily though as Gen Y investors, we have plenty of time to recover and profit from the recent economic turmoil. If history is any guide, now is the time to be buying up shares in great companies and investing for your future. Remember to stick to quality companies that pay dividends, have manageable debt and steady earnings. Also, remember to have a diversified asset allocation that matches your time horizon and risk tolerance. This will insure that you never suffer catastrophic losses that you can’t recover from.

I’d like to wish everyone good luck in the year ahead. Hopefully 2009 will be more profitable for investors than 2008. Stick with Generation Y Investor and Happy New Year!

Forbes Chirp Index Predicts Possible ‘09 Recovery

Stephen Kline — Wed, 31 Dec 2008 02:32:03 +0000

As an investor, it’s important to pay attention to economic indicators. These reports give investors the data needed to make informed investment decisions based on where we are in the business cycle. There are three types of economic indicators: leading, coincidental and lagging. Leading indicators tend to be the most useful for investors because they usually anticipate changes in the economy. Anticipating changes in the economy is an important aspect of successful investing since the stock market usually leads the economy by 6 to 9 months. For example, the stock market generally begins to recover well in advance of the economy during a recession. Conversely, the market may begin to decline before we even see any troubling economic data.

The Conference Board’s index of leading economic indicators (LEI index) is one of the most widely followed leading indicators. This index tracks a group of 10 data points including… the money supply, consumer goods orders, weekly unemployment claims, capital goods orders, stock prices, average hours for manufacturing workers, the 10 year/fed funds rate spread, building permits, vendor order delivering performance and consumer expectations. (As you can see, it’s a pretty complicated blob of data). The LEI index does a good job of predicting how the economy will perform a few months down the road; however, one critism of the index is that it’s too sensitive. It often predicts more recoveries and recessions than actually happen. With this in mind, the LEI index is still a helpful piece of information and definitely worth keeping an eye on.

Now that I’ve got my informational piece out of the way, I’ll get down to business. Every so often I see an economist or financial website come out with their own version of an economic indicator. These homemade indicators will track anything from luggage sales to Starbucks customers hoping to predict the future of our economy. Usually, I’ll find something about the indicator that I think is flawed and I’ll write it off. This wasn’t the case with the Forbes Chirp Index. This index tracks an interesting mix of data that includes insider stock purchases, the spreads on bond yields, road congestion and the use of the word “recession” in the media. What’s more interesting is that the index is predicting a possible economic recovery sometime next summer. Check out the video below and make your own judgment. (I apologize in advance for the economist’s tie in the video)

Quote Of The Week 12/28/08

Stephen Kline — Mon, 29 Dec 2008 01:30:29 +0000

“Wall Street people learn nothing and forget everything.”

-Benjamin Graham