How To Talk To Your Kids About Investing

How To Talk To Your Kids About Investing

 

There are many ways children can be exposed to investing at an early age when they are most fungible. It is important to teach children how to save more and spend less. During the pandemic, the US personal savings rate has been well above average at 23.2% in May compared to 7.5% at the end of last year. However, the means to make any interest income on the increased saving is virtually impossible. According to the FDIC, the national average rate on savings rates stands at a paltry 0.06% APY (annual percentage yield) for all deposits. That’s chump change. With the Federal Reserve keeping interest rates near zero–possibly to 2022–interest income will stay low.

However, saving more paves the way to investing more and building wealth, particularly if you start in your twenties. The longer the time to invest, the greater the growth potential.

Why Investing Early Matters?

You should start investing early in life so as to have as long time horizon as possible for these reasons:

  • Leverage the power of compound interest  (interest on interest) earned on your initial investment for significant returns in your retirement and investment accounts.
  • Take on greater risks when you are young and able to absorb the bumps and bruises of downturns.
  • Motivate yourself to save more, spend less so that you can grow wealth.

Investing is a viable means to accumulate wealth and enjoy financial comforts. The earlier you start to save money for investing purposes, the better.  Parents should begin talking to their kids about how to handle money when feasible, exposing them to developing good financial habits.

 9 Ways To Talk To Your Kids:

 

 

1. Start Early Lessons On Saving and Investing

Conversations with your kids about anything sensitive can be awkward, especially about money. According to a 2018 T. Rowe Price survey, 66% of parents have some reluctance to discuss money matters with their children. Only 21% of the kids recall their parents speaking about money at least once a week.

Speaking to children about investing at an early age takes some of the mystique out of it for them. For parents, it is more comfortable to talk about savings, giving them a head start in math. Explain how the bank holds money for people in savings accounts and can earn money. Use an example of putting $100 in the bank ( refer to a piggy bank) that can earn 1% a year paid by the bank and grow the amount to $101. Another bank may pay a higher interest rate of 5% and grow that same $100 into $105 in one year. Nowadays, interest rates are so low that investing makes even more sense.

Picking Familiar Names They Know

Savings comes about when you spend less than you earn. Investing is taking some of your savings and putting it to work so it makes even more money. There are many kinds of investments you can make. We will stick to stocks here. Explain to your kids that when you buy a stock such as Nike, you own a piece of that company. You can grow your original investment into a bigger amount over time. Investing over the long term benefits from compounding, a magic concept that can be taught through the following book.

2. A Lesson in Compound Interest From A Folktale

Compounding interest is a powerful concept when you have a long horizon by investing early discussed here. It occurs when interest or gains are added to the initial investment (or principal) providing substantial gains. It can lead to exponential growth over long periods of time. While it is a complex idea, young children can grasp it in the form of a story as my son, Tyler did.

When Tyler was in the second grade, he came home from school one day, carrying a beautifully illustrated book, “One Grain of Rice: A Mathematical Folktale” by Demi. He was carrying this large book with a reverence that I hoped would last longer given my love of books. Tyler asked us to read the story. It is a delightful Indian folktale about Rani, a clever young girl who outsmarts the greedy king. When the selfish raj offers to reward her, she asks for one grain of rice, doubled each day for 30 days. Rani uses the surprising power of compounding to snatch 536,870,912 grains to feed her hungry villagers.

Tyler’s Stock Pick

Tyler, a teenager now, actually reminded me the other day about this story when I was finishing a recent post on the magic of compounding. He recalled that it spurred his interest in numbers and later, in stock investing. When Tyler was about  8 or 9 years old, he would sit with me as I bought stocks. As a quiet boy, I encouraged him to talk:

Mom: What stock so should we buy today?

Tyler: Costco!

Mom: Why Costco?

Tyler: It was very busy in the store yesterday. You complained to Dad that you spent more than you expected when we were there. Maybe everyone else did the same thing!

So I bought Costco shares at around $90 per share and it turned out to be a profitable investment. Of course, not all of his “recommendations” have been as good. Tyler was in a stock market game club in high school and has shown interest in learning how to invest through the years.

3. Stock Market Games As A Learning Tool

Parents can explore investing basics with their kids without losing money through simulated stock market games. These games are a great way to practice before becoming an investor in the real world. By simulating the market in real-time, the player can experience gains and losses. As such, they can be effective learning tools. Investing can be daunting for the experienced investor, let alone for those who are just starting out. Virtual games are free, fun, readily available and user-friendly. They offer participants a faster learning curve to build investment skills and better financial habits.

Our kids are digital natives and are particularly attracted to simulations. They often prefer video and simulated games to traditional modes of learning. However, the virtual games are user-friendly and can appeal to anyone, even digital immigrants. I have experimented with several games. As a result,  I have settled on Market Watch Virtual Stock Exchange by Dow Jones for my college students as well as my kids at home. You can learn more on How Stock Market Games Can Teach Investing here.

Most stock market game sites have many articles and videos to help new investors to understand differences in risk/reward trade-offs and measure your own tolerance to make more risky purchases. Feeling gains and losses are real enough and allows you to pivot in different ways.

4. Valuable Lessons Are Everywhere

There are valuable lessons that young people can learn about investing. Being patient about investing can be a virtue. There is a tendency for beginners and even more experienced investors to start trading their stocks, particularly as markets get volatile. This usually ends up as a disaster if sold stocks of good companies that dipped temporarily. Teach them that stocks don’t always go up or down in a straight line. Sometimes there is a market downturn where virtually all stocks decline but the more favorable stocks may come back sooner.

As your children get older, they can learn about investing in different and fun ways. My kids watched Shark Tank before I did and enjoyed watching which products and services were hits with the investing sharks. I encourage my college students to watch Jim Cramer on Mad Money, with his strong focus on individual investing. When my daughter, Alex,  was younger, she watched Cramer for his zaniness but told me he ranted too much for her. She now will watch parts of the show to learn more about stock investing and his interviews with CEOs of companies she is aware of.

5. Diversifying Portfolios Reduces Risk And Growth

As you engage with your kids in encouraging them to invest money into stocks or other investments, they need to be aware of the risks and rewards. Generally, investing in stocks tend to carry higher risk and higher returns than putting money into a savings account or into bonds. Diversifying their portfolio is a key lesson on how to lessen those risks. Tell them about what kind of stocks you have and how each stock represents a different kind of business. Use company names they are familiar with such as Apple, Disney, McDonald’s, and  Facebook.

My son Tyler played a simulated game in a stock market club in middle school. He had put all of his money in one stock–Amazon–when it was rising significantly. He was so excited that he was doing the best in the club. Then Amazon reported quarterly results that missed analyst expectations. They also announced a rise in capital spending for their data business. Amazon shares crashed and became “dead money,” a term investors use to mean that the stock’s performance will drag.

For Tyler, it was a learning experience about why diversification is important in your portfolio. Concentrating all your money in one stock is a risky strategy. It is not good to put all your eggs in one basket. I told him it is always best to put your money into a group of 5-10 stocks that are different from each other. This post addresses tips on diversifying your portfolio. 

6. Bonding Experience For The Family

The T. Rowe Price study found the effectiveness of financial education in the home or school were both falling short. As parents, we are often role models for them so take advantage of their impressionable years to guide them. Encourage your children’s active participation in stocks by setting up an investment account where they can make decisions on what they want to buy. Ask them to give you their reasons.

Clearly, parents can enlighten their kids regarding their own attitudes and investing strategies. Investing is a great way for families to bond together as young kids gain confidence through your experience. It is a cool way to speak to your kids about your overall values. A big area of investing is in socially responsible companies that have an aspect of social change embedded in their mission. Important issues that these stocks or funds address relate to the environment, sustainable food, energy-efficiencies, income equality, and such.

 

7. Be Honest With Your Mistakes

We all wish we did everything well. The truth is that we all make mistakes, especially when investing. I share my investing blunders with my kids all the time. When I first began buying stocks, I often ditched good stocks that had gone down quickly and came back just as fast.  Day trading is speculation rather than investing and is more costly due to fees and tax implications. Over time, I learned to do more research and be more patient.

Among our bigger mistakes that I often share with our kids is buying a lot of art and antiques at probably peak prices. This happened before we had kids. I was limited by my Wall Street position from investing because of purchase restrictions. Frankly, I developed the bug to buy 18th century Federal furniture and other collectibles. This is not a category for investing I would recommend to anyone unless for aesthetics as it won’t contribute to retirement savings.

8. Opening Investment Accounts For Your Children

There are several ways you can get your children started on their path to investing and financial independence. Choices vary based on whether they are a minor or have reached the age of majority, usually at age 18 in most states. Consider if you are setting this up for your children to have the ability to make choices or as a passive account where you will use low-cost index funds or exchange-traded funds (ETFs) where they may be immediately invested in a diversified basket of stocks.

A Guardian Account

If your child is underage, a guardian account would be established in the child’s name and in the parent (s) or guardian’s name. The account is owned by the parent(s) who has legal title, owns the assets in the account, and is responsible for any liabilities such as fees and income taxes. At this age, the child has no legal ownership until it becomes a joint account at the time he or she reaches the age of majority. Depending on your goals for such an account, let your child make some of the buying decisions even if it means they may lose money. Guide them as they make their choices.

Custodial Accounts: Uniform Gifts to Minors Act (UGMA) or Uniform Transfers Minor Act (UTMA)

Parents can set up custodial accounts for each child if they are under the age of 14 years. The IRS considers the minor child as the account owner, managed by the parent until the child turns age 18 years unless stated otherwise. Investments in these accounts can hold just about any kind of assets.

For children below 18, the first $1,050 of unearned income from the investment is tax-free to the child, after which the next $1,050 is taxed at the child’s tax rate, usually a lower rate than their parents’ tax rate. Income above the $2,100 is taxed at the parents’ (usually higher) tax rate. When the child turns 18, they will be paying taxes at their own rate. Couples filing jointly can contribute up to $30,000 annually for each child, or $15,000 if an individual is setting up an account. Anyone can set up a custodial account, including grandparents, aunts, and uncles.

Once the child has access to the account based on their age of majority, it is their asset. The invested money may be used for anything that child wants, including frivolous things which unfortunately the parents have little power in reclaiming that asset. We have these accounts for our kids, investing in ETFs such as QQQ. Typically, custodial accounts can be used for supplemental spending money for college.

 Roth IRA

Sometimes referred to as kiddie Roth IRAs, these custodial accounts can be opened by parents for their children. There are no age restrictions. Studies show that this generation is more aware of the need to set up IRA accounts early. Teenagers can contribute to a Roth IRA up to the earned income they make from eligible employment.

If my son Tyler is earning $2,000 as a camp counselor, he can invest all or part of the $2,000. Although there is a current maximum of $6,000 in 2020, contributions to Roth IRA is limited to his earned income of $2,000. If your teen is under 18 years, typically the age of majority, he or she are minors and a parent has to serve as a custodian. Contributions can be withdrawn at any time without penalties. The money can be invested in savings accounts although investing in a diversified low-index stock fund would likely earn far more money over a long horizon for 40 or more years.

While it would be great for your teenager to contribute as much as possible to a retirement savings account, even a portion of their earnings would be a great start. The lesson for them is the growth of their contribution is tax-free and will benefit from compounding returns over the decades.

 Investing In A 529 Plan

As parents, you should set up 529 savings accounts for your children’s college education as early as possible. Your children may not even be walking or talking yet, but that shouldn’t stop you from beginning to save for your children’s future with tax-deferred dollars. As they get older, you can talk to them about this kind of investment designed to make their college costs more affordable.

It is way too early to know if they will go to college. However, getting an early jump may allow you and your children to reduce the need to take on debt. If you haven’t opened an account yet, involve your children when you open the account and explain what it is for. It is a good education to know that saving early may reduce the need for student debt later on.

9. Young Investors Have Been Opening Accounts

Due to the pandemic, major online brokers saw growth in new accounts as high as 170% in the first quarter of 2020. They were attracted by the collapse in stocks in March 2020 as lockdowns began. Brokers such as Charles Schwab, ETrade, and Robinhood, had reported that they saw the influx of young and inexperienced people. Citi Chief US equity strategist Tobias Levkovich, said in a note to clients, “New investors who sense a generational-buying moment but do not have much background in the equity space.” Trading oriented buying has dipped in names with higher volatility and questionable fundamentals. To some extent, this speculation or gambling, particularly as sporting events have been canceled.

Robinhood, Among the Largest Investment Apps

Young people have been drawn to investment apps like Robinhood. You need to be at least 18 years old to open your own account. These apps are based on financial technology or fintech platforms that do not offer custodial accounts.

The benefits of having a Robinhood account is that it is a commission-free stock trading app that allows users to invest in stocks, ETFs, and cryptocurrency. There are no required minimums for users to trade. Young investors can buy fractional shares which is great as you can more easily buy stocks with high prices like Amazon, now over $2,500 per share. Robinhood is regulated as a securities brokerage firm by the Securities Exchange Commission. Robinhood added 3 million new accounts, ending the first quarter of 2020 with 13 million accounts. Most of their customers are youthful investors who have been attracted to their gamified online platform that some worry is additive.

A Word of Caution To Your Children About Investing

Recently, Alexander Kearns, a 20 year old student at the University of Nebraska committed suicide. It seems he mistakenly believed he had a $730,000 negative balance on his account. Not all of the facts are known about this tragic event.  Kara Swisher discusses the tragedy in this article. Questions that have been raised as to how does a young new investor with apparently no income get access to a $1 million investment?

My college students share their experiences on the Robinhood platform which has opened the door for them to invest. I am happy to hear about their enthusiasm but worry about their inexperience in trading options. Robinhood, along with the overall securities industry, needs to consider how to better warn and protect these inexperienced investors from making preventable errors of judgment.

Parents Can Guide Their Children To Learn More

.Making buy and sell decisions requires some knowledge and the need to do research. There are many free resources for new and experienced investors to read about the company. With some digging on the Internet,  stock research may be available from experienced analysts and investors such as seekingalpha.com. Investing is very different than the more risky day trading many young people prefer to do. That is not to say investing is not risky. It is but trading requires a different skill set than investing for the long term.  All investors make mistakes with real losses. That is inevitable. However, even as your children enter adulthood, take an interest in what they are investing in and whether it is appropriate. Guide them to know more about the risks and rewards of stock investments.

Final Thoughts

Parents have a role to play in encouraging their children at an early age to learn how to save and invest. The gift of starting early allows your children to have a longer time horizon and leverage compound interest. Stock investing has risks but comes with rewards that can build wealth over the long term. There are ways to lessen risks through diversification. Saving for college and retirement accounts involve basic investing skills as well. By saving more, you can teach your children how to have more flexibility. They can have the funds to allocate some of the money towards their overall financial goals.

Thank you for reading! Please join us by subscribing to our blog and get our weekly newsletter. What is your experience in speaking to your children about investing? What works and doesn’t work? We would like to hear from you!

 

 

 

 

 

 

 

 

 

 

 

 

What You Need To Know When Getting A Dog

What You Need To Know When Getting A Dog

During the pandemic, there have been so many firsts. We engaged in social distancing, remote learning, telemedicine, and work from home. Our lives changed dramatically. For many, getting a pet became a viable option when lockdowns began. The ability to spend time with a new puppy or kitten at home, teaching our children how to raise a young pet was an added benefit. Although we began our own search for a puppy late last year, our family also realized the timing couldn’t be better for bringing that dog home. Although I love all kinds of pets, our experience has been primarily with dogs.

What Kind Of Dog Are You Looking For

Just before the lockdown orders began, we visited several rescue shelters, encountering throngs of families on lines looking for a dog. Speaking to the volunteers at the shelters,  they told us that traffic to their facilities had been ramping up. Although a rescue dog was appealing, my daughter, Alex and I need a hypoallergenic dog. Hence, Kelly, our soft-coated wheaten terrier, is such a good fit for a family. As a result, we remain steadfast loyalists to the wheaten breed by choice. For the first time, we have two dogs, including our 10 week old Teddy in our home.

Surge In Dog Adoptions During COVID

Between March 15 and April 15, as the COVID virus spread, Petfinder reported that traffic on their site increased 43% while adoption inquiries rose 122%. ASPCA saw a nearly 70% rise in animals going to foster care. I learned first hand as I contacted breeders and rescue shelters, they were largely overwhelmed by the number of people who were inquiring about adopting a dog for the first time. Many posted messages warning people to put the time into understanding the considerable needs of puppies rather than acting hastily.

According to a 2019-2020 survey by the American Pet Products Association (APPA), 67% of US households own a pet or 84.9 million homes. Overwhelmingly, dogs at 63.4 million are the dominant choice, followed by cats at 42.7 million. Americans love their pets.

Growing up, we had a typical set of pets for an apartment: turtles (one committed suicide off our terrace), a hamster, and a gerbil but no dog. My husband, Craig had dogs growing up so he had some experience. For some reason, I couldn’t even keep a ficus tree alive in our apartment but I wanted a dog very badly. Leaving my job on Wall Street, I decided to go to law school and get a dog. Craig thought those dual goals would pass. They didn’t. In fact, it became more urgent after September 11th. Losing a dear friend that day made it easier for me to make changes in my life.

What To Consider When Buying A Dog

 

1. Does A Dog Fit Into Your Lifestyle

Getting a dog cannot be an impulsive purchase. When bringing home a puppy, you are taking care of another life for potentially 15 years. It can be a tremendous sacrifice in terms of time, money, patience, and sacrifice. A lot of research and soul searching needs to be done before bringing a puppy into your household. Rescue shelters are sadly filled with mistakes made by other dog owners who thought they could handle the costs and sacrifices  Yet, for many families who have had experiences growing up and do their homework, getting a dog makes great sense.

2. Time, Patience, And Sacrifice

Time and devotion are essential for your dog. When we got our first wheaten, Riley, I happened to be home taking LSATs and filling out law school applications. By then, Craig had begun his own law firm. However, we were both home a lot at that time. Later on, as we both worked long hours, we needed to get a dog walker for at least one walk a day at $15 per half hour.

Keep in mind that if two people are working long hours every day you will be spending a lot of money annually to exercise your dog. They need a minimum of 4 walks per day at $15 per thirty-minute walk for about $260 working days a year. That will cost about $15,600 annually.  Besides needing exercise, they relish your companionship. We saw a big difference in our dog, Kelly during the pandemic. Our kids were home from school doing distance learning while I was teaching remotely, adding to her usual friend, my husband, Craig who often works from home. Pardon my French but our dog, Kelly was like a pig in s**t!

3. Emergency Funds For Your Pet

Before you even bring home your dog, be aware of the cost requirements. It is one thing to plan for the upfront and ongoing costs, However, it is the unforeseen costs that can most surprise you. As such, create an emergency fund separate for your dog from the rest of your family. We had a number of unforeseen events that were quite costly.

A True Story

One particular time, Riley stopped eating and seemed lethargic. After ordering Xrays for Riley, the vet determined that he needed emergency surgery to remove plastic flowers he had ingested. (I know this sounds weird but unfortunately it is true. The leaves were from a fake tree my mother loved. She had passed away and I didn’t have the heart to discard it.) After paying about $2,000 for the surgery, the surgeon came out to show us a large-sized bag filled with plastic leaves. Then, he asked if he could please use this bag as an artifact to teach students what they can find in a dog’s stomach cavity.

Dogs will eat or destroy almost anything. Our list is more extensive for our first dog than for Kelly because we probably got a little wiser. However, we have had damage to walls, library books, school supplies, lamps, my favorite pairs of glasses, shoes, and lots of clothing. Lost items aside, monitoring of your dogs to keep them safe is critical. If you live in a house, you probably will need to build an enclosed wooden fence or area for the dog to run and play outdoors. An invisible fence works for some dogs. We had one and Riley ran right through it looking like he had a fun adventure!

4. The Finances: Upfront/One-Time Costs

Dog ownership has a lot of responsibilities. Financial costs–one time and ongoing–can be considerable. Deciding whether to adopt a dog from a rescue shelter or directly from a breeder is an important decision. If you have a certain breed in mind, you may need to go directly to a reputable breeder. Generally, the cost will be higher depending on the breed. Don’t be surprised if the cost of your puppy is in the range of $2,500 and up.  On the other hand, you may be able to find a pure breed or mixed breed at a rescue shelter where the adoption cost is far less ranging up to $500.

The ASPCA has waived all fees during the COVID period. In lieu of fees, many shelters really need donations to keep the facilities running as they remain closed to the public. When searching for your pet, remain patient and do diligent research which is required.

Basic Supplies

Preparing your home for your puppy, especially if this is your first experience may be mindboggling. Before you pick up your pet, you may need to puppy-proof your home with gates and locks for the lower cabinets. Look around your home from a dog’s perspective which is closer to the floor.  There will likely be some danger spots such as easy to reach cleaning fluids. Unless you have young children at home, these risks are usually overlooked. When we brought our first puppy, I was amazed at how clever Riley was in opening all the drawers and cabinets. No, it was that we were totally unprepared and had to buy all the child locks so that Mr. Clean didn’t become his toy.

Initial Costs

Get a hard plastic travel crate ($50-$100) to take your puppy home in a car. You will need a leash, collar, ID tag, dog treats, chewy toys, and a larger wire crate (50-$75+) for sleeping in at night. On the latter, a crate becomes their little kingdom and a means to housetraining your pet. Later on, you will likely want a dog bed which can range from $50-$100 or higher depending on how plush you want the bed to be. Riley and later on Kelly both slept in our bed. However, I am not sure we can or should have two dogs in our bed so we have been searching for a dog bed now.

Make sure to have hard (kibble) and canned soft food at home. Our breeder was extremely helpful in providing us with a list ahead of time. Wheatens have sensitive stomachs. I am sure each dog has their own specific needs. There are some good pet food delivery services with monthly subscriptions so you never run out of food or treats.

The Vet Visit

Make an appointment with a reputable veterinarian in your neighborhood. Your initial appointment should be made within a day or two after taking your pet home. This visit has a dual purpose. First, it is a wellness checkup, and second, to get vaccines and medicine needed. This will be followed by two other visits soon to build your dog’s record. The vet will ask you to plan for spaying or neutering of your pet. This is usually required by most breeders at your cost and done after 6 months up to a year. Additionally, consider a microchip as pets may wander.

Housebreaking your puppy is an important and often difficult task. Our whole family is involved in this process. We look like the Keystone Cops trying to negotiate our puppy’s tendencies to pee and poop before we are ready to take him out. I highly recommend How to Housebreak Your Dog In 7 Days which has been working well.

Obedience Training: A Story

As your dog gets older, they need socialization and obedience training. Ask your vet for some recommendations. During the pandemic, attending these type of classes have not been available as social distancing has been required. While you may be able to find a lot of obedience training videos on Youtube, opportunities for socialization have been difficult. We have been fortunate to have Kelly, as a four-year playmate for puppy Teddy.

The average cost of dog training is $50 or more per hour. You can do a lot of this yourself if you have the time and patience. As we were clueless parents when we had our first dog, we registered for an obedience training program with several other families over 6 weeks with an experienced teacher. She walked us through ten commands. I thought Riley did pretty well though he well behind the pack.

Riley “Failed” His Test

On the last day, the dogs were tested by command. Then each family with their happy dog proudly lined up to get their test scores. We were last on the line. I recall feeling giddy as I saw each family get a certificate of completion. As I put out my hand for our certificate, the trainer handed me a dog bone instead  She told us Riley had “failed” the course, having only mastered three of the ten commands for a 30% score. Craig and I were both mortified at being told a member of our family had flopped. We didn’t yet have kids at the time but I hoped I never said that another being had failed at anything. By the way, we did sign Riley up for individual lessons with this trainer and he succeeded!

5. Ongoing Annual Costs

According to the American Pet Product Association (APPA), $99 billion is estimated to be spent on pet products in 2020 as follows:

  • $38.4B Pet Food and Treats
  • $9.8B Supplies, Live Animals & OTC Medicine
  • $30.2B Vet Care & Product Sales
  • $10.7B Other Services

Basic annual expenses in APPA’s 2019-2020 for dogs average $1,305 in the following breakdown:

Surgical Vet Visits                          $426

Routine Vet                                     212

Food                                               259

Kennel Boarding                             229

Vitamins                                           58

Groomer/Aids                                   73

Toys                                                  48

Our Costs Are A Bit Different

These amounts differ a bit from our expenditures for our dog annually. We have a different allocation so we will provide our amounts. It is hard to estimate surgical vet visits, having had major surgery for Riley and not yet for Kelly. On the other hand, we spend about $800-$900 per year for regular vet visits, which is above average. Our food costs, including treats, are about $400. Our wheaten is roughly 30 pounds and often a picky eater. We supplement regular dog food with plain yogurt Kelly enjoys.

We have rarely boarded our dog at a kennel. Instead, we have used a live-in pet sitter who charges $65 per day. That amount of about $450-$900 for one or two weeks away adds to our vacation cost. This is probably an indulgence that provides us with peace of mind when we are away on rare occasions. We spend about $100 annually for vitamins and toys. Grooming is far more significant for our hairy (not furry) dog friend which requires a lot more care at about $350 annually. In recent years, we have bathed our dog but professional grooming is essential. `Our dog is non-shedding, a wonderful benefit that is easier to clean.

Our costs, excluding surgeries, amount to $2,000-$2,500 per year. That higher amount has a lot to do to where we live (northeast) rather than spending more lavishly on our dog.  Other surveys have pegged the annual amount for dogs’ basic needs in the range of $1,000-$2,000 per year which sounds like a good ballpark estimate.

6. Is Pet Insurance Necessary?

Many dog owners have insurance. According to the North American Pet Health Insurance Association, 85% of pets insured are dogs. We researched a few pet insurance plans. Typically, pet insurance plans cover 1) accident only; 2) accident and illness; or 3) accident, illness, and wellness. We ended up using Trupanion for $75 a month as they had a lower deductible than the ASPCA plan. Our experience was not favorable because the plan would not cover pre-conditions such as the allergies Kelly had. Therefore, we dropped the plan.

Final Thoughts

Dogs require a lot of attention, patience, and sacrifice of time and money. However, our dog has a critical member of our family from the day we bring them home. They are non-judgmental, always happy to see you, and affectionate beings. We have never regretted our decisions in bringing a new member into our family. With bringing a second dog into the fold, we have found new challenges we expect to overcome. That said, it is a lot of work but we knew that as we picked out our dogs.

They are good friends to have and heartbreaking when they pass on to the rainbow bridge. We still remember Riley as the dog who taught us so much about ourselves. He was there when we brought our two children home. I wish you and your families the best as you embark upon getting your dog.

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The Relationship of The Stock Market And Our Economy

The Relationship of The Stock Market And Our Economy

2020 has been a remarkable year that continues to surprise us. On the one hand, the stock market records and its apparent recovery have been unusually swift.  However, the economy has been in and remains in dismal shape. This downturn occurred due to the coronavirus, which became a significant threat in our country in February 2020, posing profound implications for public health and our economy.

Does a V-shaped recovery in the stock market signal a V-shaped economic recovery where a recession could be brief? Recent market action is saying it is highly possible, supported by some positive economic news. Bureau of Labor Statistics (BLS) released an unemployment rate for May at 13.3%, better than the expected 20% rate.

Not So Fast…A BLS Correction Still Shows An Improvement

Unexpectedly, the BLS  admitted to misclassifying furloughed workers. They can be forgiven for this error as there are nearly 5 million people are in this category. That is a far more significant number because of the pandemic’s impact.

As a result, May’s unemployment rate is now closer to 16.3%. Also, April’s unemployment rate, previously 14.7%, would be revised to a 19.2% rate on an apples-to-apples comparison. That means May’s unemployment was still an improvement in April’s pace, justifying the stock market’s recent positive reaction. No question, there are still way too many people who are unemployed.

 

Relationship Between The Stock Market And Our Economy

Stocks move on news that conveys information related to the economy. Generally, the relationship between the stock market and our economy often converge and depart from each other. Gross domestic product, unemployment, inflation, and many other indicators reflect economic conditions.

As a leading economic indicator, the S&P 500 composite index represents the market proxy, is often predictive of a recession or economic recovery. The S&P index captures stock movements, along with the widely known Dow Jones Industrials, and NASDAQ composite index.

A rising stock market may indicate favorable economic conditions for firms, resulting in higher profitability. On the other hand, a declining stock market may signal an economic downturn. Over the long term, these trends are likely to show the economy and stocks in tandem. Day-to-day, those correlations may be harder to see.

Stock Market Turbulence During The Pandemic

After the S& P 500 index peaked at $3,386.15 on February 19th, the market bottomed on March 23rd at $2,237.40. This swift 33.9% decline marked the transition from a longstanding bull market to a bear market. Market volatility in that one-month timeframe was unprecedented. There were 18 market jumps greater than 2.5% in 22 trading days (February 24 to March 24).

That was not all to record-setting stock price movements as sudden as the S&P 500 index was its rally back to $3,193.93 on June 5th close. The substantial rise in stocks has responded to our economy’s opening as lockdowns ease, and people return to work. That is an astounding 42.8% climb through the latest close. The market is nearly back to the February 19th peak.

Bear Market Rally Or A New Bull Market

A question that keeps coming up: are we experiencing a bear market rally or a new bull market? We wrote about the difference between a bear market,  bear market rally, and bull market here. Generally, a bull market occurs when there is a rise of 20% or more in a broad market index over at least two months. Investopedia defines a bull market as when stock prices rise by 20% after two declines of 20% each.

Let’s leave aside the bull market definitions. We have been facing a time of extremes with the coronavirus’s impact on our markets, economy, lockdowns, and lives. When the markets initially plunged, we suggested that investors consider not selling stocks in panic unless they needed to do so for liquidity purposes. Having an emergency fund is essential providing liquidity so that you cover your living expenses during unforeseen events. I think we can agree that the coronavirus was such an event. We pointed to the Great Recession as a recent example of why you should avoid selling stocks at a market bottom.

How Far Can Stocks Rise? It Depends

With some early signs of economic improvement, do the stocks continue to rise? That depends on whether there will be future upside surprises to indicators that matter. Yes, the revised unemployment rate of 16.3% is a better number than the nearly 20% expected. The initial 13.3% rate (now adjusted) caused a positive surprise that had stocks soaring. After this climb, stocks may retrench a bit.

Let’s face the fact that even if the 13.3%  unemployment was correct, it is still a high number, well above the 10% peak of the Great Recession. To some extent, there were more liberal unemployment filings associated due to COVID-19. People who were part-timers, had hours reduced, or lost work-study income were allowed to file unemployment benefits. If people go back to work as quickly as they lost their jobs, that would be great news.

The continued rise in stocks will be dependent on how fast and far unemployment rates decline. According to the BLS report, those on temporary layoff included in the jobless numbers in the first wave of job losses (or 15 million), may be recalled to work. People are going back to work in phases. Whether unemployment rates continue to come down depends on whether we have more job cuts or the second wave of coronavirus infections as some fear.

3 Factors That Affect Stock Prices

Typically, a company’s value should reflect the present value of its future cash flows. Investors should consider several factors that affect whether the stock is overvalued or undervalued to calculate future cash flows. There are three key fundamental factors that affect stock prices.

1. The Economy

Investors look at how economic growth drives demand for the company’s products and services: the more substantial the need, the stronger the company’s revenue, cash flows, and potential valuation. When investing, you should have a basic knowledge of the economy and the Fed’s role in correcting economic changes. Those changes could indicate a weakening economy, direction of interest rates, or higher inflation. We believe that understanding why unemployment matters, which you can read here.

The severity of the coronavirus and government action encouraged social distancing and lockdowns. As a result, there were alarming changes in economic indicators, signaling a recession. With a low 3.5% unemployment in February, our economy was healthy, then rose to 14.7% in April. Weekly initial claims for unemployment insurance and its four-week moving averages tend to be a better economic gauge. They rose as we experienced the virus’s impact on our lives. Jobless numbers started to grow in the hundreds of thousands by late February, then to millions of people in March. Even now, the unemployed levels are still rising at high rates, though they improved from the initial claims in March and April.

From the start, this economic decline was different from previous recessions. Our economy’s downturn was event-driven by a coronavirus, but that doesn’t make it any less devastating. Economic activity ceased as many remained sequestered at home.  When unemployment rises, consumers spend less, and businesses suffer. Layoffs and furloughs resulted, mostly if workers could not work remotely. Essential workers were feverishly needed to do jobs despite the threat of the virus. They weren’t shopping either.

High Personal Savings Rates

Rather than spending, personal savings rates rose to a record level of 33% in April. That’s another indicator that consumers were hoarding cash out of fear or reduced consumption as we stayed home. That’s a good news-bad news story. Personal savings are essential to build as an emergency cushion, reduce high debt levels, or invest in assets. Americans had been lagging in savings rates for years. However, those rates have been improving to 8.2% in February. Ultimately, that cash will result in pent-up demand and consumer spending.

What Stocks Reflect

How quickly will our economy recover? The recent unemployment numbers may indicate that a V-recovery is possible. I think it is too early to tell as more good data is needed.  Stocks respond quickly to news that either reward or punish investors. The S&P rose 2.62% for the latest trading day (up 5.6% for the week) reacted to revised information. Investors have seemed to be optimistic. Market sentiment is a measure of the general mood of investors in the stock market. As stocks rise, the market may give back some of the gains if there is no further favorable news to support the stocks’ higher valuations.

Stock valuations reflect expectations in the future. However, existing poor economic conditions do not always negatively impact stock market performance. You can make money in the market, even in a weak or recessionary environment, based on optimistic expectations. Stocks rose during the Great Recession as they have during the past two months. A firm’s stock may be affected by its industry’s conditions or its relative strength.

2. Industry-Related Matters

Specific industries and their stocks–airlines, automotive, energy hotels, brick & mortar retail, restaurants-swiftly bore the brunt of the market decline due to the coronavirus impact. On the other hand, other industries benefited from the stay-at-home lockdown measures. Those were online businesses, notably leaders in e-commerce, telemedicine, video conferencing providers, and those with potential vaccines or testing equipment. Many investors made changes to their portfolios. They sold specific stocks they anticipated would be most hurt by the lockdown, rotating into the newer winners. I made some of those changes to my portfolio. Additionally, as the market seemed riskier, I bought more dividend-bearing stocks of companies with strong balance sheets.

What Industry Do You Want To Invest In

Generally, industry factors matter when picking stocks for your portfolio. What makes an investible industry? It may depend on what you are seeking.  If you are seeking growth, technology could be a profitable sector. Look at some of the various subsectors, such as cloud companies, very much in demand. On the other hand, if you are looking for stability, consumer staples (e.g., Colgate Palmolive) that produce and sell everyday necessities may be the right answer.

You want to look at industries that may have dominant companies that can ward off competition in a profitable sector. On the other hand, avoid sectors that may be subject to new regulations that hurt margins.  Once you decide on an industry you want exposure to, look at the best companies in that group. Investors compare relevant price to earnings valuation of a stock compared to its peers based on its competitive advantages, margins, market share, and management. Sometimes stocks or their industry may be in an infancy stage of development and may not necessarily generate earnings yet. Then, in that case, investors use other valuation metrics such as a multiple of revenue or cash flow

3. Company-Specific Aspects

The stock you are buying or selling will be based on your knowledge of that company’s relevant factors and its valuations. Investors look at specific expectations for growth in revenues, cash flow and earnings, balance sheet strength (e.g. liquidity and debt ratios), and corresponding valuation. To consider a company’s strength,  look at some of the personal financial ratios relevant for investing.

Positive earnings surprises may send a stock soaring, while a negative earnings surprise may prompt a stock to decline. Investors like to see mergers, acquisitions, and divestitures that may benefit one or both companies as they fill a void in their business portfolio or raise capital from a sale.

Investment Biases Affect Decisions

Volatile markets and economies impact our emotions. The more turbulent the market the greater the likelihood we may be affected by our biases. Generally, we make investment decisions by relying on fundamental analysis to determine if a security is undervalued. If the stock market is efficient, it means that the stock prices are rationally priced, fully reflecting all available information. As investors, we try to capitalize on any discrepancies on a particular stock or new report not already accounted for to profit on that position.

Sometimes stock may be mispriced because of the psychology involved in decision-making known as “behavioral finance.” This discipline can offer behavioral/emotional or cognitive biases to explain why markets or stocks are moving in a certain way. Learning about these biases can help us to shift away from these tendencies away and invest more wisely.

Having biases–cognitive and emotional– may cloud our judgment when making investment decisions. Since the coronavirus pandemic, we have changed many of our consumer habits to protect ourselves from exposure. We have quarantined ourselves to practice social distancing, buying products in bulk, and shopping online. Now we are slowly reversing ourselves as we come out of lockdowns. Be aware of some of the common biases we use when investing, which you can read here.

Final Thoughts

This year has been extraordinary, and we are only in June. The coronavirus has caused public health and an economic crisis challenging to deal with. Although the economy is far from recovery, there have been opportunities to make money in the financial markets. While the market has been turbulent, the S& P 500 is not far away from the February peak. Whether the V-shaped recovery in stocks will become a V-shaped economic recovery remains to be seen. High unemployment levels will take time to improve to normal levels as people return to work. I remain cautiously optimistic about a recovery but worry that stocks may be trading ahead of themselves.

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The Benefits of Lifelong Learning With No Downside

The Benefits of Lifelong Learning With No Downside

“Anyone who stops learning is old, whether at twenty or eighty. Anyone who keeps learning stays young.”

 Henry Ford

I am a lifelong learner. Everyone can and should be one. Learning doesn’t require you to go to an elite college and pay $80,000 a year. You can find opportunities to learn are all around us. Education, as a priority, has always been drummed into me since I was young. Like many, my immigrant parents had very little formal education, but they wanted a different future for their children. Growing up in a modest household, we–my parents, brother, and I– were all voracious readers.

My younger brother always competed at the dinner with complex arguments. He usually won. Sometimes it was because he was louder than the rest of us. We usually gave up too quickly. However, he had an insatiable thirst for knowledge that rivaled mine, and we both enjoyed learning.

What Is Lifelong Learning?

Lifelong or continuous learning can be formal, informal, or casual. Expanding your knowledge, skills, attitudes, beliefs, and behaviors are all a part of education. Picking up new information can be for personal development, career goals, or a hobby that may generate income later on. There are so many ways to educate yourself. Nowadays, resources are plentiful with virtual learning. Invest in yourself in a way no one else can do for you.

My children and my college students always hear me say the same mantra: “Never stop learning.” However, teens have a habit of “knowing-it-all” without having had the experience to go with that attitude. With what is available to them, they should be more curious, adapt to new information, and learn what they don’t know. They should explore more and have fun doing so.

Lifelong learning is an essential tool as we adapt to the faster pace of technological change in our society. The pandemic may have slowed our pace but that isn’t an excuse to stop learning online. There has been greater acceptance of remote working, telemedicine, and distance learning by the constituents who used them over the past year. This trend is likely to continue in the future. Some of the delivery platforms, notably distance learning, were pushed out as campuses shut down. With greater demand, increased financial resources have supported online platforms better. 

Accelerated Changes In Our Society

During the height of the pandemic, Microsoft’s CEO Satya Nadella said, “We’ve seen two years’ worth of digital transformation in two months.”  Dramatic technological speed will reshape work, careers, and personal lives in our knowledge-based economy. The pandemic has accelerated those changes that have been in play for years. According to a Pew Research survey, 87% of American workers believe they need to undergo training for skills and development while working. A complete 70% of workers believe the responsibility for that preparation and success belongs to them.

To be a lifelong learner, here are some of the needed characteristics:

  • Learning should be voluntary and not forced. Do it for yourself.
  • Be proactive and self-motivated to do something out of a desire for personal fulfillment.
  • Understand your interests. Is it learning to earn or earning to learn? It can be both.
  • Be resourceful in finding the information you want. Sometimes it’s like a treasure hunt and is not costly to seek.
  • Have a “can-do” attitude when picking up new skills. Battle “automatic negative thoughts.” You can do it.
  • Read more for enjoyment and knowledge.

6 Benefits of Lifelong Learning

 

1. Improve Your Skills

Throughout your life, you should strive to strengthen your hard and soft skills.  Hard skills are teachable and quantifiable abilities gained through formal education or on-the-job training. For example, you can apply knowledge from courses like accounting, computer software, finance, and marketing in any workplace setting.

 Soft Skills Are Essential In The Workplace

Beyond the hard skills we pick up in the classroom, soft skills are personality attributes that enable someone to interact effectively. Employers are increasingly seeking these productive traits–adaptability, collaboration, critical thinking, interpersonal communications, problem-solving–as marks of success. As a professor, I integrate these employable skills into the classroom and through internships. For example, my assignments require critical thinking about how the Federal Reserve will act under different economic indicators.

These valuable skills enhance personal and professional development. You can combine hard skills with soft skills, like learning a new language, coding, or artificial intelligence (AI). They often overlap between your personal life and career. Billionaire Mark Cuban has studied machine learning and AI not only to better himself but because learning can be fun when you find your passion. Acquiring knowledge through reading opens up many doors toward personal fulfillment. Many of the leaders we most admire are exhaustive readers.

2. Be Self-Confident

Becoming more knowledgeable boosts our confidence in our personal and professional lives. By being more confident, I often felt less stress on the job. That doesn’t mean I know how to do everything I need to do, quite the contrary. It means that I know what I don’t know and will learn independently or from others. Being humble is recognizing that I can’t possibly know everything.

However, I will try my best to fill in the gaps in my knowledge. I wasn’t always that way. Many a time, my frustration would paralyze me with negative thoughts and inaction. Over time I learned to power through it. It is a satisfying feeling when you get that “aha moment,” and all is good in the world.

3. Adaptability Or Fail

Adaptability is among the major lessons we have learned due to the pandemic disruption in our lives. Many trends were already happening through a digital transformation, but the coronavirus was a massive catalyst for change. Adaptability becomes more amenable as you expose yourself to more ideas, skills, and knowledge. Personal resistance to change, such as anticipated automation or AI, is a recipe for failure. Instead, learn how to adapt to emerging trends. It will provide you with a positive outlook on the job and in your life.

You should be part of the solution at work, not the problem. Don’t be left behind. According to a McKinsey report on the future of work, automation will increase for jobs held by nearly 15 million workers ages 18-34.

Automation may displace another 11.5 million workers over 50 unless workers undergo retraining. The need for increased adaptability and higher education may stave off some of these career challenges. Continuous learning and skill development are essential to surviving economic and technological disruption.

4. Be A Mentor To Others

I have had great experiences having a mentor help me in my career and mentor others. Paying it forward, I share what I know with others as a mentor or a teacher. This experience is very fulfilling and rewarding. I served as a mentor in a professional setting throughout my career. In that capacity, I enjoyed overseeing the professional development of many junior associates who worked with me or were part of my group.

Coaching my junior associates to meet or make phone calls to busy executives and analyze publicly available information helped my junior associates to make decisions. Many of my former associates are successful in their own rights. That feels good!

On the other hand, I now work as a mentor for my business students at the community college, helping them with their courses and consider specific majors. As such, I encounter these students at an earlier part of their lives before solidifying their career path. Their appreciation is visible. It is gratifying to know I had a small amount in their future success.

As parents, we can be role models to our children by embracing continuous learning. My children often see my husband and me reading or watching TED events and may join us, if only for a moment. Nurturing curiosity at a young age is a personal value. Related Post: 6 Benefits of Being A Mentor

5. Keep Your Brain Healthy

Learning activities offset cognitive decline by improving memory. Researchers have found that a history of lifelong mental activity may support better performance. Although it won’t change the biology of Alzheimer’s, it may delay symptoms. Continuous learning keeps brain cells working at optimum levels, limiting mental decline as we age. Brain exercises can boost benefits when engaged in doing a large jigsaw puzzle, expanding your vocabulary, playing music, and learning a new skill.

There are many ways to keep your brain healthy such as eating brain food, reading a good book, or hire Elon Musk’s brain coach, Jum Kwik. He is a huge advocate of learning and has written “Limitless: Upgrade Your Brain, Learn Anything Faster, and Unlock Your Exceptional Life.” This book is on my night table.

6. Being Happy, Not Bored or Boring

Growing up, my brother and I would get our mom’s ire if we complained about being bored. Our mom would rather we would curse (sort of) than say we had nothing to do. She was adamant that finding something to do was our responsibility. We learned that at an early age. As a result, we played board games, read, and did a lot of sports.  We didn’t yet have the internet, but video games were too expensive for our household. Continually learning new things fills the gap where boredom may lie.

To this day, I hear my mom’s words whenever my kids complain of being bored. How can they be bored when they have smartphones, video games, and many stuff we didn’t have growing up? While I don’t feel bored, I have worried about remaining relevant in my field, life and not being boring to others.

Boring? I Hope Not!

Here’s a secret for you, I  always feared being dull from when I was very young. Is that even a rational reason to have angst? That thought originated from a game show host who asked, “Which would hurt you the most: being called ugly, dumb, or boring?” (It was The Dating Game in the days before political correctness). I picked boring because I always thought you could do something about being boring but less about the other two traits. As a result of that revelation, boring or not, I have been happy to be a lifelong learner.

Being educated can bridge many gaps. Earnings tend to be higher, whether by getting a college degree or furthering your learning on your own. A happy disposition results whether you earn more or simply for the joy of learning and accomplishing more in your life.

Final Thoughts

There are many benefits to being a lifelong learner. Be purposeful about what you want to learn, whether it is for personal or professional development. Either way, it will be good for your growth, reduce stress, and boost your health. Find what you are interested in and go for it. We all live busy lives. Find the time to learn throughout life. It is a way to invest in yourself. That can be rewarding.

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