Pennies for Parth’s Thoughts

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By: Parth Patel

Edited By: Aakrith Harikumar

Most of us at SAIS are here to seek a cool career opportunity upon graduation. You might want to join the Foreign Service, embark on a career at the Big 4, join an NGO, or non-profit, or work alongside international citizens at a multilateral agency. That’s awesome! But at the end of the day, you probably will be earning money (and for some of us, that may be the first “real” job we’ve ever had). Here at Pennies for Parth’s Thoughts, I aim to recap what’s going on in the finance world and give you some tips for your personal finance journey. I want to emphasize that I am not a finance expert. I am also not sponsored by any of the companies I mentioned or will mention. You should not take my word as the law. Invest at your own risk, my finance brethren!

What’s Going on in Finance News?

While the financial markets and business world are always changing and moving with new trends, I’ll try to give you a quick, one-sentence summary of some of the key highlights in recent news. I encourage you to do your research. The awesome thing about the world is that there are so many topics, and one person cannot know everything about everything.

The Israel-Hamas conflict is leading to spikes in oil and commodity prices due to fear of its spillover effects in the region, risking further deglobalization and inflation. Microsoft laid off over 700 LinkedIn employees as the technology industry still battles ongoing recessionary pressures. China recently approved Ehnag to operate autonomous, passenger-carrying air taxis. The banking industry’s earnings are due to come out amid concerns of rising interest rates and bad lending practices. The Fed continues to maintain its restrictive monetary policy approach going forward until inflation eases. Best Buy will soon stop selling CDs. Last Thursday, the Chinese Consumer Price Index (CPI) came in flat for September on a year-over-year basis, raising concerns about deflation and stagnant economic growth. Pharmacy chain Rite Aid files for bankruptcy amid declining sales and opioid lawsuits. Girl Scout Cookies are now subject to inflation; the price of the cookie boxes will rise from $5 to $6.

Personal Finance Tips

Most of us already have a checking account. As a student, you can often get access to student checking accounts at major financial institutions. I have a checking account at Capital One which has no fees and gives you a small amount of interest based on your checking balance. Also, you can go to one of the Capital One cafes (the closest one to SAIS is in Chinatown) where Capital One members get 50% off on beverages—not too bad for a student budget in an expensive city. Given the low interest in checking accounts, I would not spend too much time selecting one.

A savings account is less liquid, which means that it’s not as easily convertible to cash as a checking account. Once you put money into a savings account, you should not be withdrawing unless necessary. To compensate for this, banks often offer higher interest rates than in a checking account. My recommendation (with technology these days) is to get an online savings account. The difference with this online savings account is that it’s usually not associated with a brick-and-mortar institution (you cannot go in to talk to someone about your account). As these companies save money by not running a physical space, they can give you a higher interest rate to compensate. I use Marcus by Goldman Sachs which offers an easy, no-fee savings account with a relatively high interest rate. Other good online banks include the following:

Figure 1: NerdWallet Recommendations for Online Savings Accounts

Finally, let’s talk brokerage accounts. This is arguably the most important account to have to improve your wealth. Most of us are probably at the age where we should have most of our free cash invested in stocks, bonds, and other asset classes. One good rule to follow when investing is the ‘100 minus age’ rule of asset allocation. This is a guideline that investors use to determine how much of their investment should be allocated to each asset class, based on their age. The rule states that an investor’s portfolio should contain 100 minus their age in stocks, and the remaining in bonds. The rationale is simple: the younger you are, the more risk you can take. Therefore, you can invest more in riskier (stocks) assets.

While we will talk more about stocks, bonds, and other asset classes next time, let’s first discuss where you can buy them. For this, you will need to go through a brokerage. The most popular places to set up a brokerage account include Fidelity, Robinhood, Webull, Vanguard, Charles Schwab, TD Ameritrade, and E-Trade among others. These days, most brokerages offer commission-free trading for many assets and may charge for more advanced investments like options.

Figure 2: NerdWallet list of best brokerage accounts for beginners

Having a brokerage account is necessary if you want to begin investing.

So, Why Invest?

The Reserve Bank of Fiji does a good job explaining why:

  • Financial Security: People want to be financially secure. They need to have extra money to protect themselves against any financial hardship that might strike them. It could be a costly life event such as a major health crisis, or home destruction by a cyclone or fire. Having an investment ensures that you are financially secured to meet such unforeseen events.
  • Financial Independence: Your investment enables you to be independent and not rely on others’ money in any event of financial hardship. It ensures that you have enough to pay for your needs and wants for the rest of your life without having to work in your old age.
  • Build Your Wealth: People invest to build their wealth. This means that they save and invest their savings over time. The proceeds from the investments, whether dividends or interest earned, can be reinvested into the same financial instrument or something else. This way, you too, can start investing and continue building your wealth.
  • Attain Your Goals: Some people set specific goals in life and invest to achieve those goals. For example, if it is your dream to buy a house or a new car, or take a trip around the world, the goal you set would be your motivation to invest. It is important to list down your goals and how much money you need to achieve that goal. Your goals could be short, medium, or long-term in nature. Investing based on your goals will enable you to grow your money and achieve those goals without you having to work all your life. 

Invest, invest, invest!—feel free to thank me later. Next time, we’ll discuss more about what you should be investing, and some tips on how investing can help you manage your finances. Everyone is going to get a job, but let’s make sure we all spend wisely.

** DISCLAIMER: Again, I am not an expert. Any advice that I give here is simply that: advice. Remember that you are always investing at your own risk, but let’s not forget the adage: greater risk yields greater rewards.

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