- I’m part of Gen X, but I learned a lot from Erin Lowry‘s book, "Broke Millennial Takes On Investing."
- Her book taught me things like the buy-and-hold strategy and how to rebalance my investments, as well as how to choose a financial planner and how much to save for retirement.
- As a personal finance blogger myself, I appreciated that Lowry shared her personal financial journey.
- Visit Business Insider’s homepage for more stories.
The book "Broke Millennial Takes On Investing" by Erin Lowry is worth reading if you are a personal finance beginner. While I fall into the Gen X group, I found this book useful for more than just millennials.
As a Gen Xer, I’m sad to say that, before reading this book, I didn’t know much about investing beyond adding money to my 403(b) retirement account.
I learned the basics of investing, saving, and budgeting from this book while getting to know more about Lowry’s personal investing journey.
As a self-described "Frugal Convert" who blogs about her money experience to help others, I appreciated Lowry sharing her personal experience.
Here are 7 things this Gen Xer learned from ‘Broke Millennial Takes On Investing’
1. What the buy-and-hold strategy is and why it’s important
I’ve heard this term thrown around quite a bit, mostly because I’m in the personal finance media field. But Lowry’s explanation of this strategy made more sense than anything else I’ve read.
Essentially, buy-and-hold means purchasing funds and holding onto them for a long period of time, anywhere between 15 and 30 years. Lowry explains that the buy-and-hold strategy can greatly impact your financial growth and wealth by allowing time to stabilize your average earn rate.
Contrary to what it sounds like, this is not a "set it and forget it" strategy; you shouldn’t invest your money and then never look at it again until you’re about to retire. You’ll need to regularly monitor and rebalance your portfolio at least once per year, as she suggests. However, investing with the buy-and-hold method allows time to do most of the work for you.
2. How to rebalance your investments
Rebalancing your investments means you consistently keep your portfolio allocation ratios (the percentages of stocks, bonds, and other funds) stable.
For example, let’s say you had an investment ratio of 50% stocks and 50% bonds. That year, your stocks do well enough that you now have 10% more money, making your new ratio 60% stocks, 40% bonds. You’d sell some stock shares and invest them into bonds so that your ratios get rebalanced to 50/50.
Rebalancing helps stabilize your risk level because you’re essentially reallocating your investments back to their original risk level, regardless of how well one part of your portfolio did. Rebalancing and assessing the appropriate ratio of risk will depend on your time horizon (the period of time you plan to keep your investment).
3. When to check your investments (and when to leave them alone)
Checking your investments every week or month can have you panicking every time the market fluctuates. So, Lowry suggests keeping your investments separate from your regular banking so that you are only checking in every six months to a year.
This helps us stabilize our investments and eliminates the fear that sometimes drives us to sell an investment when it drops.
4. Investments are for more than just retirement
It’s often difficult to put a lot of money into investments as a young person when you feel like you’re not going to access the funds for decades.
Lowry explains that not all investments should be intended for retirement. Taxable accounts allow you to invest for the shorter term and grow your money for other life plans, like a down payment on a home, your kids’ college education, and even a travel fund.
Essentially, based on the purpose you assign to your money, you can invest for a shorter term while enjoying the growth of your money.
As always, there is a risk that you could lose some of your money as well, but that risk comes with any investment.
5. Should you pay off student loans or invest?
The book suggests you can do both!
Since student loans tend to have an interest rate below 5%, you can pay off your student loans and invest at the same time. Average market return is about 7%, so not investing means you may be leaving money on the table.
However, the book does advise against investing when you have any high-interest consumer debt, such as credit cards, since it will cost more money to prolong paying that off. It’s best to pay off such debt before investing.
6. How to choose a financial planner
As someone who worked in banking for five years, I knew what the word fiduciary meant, but I didn’t know what suitability was and I didn’t know which was better.
Essentially, fiduciary is the term for a financial planner who acts in your best interest, while suitability means that a financial planner can choose an investment that is suitable for you, but may not be in your best interest.
Suitability can be used to allow a financial planner to earn a commission on the investment you choose. So, it’s best to work with a financial planner who conforms to the fiduciary standard when helping you choose your investments.
7. The "multiply by 25" rule
This calculation helps you determine how much money you need for retirement, given that you want to withdraw 4% of your investment income per year once you reach your retirement age.
To get this number, you multiply your desired annual income you want to collect by 25. This will give you the total number you should have in your retirement account before you retire.
How close are you to being able to retire? Find out with this calculator from our partners:
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