Investing

What A Time To Be Investing (Part I)

In the fall of 2015, Drake and Future released a mixtape entitled “What A Time To Be Alive”, and I would agree with them. After all, only in today’s world can you put out an average mixtape  on iTunes for $9.99 (mixtapes are traditionally free) and sell nearly 500,0What A Time To Be Investing00 copies.  Life is definitely good for those two!

Don’t worry, this isn’t a album review. The title of their release got me thinking…not only is it a great time to be alive, but it’s also a great time to be investing. I don’t plan on putting out any mixtapes, but I will drop a list of reasons why you can sit back and say, “What A Time To Be Investing”.

Before I get started, there are a few disclaimers I need to throw out. First, in no way am I suggesting that the market will experience only gains. I have no idea how investments will perform from year to year; but, there is a pretty good chance over the next 20, 30, 40 years, the markets will trend upward. It won’t be a straight line, but the odds are in the favor of the long term trend. Secondly, I’m not making recommendations of any companies, investment vehicles, or anything. The examples chosen are just that…examples to help illustrate a point. And finally, you should always consult your financial advisor to determine what is best for you.

Well, now that we got that out of the way, allow me to point some reasons why it’s a great time to be an investor. I’d argue it’s a great time to be an investor for everyone, but I want to focus on why my peers should view now as an opportunity of a lifetime. Understandably, many millennials have a soured opinion of the market, Wall Street, and investing in general. We can chalk that sentiment up to the 2008 market crash, a tough employment environment, lack of investing knowledge and experience, the media, and a shortage of qualified financial advisors looking to help millennials–plenty of salespeople wanting to help though (a topic for a future post). But in reality, millennials have witnessed one of the greatest buying opportunities (see 2008 crash) followed by one of the longer bull markets in history. Unfortunately, many have missed out on what the market has done.

Case in point, my wife’s friend worked for a company for 6 years. This company offered a generous 401(k) match–one of the highest I’ve seen. And in 6 years with that company, not one penny was saved into her 401(k). Not. One. Penny. Ugh–makes me sick to my stomach. Free money, in the form of a company match, was missed. The opportunity to dollar cost average into a declining market was missed. A fierce bull market was missed. All in all, a tremendous opportunity was missed. Why? Fear. Uncertainty of what to do. Lack of advice. Luckily, today’s investing environment is better than it has ever been…the word just needs to get out. Oh, what a time!

Technology. My wife informed me yesterday that 20 years ago Motorolla started selling the first flip phone. The price tag for this innovative product was $1,000. In today’s dollars, that’s nearly $1,800 for a flip phone. That’s more than double a new iPhone 6S Plus (depending on the model). If you are old enough to remember texting on these flip phones, it’s laughable compared to what we can do on our phones today. In 20 years we went from a slimmer, foldable cell phone to a mini computer in our pocket. Who knows what cell phones will look like in 20 years? But I bet they will be better. When it comes to technology, if history is an indication of where we will go, it’s telling us that companies will continue to innovate, technology will only getting better and it will be more accessible to the masses. This growth due to technology presents an opportunity to those investing in the companies making the changes.

The example above just happens to fall in the technology sector, but future growth as a result of technology is not contained just to the technology sector.  It  impacts just about every industry. Technology has allowed one of largest transportation companies to operate without owning any vehicles–Uber. Technology has allowed one of the largest lodging companies to operate without owning any buildings–Airbnb. Technology has allowed one of the largest e-commerce companies to operate without any of its own inventory–Alibaba.  Twenty years ago these types of companies would have been unfathomable. Do you think we’ll be in the same place as we are today in twenty years?

Investment Options. When investors first started investing a long, long time ago, the options were limited. Stocks and bonds were about it. And not only were investment types limited, but the number of companies to invest in were just as nominal.  Investors now have access to markets and investments that were once unaccessible. Today, we have not only have stocks and bonds, but we also have mutual funds, ETFs, motif investing, REITs, annuities, and the list continues to grow. We also have IRAs, 401(k)s, 529(s) and brokerage accounts as options for where we save.  If diversification is the key to a long term investment strategy, which I believe it is, then investors now have the best opportunity to create the diversified portfolio to meet their needs.

For example, rather than being to invest in just a handful of large U.S. companies, investors can now diversify into almost any area of the market their hearts desire. Want to invest in just the healthcare sector of the market? You can do that. Want to invest in only India? You can do that. Want to invest so that you can profit when the markets decline? You can do that, although be careful with these types of investments–understand what you are buying. I’ll be the first to admit more options doesn’t always equal better. But, I’d rather have too many choices than not enough–choice is good and restriction is bad. But maybe that’s just me.

Not only has the improvement in investment options provided exposure to the world’s markets, but it also has driven down the costs of investing. You can purchase stock for $9.99; purchasing those same shares used to cost hundreds of dollars. You can get exposure to a broad market index like the S&P 500 for next to nothing, .05%, using the Vanguard ETF. The same exposure is .17% in the corresponding Vanguard S&P 500 index mutual fund (there are structural differences that may make one better than the other depending on the investors situation–I’m not recommending one over the other). Lower cost doesn’t always mean better, but when it’s an apples to apples comparison, lower costs allow your money to grow faster because you keep more of the returns, and I’ll take that! Another benefit of lower costs to investing is that the barriers to entry for investing have been removed. For many years, the cost of investing prohibited a large segment of the public from participating. However, no longer can the cost of investing be used as an excuse not to invest. Oh, what a time!

Information. This one’s a double-edged sword, but just like investment options, I prefer more access to information than not enough. With all of the information being thrown at us on TV, the radio, and on social media it can be a bit overwhelming. Sometimes it can be difficult determining what is information, and what is entertainment; the media has gotten very good at disguising entertainment as news. This is true of all media, but unlike the other types of media, the financial news can impact people’s money. Just remember, the media companies don’t make money when you make money; they make money by drawing in viewers.

With the introduction of social media, information has become even more accessible. We are now able to find out what is going on in the world as it is unfolding. I remember following the chase of the Boston Marathon bombers on Twitter. Twitter was at least 5 minutes ahead of the television. I was able to find a credible source that was really reporting what was happening. This may not always be the case though. One of the downsides to gathering information through social media is there are no barriers to entry to become a journalist now. The credibility of the informational source is not always known. How many times have you seen people fall victim to articles from satire websites and post these article on Facebook as if there are factual? No matter how many times the articles appear, Bill Gates and Mark Zuckerberg are not giving you their fortunes, so you can stop sharing. When in doubt, check Snopes. Investors now have more information than ever at their disposal; the playing field has been leveled, or at least it’s more in the investor’s favor than it ever has been.

Later this week I’ll conclude with Part II. In Part II, I’ll discuss some of the changes within my industry which contribute to this being a great time to be an investor. I believe that the financial services industry is going through a fundamental change–one which will change things for the better. Combine the changes to be highlighted later this week with the reasons listed above, and the future looks promising for investors, both young and old.

Oh, what a time!

Disclaimer: Nothing on this blog should be considered advice, or recommendations. If you have questions pertaining your individual situation you should consult your financial advisor. For all of the disclaimers, please see my disclaimers page.