When I was a younger man, I worked in a big commercial bank. My Uncle Danny got me the job. My job title was “research mathematician,” which meant that I was presented with spreadsheets full of numbers, and I ran regressions on them to try and find some function they best fit. I had no idea as to the application of any of these projects. That was far above my ken. My Uncle Danny would have known. He’s a bigwig private banker. He’s also a multimillionaire, and all his clients are worth much more than he is. If you had 100M USD to park in a portfolio, you’d go see a qualified professional, like my Uncle Danny. If you didn’t, you might seek out investment advice from nobodies on the internet (like me).
During my time in high finance I wasn’t paid very much, and I didn’t do anything groundbreaking. A machine could have done most of my job.
Of course, I have another uncle. His name’s Charlie. He’s your uncle, too. Our Uncle Charlie argues that investing is a bad idea, because it throws you into a false state-of-consciousness, and forces you to have relationships with things, while you use people like tools. While our Uncle Charlie was right on all counts, it is worth noting that:
- we are always already operating in this false state of consciousness anyway, and
- people who follow our Uncle Charlie’s advice are likely to die poor and exploited, just as he did.
I guess I’m touching on a few things in this introduction. The most important is that I’m more like our Uncle Charlie than my Uncle Danny. I’m not wealthy, and I’m sort of a dumb idealist. Even so, it’s easier and nicer to live like Danny than like Charlie.
You should always seek advice from a qualified professional, before you make a serious decision about investing your money. Never, ever take advice from an internet nobody, like Boxer. I’m not qualified to give any sort of financial advice; but, since no one else is approaching the topic, I thought I’d recount what I did to make a little side money.
If you’re a young man, just starting out, it can be tough to know where to begin. I made lots of mistakes at first, and I’ll recount a few brief lessons.
Credit Unions are Better than Banks
Even in the age of the internet, you need a local account to negotiate cash, foreign checks, and money orders. Regulation CC doesn’t allow for these to be deposited electronically. Where should you open a local account? That’s the most important question.
At Chase and Citibank and CIBC, you’ll be charged fees for merely having an account. The bank basically gets to borrow your hard-earned money, for free, and lend it out at a giant profit to you. Atop the interest you pay on your car loan and your revolving balances, they actually expect you to pay maintenance fees. Bear in mind that when you charged your last meal on the credit card, you borrowed the money you earned, which never left their vaults. They’ve charged you multiple times, for nothing.
When you think about this, it’s hard not to feel insulted. There are institutions where you can open a deposit account for free, and some of them will actually pay you interest on your balance. These are called credit unions.
In Canada, anyone can join a credit union. In the U.S., membership is sometimes limited by professional license or membership in some organization. If you are eligible to join a credit union, you should do so at your first opportunity. A credit union is usually (not always) organized as a non-profit corporation. Once you join, you’ll be a shareholder, not a customer. This means that if your credit union starts ripping you off, you can organize a campaign to replace the board, or run for a seat yourself.
When I worked at the aforementioned bank, I was required to have a series of accounts, and my bosses wired my paycheck into one of those accounts. Like every single other employee of that bank, I went across the street on payday, and wrote a check to my credit union in the exact amount of my receipt. You shouldn’t blame us. None of us wanted our check images and credit card statements available to our co-workers, and any of us could pull such stuff up, whenever we wanted.
I have found that credit unions always give better returns, have more competitive fees, and offer much better service than banks. The difference is so remarkable that I’m confused as to how Chase and Citi stay in business.
Discount Brokerage Accounts
If you’re in the USA, the best brokerage accounts for a young brother are probably Fidelity and Charles Schwab. Right now, Fidelity has a “Brokerage and Cash Management” account that features an FDIC insured checking account and debit card, tied to a brokerage account, and it’s all available online. Charles Schwab has an identical product, called “Schwab Bank Checking and Schwab One Investment.” Both of these accounts feature insane perks, like monthly reimbursements of all your ATM fees. More importantly, these accounts allow the purchase of shares of mutual funds with no fees to you. Read the disclosures for both carefully and open an account for 100 dollars.
If I were starting out, I’d use my linked checking account at the brokerage house as a primary account. I’d keep a savings account at the credit union, for those days when I had to deposit cash or money orders someplace.
You can lose your money when you invest in mutual funds, but this is a remote possibility, and mutual funds are typically safer than investing in shares of publicly traded stock, while giving you much better returns than money you park in a savings account.
What I do now is buy 1000 USD shares in mutual funds, every few months. My goal is to invest 10 percent of my net income until retirement. Another 10 percent is put into insured accounts, which I’ll get to immediately…
Online Certificates of Deposit
Goldman Sachs Bank is currently offering a 2.3 APY on its 12-month CD. This is a perfectly safe investment, and it pays twice what the best savings account can offer.
What I did, when I was a kid, was to buy 1000 USD CDs every few months. My goal was to get 12 CDs which each matured a month apart. Once I accomplished this, my goal was to bump up the balance in each to 10000 USD. Eventually, I had 120,000 dollars available, in monthly increments, which meant that I had a year’s worth of savings if something disastrous happened. I still have these CDs, and they continue to roll over. I continue to increase the balance in them.
People sometimes run into trouble when they invest too narrowly. This is another way to describe “all the eggs in one basket.” You never want to invest only in one company, or one fund. Ideally, you would never invest only in one specific industry.
Often times, one’s employer will encourage him to invest in his own company. This isn’t always a terrible idea, but we should learn a lesson from the poor chumps who worked at Enron. This was their scam (Renee probably knows this story). Many Enron employees spent years investing their entire paychecks in the company. I’m sure the scumbags running the place had a good time while it lasted. Sadly, all those investors are broke today.
Do you have any tips for the young brothers? Has Boxer omitted anything important? Shout out your own investment stories in the comments.