The Tech-Disabled Investor?

millenial investing

November 6, 2017

I’m often asked by my friends how to get started with investing. Most of them are college graduates but have had very little education on financial management or investing. At most universities this is something you have to seek out. My friends are well aware of the need to work hard, keep costs under control, and save money. However, when it comes to making decisions on where to invest accumulated savings, most of them have never had any guidance on basic investing principles.

Consequently, many of the conversations with my friends on investing are not about asset allocation, the timeframe for holding investments, diversification, or the pros and cons of different investment options. Instead they boil down to very “mechanical” questions about different account custodians and/or popular investing apps. Typical questions include: “How long does xyz custodian/app take to set up?”, “How easy is it to use?”, “How much control will I have?” and the popular  “How much does it cost me?” It is questions like these that have made me realize that ease of access and use are chief concerns for millennial investors. Growing up in a period of rapid technological proliferation has made these two qualities paramount in the success of most millennial-backed products and services. For example, Halloween costume ideas made Amazon a powerful resource for me, as acquiring both a rock star wig and play samurai sword (different costumes thankfully) was both easy and accessible.

As a result, it is very easy for millennials to begin investing after gathering “all” the required information through a quick Google search. This creates a real danger for the unsophisticated young investor: the comfort with technology, allied with the ready availability of easy to use apps, means that inappropriate risks can be taken unwittingly. Moreover, the absence of an investment plan, combined with inadequate self awareness and emotional regulation, can lead to decisions which compound the problem. Early success can lead to joy and overconfidence: “It’s doing so well! I was right! I want even more!”. Early failure can produce anger and sadness: “It was supposed to soar! I can’t believe I trusted it. I should’ve bought less”. For some people a constant sense of foreboding begins to develop: “What happens if it goes down? What if I missed the right time?”.

Like everyone else, young investors should be fully aware of how their individual tendencies will affect their investment management decisions if they are going to be successful. Even with a high level of self awareness, it is still critical to have the discipline of a well-constructed investment strategy and plan. In many ways this is even more important for someone in their twenties given they likely have a very long term investment horizon.  Only we know if we are the type to draw the curtains before the finale because we hated the second and third acts. Maybe we all need to be encouraged to stay and watch what may well be the best part of the show.

Adam Stimpert

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Lunch With Ben

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October 30, 2017

We recently had an opportunity to spend some time with Ben Bernanke as he was visiting Atlanta. He spoke to a small gathering of financial professionals over lunch. The last time we were with him he was still serving as Chairman of the Federal Reserve and was much more guarded in his comments. This time he was free to speak his mind about the economy, politics, Fed policy, and even baseball.

On the economic front, things look pretty good. Growth continues to plug along in what he called “the Rodney Dangerfield recovery” (it gets no respect). Europe is growing faster than the U.S., and they are about three or four years behind us in the cycle, implying they have more room to expand going forward. Japan is doing well. China and emerging markets look pretty good. It’s a goldilocks scenario of synchronized global growth. It won’t last forever, but there is nothing on the immediate horizon that looks ready to derail it. He acknowledged that stock prices are a little high, but nothing crazy.

Of course we asked for his views on the direction of interest rates. “I’m not a good forecaster,” he said. “I felt there was upward risk in yields and it hasn’t turned out that way.” Still, he believes the Federal Reserve will hike rates again at its December meeting but he is skeptical whether we’ll see three hikes in 2018 as current guidance suggests.

On the political front, he reminded us of the independence of the Fed and the importance of it remaining that way. He believes Yellen should be reappointed. That’s the tradition but even if she is replaced with an inflation hawk, he feels there will be very little difference in the near term. There are 19 members on the Federal Open Market Committee which sets short term rates. It is a consensus organization. Changing one or two people will have little immediate impact. It gets more relevant whenever the next recession arrives. The Fed has very little room to cut interest rates and it remains to be seen if a hawkish Fed chair would be willing to reinstitute extraordinary measures to stimulate the economy. Recession risk appears to be quite low for at least the next 18 months and he believes we are likely to see unemployment fall to around 3.5%.

As for risks, he pointed out that we spend 16% of GDP on healthcare in this country and the government pays half of it. That’s much higher than our developed country counterparts, and our outcomes are not as good as others. We’ve got to figure out how to get this under control. It’s not urgent but it’s critical for long term sustainability.

And one final thought on our lunch with Ben: the longest economic recovery in our history started in 1854 and lasted a year and a half longer than our current recovery. Dr. Bernanke says we have a good chance to break that record. Let’s hope he’s right about that.

Mike Masters

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