00:00 Speaker A
The class of 2025’s financial playbook. Whether you’re a new grad or a parent of one will break down the basics you need to build a strong financial foundation. We’re talking the basics of investing today, why it’s worth it, how to do it, and what to be mindful of. With me now to discuss we’ve got Nick Holman, who is the betterment director of financial planning. Good to have you here, Nick. So what are the benefits to investing in the stock market instead of just keeping your cash in a savings account?
00:45 Nick Holman
Yeah, great to be back. First off, I want to say cash is king for a lot of use cases. If you need the money within, say, 12 months or less, that really short-term time period, I would recommend not investing in the first place. So things like emergency funds, day-to-day expenses or just any major purchases that you need within one year or less, keep that in cash. Now, with that set aside, investing in the stock market has huge rewards if you’re willing to ride out the ups and downs. Just a few quick data points. The stock market’s going to outperform cash roughly 70% of the time. Those are pretty good odds. And if you look back over the last roughly 100 years, stocks on average will perform three times better than cash. So when you compound that over the next 10, 20, 30 years, you’re going to be looking at much more wealth gained by investing in the stock market, where it’s going to be much more difficult to become financially independent sitting in cash.
02:28 Speaker A
So what types of accounts do you need to invest in the market?
02:39 Nick Holman
Yeah, there’s a lot of account types out there. I will say the typical investor is going to need more than one type of account to really meet all of their financial goals. But don’t overcomplicate this for yourself. I like to break things out into two types of buckets. First off, it’s going to be your more general purpose accounts. These accounts aren’t going to have as many restrictions or contribution limits or age requirements. Short term things are going to be like checking and savings or just general investing accounts. If you’re married, maybe a joint account. But those are really easy to get started. When you’re saving for more specific types of goals, that’s where you can open a specific type of account that’s going to give you really great tax benefits. A few examples would be, if you’re saving money for college, look into a 529 account. If you’re saving money for health-related expenses, maybe consider an HSA. If you’re saving money for retirement related expenses, look into an IRA, a Roth IRA, a 401k, things like that. All of those are going to have really wonderful tax benefits, but they come with additional income limits, withdrawal limits, more rules, so you want to make sure that you understand those rules before investing. And here’s where it’s really helpful. You as the investor can choose exactly how much or how little guidance you want across all of these account types that I just mentioned. So if you want to go full DIY, you can do that. If you want a little bit of help, consider looking at a robo advisor, maybe like Betterment, or if you want a full dedicated human financial advisor to really walk through all the ins and outs for you, that’s where you can look at partnering with an advisor. But there’s really lots of choice when it comes to how much guidance and assistance you want when it comes to your investing accounts.
05:26 Speaker A
And so let’s define some terms for our newer investors who might be getting ready to buy stocks or ETFs. Market order, limit order, stop order. We’ve all heard these, but how at Betterment do you define these and when should you use them?
06:00 Nick Holman
Yeah, a market order’s going to be probably the easiest to understand. That’s when you say, hey, I want to buy shares of this stock or this ETF, and they’re just going to be filled immediately at whatever the best available price is. The next step is going to be a limit order, and here, you’re not as worried about getting into the market right away. What you’re saying is, hey, I’m interested in buying these shares, but I’m only interested if I’m going to if I can buy them at this price or better. So you can put in the price and then different brokerages will let you choose if it’s going to be good for the rest of the day, the week, the month. You can choose different time periods, but remember that it’s only going to get executed, meaning you’ll actually only ever buy the stock if it hits that limit price that you entered. So that can give you a little more control. And then a stop order, these are kind of a mix of the two. They’re probably the most complicated out of these three types. And so if you’re new, maybe I I would put this to the side, but they’re going to only kick in once a certain price hits, but then at that point they will become a market order. So a little more complicated. I’d say if you’re just getting started, market orders are the way to go.
07:54 Speaker A
So investing isn’t without its risks, and you have three ways that investors can manage the unknown in their finances. Your first tip here, build a foundation. Break down what you mean by that.
08:16 Nick Holman
Yeah, all investing has risk. Let’s just get that out of the way first. You can’t avoid those risks, but by building a strong foundation, you’re giving yourself the ability to ride out those risks if and when they do happen. So what I mean by a foundation is, you know, watching the stock market dip 1,000 points in one day, that can be gut-wrenching, like it did just the other week. But if you know that you have a six month emergency fund in place, if you know that you don’t have credit card debt, if you know that you’ve built a long-term financial plan, all of those things will help you weather the storm, stay calm, and not panic when things get a little bit scary. So that’s the first first strategy that I’d recommend to help combat these investing risks.
