By: Julia Bellotti
As I walk through two car dealerships to and from work every day, the question of buying vs. leasing a car is constantly on my mind. I’ve always wondered if leasing is a good idea - it seems relatively inexpensive and I’d then have a car, which would definitely make some of my daily life easier, but is it worth it?
About five minutes into my research for this article I realized that the answer, at least for me, was no. Unless I were going to use the car for work (as a courier, an Uber driver, etc.) to get tax benefits, or I simply didn’t mind throwing away money to have a brand new car every three years, leasing was not going to be the option for me. Money Under 30 aptly states that “financially, the best way to buy a car is to pay cash for something pre-owned to avoid paying both interest and off-the-lot depreciation.” Many people are not in that position, and that’s why they then have to decide between a car loan and leasing. When considering the long-term benefits for the average person, however, buying a car is the way to go.
Let’s start with the positives of leasing a car:
Unfortunately, the list of negatives is a little longer:
The bottom line is this: Even though the monthly payments when buying a car are higher than leasing, you’ll likely be financially better off after the car loan ends and you’ll have greater freedom over your driving habits. Leasing a car may only be in your best interest if you don't often drive (keeping the car mileage/average wear and tear low), or drive for your career (allowing you the extra tax benefits).
By: Taylor Armstead
Beginning to invest in the stock market is nothing short of daunting, especially with today’s volatile market. In the past, a large investment was often needed in order to begin trading stocks, as well as a broker who handled the transactions for you. However, investing is becoming more and more accessible to anyone with a few bucks and a device that can connect to wifi.
Prior to the invention of the internet, there was a large knowledge gap between the average person who wanted to invest and professionals working on Wall Street. When the average person wanted to buy and sell shares, they had to go to a broker and sometimes wait in line before making a trade. Additionally, news spread at a much slower rate than today, making it more difficult to learn when a stock market crash had occurred.
History of the Stock Market:
The first record of a “Stock exchange” occurred in 1531 in Antwerp, Belgium, but dealt exclusively in bonds and promissory notes. Later on, shares were introduced with the East India Companies. The first stock exchange to open in the US was in 1790 with the Philadelphia Stock Exchange. Shortly thereafter, the New York Stock Exchange (NYSE) opened and quickly became the most powerful due to 1) its location in the center of business, 2) trade coming into and out of the United States, and 3) the location of many US businesses and banks. The New York Stock Exchange has since remained the largest and most powerful stock exchange in the world. The NSADAQ became a key player in the 1970’s, and is a global electronic marketplace for buying and selling securities and a benchmark index for US technology stocks. See this or this article for more information on the history of the stock market.
The first step to begin investing is to start learning some of the more common terms:
The Stock Market: A collection of markets and exchanges that allows for the issuing and trading of equities, bonds, and other securities. This gives companies the opportunity to sell stock shares and corporate bonds, and in return investors receive dividends and profits from selling stocks that have appreciated. However, if the company is doing poorly, the share price can depreciate and the investor would lose money if he/she were to sell them.
Stocks: Used interchangeably with shares, they are a unit of ownership in a company, corporation, or financial asset. The two main types of shares are known as common stock and preferred stock.
Dividends: A distribution of a portion of a company’s earnings. This is decided by the board of directors.
Bonds: A bond is when a borrower “rents” money for some period of time, with the promise to pay it back. Bonds have interest or rent to make it worthwhile for the entity issuing the bond.
Mutual Funds: Mutual Funds are a professional managed investment program funded by shareholders that trades in diversified holdings.
ETFs (AKA Exchange-traded funds): A type of fund that owns underlying assets and divides the ownership of those assets into shares. The assets can be shares of stock, bonds, oil futures, gold bars, foreign currency, etc. A shareholder of an ETF does not directly own or have a claim to the underlying assets, but they are entitled to a proportion of the profits (including earned interest or dividends).
Prospectus: A prospectus is a formal legal document filed with the Securities and Exchange Commission (SEC) that provides details about an investment offering for sale to the public.
IPO (AKA Initial Public Offering): The very first sale of shares by a company. They are issued both from small companies looking to generate capital in order to expand, and by larger, privately owned companies looking to become publicly traded (for example, Spotify's recent announcement).
"Why don't you explain this to me like I'm five?"
Ok. You own a lemonade stand...
For more definitions, make sure to check out this website.
Investing for Retirement:
Arguably the most important investing tool, individual retirement accounts (IRAs) are used to earn funds for retirement savings and include Traditional IRAs, Roth IRAs, Simple IRAs, and SEP IRAs. IRAs consist of stocks, bonds, and mutual funds. The main difference between these types of IRAs is that Traditional and Roth IRAs are established by individual taxpayers, and SEP and SIMPLE IRAs are established by small business owners and self-employed individuals.
Traditional IRAs are tax deductible most of the time. This means that any money put into a traditional IRA would not be taxed - that is, until those funds are withdrawn during retirement. Roth IRAs are not tax deductible, and contributions are made with after-tax dollars. The positive to this is that any growth in the account is not taxed, and income tax is not charged on withdrawals. SEP IRAs, or Simplified Employee Pension IRAs, are specifically for self-employed individuals or small business owners. Contributions to a SEP IRA can be deducted from a reported business income, but employees cannot contribute to this type of IRA. The last type of IRA, called SIMPLE IRA (Savings Incentive Match Plan for Employees) is also for self-employed people or small business owners. Employers are required to make contributions to this type of IRA, and employees can make contributions as well. Like the SEP IRA, the contributions can be deducted from the reported business income, possibly lowering the tax bracket the employer is in. (See this article for more information on retirement).
Low Money? No Problem (How to Invest Without a Lot of Money):
Today, it is easy to find investment apps and robo-advisors with low account minimums and little-to-no management fees. One of the biggest draws of the robo-advisor is that their financial advice and management costs much less than the cost of a typical human advisor. Each one is geared toward different needs such as learning to invest, needing heavy guidance or none at all, or for investing in ethical securities.
Stash: Stash is an investment app that aims to make investing easy and approachable for beginner investors. Unlike some of the others listed below, Stash is not a “robo-advisor” and does not have the discretion to manage customer accounts. It does this through its education content and by guiding investors through building an portfolio of ETFs and individual stocks. Stash is geared toward first time investors and investors looking to make ethical choices.
Recently, Stash has begun offering retirement accounts and custodial accounts (for parents to set up investment accounts for their children). Their current promo for retirement accounts (known as Stash Retire) is to waive the monthly Stash Fees for a year - which will normally be $2 a month for accounts with balances less than $5000 and 0.25% per year of assets for all accounts with balances above $5000. Custodial Accounts are $1 per month (for accounts under $5,000) with any additional accounts costing $1 for every two months. For the regular Stash account, the fees are either $1 per month for account balances under $5000 or 0.25% annual fee for accounts with $5,000 or more.
Acorns: Acorns is a robo-advisor app that rounds up transactions from any linked accounts and invests them in a managed ETF portfolio. The fees for Acorns is $1 a month for accounts under $5000. College students can get up to 4 years free on the app with a valid .edu email. The company soon plans to launch retirement accounts, which will cost $2 per month. Acorns is geared toward new investors, people who struggle to save, and people who are more interested in a “hands-off” approach.
Lastly, Acorns has partnered with more than 100 companies that will give you cash back for using a card linked in an Acorns account. This program, called “Found Money” deposits the rewards into the Acorns account within 60 to 120 days. Similar to Stash, the app also has educational information as well, mostly from its personal finance site, Grow Magazine.
Robinhood: Like Stash, Robinhood is not a robo-advisor. Robinhood is geared towards investors who are looking to have the ability to invest in a wide range of ETFs and individual stocks with no commission or fees, and investors who mostly wish to operate on app and make quick trades. The range of available assets is smaller - they do not have any mutual funds. Robinhood’s interface makes it more for investors who already know what they want to invest in.
WiseBanyan: WiseBanyan advertises itself as “the world’s first free financial advisor.” There are no management fees and no account minimums, but it does charge for some services that would be included in those fees with other robo-advisors. WiseBanyan is another option that is great for beginner investors, starting off the process by asking a series of risk questions and then using this to suggest portfolios. These portfolios are made up of ETFs, chosen with variety of risks. WiseBanyan helps investors save by setting up “milestones” to reach certain savings goals.
This list is non-exhaustive: many others can now be found online. Other highly rated providers include Wealthfront, E-Trade, Wealthsimple, and Betterment.
When people think of investments, the most “mainstream” or well-known would be individual stocks. However, several low cost options are becoming available for more alternative methods of investing or in areas that historically required a lot of capital to start. For example, Fundrise is a first-of-its-kind private real estate investing platform. A starter portfolio for Fundrise begins at $500. The historical returns on their investments have been quite impressive so far, at 8-12% average annualized dividends.
Ellevest, founded in 2016, is highly similar to other robo-investors. However, it is geared towards females and takes into account womens' incomes, lifespans, and potential lifetime earnings (FYI - men can also sign up for Ellevest and there are personalized recommendations for them, too). Ellevest helps investors plan toward short-term and long-term planning goals, has a 0.25% advisory fee, $0 account fees, and free analysis and tracking of users’ 401(k) accounts. Ellevest also offers a premium service, which has a $50,000 minimum that has one-on-one coaching on topics such as salary negotiations and career transitions. They also offer an “emergency fund” feature, stored in an FDIC-insured bank account. While it earns very little interest, there are no management fees for this service.
Whether you choose to aggressively invest or save conservatively for retirement, saving money is very important for the future. Many companies have made it not only accessible to anyone with access to wifi, but also easier for anyone to learn and understand how to invest.