As an adult who works in the investment industry, I’m casually interested in how those around me approach saving and investing. No need to pry into personal business, but it makes for interesting conversation to ask. Maybe don’t ask strangers though. In any event, two things stand out to me from these conversations: 1) It’s healthy to talk about these things with other people; and 2) A surprising (to me) number of people keep their entire savings in a cash account. That latter part makes sense – “investing” is abstract and overwhelming.
The sum of these conversations has me thinking I’ll share how I’ve approached a small part of this equation. I’ve taken an Enron-math approach to bike racing money.
I’ll explain, but let’s get a few disclaimers out of the way:
- I’m not a financial advisor in any sense of the word. Despite working broadly in “investments,” my job in no way includes making investment recommendations
- I recognize that there’s some privilege in my approach, but I think the concept is useful
Bike racing is an inherently cash flow negative sport. Unless, of course, you’re an actual pro, in which case you can skip the Enron math and jump to the conclusion. Saving for the future is hard, especially if you’re not generating a ton of cash flow. These two concepts are naturally at odds. My personal solution: pay for bike races from my checking account (ouch), and if I generate prize money because me or my teammates are fast, deposit it into an investment account. No self-payback for the reg fee. In a sense, it’s a double loss – checking account debit and “spending” the payback money somewhere else. At the same time, if it’s do-able, small amounts invested over time add up to useful future money. It’s also a really good way to start increasing investment literacy through personal investment (find me someone who doesn’t feel emotional about losing money, I dare you) without risking your entire future.
This is where it gets fun. Where to invest these tens of dollars of winnings? Let’s go with an easy option and a hard option:
Easy option: Robo-advisor. Cheap robot computer portfolio optimization. Low-cost passive index funds, invested according to your risk tolerance (questionnaire-based). Some of them, like Ellevest, have good newsletters to that help frame thinking about investing. I use Betterment, personally, but there are many options and they’re largely interchangeable.
Hard option: Open a brokerage account, deposit money there, select individual equities to invest in. Unless you’re winning tons of prize money, Robinhood is probably your best choice here – free! Buying shares in companies you like is a good way to get yourself to follow markets and better understand what it actually means to buy stock. Of course, buying shares in companies you like isn’t always a great investment strategy (see: GoPro), but this is the risky option after all. Robinhood will let you blow it all on Bitcoin too, if that’s your thing.
My $0.02: for most people, parking money in a robo-advised account is a smart and cheap way to make sure your money is doing more for you than sitting in cash. Let’s pretend you make $200 in prize money this year. Let’s pretend your imaginary robo-account returns 5% a year on average. Simple math means that $200 is $250 in five years. Like I said, simple returns, Enron math.
TL;DR: Don’t leave all your money in cash all the time, cost of living increases will make you poorer and good savings account rates are a thing the current generation hasn’t experienced.
***We could argue in the comments about these simplistic assumptions and active vs passive and all those fun things, but let’s just not and accept that this is my personal approach and I thought some others might find it valuable