Anine Sus – Page 8 – My Investing Discoveries

Finding Index ETFs That Aren’t (Entirely) Killing the Earth

I’m finally going to invest in something! And I actually kind of understand it!

If you read my post about my attempt to invest in index mutual funds, you’ll know that I failed miserably and decided to focus on index exchange-traded funds (ETFs) instead.

I started out by using AAII’s ETF Screener, and I selected “Yes” for socially responsible and index fund to make sure I was starting off with a narrow enough field.

The hardest part of investing in funds of any kind is not knowing exactly what you’re investing in, since most funds just reveal their top 10 holdings. Thankfully in an article on Vox—sent to me by our lovely managing editor Jean Henrich—I found a website called As You Sow that screens funds for actual environmental, social and governmental (ESG) compatibility.

So, I tested out a few tickers in one of As You Sow’s searches to see if the ETFs I was interested in actually fit my values and intentions for the earth. Spoiler alert: Most of them didn’t!

With these searches, no matter which one you use the results are broken down by categories and each category is graded. Looking at the Ecofin Global Water ESG ETF (EBLU), I found that it grades highly in almost all of the categories, meaning that there are little to no investments in stocks of companies that are profiting from the fossil fuel industry, deforestation, gender inequality, sales of guns and military weapons, the prison industrial complex and tobacco.

What I like about this tool is that you can pick and choose what’s most important to you. Let’s say there’s a fund that has a lot of investments in tobacco, but you’re not as concerned about that. If the fund has a lower grade for tobacco, then you would still be comfortable investing in that fund—unless you’re Don Draper in the fourth season of Mad Men:

Tobacco production also requires a lot of natural resources and uses chemicals that create pollution and can cause health issues for people in areas where it’s processed, so I’m glad the Ecofin Global Water ESG ETF doesn’t invest in it! Next, I looked at the Global X CleanTech ETF (CTEC). It has grades of A for everything except gender equality for which it received a grade of D. Here’s the breakdown provided on the gender equality search:

It’s well-known that the tech industry is not favorable or welcoming toward women, or anyone who is not a white man, so I expected the gender equality grade to be lower for this ETF. If I decide to invest in this ETF, I will keep an eye on its gender equality grade to see if it improves at all.

One thing that’s difficult about investing in ESG funds is that their past performance is not always ideal. Using AAII’s ETF Compare tool, I looked at how these two ETFs stacked up:

Ecofin Global Water has been around for almost five years, and has a mix of return grades, but Global X CleanTech has only been around for about a year so there isn’t as much return history to compare. (Two-thirds of all stock ETFs designated by Morningstar as being “socially responsible” are less than three years old.)

The return grades shown above are based on the ETF category average and comparing to category peers is key to understanding fund performance. Ecofin Global Water has a more favorable expense ratio and grade compared to its category average, but also has a grade of F for its category risk index—defined as the relative measure of risk by comparing the variation in total return for a fund over the last three years to the typical variation in return for all funds in its category. In other words, it’s a lot more volatile. So Ecofin Global Water might experience big price swings, but it is a relatively new ETF so it’s going to be a slight risk no matter what.

If I had to choose between these two ETFs, I would choose Ecofin Global Water because of its expense ratio and high ESG grades in all categories.

Have you tried searching for ESG funds? If so, what barriers did you run into?

The Carrie Finances: Introduction

In my recent rewatch of Sex and the City, an episode where main character Carrie Bradshaw is forced to buy her apartment or be evicted by her ex-fiancé Aidan revealed that Carrie only has $700 in her checking account and $957 in her savings account! Indexed to inflation from 2001 to 2021, that would be approximately $1,100 in checking and $1,500 in savings. Given that Carrie’s apartment was previously rent controlled for $750 per month (a steal in New York City then and now, at around $1,200 with inflation), the bulk of her income was spent on her Achilles heel: expensive shoes—according to her, $40,000 worth!

The down payment required to buy her apartment is $30,000. After consulting a loan officer at the bank, her ex-boyfriend Big and her three closest friends, her friend Charlotte gives Carrie the engagement ring from her first marriage to float the bill and save the apartment. Carrie promises to pay Charlotte back in full.

At age 35, Carrie has little to her name in assets but “many life experiences,” she notes. As much as we like to enforce the idea of saving from a young age, Carrie makes a good point about enjoying your life while you’re young—but shoes are not the same thing as life experiences! What if Carrie had spent only half of the $40,000 that she estimated she spent on shoes, and put $20,000 in savings …

Carrie says that at this point she has lived in Manhattan for a decade, so let’s see how much money Carrie would have if she put $20,000 in her savings account for 10 years. The average savings account today has a 0.06% interest rate, meaning the money you have in your savings account will appreciate by that percentage over one year. The more you put into your savings account, the more money you’ll make in the long run. Over a 10-year period, Carrie would make about $270 on her savings, which isn’t much and wouldn’t cover her down payment.

But what if she used a high-yield savings account? High-yield savings accounts have interest rates much higher than the average bank, some as high as 0.70% today. If Carrie had her money in a high-yield savings account, she would have almost $21,000 in total savings.

This would be the best Carrie could do at this level if she still wanted to maintain half of her Manolo Blahnik shoe collection. Even with a high-yield savings account, she still wouldn’t be able to pay for her apartment on her own at today’s low interest rates.

When I first watched this episode, I was horrified by Carrie’s financial state! I couldn’t help but wonder: Would she would be able to support herself? Unfortunately, she would have to start investing or save more of her income to do anything more with her money. She might also have to sell some of those shoes, but that would be even more painful for her! Through my Carrie Finances series, I intend to teach myself about budgeting and life-planning so that my finances are in better shape by the time I turn 35 than Carrie’s are!

Hereditary Financial Habits: Introduction

https://investingdiscoveries.blog/wp-content/uploads/2021/11/Hereditary-Financial-Habits-Intro.mp3

You can listen to the audio of this post!

Before I got my first paid internship as a college student, money was something that was just out of my reach. Like many kids, I was given an allowance by my parents to do chores around the house. I would empty the dishwasher, set the table for dinner, take the garbage out, etc. I appreciated that there were also things I was expected to do that I didn’t get paid for, like doing my own laundry and cleaning my room. I would get paid for the things I could do for other people, but the things I didn’t get paid for had to be self-motivated; it was a great way to build discipline.

I learned from a young age that being independent and doing things for myself was an asset to me. To this day, I will try my hardest to solve any problem that arises before asking for help (yes, sometimes to a fault, but I’m working on it!).

As I’ve gotten older, I’ve noticed more similarities between me and my parents in the way we think, the way we conduct ourselves socially and how we interact with the world. Some of those things my dad will address as “the family curse,” others as his “insanity,” but one of the ripest that I want to break down further is what financial habits, if any, I inherited from my family.

Unfortunately, my grandma on my mom’s side died when I was very young, so all I have is stories about her. As I grew up, I learned that she was an accountant and started her own tax business in the 1950s. It wasn’t an easy time to be a woman, let alone a businesswoman. She was the only woman in her accounting class, and people questioned why she wasn’t getting a teaching degree instead. But she proved all of them wrong, and she went on to meet my grandpa on my mom’s side, who was active in his parents’ phone and answering service business. My mom’s parents ran the phone business together, and my grandma kept her tax business on the side up until the 1980s when my mom recalls a little old lady about four feet tall coming to the office asking for my grandma to do her taxes because she couldn’t possibly go anywhere else!

On my dad’s side, his father died very young, so we never got to meet him. But his mom was around for a little while after I was born. She was big into investing, and when she passed, she left her estate to my parents. My dad told me that when he was 15, his mom bought him stock in IBM Corp. (IBM) to get him into investing. To keep him engaged, she also had him oversee her dividends! My dad would have to verify which amounts were going into her account and match the dividend depending on the company and the month. They had a manual bookkeeping spreadsheet (on paper!) of when the dividends were expected that he helped to maintain.

So I grew up with a lot of business-minded people in my family. But how did that affect how I view money?

As a kid I used to think that my parents would always have enough money to take care of me, that money was something infinite, but I quickly learned that wasn’t the case. My parents had just made good decisions with their money and gotten lucky. I think the biggest lesson I learned from growing up in this environment was to save. When I started making a steady income, I was big into saving because I wanted to be someone who had reserves if something went wrong. If I had a sudden health issue and couldn’t work, I wanted to make sure I could live for at least a year on my savings. It also strikes me as an extension of my need to be fiercely independent; I didn’t think of asking anyone else for help if I fell on hard times, I expected to be able to handle everything myself.

How did you view money growing up, and how did that influence your relationship with money and investing?

Frosty, our littlest investor, doesn’t have a job so he invests all his time into waiting for food.

The Great Index Fund Diversion

Index funds have been on my mind for a while. A few years ago, I was talking to my family about investing and index funds came up as an easy way to start.

Index funds are groups of securities like stocks or bonds that you can invest in to get a bigger chunk of the market in your portfolio.

I had index funds in mind when I opened my brokerage account; I made sure that my broker had a good amount of no-transaction-fee mutual funds available. Index funds seemed like a great place for me to start investing, since I’m not yet comfortable investing at the individual stock level. I could get what I needed to diversify a portfolio with just a few funds, instead of trying to identify 20 stocks that would serve a similar purpose.

However, once I actually started to look at index mutual funds, I quickly descended into panic when there were so many barriers to entry: Minimum purchase amounts, especially for the socially responsible funds I was interested in, were sky high; there were institutional funds that I wasn’t sure I could even invest in as an individual (I found out that it depends on the fund); and there were funds that weren’t even open to new investors.

I used AAII’s Fund Screener to try and find something that would work for me but soon I was overwhelmed by all of the metrics I needed to apply to find what I was looking for. Which index should the fund be following? How can I find a fund that is actively socially responsible and not just investing in big corporations that happen to not, at this point in time, be treating the earth like a hotel? And how do I sift through the mammoth amount of 24,000+ mutual funds available to begin with?!

After about a week of screening and researching, I decided to take a step back.

This is essentially online clothes shopping but for index funds, so I tried to narrow my search to find the ones I like in my size. But I don’t want to force myself to fit into anything, and I definitely don’t want to invest in something that I don’t understand. I want to follow a strategy that doesn’t require any emotional breakdowns in the process!

One day when I’m more entrenched in investing, I’ll revisit index mutual funds. But for now, I’m going to focus my attention on index exchange-traded funds (ETFs). There are no minimum purchase amounts attached to these, and there are only about 2,700 ETFs to choose from, which should help narrow my search immensely. I’ll report back on how it goes!

Start Investing With $5!

If you think you need thousands of dollars to start investing right now, you’re not alone! Before I started working at AAII, I didn’t think I would ever do any investing by myself. And even then, I thought I would need at least $10,000 to start investing. But the good news is, you only need $5 to start investing right now. You can start yourself a tiny little portfolio! Like with anything, there are risks attached to investing with small amounts but here are some ways you can do it:

Micro-investing apps are those like Acorns, Stash and Cash App. These apps provide services like rounding up the charge when you buy something and investing that extra change. Acorns provides more of a hands-off approach, doing the work of saving and investing for you. But this also means there can be hidden transaction costs since Acorns is making the decisions.

I looked into Acorns as an option for starting something small, but the behind-the-scenes aspect of it concerns me. Since I chose my broker based on the lack of fees for exchange-traded funds (ETFs), I’m going to stick to my main Schwab brokerage account for now.

With Stash, you can control your investments and buy fractional shares of stocks, but there are a lot of other distracting bells and whistles like the Stock-Back card that invests in the stocks of the brands you purchase from. This strikes me as a bit of a leap, a whole new way of saying “Put your money where your mouth is.” Simply investing in the companies that you buy from already is not an investing strategy, and it’s just giving more money to corporations that could be doing more harm than good.

Cash App also allows you to choose what you want to invest in, including fractional shares. It’s not just for investing, so if you already use it to send money to friends it could be a multi-purpose app for you. I like that Cash App seems to be more transparent than the other two micro-investing apps.

Acorns invests mainly in ETFs, while Stash and Cash App have a focus on stock investing with some ETF offerings as well.

Keep in mind that Acorns and Stash have a minimum fee of $1 per month to maintain your account, while Cash App is free. Fees were a huge part of choosing my broker, so if you haven’t opened a brokerage account yet, check out my post and accompanying video on how I did it!

With these apps, you can start investing with very little, but with Acorns, for instance, you can also boost your savings to invest for your future as it squirrels away your spare change.

Purchasing fractional shares of stocks or ETFs can be one way to start investing if you only have a little to spare each month. If you want to invest in a stock that’s pricey but you don’t want to shell out the entire share price amount, you can buy a fraction of the share. You can also do this with ETFs, which can be an easy way to get better diversification for your portfolio right off the bat. Not all stocks and ETFs are available for fractional share purchases, leaving you with limited choices, and they can be risky in the sell process since your fractional shares have to be matched up with other fractional shares in order to be sold. However, it’s a great way to start out with your first stock purchase if you’ve been putting it off. It’s getting your foot in the door (and maybe just your foot for now). I made the decision to go with Schwab for my broker because it offers fractional share purchasing, so I might be playing around with that in the future!

Let’s Open a Brokerage Account Together!

Choosing and opening my first brokerage account was a huge hurdle for me. It was something I’ve been putting off for many reasons: 1) I didn’t think I had enough money to invest yet, so I kept adding to my savings account; 2) I had no idea what I would do to make the most of my invested money; and 3) how on earth was I supposed to know which broker to use? Which is to say, how could I be trusted to make this decision on my own?

Thankfully, the more I read AAII articles like “Comparing Discount Brokers and Apps Given Recent Industry Changes,” the more knowledgeable I felt to take the first step as you can see in the video accompanying this post.

Choosing a broker reminded me of when I had to choose which college I wanted to go to. It was a huge, daunting decision, but there’s always the peace of mind knowing that you can transfer if something doesn’t work out. When I was choosing my college, I had to make sure it was somewhere I could thrive, but also a place that I could contribute to. In the same way, I wanted to make sure my broker was a good fit for my money and what I want to do with it.

Fees were the biggest factor in my decision-making process, and I walk you through how I came to the conclusion I did, making sure my broker won’t be taking too much off the top!

If you’ve struggled with knowing where to invest your money, this video is for you! I hope it helps you determine the broker you want to use and eases your anxiety about the process.

I read this so you don’t have to! Investing 101 by Michele Cagan

I started reading at such a young age that it feels like I’ve been reading since I came into consciousness. Before I started reading by myself, my dad would read the Wizard of Oz series to me. But it was when he started the Harry Potter series that I took the first book from him one night and said, “I want to read this one.”

There were nights I would go to bed at 4:00 a.m. just to finish a book, on a school night no less! Nothing and no one could stop me, not my mom, my young eyes or the butt crack of dawn on the horizon. Reading is my preferred way to learn new things, so if you’re not a big reader, or don’t have the time for a whole book, you’ve come to the right place because I’ll be reading investing books so that you don’t have to!

“Investing 101” by Michele Cagan, CPA, is a book that my uncle gave me when I started working at AAII. Instead of reading it, I put it in my closet and never looked at it again—until now!

“Investing 101” offers a ton of entry point options for beginners. Cagan covers basic economics, stocks, bonds, mutual funds, exchange-traded funds (ETFs), styles of investing, investing in real estate, currency and commodity trading, education and retirement planning, socially responsible investing, how to create your investment portfolio and advice from professionals. If any of those aspects of investing interest you, Cagan does a good job of explaining things plainly but factually. If you click on any of the links in this paragraph, they will take you to a place on AAII.com where you can begin learning more about these investing ideas.

I was on alert for any descriptions of investing concepts that might help me build a portfolio, and Cagan introduces the concept of diversification. Diversification is an investing technique that acts as a safety net against how the economy might perform: “Different types of industries perform better during specific stages in the economic cycle. For example, some industries take off when the economy is expanding, while others actually profit more when the economy is in a slump. That means that investors can always find a way to profit in the markets, as long as they know where to look.”

Instead of trying to take a wild guess when certain investments will do well, diversifying what you hold in a portfolio means you won’t have to stay up at night thinking about how the economy will affect your investments. Instead, you can stay awake plagued by thoughts about the end of the world!

Some great advice Cagan included that I’m going to follow is to “avoid duplication. It is a waste of your investment monies to own multiple funds with identical objectives. It’s best to own just one fund in any particular fund category.” She also notes, “However, keep in mind that it’s usually not advisable to have more than six or seven mutual funds at a given time, or you can start to counterbalance your efforts to construct a strong portfolio.”

I gravitated toward the chapter on mutual funds and ETFs since investing in individual stocks right now is still intimidating for me. I think I could easily follow these guidelines that Cagan provides and start investing in mutual funds and ETFs. I’ll report back on how that goes!

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My Investing Discoveries: Introduction

Hi everyone! My name is Anine Sus, and I am the assistant editor at the American Association of Individual Investors (AAII). Like you, I haven’t started investing yet. Even after over four years of working at AAII, I am still intimidated by investing and the stock market. All I have is my checking and savings accounts, and my 403(b) account, which is the equivalent of a 401(k). More to come on what those numbers and letters mean because I have no idea. All I know is that to survive in this world, money is the means to just about any end.

What I’ve gleaned through my years at AAII is that long-term investing could be a good choice for a lot of people. Your way of investing must be as inimitable as you are. It has to fit your lifestyle, your needs, what you want for your future and how you want the world to be in that future. It’s a tall order, but I’d like to figure out how to invest in better natural energy sources and learn how to invest for an early retirement so that I can follow my parents’ example and pursue other passions. (My dad sees a goat cheese farm in my future, but I think he just wants free cheese!)

Maybe you’ve been putting off investing because you don’t think you have any money to spare? Being alive is expensive as hell. Let’s figure out how you can start investing with $5. Are you in debt from pursuing an education that is essentially required for you to be employable? You can still invest while you pay the government back for the next 20 years. Do you want to own property even though having that amount of wealth seems impossible? Let’s work through that one together.

If you’ve struggled to figure out where to start with your finances, come along with me as I teach myself using AAII’s tools and its 40+ years of investing education as a guide. There’s way too much financial advice out there, really too much to bear at this point. It’s also hard to know what and who you can trust. But AAII provides what you need to be an investor in your own right, and that could include hiring a financial adviser if that’s what fits your needs. We’re going to start off much smaller than that, because honestly between working and being an adult, I don’t have time for much else!

Comment down below what questions you have about investing!