August 5, 2021
by Ashton Marcoux ('22)
Dr. Richard Haskell has been a finance professor at Westminster for a decade. On campus, you can find him teaching advanced finance courses in the Bill and Vieve Gore School of Business or in his role as the director of the new Westminster Center for Financial Wellness. Dr. Haskell provides insights on investing—more specifically, some basic tips on how to get started, where to get started, and where to best invest in this volatile market.
Forms of Investing
What is something you’d tell a student looking to invest who’s never done it before?
“Becoming wealthy is not about how much money you make and having extra to invest or buy properties with. It's about how much you spend and how much you are willing to carve out to invest on a consistent basis. I've known people with $50,000–$60,000 incomes who are meaningfully wealthier than people with $400,000–$500,000 annual household incomes. In fact, I would say that those with the higher income levels tend to not develop wealth—they tend to just spend the wealth.
“For the purpose of this discussion, let’s agree that investing takes one of three forms: saving, trading, investing.”
Saving: “This includes putting a little bit of money into a savings account at the bank or credit union every month—or whenever you've got extra money. When you have enough in the account to cover a few months of expenses or to pay for that item you’ve been saving for you can then move the surplus into some other type of investment account.”
Investing: “Investors put money into assets they expect to appreciate in value or provide regular income over the long term. These may be stocks, bonds, mutual funds, real estate, etc. Warren Buffett would be an investor. He buys stock and holds them for a long, long time—in most cases, many years. Long-term investing isn’t without risk, of course, but it’s reasonable to suppose good quality investments may rise in value over time.”
Trading: “Trading is a riskier strategy that includes buying and selling assets in the short-term hoping to exploit some disparity between price and value in the markets. If you don't know what you're doing, if you don't have some good fundamentals behind you—and you're not willing to commit the time and the research—then trading is gambling. You can be a trader and be well informed—and you may be a profitable trader if you're well informed. But even though I’m a finance professor and owned an investment firm for many years, I no longer consider myself to be well enough informed of current trends, events, and stock performance in the marketplace to risk money trading. Day traders, hedge fund traders, those who purchase cryptocurrencies are traders. They're not investors, and there's a big difference.”
Which is best?
Which of these three forms would you most recommend to a new investor and why?
“I’d say a person should start by having a saving’s account in which they put away enough money to cover emergencies—maybe 2–3 months of income. Investing and trading are very different. Trading is participating in very short-term transactions in which you hope to make a little money between buying something and selling it a few hours, days, or weeks after buying it. Investing is a longer-term strategy in which you buy an asset you believe will increase in value and you don’t intend to sell it for months or years into the future. So only trade with money you’re totally prepared to lose—it’s tantamount to gambling if you’re an inexperienced investor. Invest with money you’re prepared to tie up for a while—maybe even money you intend to use for a future purpose like buying a house or retiring.”
Making Time to Invest
What would you say to a student who may not have much to set aside for investments?
“Investing should be a function of a commitment on your part more than it is a function of you having a great job with lots of extra income. Now, people will respond to that and say, ‘but if I don't have enough money to pay my rent and eat, I can’t invest.’ I would tend to agree with that. But I would ask people, ‘If investing is a priority to you, should we look at what we're paying on rent? Should we look at what that car payment is? Should we look at what we think are necessities? And if investing is not one of your necessities, it will never be one of your realities.’ And that's all there is to it.”
Why should investing be a priority for someone?
“It’s interesting, people who have put away enough money (savings) for emergencies and to take care of planned expenses tend to have very few emergencies because they’re prepared. People who have money in longer-term investment accounts tend to be much more secure than those who don’t: they sleep better, have less stress, and are more stable. People who have put away enough money that they have a few years of income on hand, even if it’s in a retirement account they don’t plan to touch for decades, rarely put up with jobs they don’t like, co-workers who are abusive, or worry about money.”
What is your best advice as to when someone should begin investing and how much?
“When you get out of college, at the very least, you ought to look at starting to put some money away. I don't care if you're 23 years old and you’ve got what you're sure is a 50-year career ahead of you. Start now, even if it's taking advantage of your company's 401k plan, or maybe putting a little bit into an IRA or just a stock account that you open with Robinhood, E*TRADE or whatever—it's a great idea to start doing at least a little bit of something. $10 a week. $500 a month, $200 a month, whatever it is, do it and do it on a consistent basis. I would also tell you that when you find that everybody is investing in a certain way, you shouldn't be doing it. Because when everybody's doing it, it means the opportunity is passed. Bitcoin is a good example of that. You know, Bitcoin was up at about $63,000, now it’s down to $32,000 or something. When so many people that are unknowledgeable about investing are trying to do the same thing, smart people know not to do it.”
Recommended Tools and Options
When it comes to apps and different vehicles for trading/investing, do you have any you would recommend for students to use?
“Mutual funds are great investment vehicles as long as you choose a fund with low expenses. Index funds, large-cap stock funds, dividend growth funds, or emerging market funds are probably good ideas if you don't think you have a good knowledge of individual stocks or bonds or are simply looking for some diversification. An index fund is a mutual fund or ETF (exchange traded fund) that expects to mirror the performance of a major market index like the S&P100, Russell 2000, or Dow 30 Industrials. When you buy into one of these funds, you’re buying into a pool of money that has purchased the stocks that make up the index—it can give great diversification, even with a minimal investment amount.
"Two investment platforms I’d recommend to someone looking to invest might be Robinhood or maybe E*TRADE. I think a lot of students know what Robinhood is. It’s value in the marketplace is not simply that it’s a trading platform: it’s real value is as innovation—it‘s a user-friendly app with low barriers to entry and a great digital interface. Robinhood introduced fractional investing and that was a game changer. For example, you may not be able to buy one whole share of Berkshire Hathaway common stock, which, last I knew was trading at $432,000 per share, or you may not want to buy into a mutual fund holding Berkshire Hathaway shares. In the past this meant you just couldn’t participate in the market. But today, you can open Robinhood account, go to the app and can buy some fraction of one share of Berkshire Hathaway. That’s a game-changer for students.”