- Many people see these failures as more of a time of fear than an investment opportunity.
- M bonds or housing trusts are investments that can diversify your portfolio, says Vivian Tu.
- You can also increase your monthly contributions to a 401(k), he added.
“It’s the best of times, it’s the worst of times, it’s the wisest of times, it’s the foolish of times,” says the famous opening line from Charles Dickens’ “A Tale of Two Cities.”
The statement opens the book to the theme of the story, where the different experiences between the rich and the poor are shown, and it is placed in the context of class warfare. On one hand, there is despair and on the other, there is joy and hope. It takes place against the background of the French exchange between the two cities of Paris and London.
“It’s a popular idiom that compares the existence of two people or places or things that are similar,” said Vivian Tu, CEO and founder of Your Rich BFF, a financial education company. which produces newsletters and distributes advice across various social media. platform. He has amassed 2.1 million followers on TikTok, where he creates short videos about reading finance.
He uses the example to compare the current economic situation. On the one hand, inflation makes everything more expensive while the threat of recession looms. If you live paycheck to paycheck or paycheck to paycheck, these can seem like scary times.
On the other hand, many people often look at economic downturns as opportunities to build wealth. Some may invest in private equity or buy struggling businesses, while others invest in real estate. For example, if someone had a small amount of money saved during the financial crisis of 2008, he was not afraid of housing, and bought property, they have seen that the investment continues to appreciate over time.
Tu began his career in 2015 as a trainee at JPMorgan before becoming an equities trader. But he later parlayed his Wall Street career into helping others understand personal finance and investing.
One message he is now spreading is that compensation is only part of chaos and chaos is often good. Over the course of your adult life, specifically during your working years, you should be able to get anywhere between three to five paychecks, he said. Generally speaking, they happen every five years or so.
Many people see these declines as scary times, rather than opportunities to invest in equities when share prices are low. And although no one can predict where the bottom will be, you can continue to invest regularly on the way down and even on the way back, he said. Over time, you will have washed away your average investment.
A few simple pivots
If you’re more risk averse, or close to retirement, a great option is to invest in Series I bonds, a type of U.S. Treasury bond that can insulate you from inflation, he said.
Another option is a home trust. Real estate is not directly linked to the broader stock market, so it can be a good way to diversify into an asset that can provide you with an ongoing income stream, he added.
Tu does not recommend trying to be a stock carrier or betting on ETFs or mutual funds that are overweight in one sector. Every bankruptcy is different and we don’t know how this one will turn out or which company can survive the crisis. Therefore, it is best to diversify, he said.
Once you have enough emergency funds set aside, it’s time to move to investing in major market index funds, both for U.S. and global equities, he said.
“[If] you still have a reasonable amount of money that you are paying bills or buying products that you may not need, this is a great time to turn that budget into something that will be a gift which keeps on giving and paying you. in the future,” said Tu.
He continues to allocate money to the Vanguard 500 Index Fund ETF (VOO), which tracks the S&P 500. This gives him exposure to large US companies without the need to pick and choose stocks. He’s taking this time to raise a solo 401(k), which is a traditional plan for a business owner with no employees.
It also contributes to a Roth IRA, which is a plan where investors who make more than the limit for a Roth IRA contribute to a traditional IRA and then roll over the contribution to the Roth IRA account.
“Right now, we’re in an era where investors have a lot of freedom because they don’t have to buy shares,” Tu said. “They’re able to buy a fraction. So, no matter how much money you have, you’re going to be able to take that into the public sector.”
However, if you don’t have a lot of money to invest, then what you’re contributing may not make the difference you’re looking for, he said. For this reason, it is a great time to consider side jobs or other jobs for additional income. These will give you an income stream that can turn your investment into a profitable sum later down the line, he said.
And, if you have a 401(k), there’s no better time than now to increase your monthly contribution, at least to meet your company’s match, he added.