Podcast: Obermeyer Wood's Dollars and Sense - Episode Three

Obermeyer Wood’s Dollars and Sense Podcast - Episode 3

In this episode, we talk about investing: what it is and how we can get started.

Effie:
Roller coasters are often used as a metaphor for many things in life. Have you ever heard of people referring to the stock market as a rollercoaster? Stocks go up, and then for some reason they go down, and then back up again. And then to make it even more confusing, it seems very unpredictable when these stocks go up and down, whereas in a roller coaster, you can at least brace yourself when you see it's about to go down. Well, hold on. I think we got a little bit too ahead of ourselves. What is a stock and what is a stock market? Or better yet, what is investing? Obermeyer Wood Investment Counsel presents Dollars and Sense, a podcast where we talk about our dollars in a way that makes sense.

Effie:
So, what is investing?

Roger:
Investing is taking in your current capital, be it financial assets or your human capital, and using it for future benefits or advantages.

Effie:
So, financial investing is taking the money I have now and using it so I can get some future benefit. One way to do that is by purchasing something that will bring me a higher return in the future. That leads us to the stock market.

Roger:
So, Webster says it's a share of a valuable company which can be bought, sold, and traded as an investment.

Nick:
A stock is a certificate that shows equity or ownership in a business.

Effie:
This is Nick.

Nick:
My name is Nick Barnes. I'm an investment analyst and I have been with Obermeyer Wood since May of 2021.

Effie:
Nick explains that owning a stock is owning a piece of a company.

Nick:
You own an economic stake in that company and all the future cash flows that it generates.

Effie:
You purchase a stock of a company, so a share of the company, with the hopes that the future cash flows or the future earnings will be larger than they are now.

Effie:
I know what you're thinking, "What do you mean future cash flow and future earnings? What does that have to do with this, again?" Those are just a few variables that investors use to determine whether a stock is worth buying or not. Is the company looking like they're going to make more money in the future? Or how do their earnings, future earnings, look like? Analyzing these things can help investors make long-term decisions on which stocks to buy. I say long term because the day-to-day prices in the stock market are kind of hard to predict.

Nick:
A stock goes up and down based on supply and demand every day in the market. And on any given day there's a lot of noise. No one knows why a stock goes up or down on any given day, but over time stocks go up when earnings per share go up.

Effie:
So, the stock market, what is it and how did it come about?

Roger:
The first stock market to come into existence was the New York Stock Exchange, and that is a physical marketplace where people would go and buy and sell stocks. When the stock market was created and the New York Stock Exchange was created, it was the only place that you could go to buy stocks.

Effie:
Did you know that the New York Stock Exchange was actually founded in 1792? Well, a lot has changed since then.

Nick:
Historically, it was all in New York City, but now it's all done electronically.

Effie:
Technology has made it a lot easier for people who want to buy and sell stock on the stock market. So, where do you begin?

Roger:
The first thing you have to do is you have to open up a brokerage account. The cheapest and easiest way to do that is to open it up at what's called a discount brokerage firm, and those tend to be Charles Schwab or Fidelity. Here at Obermeyer Wood, those are the primary custodians that clients open up accounts at to facilitate the investing process.

Brian:
Two options. Two main umbrella options when you start thinking about investing.

Effie:
This is Brian.

Brian:
My name is Brian Brady. I'm a client advisor and director of marketing at Obermeyer Wood and I've been with the firm for just over three years now.

Effie:
Brokerage accounts are accounts you need to open to buy or sell stock. Brian explains that there's two main categories for these kinds of accounts.

Brian:
You can invest in what's called a taxable or individual brokerage account, or you can invest in tax-advantage accounts, and you probably know those to be things like IRAs, 401ks, Roth IRAs. The main differences between those accounts are when and how you pay taxes on their earnings and money generated in those accounts.

Effie:
Before we try to figure out which brokerage account would be best for us and try to work through all the taxes, let's think back to where we left off in the last episode. Budgeting, right? So after you've budgeted your everyday expenses and you have your emergency fund saved, what's the next step?

Roger:
Now, you've saved your money and as Effie has highlighted, you've opened your bank account and you've put it into your checking account and your auto deposit, and you've paid all your bills and you have some extra money. Now, what do you do with that money?

Effie:
Remember the time I mentioned values and how important those are when it comes to finances? Let's go back to those real quick. What are your values and what are your goals? Everyone has long-term goals that they have after their daily needs are met. Oftentimes those include buying a house, going back to school and saving for retirement. With those goals come a timeframe. There's a specific time you'd like to meet those certain goals, and because of that, there are certain times you'd like to have enough money to meet those goals.

Roger:
So the first decision you make when you save your money is, when are you planning to spend it?

Effie:
If you'd like to start saving for retirement, then it's probably best to consider the tax-advantage accounts that Brian mentioned. So those are the Roth IRAs, regular IRAs, 401ks that your job offers, SEP-IRAs, and the list goes on and on.

Roger:
But for retirement savings, you know you're not going to spend that money for a long time because you're not allowed to. There's penalties for taking money out of your IRA, and this is money that you forget about and you invest for the long term.

Effie:
Let's take Roth IRAs as an example. An IRA, by the way, stands for Individual Retirement Account. So the benefit of a Roth IRA is that while you do get taxed on the money you put in, you do not get taxed on the money you take out. This is why people say your investments grow tax-free in a Roth IRA, while a traditional IRA would be the opposite.

Brian:
So, for a traditional IRA, your contributions are tax deductible. But when you would draw that money in retirement, that money is then taxed as income.

Effie:
However, there are some things that you have to consider. As Roger mentioned, if you want to take that money out early, there are going to be some penalties, so make sure that the money you put in there is money you don't intend on using until retirement. That being said, you might be tempted to steer away from retirement accounts if you feel like you can't easily take out your money within a specific timeframe. However, it's really smart to start saving for retirement now.

Roger:
So it's incumbent upon you, as an individual and citizen and hard worker, to save, invest those savings, for your retirement.

Effie:
Time and investing are best friends, and one of the best things you can do for yourself is start saving for retirement really early. Here is a strategy you can use to get the best bank for your buck. First, see if your employer offers any kind of 401k or retirement plan, especially if they match.

Brian:
If you're employed and your employer offers a 401k, you're probably also offered what's called an employer match where the amount of money that you contribute from each paycheck into that return retirement account is usually matched up to a certain percentage by your employer. It's basically a free contribution that your employer is giving you. So the first place you should look at maximizing is your 401k.

Luke:
I didn't want to leave any money on the table, so I was going to give to my 401k the 15% match to take advantage of the fact that my employer was willing to put in to the account as well.

Effie:
Next would be to contribute to your Roth IRA or traditional IRA, and once you maxed out those contributions for your IRAs, then you can look into brokerage accounts. And that by no means is a step-by-step process you have to follow, but it's a great strategy for you to get the most out of your accounts. We think that one of the most important things in investing is simply starting.

Brian:
Just starting is the hardest part, right?

Effie:
It's so important for you to start investing in your future so you can prepare for what's to come and also be excited for it.

Roger:
Being a good investor does not only protects your future consumption to keep it consistent with what you can do today, but it provides you an avenue to improve your standards of living above and beyond what you're doing with your human capital.

Effie:
We can't really predict what happens in the future, but we can prepare for it, and investing is one of those ways. The Obermeyer Wood's Dollars and Sense podcast is created by Obermeyer Wood Investment Counsel, an SEC registered investment advisor. The information provided is for informational and educational purposes only, and does not constitute financial investment, tax, or legal advice. Statements by individuals reflect only their views and not those of Obermeyer Wood Investment Counsel, LLLP. The information in this podcast is not intended as investment recommendation or financial planning advice, it should not be used to make investment decisions. For more from about Obermeyer Wood Investment Counsel and its services, please visit us on the web at www.obermeyerwood.com.