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Live: Who Cut The Interest Rate?
Jerome Powell, head of the Federal Reserve, recently spoke at Jackson Hole and seemed to be considering cutting interest rates.
There's been more drama around interest rates lately than the Love Island finale.
Maybe not that much drama but there has been a lot.
Why should you care?
Student loans & credit cards: Lower rates = borrowing money gets cheaper. New student loans will likely have lower interest rates.
Jobs & internships: Rate cuts are meant to keep the economy moving. More businesses borrowing = more investment and opportunity = potentially better job prospects when you graduate.
Giphy, Please better job prospects. PLEASE.
Investing: Lower interest rates are smiled upon in the investing world. A rate cut will likely result in a rise in the stock market, increasing the value of your investments at least for some time, though nothing is guaranteed.
So this isn’t just Wall Street jargon. It trickles right down to your wallet, even if that wallet still has your student ID in it.
Learn: Your Brokerage Account Starter Pack
The brokerage account is one of the most flexible investment accounts. 401(k)s, Roth IRAs and Traditional IRAs are all retirement investment accounts, and have tax advantages because of that.
The brokerage account doesn't have those tax advantages. But, it also doesn't have the restrictions that come with being a retirement account.
Here’s the Breakdown:
1. Why/when you’d open a brokerage account:
Retirement accounts (like Roth IRAs) are great, but they lock your money up until 59 and a half (there are exceptions). Early withdrawals result in penalties.
A brokerage account gives you flexibility — invest for the long haul and access your money whenever you want.
An example application for a brokerage account may be saving for a wedding/house in the next 10 years. You want your money to grow but you can't put it in a retirement account.
2. How can you get money in and out?
Link your bank account to your brokerage account and deposit cash.
Place a trade (buy/sell stocks, ETFs, etc.).
Automate deposits so investing happens without you lifting a finger.
3. What to watch out for:
Capital gains tax: If you sell an investment and make a profit, the government gets its taxes.
Short-term trades (less than one year) = higher tax hit.
Long-term (over a year) = lighter hit.
Fees: Some brokers still charge for trades. Don’t let them. $0 commission platforms are everywhere now.
4. How to decide what to buy:
Research before you jump in: Check out websites like Yahoo Finance, to see how the stock/index fund you're considering investing in has done in the past couple days/months/years/decades.
Consider index funds: These investments enable you to buy multiple stocks at the same time so you can focus less on finding the perfect stock and more on investing consistently. Investing doesn’t need to be rocket science.
Feel free to respond to this email with any questions!
Leverage: Risk Tolerance Quizzes
Now you’ve got the keys to the brokerage. But how do you know if you should be driving a minivan (bonds) or a Ferrari (stocks)?
Risk tolerance quizzes help answer that. They ask you about your goals and how you’d react if different things happened to your investments. Based on your answers, they spit out an investing style that matches your nerves.
Pros:
Sets up your investments to not just grow but also make you feel secure.
Helps you figure out how you should structure your investment portfolio.
Gives you a realistic sense of whether you’re built for “slow and steady” or “strap in, we’re going to the moon.”
Cons:
No quiz accounts for how you'll actually feel in a down moment.
Easy to feel overconfident because a website told you you’re “moderate-aggressive.”
Tip: Try to be as honest as possible in the quiz to get the best result. Ask someone who knows you well whether they agree with your responses.
I like this quiz from the University of Missouri. You can skip questions you don't want to answer but the first page of questions is the most useful to assess your tolerance.
Also, quick reminder that I am not sponsored by any of the tools I note here. I wish I was! These are just the tools I use.
Launch!
Today take one risk tolerance quiz. Then, write down your #1 investment goal for the next 5 years. The ultimate financial vibe check.
That combo will help you determine which account you need (based on whether you're investing for retirement or something else) and what you should be looking to invest in (risky stocks vs. ETFs vs. bonds etc.).
Because before you can invest, you gotta know yourself. ;)
Hey!
Thank you so much for being a part of this newsletter. I am grateful to write to you weekly and I hope this helps you feel more confident with your finances.
If you found this newsletter helpful, please share it with a friend and invite them to subscribe.
I have a goal of helping people learn personal finance. It works better when more people get my emails.
Thank you for helping me (and your friend) out!
—Ben Brosnahan
