Tips From Ex-Wall Street Trader

  • Many people see these downturns as moments of fear rather than opportunities to invest.
  • I bonds or real estate trusts are investments that can diversify your portfolio, said Vivian Tu.
  • You can also increase your monthly contributions to your 401(k), she said.

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of folly,” says the famous opening lines from “A Tale of Two Cities” by Charles Dickens .

The passage opens the book to a theme in the story, which emphasizes the contrasting experiences of the rich and the poor, and is framed within the context of class warfare. On one side, there is despair and on the other, there is joy and hope. It takes place in the context of the French Revolution between the two cities of Paris and London.

“It’s a common idiom that basically compares the similarity between two people or places or things that have experienced something similar,” said Vivian Tu, CEO and founder of Your Rich BFF, a financial education company that publishes a newsletter and shares tips across various social media. platforms. She has amassed 2.1 million followers on TikTok, where she creates short videos about financial literacy.

She uses the analogy to draw parallels with the current economic environment. On one hand, inflation is making everything more expensive and there are fears of a recession. If you’re living paycheck to paycheck or relying on paycheck to paycheck, these can feel like scary times.

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On the other hand, many people often see an economic downturn as an opportunity to build wealth. Some people might invest in private markets or buying distressed businesses, while others might invest in assets. For example, if someone had a little bit of money saved during the 2008 financial crisis, if they weren’t afraid of real estate, and if they bought a property, they’ve seen the investment continue to appreciate over time, she said. noticed.

Tu began her career in 2015 as an intern at JPMorgan before becoming an equity trader. But she eventually parlayed her Wall Street career into helping others understand personal finance and investing.

One message she has to spread now is that recessions are just part of the boom and bust cycle which is quite normal. In your adult life, especially during your working years, you will likely experience three to five setbacks, she said. Generally, they occur every five years or so.

Many people see these downturns as moments of fear, rather than opportunities to invest in equities when share prices are down. And while no one can really predict where the bottom will be, you can continue to invest on a regular basis on the way down and even on the way back up, she said. Over time, you will essentially wash down your average investment.

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A few simple pivots

If you’re more risk averse, or if you’re close to retirement, investing in series I bonds, a type of U.S. savings bond that can cushion you from inflation, is a great option, she noted.

Another option is real estate trusts. Real estate is not directly linked to the broader stock market, so it may be a good way to diversify into an asset that can provide you with a steady flow of cash, she said.

Tu does not recommend trying to become a stock picker or bet on ETFs or mutual funds that are overweight in one sector. Every recession is different and we have no idea how this one will play out or which companies might survive the turmoil. Therefore, it is better to diversify, she noted.

Once you’ve set aside a full emergency fund, it’s time to move to investing in broad market index funds, both for the United States and global equities, she said.

“[If] you still have some discretionary funds that you’ve historically been buying liabilities with or buying products that you don’t necessarily need, now is a great time to move that budget into something that will be a gift that keeps on giving and you pay. in the future,” Tu said.

She continued to allocate funds to the Vanguard 500 Index Fund ETF (VOO), which tracks the S&P 500. This gives her exposure to the best major US companies without having to pick and choose stocks. She is taking this time to max out her individual 401(k), which is a traditional plan for a business owner without employees.

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She is also promoting a backdoor Roth IRA, which is a strategy where investors who make more than the income limit for a Roth IRA contribute to a traditional IRA and then roll the contributions into a Roth IRA account.

“Right now, we’re in a time where investors have so much freedom because they don’t have to buy whole shares,” Tu said. “They are able to buy fractional shares. So, no matter how much money you have, you will be able to deploy that in public equity.”

However, if you don’t have too much extra money to invest, the amount you contribute may not make the difference you’re looking for, she noted. For that reason, it’s a great time to consider a business or additional jobs for that extra income. These will provide you with the cash flow that could nudge your investments into a more meaningful sum later down the line, she said.

And, if you have a 401(k), there’s no better time than now to increase your monthly contribution, to at least meet your company’s match, she said.

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