Young Scrappy Money Podcast Ep. 032: Our Least Favorite Investments with Tara Falcone, CFA

While it’s important to discuss investment best practices, it’s also very important to know what NOT to do. In this episode, Michelle and Tara Falcone, both Chartered Financial Analyst (CFA) charterholders dish on their least favorite investments.

Resources from this episode:

• Young & Scrappy, home to Michelle’s work as a financial advisor and financial coach
• ReisUP, home to Tara’s work as a financial planner and educator. You can also find her on Facebook, Instagram, and YouTube. I particularly recommend her YouTube channel, because y’all, that is GOOD.
• Be sure to check out Tara’s awesome MONEY and WEALTH courses as well–and enter the code SCRAPPY20 to get 20% off either of those offerings!
• If you want to read about the absolute shitshow that was the WeWork debacle, check out this great Business Insider article.
• An NBC news rundown on how the Robinhood stock app encourages investors to take on too much risk, featuring Tara’s sage wisdom: “I liken it to giving the keys of a sports car to a 12-year-old,”
• Jesse G, my editor. If you ever need audio/video editing work, give him all your love and money

Full transcript:

INTRO 

[00:00:00] Hello. And welcome to the Young Scrappy Money podcast. I’m your host, Michelle Waymire. And each week, I’ll be bringing you tips and tricks to help you take control of your finances as well as interviews with people who made big financial changes in their own lives. So join us. And we’ll help you get your financial s**t together. 

MICHELLE: Hello, everybody. And welcome, welcome to another episode of the Young Scrappy Money podcast. Today, we are talking investing mistakes. So if you’ve listened to this podcast, you know that this is not the first time investing has come up. We’ve covered this topic a couple of times with other different experts. 

And typically, we focus on the best practices, the stuff to do, our recommendations for things that will kind of get you to retirement in the long term. Today, we’re gonna turn that upside down. And we’re gonna talk about the things that will not get you to retirement in the long term, the things that are a little bit more speculative, and the things that I get a lot of questions on that I have to gently and lovingly nudge people away from from time to time. 

So with me today is Tara Falcone. Um, she is a certified financial planner (CFP™) professional, a CFA charterholder. And she’s also the founder of ReisUP, which is a financial services company committed to increasing financial education and access. It’s flagship program, LIT, teaches college students how to properly manage their personal finances. 

After graduating from Yale and starting her career as an investment analyst in New York City, she left to dedicate her time and knowledge to a larger audience through ReisUP. Her mission now is to empower young adults to rise up and achieve larger life goals through a solid financial foundation. Welcome, Tara. 

TARA: Hi, Michelle. Thank you so much for having me. 

MICHELLE: It is a delight. So give us some more about your background. I know we’re gonna— we’re gonna get into all the investment nitty-gritty. But I want folks to get the chance to know you a little bit better. How did you get into personal finance? 

TARA: It’s a great question. I kind of gave you the abridged version in my bio. But to kind of go back a couple of decades, uh, I grew up in rural Michigan in a kind of low-income family. My family never really talked about money. And investing definitely seemed like something that was really only reserved for wealthy people. 

Fast forward a bit, I ended up going to Yale as a first-gen, low-income student. I was pre-med while I was there but got to the end of my senior year and realized that I couldn’t even afford to apply to medical school. And I didn’t really know how I could get the money, uh, to do that. 

So I realized that I was sick of being broke. I was embarrassed about my financial situation. And I really wanted to finally learn how money works. So I, as many other Yale students do, got a job in finance to finally get my kind of financial footing beneath me and feel a lot more confident when it came to my personal finances. 

Turns out, I loved what I did, which was basically picking stocks for our very wealthy clientele, but ultimately didn’t really feel aligned with who I was doing the work for. Uh, coming from a very low-income family, having my day job and my purpose professionally be to make the wealth gap even wider wasn’t really sitting well with me anymore. So ultimately, I decided to leave and left to start my company, ReisUP, and, um, ended up kind of focusing on the college side of things to begin with after realizing that there was a pretty big void in the market for relatable personal finance at the college level.

MICHELLE: Yes. Oh my gosh. I cannot even tell you how many people I have talked to where their number one lament is, I never learned this in school. I wish I would’ve had a high school class on this. I wish there would’ve been like a College Adulting 101 class on this. So thank you for filling that gap. Because Lord knows we need it. 

TARA: Yeah, I’m trying. 

MICHELLE: Um, so— so now that we kind of know your background, I feel like that’s important from the standpoint of like com— coming from where you came from, like any— anybody can learn investing. And I feel like there are so many traps that people fall into along the way, along that route. So hopefully, today we can take some time and, uh, steer folks away from some of the bad stuff and toward some of the good stuff. 

TARA: Yes, that’s the goal. 

MICHELLE: So kick us off. What are some of the biggest investing mistakes that you have seen in your work as a certified financial planner? 

TARA: There are so many, uh, and really narrowing it down to just a few. Obviously, we can’t talk about them all here. It was really difficult. But I will kind of highlight the top ones. I think first and foremost, just simply not having a plan or investment strategy and a goal that you’re actually investing for is one of the biggest mistakes that I see people making. 

Um, a lot of times, people think that, you know, investing is like a one or a zero. It’s either going to make you lose all of your money or make you incredibly rich. Uh, people are not viewing it as something that, you know, can kind of Steady Eddie get them to their golden years, so to speak. Um, and so just simply not having a plan or strategy in place that will direct their investments is kind of one of the larger issues that I see. 

[00:05:02] Um, and then thinking that investing only involves picking stocks rather than sort of investing in index funds, or ETFs, or kind of a diversified portfolio of investments to achieve longer-term goals like retirement is another one. So, you know, a lot of people think that, in order to start investing, they need to just start buying stocks. But rather, the kind of average individual’s first foray into investing, if it’s not through like a 529 or college fund that was created for them when they were younger, really should be through their retirement account. Your 401(k) and/or IRA should really be the first place that you’re starting to invest. And then once you have that in order, then think about, you know, investing in individual stocks if you have some discretionary income or other goals that you want to invest for. 

So on top of those things, um, another would be investing before they’re ready or before they’ve earned the right to. Uh, that is something that Doug Boneparth has said. And I know that Erin Lowry on your show has— has mentioned that as well. But I think it’s really true. 

You know, the average individual, especially those people coming out of high school and college, need to think about establishing their kind of financial foundation or financial safety net— having an emergency fund built, or at least, you know, starting to grow one, having their retirement plan and kind of in place, having paid down any high-cost debt, maybe high-cost student loans or credit cards that they have or auto loans— those are starting to become egregious. Um, making sure that they’ve done those types of things before really, you know, diving deep into the investing world as well. So that’s kind of number three.

Number four would be not diversifying. So that would be, you know, just basically picking one thing in your investment account or 401(k) and being only invested in that asset class or fund. So a lot of people kind of find themselves fully invested in stocks when the market’s going down and then freak out. Because they don’t have any other, you know, differently correlated asset like bonds or cash to kind of cushion the fall, so to speak— so having not been diversified. 

Um, and then the last one, which I’m seeing a ton of people doing in the last couple of years especially, is buying on hot tips or following the herd. So that would be investing in things that you would like normally never even have heard of unless somebody told you about it. Uh, those can be things like marijuana stocks or cryptocurrencies or some of these, you know, crazy poorly performing IPOs that have recently come out— things that you would never normally invest in but that you’re, you know, just trying to jump on the bandwagon because somebody else told you about them. 

So those are kind of my top five. Uh, to recap, not having a plan or strategy in place, picking stocks instead of focusing on longer-term goals, investing before you’re ready or before you’ve earned the right to, not diversifying, and then buying on hot tips or following the herd. 

MICHELLE: Awesome. So I think, uh, some of the first things you mentioned, I definitely— I’m so glad that you reiterated those. Because it’s easy to kind of associate investing with like being a real adult. And if you have an investment portfolio, then— then you’ve like done something with your life, which, to be fair, like that’s a— it’s a good thing. Like investing is great. 

But so many people get into it before they’re ready. And then they get into trouble. And that actually, I’ve seen, has turned some folks off of investing when— you know, if you get burned before, then that can have huge implications for the rest of your journey to retirement. That’s a huge issue. So I’m glad you brought those things up. 

TARA: Yeah, absolutely. And I, you know, see people that have gotten burned. Maybe they invested in something their friend told them to invest in. Or, they downloaded this, you know, app that lets them trade for free and didn’t realize that, you know, just because something is free doesn’t mean you should be doing it. Um, and, you know, they get burned. 

And then they’re like, you know what? I’m not doing this anymore. I’m putting all of my money in cash and just saving my way to retirement. Meanwhile, don’t realize that that would literally cost them tens of thousands dollars per year to save to get to retirement, uh, if they’re not leveraging the power of investing to help them. 

So, uh, yeah, it— it’s a really big behavioral finance issue. And so, you know, my goal as an educator specifically is to really give people the information that they need to start off on the right financial foot. That way, they kind of hopefully avoid all of that scary, you know, money loss framing bias kind of issues. And they’re, you know, able to view investing as a tool that can help them achieve their goals. 

MICHELLE: Yeah, absolutely. I wanna focus on so-called hot tips today.

TARA: Mm-hmm.

MICHELLE: Um, because I think— I’ve really seen an uptick in questions about that recently. Like in the last year or so, I feel more than ever people are sending me emails asking, hey, should I buy marijuana stocks? Or, what do you think of bitcoin? Or, you know, whatever IPO is hot right now, do you think this is a good idea? 

[00:09:54] And it’s— it’s almost always the same thing, right? It’s folks who are in a situation where they wanna make money quickly. And it feels like it would be so satisfying to make that kind of money quickly. And then the odds of you getting burned are so much higher as a result of that, uh, risk return tradeoff. 

TARA: Yeah, absolutely. And I think that really comes back to the first mistake that I see which is not having a plan or strategy in place. One of the first things that you need to do when you’ve decided that you’re going to start investing— hopefully for retirement to begin with, but, you know, maybe if it’s in individual stocks or individual funds— is to figure out what type of investor you are or what type of investing makes the most sense to you. And then stick to that. 

Wear your badge proudly— if you’re a value investor or a growth investor, or you’re a fundamental investor or a technical investor. Um, because that will help you kind of narrow down the investment, you know, enormous investment buffet. It will help you narrow that down to the types of investments that you should really be looking at and paying attention to and then the other ones that you should just kind of keep out of sight, out of mind and know that, hey, those aren’t part of my strategy. Those don’t fit my investing thesis. 

And so, you know, when I hear people asking these types of questions, it really boils down to the fact that they haven’t even figured out what type of investor they are or why they’re investing. They just want to get more money. And that will like inevitably lead you down a road to ruin. 

So, um, yeah, I mean, I get those questions all the time too. And the first thing I generally tell people is like, well, hold up. Push pause. Let’s circle back. Uh, why are you investing in the first place? Have you gotten these other things— emergency fund, 401(k)— in place? Um, and then now let’s re-ev— re-evaluate that question you just asked me through that lens instead of just me answering your question for you. 

MICHELLE: Yeah. Absolutely. So maybe let’s go through some of the categories that we get questions on the most. Because I think it would be useful for folks to have a better understanding of exactly what they are, what’s going on there, and why that might not be the best choice for the long run. And in some cases, there might be like a highly specific type of investor that it is the right choice for. 

And so how do you know whether— whether you fit into that small bucket? Um, I wanna go down some of the list with you. So let’s start maybe with like IPOs. So start off by telling us like, what’s an IPO? And how does it work? 

TARA: Great question. So IPO stands for initial public offering. And this is when a company goes from being private to public by allowing public investors, like you and me, to own a slice—  albeit probably a tiny sliver, right?— of their company. So all companies, when they’re formed, actually start out private. Uh, because they’re generally formed with private funds or just through an individual or a group of individuals. 

And in order for you to actually be able to trade their stock on a public stock exchange, they have to do either an IPO or some other type of listing to get their stocks to be available to the public market. What happens in those situations is actually really fascinating. Because there’s a lot that happens behind the scenes that the average small retail investor like you and me don’t see. 

So, um, having worked in the investment space and as a hedge fund analyst, I’ve actually participated in a number of IPOs as an analyst. And I was always really interested in how this goes down. So here’s the like kind of behind-the-scenes 411 for people who are not aware. 

Basically what happens is— uh, let’s just use a company that’s gone public recently, so maybe Uber, let’s say. So Uber finds a investment bank or a group of investment banks to support them in going from private to public in offering shares to the public marketplace. Those investment banks are called underwriters. Because they are helping to figure out what the stock is worth, how much they should price it at, how many shares they should sell. And they’re also providing financial support in that transaction and in that process to the company. 

That group of investment banks, um, the underwriters, then take the company on what’s called a roadshow. So basically they hold all these like fancy lunches in cities like around the country and around the world and bring investors like me and other big investors, institutional investors, to those roadshows, or to those lunches, to hear from the management team, hear what the company’s story is, and why they think those people should be investing in the IPO. Those investors are then given a chance at purchasing shares in the IPO in what’s called the primary market. 

So the primary market is where accredited investors are allowed to get sort of like first dibs on that company’s stock in the IPO. Uh, then a range of prices is basically set based on demand. Those institutional investors say, hey, at this price, we’d like to get an allotment of like this many shares. 

Um, at the end of the day, the morning of the IPO, you’re told how many shares you are going to be given out of what you actually requested. A lot of times, the amount that you’re given is sort of based on like relationships and favors and, uh, revenue and like amount of business that you do with those banks. Um, so it’s not just sort of like an equal share for everybody. It’s really dependent on like who you know and how much business you do with them. 

[00:15:07] Uh, and then the— we’re given those shares as primary investors. And then the market opens. The stock starts trading. And then we as primary investors are allowed to then sell our shares into what’s called the secondary market, which is the market that like the average retail investor, um, who’s maybe investing through like a brokerage account or an IRA, what they have access to. So you’re actually sort of getting like secondhand shares coming from these big institutional investors that are buying shares in the primary market, uh, and then selling them to you on IPO day. 

MICHELLE: Yeah. So what, in your opinion, is sort of the downside of that for the average investor who’s looking to buy these types of stocks? 

TARA: Yeah. So I mean, the first one, which hopefully is kind of obvious, is that a lot of the money to be made is already— or will have already been made by the primary investors. Because they’re getting sort of the best price on IPO day. They get the kind of pre-market price. 

And then anybody who’s buying the shares after the shares actually start trading, a lot of times you’ll see like an IPO spike, or the price spike on IPO day is having to pay a higher price to own those shares than the primary investors did. Uh, so that’s kind of the first one is that it’s really not an equal opportunity for every investor on the street to get kind of a bite at those shares at the same price. Um, you have to be an accredited investor and have done business with those banks in order to get shares at the IPO price. So that’s the first one. 

Um, the other one is that IPOs are highly speculative, especially right now. So when a company comes to market, unless there have been numerous other companies in the same space that we would consider like comparable, or comps, uh, sometimes there’s really no proven track record for that business model or that industry. Things like rideshare apps, like Uber and Lyft right now, you know, there’s never really been a business that exists that has that type of structure. 

And so valuing that company from an investment perspective and understanding, you know, what that company is worth and how much you as an investor should pay to own a share of it or multiple shares of it is really difficult to do. And I think that that— you know, we really saw what that looks like with the WeWork debacle that has just happened in the last couple of weeks. And— 

MICHELLE: Oh my god, yes. 

TARA: Right? It’s been ridiculous. Like— so right now, you know, the market is just super kind of frothy, as we say, meaning valuations are very high. People are just trying to eke out any bit of yield, or return, as they possibly can. And sometimes, when a company goes from being private to public, all of this like dirty laundry starts getting aired. 

So in order to become public, you have to share all of your financials with the investment community, um, whereas before you’ve done this, all of that information has been kind of kept private and like under wraps and behind closed doors. And so with WeWork specifically, um, we’ve come to find out that there’s a lot of corporate governance issues, meaning that, you know, the I guess now former CEO was doing a lot of interesting dealings with the business and kind of had this huge, you know, vision for what the company was. You know, the prospectus is like super kind of self-aggrandizing. 

Um, they talk about like— I don’t know. In the opening line of the prospectus, they’re talking about, we are a community company committed to maximum global impact. Our mission is to elevate the world’s consciousness, when like in reality you rent office space to individuals and companies. And so, you know, it’s very, very risky to invest in IPOs. 

Because, at the end of the day, it’s not a proven track record. It’s not a proven company, that there’s no, you know, trading history for that company or where the market thinks it should trade. Uh, and ultimately, you could get really burned, especially if you haven’t done your research and actually read, um, you know, the filings and the investment information for yourself.

MICHELLE: Yeah, absolutely. Um, and in the show notes, just as a reminder to all listeners, I do add a list of resources. There’ll be a full transcript, all of the goodies that we talk about on this episode. 

You can always find those online at youngandscrappy.com/blog. So I’ll make sure to go in there and actually try and dig up a good article for y’all on the WeWork debacle. Because, y’all, it is a hot mess. Like there’s— 

TARA: There’s a really good one from Business Insider that I was reading today. Um, we’ll— let’s put that one in there. I’ll send you the link.

MICHELLE: OK. Awesome. Because if you have even thought about IPOs as a potential area of investment interest, I think this is a really great case study of everything that could possibly go wrong.

TARA: Yes.

MICHELLE: Because I would say like everything that could possibly have gone wrong with that IPO most certainly did. 

TARA: Well, but what’s actually good for the individual investor is that they have— they’ve postponed their IPO.

MICHELLE: Yes.

TARA: So they’ve actually not come to market yet. And they’ve decided to wait, whereas companies like Lyft and Uber and Chewy and Peloton and all these other kind of hot, you know, companies, some of which are considered unicorns, have come public. And, you know, the money was made in the primary market. And now a lot of kind of small, secondary investors are, you know, left holding the bag, which unfortunately has lots of holes in it. 

[00:20:10] MICHELLE: Yeah, for sure.

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MICHELLE: So, OK, there’s IPOs.

TARA: Yeah.

MICHELLE: That’s a good one. Let’s talk about cryptocurrency.

TARA: Oh, lord.

MICHELLE: Because, oh, boy. (LAUGHING) There’s a lot to unpack in cryptocurrency. So without necessarily getting into all of the nitty-gritty technical details behind like blockchain and whatever, can you give us maybe just a brief overview of what that is and why that’s so sexy right now? 

TARA: Yeah. And so I— obviously, we need to make this disclaimer that any security or type of investment that we’re talking about on this show is not like a recommendation for or against that. Um, and cryptocurrency is definitely one of those things. Um, cryptocurrency is this interesting alternative asset. 

So if you don’t know what asset classes are, there are four main ones. There’s stocks, bonds, cash, and then alternatives. Alternatives are like the misfit of the market, meaning that they don’t really play well with the other asset classes. There’s really no proven track record in some cases for them. Um, and historically speaking, they don’t necessarily move in one way or the other, depending on the market environment. 

And so cryptocurrencies fall into that category for a couple of specific reasons, mainly that they’re so new that there isn’t a proven track record to understand how they’re going to move up and down with regard to what’s happening, you know, socially and politically and globally. So, um, basically, what cryptocurrencies are trying to do, just kind of the main purpose of them, is to allow people to exchange forms of payment in a way that are tracked, credible, and basically put on some type of ledger or blockchain so that we’re able to say, yes, this transaction happened at this exact amount from like this person or ID to that person or ID. Uh, the reason that it’s so sexy, at least, you know, from an investment perspective, is that it can, if done well— and if some of these start to prove themselves to be kind of market leaders, um, they are going to help us reduce a lot of like back office costs and payment transaction costs that are currently charged. 

Because there’s just so many hands in the pot that have to like verify that, yes, this money’s coming this from this account number. And it’s being passed through this intermediary and then being passed to this other person with this account number. Um, so presumably, if some cryptocurrencies were to, you know, actually make it out into kind of proliferated market use, a lot of those like intermediaries and double checks and rechecks won’t necessarily be required. 

Because all of that will exist on some type of like publicly visible ledger, let’s say. I think that’s sort of how I like to describe it. Um, would you agree with that, Michelle?

MICHELLE: Yeah. I would say so. I think, uh, kind of looking at it as coming out of this fear that larger financial institutions had an issue with like the privacy and secrecy of data as well as the potential for like bureaucratic problems and expenses to exist. And so trying to take this media— medium of exchange and really put it into more safe but open hands, we’ll say. 

TARA: Yeah, exactly. And having it also not be necessarily dependent on, um, you know, maybe the movement of one country’s currency versus the movement of your currency. Having more of a kind of globally versatile currency is kind of also something that I think these cryptos are trying to achieve. But, uh, you know, the risks in investing in these types of things are largely because they’re so unproven and new that— again, there’s no track record for them. 

There’s really no real way of valuing them. So, you know, back in the day, the US dollar used to be based on a gold standard. And so there was a certain amount of gold that was sort of having to be kept in reserves for every, you know, dollar that existed. 

That is not the case with these cryptocurrencies. The value of these currencies, uh, you know, depending on which one you’re talking about, really depends on sort of the value of the network that it’s kind of built around or the ecosystem that supports it or the value of, you know, the different transactions that are being mined to create them and blockchain them. Um, it’s really strange. 

And frankly, it’s not my, you know, personal area of expertise, especially when it comes to valuing them. Um, but I think, you know, in such a stage of infancy, that it’s really difficult to see which one’s going to be the market leader. And, you know, picking— it’s like picking a needle in a haystack. 

[00:24:58] There are so many different types that exist now that are coming out to be like, you know, coins for specific companies or coins for this or that. And, you know, really figuring out where you should be putting your money in any of them, if at all, is like mind-boggling. And so, you know, at this stage, for most people, especially most people whose primary investment objective is to save for retirement, um, really shouldn’t be paying cryptocurrencies any mind. 

MICHELLE: Yeah. One of the, um, parallels that I like to draw is like, let’s say it was the, you know, late ‘90s, early 2000s. And social media really started to rise. And you as, um— either as a consumer of social media or as an investor were trying to make an educated guess on what that landscape would look like. So you’d be like, check it. Myspace, Xanga, like that’s the stuff right there. 

TARA: Mm-hmm.

MICHELLE: And at the time of Myspace and Xanga, everybody believed that those were gonna be the platforms. Like that was gonna be the stuff that evolved. And then obviously over time, the internet evolved. And websites evolved. And now, the players who are really big in the social media space are completely different than the ones that we saw even just like 10 years ago. 

And so I almost think of cryptocurrency as kind of being in the same boat, to say like, we know that it might end up being something neat and that it might end up playing a big role in how our society interacts with money. But at the same time, it’s— it’s almost too early to call it. Because you might think you’re buying, um, whatever social media’s next. But joke’s on you. You accidentally bought Xanga. So if you’re listening to this— 

TARA: Yeah, exactly. 

MICHELLE: You might not even be old enough to like remember what Xanga is. But like back in my day, um, that was— that was the business. So, um, you know, be careful with cryptocurrency, y’all. Just be careful. 

TARA: Yeah, absolutely. And as I— I think I mentioned to you right before we started recording, you know, it’s interesting. Because these types of cryptocurrencies and other, you know, hot stocks or hot industries that are— that are around right now, are getting a lot of attention, are bringing people into the investing world who wouldn’t normally be in the investing world. Uh, so, you know, somebody who just a few months prior had been talking to me about how they felt like they couldn’t avord— or afford to invest in their 401(k) all of a sudden hitting me up on, you know, Facebook Messenger, saying, hey, you know, should I be throwing my life savings into bitcoin? Is, uh— is really interesting. 

Because it’s bringing these people out of the woodwork who normally are very risk-averse, are not willing to even, you know, put their money in like an ETF or index fund of stocks, let alone something like cryptocurrency. But because of all the attention and all the hype and the potential, albeit, you know, very tiny probably— the potential for outsized rewards or for this to like make them rich is bringing them out of the woodwork and making them think like they’re gonna miss out, that they need to jump on the bandwagon before it’s too late. Um, and really for the average investor, if you’re ever having that feeling in your gut that’s like, god, this isn’t me, but I really think I should do this, you probably shouldn’t be. Um, so that’s a gut check that you need to kind of do with yourself, um, is if this is like out of your character, then it’s probably out of your investing character too. 

MICHELLE: Yeah, totally. So I like that you mentioned, um— I don’t remember the exact phrase that you used, but like interesting industries or like hot industries. 

TARA: (LAUGHING) That’s our lead-in to our next one, yeah. 

MICHELLE: It is. It totally is. That is, of course, the good ol’ marijuana, which is another category that I get asked about a lot. Um, talk— talk to me about that one. What are you— what are you seeing in that space? 

TARA: Yeah. So the marijuana industry’s really interesting, um, granted I’m not a marijuana industry expert by any means. I’m just sort of brushed up enough to know kind of how it’s affecting individual investors and just the landscape in general. So marijuana stocks are getting a lot of like interest right now because obviously more and more states are starting to make it— make it legal for people to either get it medicinally or for dispensaries to open for people to actually consume marijuana or marijuana-related products, you know, without it being illegal, which, you know, in the history of the United States has never really been a thing. 

And so in any— anytime that these types of industries that were, you know, previously just sort of like black market start to become legal, there can be a lot of opportunity for certain companies to participate in that and for them to generate value for shareholders. But, um, just like cryptocurrencies or any new, novel industry, there are then also opportunities for companies to fail miserably and for investors to lose a ton of money. Um, so I think a lot of people are just sort of general macro thesis saying, you know, kind of high-level, big picture thesis saying, oh, marijuana’s gonna become even more legal all across the board. 

[00:30:00] Therefore, anything that touches marijuana’s probably a good investment. That’s probably not true. Um, but because that’s just sort of the buzz— right? Um, kind of pun intended there, is that— 

MICHELLE: Pun completely intended.

TARA: Pun completely intended. Um, because that’s like, you know, the buzz, and everybody’s super like high on these stocks right now, that’s where everybody’s— 

MICHELLE: Oh my god.

TARA: I know. I’m terrible. I’m super corny. Um— 

MICHELLE: Let it out. Let it out.

TARA: I’m just gonna let it all out. But, uh, because that’s where— what everybody’s talking about, and when they may be a consumer of it themselves, thinking like, oh, I use this. I should invest in companies that deal with it. 

Um, that’s really one of the bigger kind of investing mistakes you can make from like an individual stock perspective. There’s this like “buy what you know” mantra that’s like put around for individual novice investors. And frankly, I think it’s like a crock of BS, um, because that’s not how I value companies. 

But the reason it can be really dangerous, especially with regard to certain investing apps that like new, inexperienced investors might be using, is that a lot of them are pushing those types of stocks on like these, you know, most popular lists. Or, you know, they might be big movers from a percentage perspective on their price in a day. And so they get a lot of like media attention. 

Or, they’ll be at the top of a watch list, you know, just sort of by default. Um, and for the average novice investor that doesn’t really know what else to look for, maybe they’re saying, OK, I wanna start investing. What should I invest in? And so they open up their investing app. And, oh, the number one most popular stock on a certain trading app happens to be a certain marijuana company. 

They usually think— like line of thinking is, what should I invest in? I don’t know. Let me see what other people are investing in. Oh, they’re investing in this marijuana stock. And it’s cheap on a dollar per share perspective. Cool, I can afford to invest in that. Let me buy some. 

That’s like general person’s like, you know, train of thought. Uh, and without having done the research for yourself and understanding really what that individual company’s prospects are, you’re really going in blind into that type of investment and could very well lose all of your money. 

MICHELLE: Yeah. Absolutely. And I think it’s— it’s also kind of complicated by the fact that— I mean, if you compare it to something like cryptocurrency or IPOs, even like bad IPOs or complicated cryptocurrencies, there’s starting to be more layers of due diligence there. And there’s starting to be, um, like more obvious information. But like I think marijuana is tricky because we’re seeing it legalized on a state level, both recreationally and medicinally, as you pointed out. 

But it’s still nationally illegal. And it— I think that type of legislative tension also kind of makes it a risky industry. Because, at the end of the day, we legitimately don’t know what’s gonna happen. I mean, there seems to be a trend in one direction. 

But there’s plenty of cases out there where an industry has looked like it was going somewhere. And then all of a sudden, either people or the government decided, actually, this is not a good idea. So I think it’s, uh— it’s complicated. And it’s tempting, especially if you are a consumer of said products, to again want to buy what you know. But, gosh, I feel like my overwhelming refrain here is be careful. 

TARA: Yeah, absolutely. Be careful. Know what you’re getting yourself into. And again, make sure that you have a plan. Um, like I said, you really shouldn’t even be considering these types of investments unless you kind of, you know, have the basic financial foundation in place, including starting to plan for retirement. 

But, uh, yeah, I mean, you know, we’re seeing so many issues right now with like the vaping epidemic and people starting to— you know, starting to have casualties from people using vaping, specifically using like THC things that are laced with things that they’re not aware of. And, uh, I just think that industry is very new, not regulated well enough yet. And as you said, there is a lot of legislative risk. 

Um, you know, the tension between the state and federal legislators is very real. And it could very well turn on its head. And then all of a sudden, that entire industry becomes defunct and like goes bankrupt. And anyone who invested in marijuana could lose their money, so, um, yeah, just too new. Try to stick to like the tried-and-true asset classes and the industries that have been around for a long time.

MICHELLE: Yeah. Is there anything else that you— we wanna take a second and unpack for folks? Any other like hot tips or general types of investments that you typically recommend folks be a little bit more careful with? 

TARA: Yeah. I think not necessarily types of investments, but rather the platforms you’re using to invest. So there are loads of different investing apps and like brokerage accounts that exist these days, many of which do things very similarly and others that do things very differently. So, um, certain ones would be, you know, either your kind of run-of-the-mill, standard, traditional, like discount brokerage app, meaning companies like E*TRADE or Charles Schwab or TD Ameritrade or Ally that allow you to invest in a plethora of different types of investments, individual stocks versus, you know, different types of funds. 

[00:35:07] Um, you know, there’s those types of things. And they charge certain amounts for their services. There are robo-advisors that kind of do things for you, make those decisions for you, but charge you a bit more. Um, and then there are other ones that kind of fall into their own little category. 

And, you know, if you google my name and like investing, uh, Robinhood is probably something that will pop up. I think that Robinhood is a really interesting one, especially when it comes to individual, new, novice investors. Because, as I said or alluded to earlier with like the marijuana stock, the way that that app is designed, from a behavioral finance perspective, I think puts people in a position to make decisions that they wouldn’t normally rationally make for themselves. 

Um, and it’s— I have nothing against their business model. I— you know, I have nothing against Robinhood. I think it’s, you know, great that it offers free or commission-free trading for investors. However, for the uninformed person who thinks that that is just sort of the investing app they should be using, um, need to be aware of what it is that that app is like leading you to do. 

So as I mentioned earlier, you know, there’s this 100 most popular stocks kind of list that pops up when you hit browse. That’s the first thing that you see. So if you don’t know what else to look at, you know, you’re probably inclined to click on that and maybe invest in the things that fall in like the top 10 on that list. 

Because you assume other people know more than you do. Don’t make that assumption. Right? I think people, average individuals, really discount their own investing ability by sort of by default thinking that other people know more than they do. Um, it also only shows you different individual stocks and cryptocurrencies. And it doesn’t talk about index funds or ETFs or more kind of diversified, less risky let’s say, investment options. 

And so really, you know, understanding what it is at your fingertips, what you have available to you, and what tool is really best to help you reach your goals, um, that’s a really important decision that you need to make when it comes to investing. So if you’re investing for retirement specifically, something like Robinhood is probably not the best option for you. Uh, something like a robo-advisor like Betterment is likely much better suited for you, whereas if you do wanna be day trading and investing in individual stocks or cryptocurrencies or marijuana stocks even after all of the disclaimers that we’ve just given you, uh, then Robinhood may be a good— a good choice. But, um, yeah, just— just be careful. Be aware of the tool that you’re using to actually get into the investing world.

MICHELLE: I love that you mentioned Robinhood’s homepage. Because you’re exactly right. You go to Robinhood’s website, and all of the stuff on the first page is basically like the play-by-play of all of the things that we just talked about on this episode.

TARA: Yeah. 

MICHELLE: And they look sexy. Like there’s fun pictures. And it— and it has these, um, like little green arrows that shows how much things have gone up. And I think the way that that information is presented is by no means balanced. And I think a lot of people seek out Robinhood specifically because they hear that it is inexpensive and easy to use. 

But the issue is that, you know, if something is easy to use, that can actually be a little bit problematic in that it might encourage you to do less research. Exactly like you said, you assume that if somebody’s buying something, that they’re intelligent about it or that they’re doing the research, and you can kind of piggyback on what other people are picking. And that’s just not the case. 

You know? If you are on that website because you don’t wanna do research, it’s probably safe to assume that there are a lot of other people who use that website for the exact same reasons. And they’re not really doing that research either. 

TARA: Yeah, absolutely. I mean, just looking at their— their homepage, like there’s a cat with a rocket on it. You know? Like who wouldn’t want to invest in— with a investment app that has that type of thing? 

They use a lot of green and red in their, um— in their branding. And, you know, from a behavioral finance and psychological perspective, those types of colors are meant to kind of, you know, give you this sense of like comfort and strength and like all these— it’s just— it’s so interesting. I would love to have a conversation with their branding department. Um, I— they probably don’t wanna talk to me after, um, all the things that I tell people, or why I tell people not to use it. 

But, yeah, you’re exactly right. Assuming that other people know what they’re doing is definitely an incorrect assumption. Because generally speaking, the rest of the people that are using that are probably just as clueless as you. And, you know, at that point, it’s like the blind leading the blind. 

Um, and the other thing that I would just say is that, you know, free always sounds great. But if you’re not paying for a service, or you’re not paying for a product, you are generally the product. So, you know, if you’re not paying for trades, you need to ask yourself, well, why? How do they then make money? 

Oh, they make money off of my account balance? They make money off of, you know, herding my shares and trades with other people’s and delaying that? Like there’s lots of different ways that Robinhood makes money. 

[00:40:05] Um, and it’s not necessarily always in your best interest. So just understand that, you know, if you’re not paying for something, there’s definitely a catch there. And you need to be able to make that decision for yourself about whether or not you’re OK with that.

MICHELLE: Yes. Exactly. All investing comes with a price. You either see that price, or you don’t see that price. 

TARA: Yep.

MICHELLE: And in some cases, it’s both. 

TARA: Yeah. In some cases, it’s both. 

MICHELLE: So we talked about a lot of different, um, sort of like hot industries, stocks, platforms. Just like give us a really brief overview of what you recommend folks consider instead. I know that we’re not really in the business of making like formal investment recommendations here, obviously. I’ll repeat that disclaimer every day till I die. Um, but maybe talk about some philosophies that you think would serve the long-term investor a little bit better than chasing these— these, uh, fleeting and fake returns. 

TARA: Yeah. So I like to summarize it all in a very simple phrase, which is, “Run your own race.” And I think that applies to everyone’s personal financial picture in general, but specifically to their lives when it comes to investing. And what that means, or what I’m trying to say here, is that, at the end of the day, your long-term, big picture financial goals are unique to you. 

You know, how much money that I need to have saved for retirement to live the lifestyle that I would want to live in retirement will look different than yours, uh, or will look different than, you know, anyone who’s listening to this episode. And so understanding, you know, what it is that you’re trying to achieve through investing and saving your money, really starting there and then kind of reverse-engineering back. So if you know that you need, you know, $2 million, let’s say, to retire at like 65, and you’re 30 now, then the way that you’re going to save and invest, the amount of money you’re actually going to contribute, and how you’re going to invest those dollars is going to look different as well to get you from point A to point B. 

Um, and so really understanding what that looks like, the kind of average return that you personally need to achieve on your investments based on how much money you can afford to invest and your risk tolerance, and then allocating your dollars appropriately. So generally speaking, that should be some mix of stocks and bonds and maybe cash, depending on your risk tolerance, and really understanding how all of those asset classes work together to give you a combined portfolio return. I think one of the most, um, kind of— one of the investment terms that gets the least amount of credit, or that nobody ever really brings up when talking about, you know, investing terms everybody needs to know, is weighted average portfolio return. 

And it sounds super complicated. But it’s— it’s not. So understanding that, hey, if I have 50% of my money in stocks, and at return, you know, stocks on average return 10%, then I can sort of assume that I’m going to get 5% return from the stocks portion of my portfolio. 

And if the other 50% is in bonds, which historically have returned, let’s say, 4% for ease of math, then I can assume that I’m going to get roughly 2%, right? 50% times 4%, uh, from the bond portion of my portfolio. And when you add the stocks and bonds together, 5% and 2%, you get 7%. 

So if you need a 7% return to achieve your retirement goals, then understanding that one way you may be able to achieve that is with a 50/50 stocks and bonds mix. Um, that I think is one of the biggest, you know, kind of most obvious things that the average investor doesn’t understand. Um, that again is going to be unique to you based on the goals that you have. 

So understanding how to run your own investing race, um, pick a strategy. Create a plan. And really stick to that. Um, let all these other things— marijuana stocks, cryptocurrencies, IPOs— kind of pass you by. Because they don’t align with your strategy. Um, and be OK with that I think is my best advice.

MICHELLE: I love it. So you help people run their own race. And you teach people how to do this. Um, tell us a little bit more about how you work with folks and about your courses.

TARA: Yeah, I do. Thank you. So, you know, in addition to LIT, which is our collegiate platform, so only available to college students at certain colleges and universities around the country, we do have courses that you can purchase online that walk you through all of these things. So there are two courses available. The first one is called MONEY. And that one is kind of the Money 101 course that we all should’ve had in high school or college. 

Uh, it covers everything from money mindset through budgeting, credit and loans, taxes, insurance, and investing and retirement. Um, and then we also have WEALTH, which is just the investing and retirement portion of MONEY. So a lot of people were like, oh, Tara, like I’m good with budgeting. I don’t need help with my credit cards. But, yeah, you know, yikes, my 401(k) really makes me scratch my head. 

[00:44:58] Uh, so we just kind of pieced off the investing and retirement portion into the WEALTH course. And both of those are available online. They are roughly— let’s see. The MONEY course is roughly eight hours of video content, um, with me, yours truly, in the videos. And the WEALTH course is just the last two and a half hours of that content. 

And in addition to all the video lessons, you get lots of spreadsheets and worksheets and access to me and other financial professionals so that you can get your specific questions answered. So, um, you know, thinking about it as basically having kind of an online personal finance guru at your fingertips that you can ask questions of is the way that we like to frame it. And those are both available at courses.reisupllc.com, which I’m sure will be in the show notes. Uh, and as a thank you, Michelle, to your audience, we’re offering a 20% discount code, using all capital letters the code SCRAPPY20, off of either of those courses. 

MICHELLE: Awesome. Sweet. So I’ll definitely make sure to link out to those. But listeners, if you are curious to get into some of the good parts of investing and try and shy away from some of the more dangerous territory, Tara’s got your back. Be sure to find her online and check out all her work. 

So thank you again so much for coming on the show. You are a veritable fountain of information. You have excellent marijuana puns. Could not have asked for a better— a better experience interviewing you. Thank you so much.

TARA: All right. Thank you, Michelle.

MICHELLE: And listeners, don’t forget, if you’re enjoying the Young Scrappy Money podcast, please give us some love online. I love when, um, you share us, subscribe on whatever platform, leave us the good stars on iTunes, comments, whatever. And also feel free to reach out at any time if you want to share your money successes. I would love to hear from you. I can be reached at [email protected]. So thanks again, folks, for listening. Hope you have an abundantly wealthy day. 

END CREDITS: I hope you enjoyed this episode of the Young Scrappy Money podcast. If you want to read about my work as a financial advisor and financial coach, you can do so at www.youngandscrappy.com. That’s www.youngandscrappy.com. Thanks again for listening. 

Made with love by Jesse in Atlanta. [SMOOCHING SOUND]