How to explain benefits of investing to S.O.

[nickroberts90]

I am not sure where to put this question, so I decided just to plop it in here.

I have been investing in stocks and other retirement account myself for the past few years now. I feel that I have a pretty good handle on how I want to start my investing life, at least. The dilemma I am facing is how to get my gf more actively involved in her investing and future financial security. My plan is to be financially free as soon as possible and I would like to get her in that mindset, too.

My gf is in her early 20s and currently has a large portion of money ($15,000) in a savings account that earns 2% APY. This is in-line with our inflation rate so she is basically not making any money right now.

By contrast, I am in my late 20s and have some of my money invested in dividend stocks that is earning me an average of 8% (between 6 and 12% depending on the stock). My gf has an ignorant (lack of knowledge) fear of the stock market. I have tried on multiple occasions to explain to her that the stock market is not something that needs to be feared but something that needs to be researched. I am not sure that the stock market is the right thing for her but I also believe that there is a better option then what she is doing right now.

Any advice would help. Thanks, guys.

 

[Keim]

Show her a compounding chart. Then, maybe, describe the Boglehead methodology.

 

[jollystomper]

You can lead a horse to water but you cannot make them drink. If she has an interest in improving her finances then you have a better shot, and should keep in simple using long term compounding charts as was mentioned, in the context of various investment options.

You can also show here how you have done, but dividends along is not the answer. Nothing beyond the savings account is guaranteed, and there will be times she will lose money - without someone accepting that, and not panicking when it happens, it will be difficult for them to understand the benefits.

 

[HI Bill]

If $15K is a large portion of her assets, I would consider the money an emergency fund, and would not want to risk it in the current markets which are near all-time highs. I would encourage her to invest new $ into a target retirement date fund.

 

[Red Badger]

There is a blog by JLCollins called The Stock Series. Very lighthearted, educational, and a fun read. When I first took investing seriously, it helped me understand volatility, AA, bonds, and,,,, why FA's are often risky, and usually not needed.

 

[Aerides]

Your GF is in her early 20's and has $15k saved. That's a smart girl, she's gonna figure it out what works for her. She's way ahead of a lot of people 10 years older. Maybe that number will have to triple before she starts thinking about how to handle it better, but she could be doing much worse.

You mention you've already tried talking to her a few times. You don't "get" someone to think differently. She will either come around or not. Or maybe you're not the right messenger. I'm not sure how thrilled a younger me would be if my BF kept noodling at how I was saving my money. Give her a nice intro book you like and leave it at that. Then drop it for a year or 2.

 

[nickroberts90]

Thank you all for the information. I get that she needs to want it. As with anything, a person is only going to do something if they so desire. I just want to make sure that she is well informed and does not get nervous at market volatility.

 

[steelyman]

You mention you've already tried talking to her a few times. You don't "get" someone to think differently. She will either come around or not. Or maybe you're not the right messenger. I'm not sure how thrilled a younger me would be if my BF kept noodling at how I was saving my money. Give her a nice intro book you like and leave it at that. Then drop it for a year or 2.

Yes. Nobody likes or listens to a nag.

Leave a copy of something like Bernstein’s “If You Can” laying around accessible to her and forget about it, no discussions or pop quizzes.

 

[nickroberts90]

Please do not mistake that I am trying to force her into investing or being pushy at all. I just encourage her to look at things a different way. Maybe my wording was a little strong when I wrote the original post.

I also understand that I may not be the right messenger for her but currently I am the only one in her immediate circle that even brings the stuff up. I just try to show her basic charts about how investing/saving earlier pays off big time down the road. The earlier you invest, the better.

 

[Sunset]

Explain to her, that she needs to grow her money into a very large pile, as you might marry her, and she may need to support you because you could blow all your dough on a hooker weekend

 

[unclemick]

Show her a compounding chart. Then, maybe, describe the Boglehead methodology.

1976 I drew on K&E graph paper three compounding curves 6, 8, and 10% if memory serves. Ala Bogle - I also hand printed 'don't worry about the needles in the haystack. Just buy the haystack at the lowest possible cost and wait.'

Kept it for decades. Once in a while the light bulb came on. More often it did not.

heh heh heh - Good luck.

 

[Aerides]

no problem, we understand! just want to make sure you are self-aware on that point.

And $15k isn't that much to invest - having a good 6 months of non-invested money in an emergency account is great because it means you don't pull out the credit card when stuff happens. And it does.

Your GF may always be a bit more financially conservative, and a bit more gun shy on the markets. It's far far better (imo) to be on the safe side, than to take on too much risk.

 

[target2019]

OP, you are Stocks and she is Bonds. Do you think it can work? Enjoy the journey...

 

[Walt34]

Your GF may always be a bit more financially conservative, and a bit more gun shy on the markets. It's far far better (imo) to be on the safe side, than to take on too much risk.

My former girlfriend (and DW for 30 years now) is that way. There is much more in a basic savings account than I feel is remotely necessary. But the value in it is that she doesn't worry about "what are we gonna do?" if this or that happens. But that's a LOT better than counting on credit cards or loans.

 

[CardsFan]

Your GF is in her early 20's and has $15k saved. That's a smart girl, she's gonna figure it out what works for her. She's way ahead of a lot of people 10 years older.

^^This!!

She has figured out how to LBYM and save. That is the HUGE step. How to invest, that can come a little later.

 

[pb4uski]

I think it is really hard for people who are risk averse to invest in stocks.

I suggest that she begin with the end in mind.... what kind of life does she want in 30-40 years. How much does that life cost? (Use today $$$ to make it easy and then inflate it for 30 years). Assuming a 4% WR, how much does one need to have to fund that lifestyle? How does she get from $15k today to what is needed to fund such a lifestyle? How much does she need to save annually to end up with that nestegg at 2%? At 6%.

If you don't already have it, get copy of Quicken Deluxe or higher (even an older version) and use the Quicken Lifetime Planner to plan your future. Or create a simple spreadsheet model to show it.

Here is a simple example.... let's say that she saves $5k a year for 30 years... that's $150k in total. At 2% at the end of 30 year's she'll have $203k. At 6%, she'll have $395k. At 8%, she'll have $566k. The relationship of those numbers give her an idea of the power of compounding.

The bottom line is that if one constrains themselves to conservative investments that earn 2% then to achieve your financial goals you need to either save more or work longer. If you save more then less money is available for the more fun things in life. If you work longer... I don't have to explain that.

I don't have the data but I'm pretty sure that over every 30 year period available that stocks have returned much more than 2%... in some cases much more than 2%.

She's done a great job creating a $15,000 base at 2%... now she can get more risky and invest in stocks.

 

[HI Bill]

I think it is really hard for people who are risk averse to invest in stocks.

Correct! I could never get my mom to understand that being risk-averse to stocks was putting her at risk when inflatino rears its head!

 

[Sunset]

^^This!!

She has figured out how to LBYM and save. That is the HUGE step. How to invest, that can come a little later.

+1
So true, I thought about this later on at supper, OP has a great girlfriend !!
Just compare to the posts about the significant other with credit card debts, bills piling at the door. OP is lucky.

 

[Walt34]

+1
So true, I thought about this later on at supper, OP has a great girlfriend !!
Just compare to the posts about the significant other with credit card debts, bills piling at the door. OP is lucky.

Indeed. That girl is potential marriage material. There's a lot more to it than that of course, but being stupid with money is a major, if not the major, source of marital strife.

 

[Midpack]

You mention you've already tried talking to her a few times. You don't "get" someone to think differently. She will either come around or not. Or maybe you're not the right messenger. I'm not sure how thrilled a younger me would be if my BF kept noodling at how I was saving my money. Give her a nice intro book you like and leave it at that. Then drop it for a year or 2.

+1. IME you're unlikely to change her behavior, but she sounds smart enough that she'll figure it out before most people do (some never do).

My DW has been oblivious to how our investments have been managed for 40 years. I'd be worried sick if I didn't know what (little) I know about our investments, asset allocation returns vs risks, projected spending, WR probabilities, macro-economics, etc. - she couldn't care less. As far as she's concerned it's MY job and we'd better not run out, ever...

 

[pjm-7]

Explain the rule of 72 how money compounds. 72 divided by 2 (percent) would double in 36 years. However, 72 divided by 7.2 (percent) would double in 10 years.