Investing in Your Future: Prepare Yourself for a Lifetime of Financial Success

May 3, 2024
Estimated Reading Time: 7 Minutes

Based on suggestions from a few of our clients, we are offering a new webinar series focused on preparing the next generation to be excellent stewards of their wealth. This series discusses the foundations of wealth management focused specifically on investors aged between 18 and 30. The goal is to help the next generation become well-positioned to manage and understand their wealth.

We kicked off our Young Investors Series on April 25th with our first webinar installment, Investing in Your Future: Prepare Yourself for a Lifetime of Financial Success. Below you'll find the replay of the webinar, along with snippets of the webinar transcript that highlight the main ideas discussed in the presentation.

If you have someone in mind who might find this information helpful, we encourage you to share this article with them. The second installment of the series is slated for July 2024.

Webinar Replay

What is a Wealth Advisor?

The main role and responsibility of a Wealth Advisor is choosing and overseeing investments for our clients' portfolios. We recommend trades and investments, and we place them for our clients in their accounts. We build long-term financial plans to help our clients make informed decisions and achieve their financial goals. We also facilitate contributions and money movements and help with general account managment.

The Current State of Financial Advice: Social Media

This section of the webinar focused on how users on TikTok and other social media outlets are providing poor financial advice for many viewers of their content.

Social media is not for financial advice. We took a look at a few studies that focused on TikTok in particular. The first study found that 9 in 10 "financial influencers" give no clear indication about their financial background. This is extremely important to consider when you're looking for financial advice because these "financial influencers" can be anyone off the street.

The second study found that 2 out of every 3 stock-related videos on TikTok are misleading or fraudulent, which is very concerning, especially when viewers are watching these videos and looking for recommendations on financial advice. Additionally, only 0.8% of TikTokers advising on stocks have relevant qualifications. These misleading videos have accumulated 194 million views and 21.5 million likes. the number of likes on these videos provides social proof that viewers believe they're receiving qualified financial advice, when the reality is the opposite.

When looking for financial advice, make sure you're doing your due diligence and ensure that you can tie each financial video you watch back to some form of qualification. Ask yourself:

  • Do they have professional experience?
  • Where are they getting this information?
  • What's in it for them?
  • Are they selling a product?
  • Is their advice realistic?

Many content creators make money based on the number of views their videos receive or the product they are selling. Doing due diligence on these content creators can help you filter through what you're viewing and determine what is good content and what is bad content.

Additionally, watch out for the Halo Effect, which is when we imagine good things about people who are attractive or successful. For example, let's say you're scrolling through TikTok and you come across a video of a well-known celebrity using a makeup product, and the video has hundreds of thousands of likes. Under the Halo Effect, you may think that this person knows exactly what they're talking about because they're on TikTok and they have a lot of likes or views on their videos, or because they're successful in some other aspect of their life. However, this is often not the case.

Remember: Just because they have a Porsche doesn't mean they know what they're talking about.

This goes back to the Halo Effect. If they have a Porsche or some other flashy or expensive item, it doesn't mean that they're successful in every aspect of their life. The car could belong to their parents, one of their friends, or they could have taken a picture or video of themselves in front of it while they were walking down the street.

The Long Term: What Success Actually Looks Like

The graph above compares an example investment of $100 in a cash account (such as a savings account) versus investing it in the market. As you can see, the green line grows significantly faster than the blue line. This is because with the green line, the money is experiencing the power of compounded returns.

This graph gives a sample demonstration of portfolio growth based on the age at which you start investing. In this example, if you were to invest $00 per month starting at age 55, your portfolio could have a value of $16,932 by the time you retired at age 65. Conversely, if you were to invest $100 per month starting at 25, your portfolio value could be $229,599 by the time you retired at age 65. If you think about exponential growth, you can see that the portfolio starts compounding and growing at a faster rate the earlier you start investing.

The Importance of Defining Your Financial Goals

You can think of your goals as a financial journey, and it's difficult to plan a journey without a destination -- if you don't know where you want to go, how are you going to get there?

When you're thinking about your goals, begin with the end in mind. What does your ideal life look like at various points in time throughout your life (5, 10, 20, or 50 years)?

Another way of identifying your financial goals is determining how you define wealth personally. For some people, that is a specific lifestyle and living comfortably. For others, that's finding financial independence by a certain age, starting and growing a family, or taking care of their aging family members.

Building Wealth in Action: How to Create a Basic Financial Plan & Investment Portfolio

What is a Financial Plan?

A financial plan is an estimate of your future net worth based on different variables used to help you make more informed financial decisions. Financial plans include:

  • Income and expenses (how much you're making vs. how much you're spending)
  • Major life events or purchases (kids, house, cars, retirement date, etc.)
  • Conservative assumptions about investment growth rates, which can help you estimate how your investments could grow over time and help you achieve your goals
  • Consistent rates of saving
  • Eventual withdrawals from your investment accounts and their effects

Financial plans change as your life changes. Your financial goals today could be very different in 5-10 years, so it's important to revisit your plan and adjust it as those changes take place.

What is an Investment Strategy?

An investment strategy is a set of guidelines used to build and grow your investment portfolio. It seeks diversification among various asset classes, such as equities and fixed income, and can include exchange-traded funds (ETFs) and mutual funds, both of which are essentially baskets of stocks or bonds. An investment strategy strategically allocates investments in different account types of tax-efficient returns (which are often overlooked) and requires monitoring and gradual adjustments over time.

Below are two examples of diversified portfolios.

This is an example of a poorly-diversified portfolio. It holds two stocks, which gives it a highly-concentrated stock risk. If anything happens to these stocks, especially Stock #1 in this example, that could be detrimental to this portfolio.

Note: The asset percentages included in the exhibit are for example purposes only.

In contrast, this is an example of a well-diversified portfolio. Because the portfolio is exposed to multiple asset classes, its overall risk is reduced through diversification. The correlations between asset classes within a portfolio can contribute to how the portfolio responds to volatility. A well-diversified portfolio could contain multiple assets that have little to no correlation, so even when one asset class isn't performing well, another one could be performing well, which may help to reduce risk.

Summary & Takeaways

  • Beware of the advice you receive from social media -- not everyone has your best interests in mind!
  • When watching a video on social media, ask yourself how the person in the video is being compensated -- especially if the idea being presented doesn't sound right.
  • When creating your financial plan, start by defining your long- and short-term financial goals.
  • Consider opening a brokerage account, traditional IRA, or Roth IRA to begin saving for retirement.
  • If you do open an account, consider setting up monthly automatic contributions to one or more investment accounts. The sooner you start, the more you could be able to save due to the power of compounding.
  • Create a well-diversified portfolio focused on long-term growth while keeping in mind that your financial plan and goals can change.

If you'd like to learn more about financial resources for young investors, you can contact our presenters Patrick Wade and Jenny Shults.

Important Disclosure Information

Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Chicago Partners Investment Group LLC (“CP”), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from CP. Please remember to contact CP, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. CP is neither a law firm nor a certified public accounting firm and no portion of the commentary content should be construed as legal or accounting advice. A copy of the CP’s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request.