Money Support Q&A

In this Q&A session, Kevin Matthews answers questions from Twitter about personal finance topics such as recession, credit scores, retirement savings, becoming a millionaire, and tax systems.

Recession and Credit Scores

• A recession is defined as two consecutive quarters of negative GDP. The National Bureau of Economic Research takes into account several factors before officially declaring a recession.

• Credit scores are calculated based on payment history (35%), credit utilization (30%), credit length (15%), new credit (10%), and credit mix (10%).

Retirement Savings and Becoming a Millionaire

• Start saving for retirement as soon as possible to take advantage of compounding interest.

• Business ownership, the stock market, and real estate are common ways to become a millionaire. Patience is key since wealth depends on time.

Tax Systems

• Tax breaks disproportionately benefit the wealthy. Examples include mortgage interest write-offs and capital gains tax rates.

• Wealthy individuals can manipulate the tax code by loaning themselves money based on the value of their stocks.

College Return on Investment

• There is no discussion with timestamps in this transcript regarding college return on investment.

Lowering the Cost of College

This section discusses ways to lower the cost of college and how to make more money with a degree.

Lowering the Cost of College

• Going to an in-state state school or community college can significantly lower the cost of a degree.

• Engineering majors tend to have a higher return on investment because their degrees pay more.

• College is generally too expensive and should be made more affordable across the board.

What is a Treasury Bond?

This section explains what a treasury bond is and why it's considered one of the safest investments in the world.

Explaining Treasury Bonds

• A treasury bond is like a loan you make to the US government, which promises to pay you back on a certain date (the maturity date) with interest on your principle.

• Treasury bonds are considered among the safest investments in the world because as long as taxes are being collected, investors will get some portion of their investment back.

• However, returns on treasury bonds are typically low compared to other investments, making them less attractive for younger investors who want higher returns.

How Much Debt is Too Much Debt?

This section discusses how much debt is too much debt and introduces the concept of debt-to-income ratio.

Debt-to-Income Ratio

• The debt-to-income ratio measures how much debt you have relative to your income. If it exceeds 43%, that's considered a red flag.

• For example, if you earn $10,000 per month and $4,500 of that goes to debt payments, your debt-to-income ratio is 45%, which is too high.

• Lenders pay close attention to this ratio when you apply for a loan because they want to make sure you can pay it back.

The 50/30/20 Rule

This section introduces the 50/30/20 rule for budgeting.

The 50/30/20 Rule

• The 50/30/20 rule suggests allocating 50% of your income to expenses, 30% to fun money, and 20% to savings and investing.

• Even if your fun money allocation is lower than 30%, it's important to have some room in your budget for enjoyment so that you stick to it.

Investment Benchmarks and Philosophy

This section discusses investment benchmarks and philosophy.

Investment Benchmarks

• The S&P 500 (the largest 500 companies) is a standard benchmark used by many investors.

Investment Philosophy

• The speaker personally follows a Buy and Hold strategy, primarily holding index funds and Blue Chip stocks (well-known companies).

Getting Started with Buying Stocks

This section provides tips on getting started with buying/trading stocks.

Defining Your Goal

• Define your goal before buying or trading stocks as it will determine what account type you use, what stock you buy, and when you sell.

Understanding Buying the Dip and Surviving It

This section discusses the concept of buying the dip, its origin in the stock market, and how it applies to cryptocurrency. It also emphasizes understanding risks and setting limits for oneself.

Key Points

• Buying the dip is a time-tested strategy that originated in the stock market.

• Not every dip is worth buying, and not all stocks or cryptocurrencies have the same track record for recovery.

• One must understand what they are investing in, understand risks, and set limits for themselves.

• A stop loss can be used to limit losses if an asset falls to a certain price.

Inflation: Causes and Effects

This section explains inflation as a phenomenon caused by too much money chasing too few goods. It also discusses how inflation affects prices over time.

Key Points

• Inflation happens when there is too much money chasing too few goods.

• Food prices are up 10% from last year due to inflation.

• The solution to inflation is either increasing supply or reducing demand by increasing interest rates.

• Increasing food prices are an example of slow but steady inflation over time.

Investing Strategies: Long-Term Diversified Portfolio

This section discusses long-term investment strategies such as having a diversified portfolio comprising stocks, bonds, real estate, and business ownership. It also emphasizes asset allocation based on age.

Key Points

• A long-term diversified portfolio typically comprises stocks and bonds but may include other assets like real estate or business ownership.

• Asset allocation changes as one gets older, with more bonds and fewer stocks as retirement approaches.

• Crypto can be a risky investment, and it is recommended to have 5% or less of one's portfolio invested in it.

Index Funds vs. Mutual Funds

This section compares index funds and mutual funds, highlighting the advantages of index ETFs over index mutual funds.

Key Points

• Index ETFs and index mutual funds track the same indices but differ in mechanics and fees.

• Index ETFs are generally less expensive than index mutual funds and have no minimum investment requirements.