Q&A: Investing Tips From Robinhood's Head of Investment Strategy

Among them: Spend 50% on your necessities and debt repayments while saving 15% for retirement and setting aside 5% for emergencies.

Written by Natalie Rooney / August 12, 2022

Quick Bites

  • Make yourself a budget and track your money and spending.
  • Start saving now, even if it's not as much as you'd like.
  • Diversify your investments; owning more than a few positions can help mitigate large market swings.

As new college and high school graduates head out into the workforce, there is much to celebrate—no more 8 a.m. classes, nebulous multiple-choice exams or homework. But many significant decisions loom as well, including finding a new apartment, whether to buy or lease a new vehicle and perhaps most importantly, how to manage the salary from your new job effectively. Making fiscally prudent choices now will set you up for long-term financial success in the future.

Robinhood is a financial services company specializing in commission-free investing, with brokerage product offerings to help newer investors get started on their financial journeys.

From building credit to creating an investment portfolio, Stephanie Guild, the company's senior director of investment strategy, offers some financial guidance for new grads and demystifies the world of investing.

How much should new grads allocate from their salary towards savings, insurance, investments, retirement and emergency funds?

The 50/15/5 rule: Spend 50% on your necessities and debt repayments while saving 15% for retirement and setting aside 5% for emergencies.

How can new grads build credit after college?

Truthfully, the transition from student to entering the workforce is a substantial undertaking on its own. It's important to establish life routines and gauge the true cost to better understand what you can and cannot afford. After that, a good next step would be to take an inventory of cash flows. Even a high-level mental budget can set you up for success by knowing your total incoming money after taxes, less necessary spending like housing and food.

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Then, the credit build can begin. For example, recent grads could already be building their credit if they had to take out student loans for college. Those would already have an established relationship with a creditor. So, before taking on more debt through credit cards or otherwise, ensure that you have a plan for meeting these payment obligations. Put simply, building credit is synonymous with building trust–it takes time and consistency. In this instance, trust is built by making on-time payments over an extended period of time.

Once that's been thought through, a good first step could be seeking out a secured credit card. These are a solid option for credit seekers with little to no credit history. They operate much like a regular credit card, except they require a minimum cash deposit. Over time, as timely payments are made, a standard credit can come.

Above all, try not to fall into some of the common traps, including carrying a big balance from month to month. Instead, keep your balance low, say below 10% of your available credit, if possible, but no more than 30%. Remember, building credit is a journey, not a sprint. Your score will get better over time with good credit behaviors, so don't start by trying to make it go faster with a lot of credit cards or balances.

How should a new grad approach investing?

Tracking how much is coming in (after taxes) and how much is going out can be a great place for new grads to start before embarking on any new financial endeavor. It's also important to note that while detailed spreadsheets are an impressive way to track savings, they can easily become something that gets tough to maintain. Starting simple makes it much easier to stick to. There are also tons of apps out there just for that. Spend no more than 30% of your income on housing (rent/mortgage). If possible, optimizing housing expenses may help save more money.

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Lastly, on the amount that can be saved, living in major cities may come with higher living expenses, but saving something, anything, even if it's not where you ultimately want to be, will get you a leg up as time goes on. If your employer offers any retirement benefits, like a 401(k), make sure to look into them and see how to start saving for your future. It's never too early to start. While everyone's financial situation is different and should be evaluated by a professional, some ideas to get started with investing are to explore various products designed to get you started on your investing journey that align with your risks and goals.

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Should you pay down debt before investing?

The short answer is that it depends because not all debt is created equal. Student loan debt, for example, tends to have better rates than other forms. So, while it needs to be paid timely and routinely, it's not a bad idea to balance between investing and paying down this type of debt over time.

On the other hand, debt such as credit cards which typically have high-interest rates, should be more highly prioritized. This is because holding a balance on high-interest debt, such as credit cards, negates the return that could be achieved over time by investing. For example, the average annual credit card interest rate is nearly 17%, while the annualized return of the US stock markets over the last ten years is 10%. Thus, holding a balance while investing would have produced a -7% return in this example. In short, prioritize paying down high-interest rate debt, then consider investing.

About the Author

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Natalie Rooney

Natalie’s mission is to spread the word about the amazing ways accounting, data and financial information can be used to change our lives. Her work has been published in state CPA societies’ publications all over the country.

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