Tips From Ex-Wall Street Trader

  • Many people see the downturn as moments of fear rather than opportunities to invest.
  • I bonds or real estate trusts are investments that can diversify your portfolio, said Vivian Tu.
  • You can also increase your monthly contributions to your 401(k), she added.

“It was the best of times, it was the worst of times, it was the time of wisdom, it was the time of folly,” say the famous opening lines of Charles Dickens’ “A Tale of Two Cities.” .

This quote opens the book to a theme in the story where contrasting experiences are highlighted between the rich and the poor, and framed in the context of a class war. On one side there is despair and on the other side there is joy and hope. It takes place against the backdrop of the French Revolution between the two cities of Paris and London.

Vivian Tu, CEO and founder of Your Rich BFF, a financial education company that provides a newsletter and shares tips on various social media, “It’s a popular idiom that basically compares the duality between two people or places or things that experience something similar. Platforms She has amassed 2.1 million followers on TikTok, where she creates short videos about financial literacy.

She uses the analogy to draw parallels to the current economic environment. On one hand, inflation makes everything more expensive while fears of a recession are brewing. If you’re living paycheck-to-paycheck or dependent on a salary, these can feel like scary times.

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On the other hand, many often see an economic downturn as an opportunity to build wealth. Some may invest in private markets or buy distressed businesses, while others invest in assets. For example, if someone has a little money saved during the financial crisis of 2008, is not afraid of real estate and bought property, they have seen that investment continue to appreciate over time, she noted.

Tu began her career in 2015 as an intern at JPMorgan before becoming an equity trader. But she eventually pivoted her Wall Street career to help others understand personal finance and investing.

One message she is now trying to spread is that recessions are just part of a boom and bust cycle that is quite normal. In your adult life, specifically during your working years, you will likely experience anywhere between three to five recessions, she said. Generally, they occur every five years or so.

Many people see the downturns as moments of fear, rather than opportunities to invest in equities when share prices are down. And while no one can really predict where the bottom will be, you can continue to invest on a regular basis on the way down and even on the way back up, she said. Over time, you will have essentially washed down your average investment.

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Some simple pivots

If you are more risk averse, or close to retirement, a great option is to invest in Series I bonds, a type of U.S. it. Savings bond that can cushion you from inflation, she noted.

Another option is real estate trusts. Real estate is not directly correlated to the broader stock market, so it can be a good way to diversify into an asset that can provide you with continued cash flow, she added.

TU does not recommend trying to be a stock picker or betting on ETFs or mutual funds that are too heavily weighted in one sector. Every recession is different and we have no idea how this will play out or which companies can survive the turmoil. Therefore, it is best to be diversified, she noted.

Once you have a full emergency fund set aside, it’s time to move to investing in broad market index funds, both for the U.S. it. And global equities, she said.

“[If] You still have some discretionary money with which you have historically bought liabilities with or bought products that you may not necessarily need, this is a great time to shift that budget into something that will be the gift that keeps on giving and pays you. In the future,” Tu said.

She continued to allocate money to the Vanguard 500 Index Fund ETF ( WOO ), which tracks the S&P 500. This gives her exposure to the top big U.S. companies without having to pick and choose stocks. She’s taking the time to max out her solo 401(k), which is a traditional plan for a business owner without employees.

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She is also contributing to a backdoor Roth IRA, which is a strategy where investors who make more than the income limit for a Roth IRA contribute to a traditional IRA and then roll those contributions into a Roth IRA account.

“Now, we’re in a time where investors have so much freedom because they don’t have to buy full shares,” Tu said. “They are able to buy fractional shares. So regardless of how much money you have, you will be able to deploy it in public equities.”

However, if you don’t have too much extra money to invest, what you contribute may not make the difference you’re looking for, she notes. For this reason, it’s a great time to consider a side hustle or additional jobs for that extra income. This will provide you with the cash flow that can turn your investments into a more meaningful sum later down the line, she said.

And if you have a 401(k), there’s no better time than now to increase your monthly contribution, at least to meet your company’s match, she added.

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