Where is the Best Place to Invest?

Over the last few months, I’ve been getting the same question – Charisse, should I invest in the stock market, a new business idea, a new investment property, or pay down my debt? This question has been coming at me from all ages, income levels, and professional careers. So…. I have one answer for you that you’re probably not going to like – it depends. But, these 3 factors will help you figure out what’s best for you now:

 

1. Time Frame. What you want to achieve in the next 12 months is different than what you want to achieve in the next 3-5 years. In the asset management world, we use the fancy word of “time horizon,” but it’s the same thing. We’re pretty much wired in American society to have things on demand, but be careful not to get caught up in wanting things now without truly understanding how long it’s going to reap the benefits of your investment. You must figure out what’s important to you now and how can you prepare, at least a little bit, for your future life, and that of your family’s.

I am wired as a long-term investor, but I often know that there are short-term (less than 12 month) goals – going on vacation and getting a little extra money to replace a broken dishwasher – that I want to hit right now. This plays out in how I allocate money in a few ways. First, I make sure that all of my debt payments (mortgage, student loan, and credit card) do not take up more than 20% of my gross income because I do not want to be hamstrung by debt. You may say, “I can’t swing that. “ If you can’t, it means that you need to get you a little more income or find a way to reduce your loan payments. Additionally, I invest predominantly in mutual funds and exchange traded funds (ETFS) over a 3-5 year period and individual stocks when I’m trying to make some short-term gains.

Other friends will tell me that they have no patience for the long-term (or even medium term) because they can be gone tomorrow. One’s culture upbringing also plays a key role in shaping our propensity to make choices for the present versus the future. If you fall in this category, good for you – just be mindful that your future self will be so pleased that you spent some time planning for her (or him).

 

2. Time to Devote. Your time is your most precious asset, and so spending the time that it takes to commit to whatever it is you’re investing in will be key. Let’s be real – it takes time to do research and consistently keep up with any investment, so do not underestimate this factor as you balance other life priorities like family, perhaps a 9-5 or independent contracting job, or just doing NOTHING – which I’ve learned is its own piece of heaven (thanks hubby!).

Of all of the investment options, starting a business will take the most time and effort. And, I’ll lump investing in real estate into this category because your business here is property management and building ownership. Whether it’s the late night hours of thinking of how you can improve that first website or minimum viable product, or securing that first customer, it takes time! The beauty of financial instruments or serving as an investor (and not the entrepreneur) in business ventures is that you do not have to put up much sweat equity.

 

3. Other Pulls on Your Cash. In my mind, cash is king. First off, I’m a big fan of ensuring that you have enough money to eat and live indoors. If you cannot sustain the basics, putting additional money toward investing will be extremely difficult. Unless you either have multiple streams of income or an inheritance, most of us also have a fixed amount of cash on hand. My mantra has always been that you should always put your cash toward the asset (stocks, real estate, start-up) or liability (e.g. mortgage, student loan, credit card debt) with the highest rate.

Over time, however, I have morphed into believing that sometimes you have to put a little money into something that doesn’t have the highest return just to keep you in the game if you can spare it. For instance, putting a few hundred dollars into a brokerage account, even once a quarter, can get you in the habit of participating in the stock market and getting comfortable with pushing the “buy” button. Yes, there are phantom stock trading platforms (e.g. Yahoo, Etrade, Fidelity) that offer you the opportunity to trade without real money, but there is nothing like   If you’ve been a saver, however, you will have more cash and choices to allocate a couple of different ways.

 

Now that you have a framework for evaluating how you should invest your next dollar, share your plan. Let me know which of the three factors is most important to helping you figure out how you will invest.

Five Strategies for MBAers to Reduce Debt and Drama

Do you know someone in a Masters of Business Administration (MBA) program? Or, maybe you are headed into a MBA program for the first time this fall. And if you're in the privileged position of returning for one more year of intellectual stimulation, or might I dare say parties and pre-school trips around the world, then good for you. Either way, I’m sure that you cannot spend five minutes in conversation without someone linking the word student to debt. I graduated from Chicago Booth’s MBA program in 2010 and some of us are still debating the value of our MBA given the high debt load we assumed. The average student debt can often exceed $100,000from a top 10 MBA program. I sympathize even more with the current MBA student because many elite schools have increased tuition 37% in the last 6 years. Many students are forced to take passionless career pursuits to earn enough money to cover their +$1,000 monthly student loan payment, delay their entrepreneurial dreams, or make different life choices around marriage and kids all in the name of their degree.

Absurd, right? Not for the MBAer because this is their reality, particularly in years immediately after graduation. Most MBA grads will eventually come to truly value their education, but this occurs in hindsight after their student loan balance decreases.

Over the last few years, we've seen the federal government develop many innovative solutions to reduce debt after you get your degree. And even the private industry has stepped in to help graduates refinance their loan, which can put thousands of dollars back in your pockets. Less attention, however, has been paid to help prospective student, especially MBAs, before they arrive at (or return) to campus.

Here are five strategies to potentially lower your debt burden if you are a prospective or current MBA student:

1. Take ownership of your controllable MBA yearly cost, really.

If you are going to get your MBA, your first step is to figure out what your total out-of—pocket costs will be. If you are already in a program, tuition is predictable, but you now have a better sense of what you are willing to pay on rent, transportation, and books. You’re probably considering other expenses that might have a high price tag like a Spring Break trip to Kenya to bond with classmates and have impact. I too took some class trips, so I lived with roommates to lower my housing spend, took public transportation, and structured quality time with classmates over tea and lunch instead of bars to cut my overhead. Making smart trade-offs can effectively lower your student debt load and give you ownership of your controllable MBA costs.

2. Check the federal government first.

Once you nail these costs down, the next step is how will you fund these costs.

Some of you will cover costs with your own savings, help from family members, or even leftover funds from a summer internship if you are heading back for year two. If you’re like most people, however, you will need to tap into the student loan machine. It is widely purported that the Federal Stafford Program should be your first line of attack, and I could not agree more since the rates are reasonable and there are alsoloan forgiveness and income-based repayment perks associated with the federal loan program. Since an MBA student can currently only borrow $20,500 per year from the Stafford program, borrowers who need more than this amount do have another powerful option – the private loan market.

3. Explore The Private Market For Your Situation

Let’s start with the premise that private loans can work in your favor if you get the right one, which will have an interest rate that beats the Federal Graduate PLUS loan, the federal loan option for graduate students after you’ve maxed out Stafford. The right loan for you should also have an easy application process, provide excellent service, and mimic the benefits offered with Stafford and PLUS loans, including a grace period for repayment and protection against income loss. To find the best rate on private loans, utilize your school’s list of preferred lenders, which is a great starting point for your research.

The two companies that are specifically focused on in-school MBA loans areCommonBond and SoFi, which were both started by empathetic MBA alums who wanted to provide an effective way to reduce debt. You can use this easy savings calculator to figure out the amount of money you will save by choosing CommonBond’s loan instead of a Grad Plus Loan in less than 60 seconds. I did the analysis and if I maxed out Stafford and needed $80,000 more in student loans, I would save $10,000 over the life of a 10-year loan at a fixed rate of 5.99% versus 6.96% in a Grad Plus (and assumes you get a 0.25% rate reduction on both from auto-paying). Keep in mind that CommonBond’s rates do not move based on your credit history; every borrower who gets a CommonBond MBA Student Loan has the same rate. SoFi also offers MBA loans, and the company offers both variable rates and fixed rates on the loans. Going the variable rate route comes with risk, including rates rising and an unpredictable monthly payment.

The smaller MBA loan providers have program perks that might be meaningful to you. For example, CommonBond’s 1-to-1 Social Promise program funds the education of a student in need abroad for a full year for every degree fully funded its platform. And, SoFi’s Entrepreneur Advantage program provides support to budding entrepreneurs.

Now, you can also go with more established private student loan providers like Discover, Sallie Mae, or Wells Fargo. Call anyone and I think you will be surprised at the level of detail you receive relative to the smaller and MBA-focused, companies like CommonBond and Sofi. Don't worry, these companies are well-funded so I suspect that they'll be around for a long time as they grow. A good rule of thumb is that if you plan to take out a private loan, make sure that it can mimic some of the important benefits offered with Stafford and PLUS loans, including a grace period for repayment and protection against income loss.

4. Focus on side-jobs to pay interest while in school

The life of an MBAer is incredibly busy with networking, classes, fun time, and oh yes, there's studying. But, if you can carve out any opportunities to earn extra money as a teaching assistant or some other job for which you have the skill to provide, then go for it. Also consider putting yourself in a position to earn rental income during your time at school, reach for the stars. I know this is a stretch but believe me, some of your classmates are making it happen. Buddy up!

If the job market gets tough, as is the current case for lawyers, you do not want to be saddled with more debt than you can handle. For instance, many law school graduates are underemployed; they are performing jobs that do not require a law degree because there is now a demand-supply imbalance at big law firms. As a result, a prospective MBA grad needs to fully consider lowering the total debt burden today to hedge against the risk that he or she may not earn the average +$100,000 salary post graduation.

5. Have a fearless attitude.

For many people, and MBA students are no exception, fear of the future can play a big role in our decisions today. If you fear student loan debt, there is no need to do so anymore. Capitalize on understanding what your total cost will be, try to reduce the non-tuition expenses even by a few thousand dollars a year, explore the Stafford loan option first, attack the private market, and get a side-hustle. If the numbers and overall perks do not work for you, guess what? You do not have to accept the loan.

You have one life to live and it’s yours to live most expectantly.

Fear not!