Rich Girl Roundup: How Do I Get Friends & Family Comfortable Investing?

Katie: Welcome back, Rich Girls and Boys, to the Rich Girl Roundup weekly discussion of The Money with Katie Show. I'm your host, Katie Gatti Tassin, and every Monday, Henah and I are gonna do a nice little money dialogue. Here's a quick message from the sponsors of this segment.

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Katie: All right, before we get into it, this week's upcoming main episode is actually a follow-up on a previous Rich Girl Roundup on all things elder care and all things related to finances with aging parents. So we brought Kim Davis, the Fiscal Feminist, back onto the show because we definitely needed an expert to weigh in on this one, and I'm really excited about how it turned out. I think you're gonna get a ton of value from this one, but okay, onto the Roundup. Henah, how's it going? 

Henah: I'm good. How are you? 

Katie: Just being attacked by my cat, which is pretty par for the course when we're recording. 

Henah: Yeah. I will say to listeners, because you're not visually seeing this, probably nine and a half times out of 10, Katie is fending off her cat in a recording, whether it's a guest interview, whether it's a Rich Girl Roundup, 

Katie: And I'm honestly so used to it now. He's a terrorist. 

Henah: I can read this week's question from Amanda L. It is, “How would you talk to a friend who wants to and can invest, but doesn't, because they're scared of making the wrong decision, risk level, or investing platform? Meanwhile, they're losing out on interest and gains.” And this is funny because it brings me back to the episode we did about you forcing me to max out my 401(k), and it also reminds me of a couple other episodes we've done on financial fear and the episode we did with Ramit. So I guess, give me your gut reaction to the question as someone who probably gets this email quite often. 

Katie: Well, I think there are two elements of this question, if you were to widen the aperture a little bit. She's asking about investing specifically, but I do think that this question more broadly probably pertains to self-destructive financial behavior either by addition versus self-destructive financial behavior by omission. And underpinning all of this is the fact that generally speaking, people really don't like to be told what to do. So I think you kind of have an uphill battle no matter what. But when I say addition, I'm thinking of things like overspending. 

Henah: Gotcha. 

Katie: Living beyond your means. This is something where I think I would qualify right off the bat, if you have a friend that tends to overspend or is living beyond their means, unfortunately I don't think there's much you can do to help someone unless they actually want to change, because those habits are so deeply ingrained and just intertwined with things like self-worth and how people cope. Spending habits are really about more than just money. And so I think unless someone is coming to you asking for help with something like that, you're probably better off just leaving it alone and leading by example. 

Henah: I actually think that's a brilliant point, which is that you can really just bring the horse to the water, right? I actually had a friend reach out. They said, “Hey, can you help me with my finances because I have like $30,000 in credit card debt?” And I said, sure. And I sat down and I put everything in a spreadsheet. I put next steps of where to consolidate, all the things. I don't think they've done a single one of those things. And I realized at the end of the day, it was nice of them to ask, but they had to want to do the rest of it. Hopefully they'll get to a point where they do wanna use those steps. This idea of self-destructive financial behavior by addition, that's a very jargony term. I hope I said it correctly. 

Katie: And that's an interesting example, because they came to you asking for help and still didn't do anything with it. So I guess my thought is that if you're just observing someone in your life has this issue and you're trying to interject yourself into it to help them, but they haven't even…I would be floored if there's some certain magic phrase or certain approach that works with that. Because I think generally speaking, uphill battle, right? But I do think that the omission or the thing that's being specifically asked about in this question is they're doing something that's hurting themselves by not doing anything. It's not an action they are taking, but one that they're not taking. And I think when it comes to trying to help someone invest who has expressed an interest in doing so, the good thing is that typically there's gonna be enough data on your side to help someone see where their fears are not rational. Now, whether or not they're gonna be open-minded enough to fully consider that data and act on it is another story. But all you can really do is show somebody the numbers and let them make their own decision. 

So in my mind, the numbers that matter and what really are impactful, kind of two things, that over any given 30-year period in history, the S&P has never lost money. So if it's a game of probabilities, those are pretty good odds. And the flip side of that coin, which is that if you're just sitting in cash, you know you're losing money, because your purchasing power is gonna erode over time. So based on historical precedent, I think the rational response to that is pretty obvious in that if somebody really is open-minded, that they'll see those things and potentially be more willing to do them and it'll feel a little bit less risky. But I do think helping someone see how they can start small can be a really good path to better. 

Henah: Did you just read my notes? My notes literally say, “starting small, showing them the best-case-scenario data.” So I think it's funny because I immediately defaulted to the financial psychology and fear, and you immediately defaulted to, “What does the data say?” 

Katie: Well, your approach is probably better, honestly. I'm just like, well, this is what would convince me. 

Henah: But I think that's why this conversation works, right? Because you're coming at it from both angles. It's not lost on me that me with the psychology and you with the data, that is classic Henah and Katie.

I was gonna say, too, when you talked me through this, you did this kind of exercise of like, where would you have been had you invested this money? And that really opened my eyes a lot, because one thing that I try to do sometimes with my husband…I don't know if anybody watched This Is Us, but basically there was this exercise that this couple did that was called “best- and worst-case scenario.” And in this case it was, what is the worst-case scenario if you put this money in? And I don't think there's ever really a scenario where things go to zero, 'cause otherwise the entire economy would collapse. So that was really helpful because it was like, either you lose a little bit but it'll come back over time, to your point of the S&P never losing money, or best case is like the current situation, my 401(k), we put it in right at the bottom and now I'm getting 15% gains.

Katie: Call Katie for your market timing specialty. 

Henah: You and Liz Young nailed it. That was really helpful, like where would I have been? Or you showing me, “Hey, well, I started around the same time and now this is where I'm at because I did the thing.” I also wrote “starting small” just to build the habit and then walking them through it so they don't feel like they're doing it alone. Because I know this person asked, what if they make the wrong decision about risk level or platform or whatever. If you feel comfortable enough, you could also offer to say, “This is what I use and this is what…”

Katie: That was what I was gonna say. Now you're reading my notes. 

Henah: Oh, come on. No. We should clarify that we don't read each other's notes before we go into this. 

Katie: This is so funny, but do you remember how crypto and GameStop and all the meme stock stuff took off in 2021?

Henah: Yeah, sure do. 

Katie: So part of the reason that happened and why it was such a wildfire phenomenon is because it's so extremely powerful, word-of-mouth marketing. You're so much more likely to trust someone you know than some Investopedia article. So I was gonna say the same thing, that if you're comfortable with it, if you could show them your own accounts and your own returns or gains over time, then they're gonna be like, “Oh, this is literally what they're doing with their money.” There's no better way to put your money where your mouth is than to make it really concrete for someone and to just show them. 

And that's how someone got me to start investing back in the day. My friend Haley, I think I've talked about her on the show before, but her brother basically told her, “These are three ETFs.” And then she was like, “Okay, so my brother says this is what we need to buy.” And I was like, “Okay, got it.” So I downloaded Robinhood and I bought a thousand dollars of VOO, and then for days I would just sit there and watch it go up and down. But after a few months passed and I was like, “Oh, it's still in there, it's growing, it's earning money.” So yeah, some days it's red, some days it's green, whatever. But that really helped me feel safe knowing that, oh, I know other people that are doing this. I can see the money right in front of me. I put in an amount that felt a little bit safer at first at the time based on how much I had saved. And then over time I felt comfortable putting more in and more in. But most people don't start off being like, “Okay, first investment, a hundred thousand dollars, all in.” That's not normal, right? So I think you have to kind of…

Henah: You did the same thing. You said, “Hey, this is how exactly I've set up my own. So if you go down and lose all yours, I'm losing mine too.” And I was like, well, the scale of your loss is much bigger than mine. 

Katie: I was like, we're in it together, baby. 

Henah: I think that that also really helped to alleviate…I mean also because of your role, I was like, okay, I'm gonna trust that she's not putting her money in garbage. 

Katie: Big mistake. I'm just kidding. 

Henah: By following someone I trust, or this person offering advice to someone that trusts them, that is the big door opener. And once you get in through the door, it becomes much easier to be like, “Did it once. Nothing blew up, right? Nothing was horrible. I can do this again.” And then if it gets worse, then space out the one after that. You know what I mean? 

Katie: Well, you know what, this is so classic. Let's talk about the truly unreasonable risks that people take. I'm reading this book right now called Rationality by Steven Pinker. I put it in the newsletter a few weeks ago. And he basically talks about how humans, our perception of risks tends to be way off. Like people will have a fear of flying…hi, hello, it's me. 

Henah: Hi, me. 

Katie: I still fly but I don't like it. I'll sit there the whole time being like, I gotta stay awake 'cause I'm keeping the plane in the air with my mind.

Henah: That's funny. I'm the opposite. I have to have Dramamine or I'll vomit on any plane ride because I just get so anxious. 

Katie: So anyway, I get nervous, gut pit in my stomach nerves about being on an airplane. Being on an airplane is a thousand times safer than getting in a car. And yet I will still be driving down the road being like, “Oh, I got a text. What's that say?” Like doing objectively horrifying, dangerous behaviors and not feeling any type of way about it. We're just bad at gauging risks. It's not intuitive. And so to me in the money world, people will deploy their entire life savings into a single piece of real estate and be like, “Hope it goes up! Haven't done any research on the appreciation in the area, haven't done any sort of number-crunching, but that's just the next step. So I'm gonna take it.” 

Buying a single-family home is infinitely riskier from a financial standpoint than investing in an S&P 500 ETF, for myriad reasons. But we don't perceive it that way. We don't think about it as being a big risk, and yet which one are people way more likely to do without second-guessing it? You wouldn't be like, well, you own your home and that was risky. Not that you'd ever use that, but I do just think it's interesting when we look at kind of broad societal views about what's safe and what's not, it's like, really the stock market is not the area that would really reasonably generate a lot of fear if you were looking at the long-term odds of making money.

Henah: We did an episode recently about the starter home myth, and it's all marketing, it's all propaganda, right? And so for stocks, 'cause it's always been a very male-dominated world, it was just never something I felt comfortable with. But now that I know a bit about it, it just feels so commonsensical to be like, well, if I put in $50 and I lose all my $50, these billionaires are also going to lose. 

Katie: For sure. 

Henah: It just doesn't work that way. 

Katie: Bridget Casey said the same thing on Twitter. She's like, “My belief in the long-term viability of the stock market is that there are just way too many extremely wealthy people invested who are not ever gonna let it fail.” Which is like, it sounds ridiculous, but when you think about who's in power and their incentives, you're kind of aligning your incentives to theirs when you become a shareholder. So there's that extra level of protection, which, that's a whole 'nother topic for another day, is like how the ultimate important group in the United States, like shareholders are top dog, but well, if they're top dog you might as well become one of them. 

Henah: But that's exactly the point, right? Like to your point about S&P 500, these are the 500 highest-performing companies. So if they all fail, we're all in a lot of trouble. 

Katie: Yeah, your portfolio is the least of your concerns if the S&P 500 goes to zero. 

Henah: Yeah, it's not like they just randomly picked 500 companies across the US. There's just kind of this mental hurdle to get over at first. But then once you do it or you walk them through it, I just feel like it becomes so much easier. And I think you had told me, oh, just set up $50 or a hundred bucks or something at first as an automation and if you don't like it, just stop it. And I honestly forgot that it was even there, and now the money comes out and I don't even think about it. 

Katie: I would also just add to close this out today that even though this whole conversation was very optimistic about the future, which to be fair, is based completely on historical…we have good reason to think that the future will be at least slightly similar to the past, right? But you are still taking on a risk when you invest; it's not a guaranteed thing. There's always the potential that something could happen and you could lose a decent amount of your money. In fact, I think that means it's time for our favorite drop. Nick, hit it. 

All in unison: Past performance is not indicative of future returns. 

Katie: So I think that it is important to keep that risk in mind and to have a healthy level of skepticism. But in my mind and where I landed personally is that there's just not a good alternative, that when I look at the odds, I look at what's happened in the past and I kind of gauge, okay, what are the probabilities that that's gonna happen again versus not? The alternative of sitting in cash or having a far more convoluted and active investment strategy in something like real estate, or just settling for yields in bonds or money market funds...those things didn't feel like a great alternative. So it's like I am taking on the risk knowing what could happen, but I have reason to believe that that's going to pay off in the long run. 

So I think that that is a risk calculus that if you are truly not comfortable with it, some people really are just never gonna get there. But at least in that case, investing in something that is quote unquote “safer,” less risky: bonds, money market funds, high-yield savings accounts, even, something where you're gonna get 4% or 5%, CDs. I mean, just making sure that you're not getting no yield on your money, because then you really are never going to be able to stop working. 'Cause that money, that purchasing power, is just gonna continue to…you'll never be able to amass enough money to retire. So you have to be doing something. But I do think that risk tolerance is obviously something to consider. Age is something to consider. It's not a no-brainer for everybody. 

Henah: You may not be at a point where you can invest yet, and that's fine. There's no lever where you're like, “I hit this number; now I can invest.” Sometimes it is the six-month emergency fund. It's a number of things. But I also remember, you kind of made this analogy where you were like, what if you just took the money you were gonna spend out on a dinner and you invested it? And either way, if you lose it all, no harm done. But if you don't, which is more likely the case, you're in good shape. 

Katie: All right, that is all for this week's Rich Girl Roundup. Hope you enjoyed it, and we'll see you on Wednesday to tackle the ins and outs of elder care. Bye.

Henah: Bye.