What’s Coming in 2023: The Federal Reserve, Bond Markets, and Investing in Volatility

Katie: Let's not sugarcoat it. Things are scary in this economy, and it feels like they keep rapidly changing. After 40 years of steadily dropping bond yields in a soaring stock market, J.Pow and the Fed Bois are hiking rates, and they are doing it fast. Talks of a looming, forced recession on the horizon, terrifying stock market headlines, and a changing economic outlook have everyone's feathers understandably ruffled. So I wanted to bring in someone who knows what the hell they're talking about to answer some of my more timely questions about what's happening now, what history would indicate is going to happen next, and whether you should be changing financial course as a result.

Welcome back to The Money with Katie Show, #Rich Human Beings. I'm your host, Katie Gatti Tassin, and I have a timely episode for you this week. Our guest today is Liz Young, SoFi's head of investment strategy, responsible for providing economic and market insights. So not to unfurl and read the whole resume scroll here, but girlfriend is smart. So prior to joining SoFi, Liz was the director of market strategy at BNY Mellon Investment Management, where she formulated and delivered views on macroeconomic themes and their effects on capital markets. Earlier in her career, she was a portfolio analyst at Baird and a research analyst at BMO Global Asset Management. She's also a CFA, or chartered financial analyst, and she frequently appears on CNBC's Halftime Report and hosts a monthly podcast called The Important Part: Investing with Liz Young. So yeah, I guess you could say she's pretty impressive. Before we dive into this, here's a message from today's sponsor. 

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Katie: Now let's chat with SoFi's Liz Young. Liz, welcome to The Money with Katie Show. I am so glad that you’re here today. 

Liz Young: Thank you for having me. I'm excited to be here. 

Katie: Absolutely. Well, we'll get right into it. I saw you on CNBC the other day and you said something that I wanna touch on, because it was oddly comforting for me. You said, I have a feeling when we look back on this period in 10 years from now, the next few months are when we're gonna say, “Man, I wish I would've bought a little bit more.” Can you speak to this for our listeners who may be feeling a little bit dicey about investing in general right now? 

Liz Young: Yeah, so I remember saying that, I think it was a few weeks ago now, and it was before this most recent drop in the market. So I'll walk through just kind of the thought process there. There's a few different things that people need to keep in mind when you're investing, and first of all, it is completely natural to be trepidatious right now. There's a lot of things going on. There's a lot of headlines that come out. The market is clearly down on a year-to-date basis. It's very anxiety-producing for everyone. And as much as people like me say things like “Try to keep the emotion out of investing,” it's impossible. It really is impossible, especially in a year when there's a lot of things that are just making us nervous and we're looking around the globe and you're hearing about things from other countries that are happening that are starting to really scare people. So totally natural to have those feelings and have some of that trepidation.

What you have to try to do is remember these things: So markets and economies go down in a certain pattern, and it happens like this almost every time. What you usually see is that the market drops first; the economy breaks later. So the market is a forecasting mechanism. It's a forward-looking mechanism and it tries to predict where the economy will be and where corporations will be, where their corporate health will be in six to 12 months from this moment right now. Okay, so a very simple way to say it is that the market bottoms first; the economy bottoms after that. If you wanna get even more detailed about it, usually what happens is the market bottoms first; corporate earnings bottoms second; the economy bottoms last.

Okay. By the time the economy bottoms, the market is already recovering, usually. So what I meant by that statement was that we are in a time right now, obviously the Federal Reserve is raising interest rates. That's put a lot of stress on the economy. That's put a lot of stress on the stock market. It's put stress on the bond market, which I hope we can talk about later. But we're in a time where people are increasingly nervous about the idea of a recession and that this recession is getting closer and closer. 

So what happens when people are nervous about something like that is that it gets priced into the stock market, present day. Okay? So we feel the pressure in the stock market sooner than whether or not we find out that we're in a recession. So let's assume the recession starts in the first quarter of 2023. If we're going to have one, the stock market is going to go down right around now-ish and obviously has already gone down this year, but it's gonna try to get ahead of that. So my statement about “I think we're gonna look back on this period and wish that we would've bought more now” was because if we do have a recession, I feel like it probably comes early in 2023, or it begins early in 2023, which means that the market is going to feel the stress now, and when we look back on it over a long-term period, this will look like a time when things were attractively priced from a stock perspective. I hope that makes sense. 

Katie: It does. Excellent answer. Thank you. And let's, yeah, let's talk about the bond markets. So can you describe and kind of explain the relationship between the stock market and the bond market for our listeners, and what's happening right now? 

Liz Young: Yeah, so there's a couple things I wanna talk about with the bond market. Please stop me if this answer gets too long, because I don't wanna get rambly, but 

Katie: We love a tangent. 

Liz Young: Oh, good. There might be a few here. So the bond market typically is something that I think the average investor, the average individual investor, doesn't think about all that often, right? We think about stocks, we hear about companies, we know about the S&P 500, we know about the Dow, we know about the Nasdaq, but we don't sit around thinking about Treasuries and what they mean for the rest of the market.

But this year, if you hadn't ever thought about bonds before, this is the year where you probably started to think about them, or at least look at it and say, “Well, I don't know what that means. Why are we talking about this so much?” What we just went through over the last 40 years—and this is crazy—over the last 40 years, bonds went through a very, very long, what would be called a bull market in bonds, meaning the price of bonds gradually went up over that 40-year period, and that means that the yield on bonds gradually went down over that 40-year period. Think back to what happened 40 years ago. This is convenient for me. I turned 40 this year, so this is…it was exactly the year I was born.

So this many years ago, what happened was inflation was a huge problem, and bond yields were really high because of that, because the Federal Reserve was doing exactly what they're doing now, trying to fight inflation, raising rates. And then we went through a 40-year period of a bond bull market, and people stopped thinking about bonds really as something that could protect the portfolio a certain way, stopped thinking about bonds as something that were going to give them a lot of interest income, because rates were so low for so long. And now here we are, and rates have gone back up. 

Thing number one that I wanna cover about the bond market, because it's something that I think people probably have heard a lot about this year, but I wanna make sure they understand it. There is currently a yield curve inversion, and that is the bond market—we're looking at the Treasury yield curve. So if you think about when we say curve, it's not necessarily always curved, but it's basically the line that connects the dots between all the different yields on US Treasuries. So you've got really short-term Treasuries—in this case it would be two-year Treasuries, and then you've got longer-term Treasuries, which would be 10-year Treasuries. In a normal and healthy environment, the yield on a 10-year Treasury is higher than the yield on a two-year Treasury, because if you're gonna buy a longer-dated bond, you are basically taking more risk because it's more time, right? You have to wait more time to get your money back, which means that you are lending money to the government, so to speak, for a longer period of time, which means that you require more payment in return because you're giving it away for that much time. The shorter-term ones are traditionally thought of as less risky. You don't have to lend the money for so long; it's the shorter period of time. So you don't require as much compensation to hold that. What's happening right now is that the two-year Treasury is trading at a level, the yield is trading at a level much above the 10-year Treasury, which is not a normal environment, and that is a yield curve inversion. So the curve usually is upward-sloping. In this case, the curve is downward-sloping between those two points. Why do we care? We care because many times, a yield curve inversion precedes a recession, okay? Not every time, but many times. And now this has been a pretty prolonged inversion period. So that's another reason why we've been talking about the bond market so much. 

Now, why? Why has that happened? Because if you look at the two-year Treasury, that is very closely linked to what the Federal Reserve is going to do with interest rates. So the two-year Treasury yield moved up and it continued to move up, and now it's above 4%, which is like colossally high, considering what we've been through and what we've seen over the last 20 to 30 years. And the 10-year Treasury is much more closely linked to fear. So when people are scared, they flock to a very safe asset. And in many minds, the 10-year US Treasury is a very safe asset.

We are the most developed country in the world. People don't expect us to ever default on our debt. The dollar has been very strong. So people flock to the 10-year when they're afraid. When you buy bonds, the yield goes down, okay? So the 10-year yield went down because people were scared, and the two-year yield went up because the Fed was going to raise rates. Now, then you might ask, we take that one step further, that created the inversion. Why does that mean recession? Well, usually what happens is the Fed raises rates to a point that might be too far, and it's really difficult. The Fed takes a lot of criticism, and I just, I wanna defend them for a minute. It's really difficult for them to know the timing, because their actions take six to nine months to bake through the economy. So they raise rates on a Tuesday, it's not as if by Wednesday night they know what's gonna happen. So it's very difficult for them to get that timing right, which means that they may overshoot, go too far. And if they go too far, what happens is you usually have an impending recession because everything gets too tight; people can't borrow money. It starts to bake through things like the labor market, so on and so forth, right? Then it's kind of this domino effect. So that's where we are right now in the bond market. That's why we've been talking about, it all started with inflation. It all started when we found out that inflation wasn't transitory, so to speak, meaning it lasted a lot longer. It was a lot stickier than we thought. 

Katie: I miss those days. 

Liz Young: Ohh, me too. 

Katie: I miss the days we thought it was transitory.

Liz Young: Oh, I miss the T word. I really do. But it turned out it was wrong. That's when the bond market, which was about November of 2021, that's when the Fed decided, “Yeah, you know what, it's not so transitory and we're gonna have to do something about it now.” And that's when the bond markets started to go a bit haywire, and that's also when the stock market began to go down. 

Katie: Gotcha. 

Liz Young: Longest answer ever. 

Katie: No, I mean, incredible. We really never talk about the bond market on this show. So I'm glad that the audience is gonna get your expertise. Is it that the bond market's going crazy and then like the fear that is causing that is also the cause of the stock market craziness?

Liz Young: Basically what stocks are trading at today is their…it's the present value of what people hope that they're going to look like in the future. 

Katie: Ah, yeah. 

Liz Young: Okay? It's this discounting mechanism in the sense that, okay, here's how much I'll pay for this stock right now. Here's how much I'll pay for the S&P 500 right now, because I think that over the next five years, it's going to have the opportunity to get to X price level. Okay? In order to figure out what that price is today, you have to use an interest rate to discount it back, okay? So you think about out into the future, this is what I think the return on the S&P can be. I have to discount that level back to today. So what would be called net present value. You have to use an interest rate in that equation. The interest rate goes in the denominator of that equation. The math of this doesn't really matter, okay? But the interest rate goes in the denominator, meaning the bigger it gets, the smaller the overall number gets, right? So if you put something, if you make the denominator bigger, the quotient gets smaller. 

Katie: Oh, interesting. Okay, I'm following. 

Liz Young: So as rates rose, the denominator got bigger and the interest rate that we had to discount everything back at—so you can even think about it very simply as cash flows that companies are going to kick off in the next, I don't know, one to five years, right? These are all just for examples. So you've got a company that's gonna kick off a cash flow and run its business and be profitable. You take that cash flow amount and you discount it back to today. It used to be that we were discounting that back at zero interest rates, right? Which allowed the price of stocks to really just balloon. Now, as rates rose and they rose quickly, you're discounting that back at a much higher rate than you were before, which caused the prices of stocks to come down, because then people said, “Okay, you know what? It costs more to finance that growth now, so I am willing to pay less for it today.” And then we had basically this big rerating of all of what we call valuations in the stock market, all the valuations, particularly of growth stocks.

And then you might ask, “What does that mean? Why?” Well, growth stocks, things like technology, stocks, communications, consumer discretionary, those are the growthy areas of the market because their performance is so dependent on future growth, which means they're even more dependent and sensitive to interest rates. So as rates rose, those particular sectors got hit especially hard, and then you saw other things that would be more shorter-term in nature, things that are paying a dividend, for example. Those would fall into sectors like utilities and consumer staples. Those did really well because they were shorter-term and they weren't as sensitive to the interest rate moves.

Katie: That was the best explanation that I've ever heard for the relationship between these two things. When I started learning about net present values and discounted cash flows a few months ago, I was reading the CFP books and I was like, I cannot make sense of this. Like the way that they're explaining this to me. I mean, I love this stuff and I found it incredibly dry, but that was really masterful. So thank you. I appreciate that, and I think that our audience is gonna learn a lot from that too. And now from our sponsors. 

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Katie: So kind of circling back to one of the big takeaways that I wanted people to have from this episode: A big part of the game really for regular people—obviously this is gonna be different if you're like a macro hedge fund—but if you're just a regular person trying to build wealth for the future and you're trying to beat that middle class tax man, even when the market is going down, the tax benefits of investing in a tax-advantaged vehicle can still be very valuable. Particularly the pre-tax ones like a 401(k)—you're still gonna get a tax break, even if in the short term, the money that you're putting in isn't doing as much as you would hope it would. So how do you think about balancing tax-advantaged investing with taxable investing? Would your strategy or your, I guess, perspective change depending on what the market is doing? 

Liz Young: So when we're talking about tax advantaged investing, we're typically talking about something like a 401(k), right? Or an IRA. And what that means is you are not paying taxes. Typically, if it's a 401(k), you're not paying taxes on the money that's being invested, so it just comes straight outta your check without getting haircut by taxes. So you're able to put more of your actual money into that account, right? Now, today, the biggest benefit of that is time and the value of compounding, which I'm sure you've talked about on this show, and just the idea of the bigger the base is that you're working with as an investor, the stronger the compounding is. But it doesn't happen overnight. It takes a long time. If you look at a very long-term chart of the S&P 500—and also, when people look at the stock market, I want you to look at the S&P 500 as representing the market. Don't look at the Dow. The Dow only includes 30 stocks. It's a price-weighted index. It's not a market cap-weighted index. Anyway, the S&P is just much more representative of the overall stock market. So look at that or look at something like the Russell 3000, something that actually encapsulates many, many more securities. That was just a little sidebar. You said you like tangents, so I'll give you some of those. 

But if you look at a really long-term chart of the S&P 500, and you break it up into little chunks, you will find that there are maybe some 10-year periods where it's flattish. But if you lengthen that out to 12, 13, 14 years, never is it downward-sloping. So that means that if you can be patient, and hopefully your investment horizon isn't one of those 10-year flat periods where you started on day one and ended on 10 years, right? But if you leave it in there for a long period of time—and 401(k) investors, that's about as long as it gets—you are going to benefit from the compounding of that money. So the more that you can put in the earlier, the better. 

And if you're doing that, generally you're doing it in a systematic fashion, meaning it's coming out of each paycheck every two weeks or however often that happens for you. That also behooves you…because even if the market is going down, and I know this is counterintuitive, but even as the market is going down, you're putting money in every two weeks, that means that you're buying at lower prices every two weeks, right? So you're getting a better price for that. Yes, there's going to be fluctuations, yes, there's going to be years that look really, really bad on a chart, and you're gonna get your statements, look at your statements, and they're all gonna be red, right? That's how a market works. It can't go up every single year. It can't go up every single month. So we're going to go through parts of the business cycle, and that's how it's always going to work. 

I say this all the time…I do it…you know, it's kind of like tongue in cheek. I'm not allowed to ever say that I guarantee something will happen, but I can guarantee you this: At some point we will have another recession. Shortly thereafter, we will have a recovery. That is just how this works. And if you are in your twenties, thirties, forties, you are probably going to live through, in your working years, multiple more. So it's, you just kind of have to get used to the idea that there's a business cycle and there's a market cycle. But if you can leave your money alone and let it compound over many years like that, you will be amazed at how quickly it grows. And you'll get to a point when you're younger—I remember a point when I was in my late twenties that I got to, and I thought, “Oh my gosh, I have like actual money in my 401(k). There's a comma right in the balance, and whoa.” And then it becomes really cool and it's fun to watch, and you feel like it's actually making progress towards your goals. 

Katie: Love that. I feel like I say these types of things all the time, but I'm like, let me get an actual expert who's like licensed and knows what the hell she's talking about in here to say it, because I have a feeling y'all will listen to her more than me. But that's also funny that you said if you leave it alone, like that's kind of the key. You can't be trying to jump in and out. So is there anything else you would say to someone right now who is feeling tempted to just sit on the sidelines and wait out this volatility, before so that, you know, maybe it feels safer to get back in later. They're waiting for that feeling of safety and “Ah, you know what? Let me just hold off.” Anything else you would say to that type of person? 

Liz Young: This is gonna sound maybe a little like tough love, but if you wait for the day that you're ready, you're never gonna do it. If you wait for the day that you're not afraid, you're never gonna do it. Because none of us know, no matter how much education we have, no matter how long we've been watching markets—I've been a student of the markets now for over 18 years—I still don't know what's gonna happen every day, every week, every month. I just know that over a long period of time, it'll go up. So you can't wait until you're not afraid of what might occur, or until a period where you feel like there's no risk. There's no such thing as no risk. 

So one of the things, especially at SoFi, one of the things that we are really trying to help people do is get to a place where they are financially independent. You are not gonna get to that place from a Monday to a Friday, okay? You are going to get to that place over time, being disciplined about it and educating yourself about what's going on in the world, so that…not just because it means that you should do something about it every time. I think that's a trick today. A trick today is that we have so much information at our fingertips. We have all these news headlines that it tricks us into thinking we're supposed to do something about every single one of them, and we are not. But what you can do is educate yourself about why the market might be doing what it's doing, in which case you can sit back and feel a little bit more peace and calm about the fact that, okay, you know what? This is actually what's supposed to be happening in the bond market right now. This is what's supposed to be happening in the stock market right now, because we have this inflation problem, for example. That would be just one of the conclusions that you could get to in order to become financially independent. You need those tools, you need those education tools. We have a ton of 'em at SoFi. I mean, this is a tool, right? This podcast is a tool for people to understand better about what's going on. So use the tools that are at your disposal. 

And a lot of times as an investor, especially when fear is really heightened, and it feels like the wrong thing to do to put money in the market, in hindsight, that was the right time to put money in the market, okay? The worst thing you can do is start exiting all of your positions after we've already started a pretty big downturn, because then what happens? You lock in a loss. If you look at your statements, those are unrealized gains and losses for a reason, because you have not sold the position. If you sell the position, you realize the loss. Okay? So really try to avoid that. And you can even make rules for yourself. I have little rules for myself. If I feel like I wanna sell a position or what we would call close a position, if I feel like I wanna do that in my personal account, I give myself maybe 24 hours. Do I still wanna do that tomorrow? Am I just emotional about it today because of something that's going on in the market? 

Now, some things aside, if there's really bad news that comes out about a certain company or whatever the case may be, right? There's things that might be outliers in that situation, but I'll give myself 24 hours if it's something where I wanna make an actual full shift in my portfolio. Let's say back in fall of 2021, when I talked about growth stocks starting to get hit, let's say I wanted to make a really big shift and take my portfolio away from growth stocks and put them in some different stocks. I'll give myself a week or two to think about some of that, because you can't take it back, right? And if you're gonna make a really big change in the portfolio like that, you wanna make sure that it's not emotion-driven. So make some rules about that for yourself, and do it, always do it systematically. If you have a chunk of money that you wanna invest, let's say you've got $5,000 that you wanna put into the market, or you've had it sitting on the sidelines, don't spend it all in one day and don't spend it all in one place. Don't just buy one particular thing. Break it up into pieces, and in order to take the emotion out of it, make a rule like, “Okay, I'm gonna invest $500 every other Monday until this is all in,” something like that. Maybe it's every Monday until this is all in. And then you don't have to try to time it. You're not playing that game with yourself where you're like, “Oh gosh, if it goes up tomorrow, I'll wait. If it goes down the next day, I'll do it.” Because you're just gonna be chasing your own tail the whole time. 

Katie: Totally. So it's interesting. My friend Jack just published something kind of akin to this, or it's reminding me of this. He was talking about how risk is the highest when we kind of forget that it exists. Mid 2021, irrational exuberance. No one's thinking anything's…like, ironically, that's when the risk was the highest, because that's when everything was off the rails. And he was kind of making the point that, you know, by this point, a lot of that risk has played out. We're already starting to factor in a lot of the bad information that we have now. We actually know more. So even though it feels worse, it's not actually worse. So Liz, I appreciate you being here today so much. My last question for you is just a broad one. What's on your mind for 2023? Money markets, finance, I mean, anything. What's kind of top of mind for you? 

Liz Young: Yeah, you know, it's funny, for this year when I wrote my outlook for 2022, I titled it “Running Into the Wind.” And it was because we knew rates were gonna have to rise, but then the whole thing with Russia, Ukraine broke out. And that wind that we were running into turned into a hurricane very quickly. And then my midyear outlook in 2022 I titled “Running Out of Steam,” meaning the economy was gonna slow down. We were gonna kind of run out of this exuberance that we had been hoping that the economy was gonna stay strong forever, so on and so forth. In 2023, and I mentioned this a little bit before, if we're gonna have a recession, it likely happens in the first half of 2023. I think what's probably going to be top of mind for people going into the year is the labor market. So when we think about the jobs market, that is one of the last things that cracks in an economic downturn. And that is also the one thing that makes people really, really nervous. If your neighbors start losing their jobs, your friends start losing their jobs. You hear about big companies going through layoffs or cycles of layoffs, people get really scared. So even if they're still employed, and even if they stay employed the entire time, chances are they ratchet down their spending a little bit. So things that would be on my mind in 2023 are the repercussions of some of that, and it has to kind of make its way through the economic system before we can get on the other side. 

Now, the other things that would be on my mind from an investment standpoint are that we probably hit a point later this year where the Federal Reserve says they're probably gonna say one of two things. “Inflation is coming down and we're getting satisfied with the rate that it's coming down. We're happy about how this is going. Basically, it's working, right? What we're doing is working on inflation.” And then that would result in them saying, “Okay, we can probably slow down the hikes a little bit.” And the stock market will like that. They will like it if the Fed says we're gonna slow down the rate hikes. 

Or they could say something like, “Okay, so inflation is still a little bit of a problem, but the economy is weakening to a point that we're gonna slow down, because we don't want to inflict too much pain or unnecessary pain.” That would not be so great. That would be something where the stock market probably doesn't like it as much because then they're worried about recession, they're worried about going too far. And we're at this point in the market right now, and I…this is what's on my mind for the rest of the year, or even maybe in the next 30 days. We're at this point in the market where the most we've gone down peak to trough in 2022 is 25%. That feels like a lot. That's actually not a lot. If we're talking about a recession. In a recessionary scenario, the market usually goes down by about 35%, 40%. So we need to cross that 30% threshold if we're gonna price in a recession. And that once that happens, if that happens, then I'll start to feel like, “Okay, we got that out of our system and now let's try to move forward and be constructive with it.”

Katie: Interesting, interesting. Do you think that it's possible that we could not cross that 30% marker and still go into a recession?

Liz Young: Anything is possible, Katie. 

Katie: I'm like, but please bring your crystal ball today, Liz.

Liz Young: Here’s the thing. People…we use history all the time. I use history all the time too, because what else do we have that's certain? History is the only thing we have that's certain. But the problem is, and this is a quote from a book called The Psychology of Money, which I would highly recommend, actually; I think people should read that. 

Katie: Love that one. 

Liz Young: Stuff that hasn't happened before happens all the time. Okay? So just because we've never had a period where the market didn't go down enough, so to speak, to be in a recession, doesn't mean it's not gonna happen this time. So it's possible, yes. It's just that it usually takes another big shock. And then there's stuff which is beyond the scope of this conversation that you look at in a market situation; we call 'em technicals, the tech…they haven't gotten extreme enough yet to feel like we really bottomed out. It's almost like there might be another flush to come. If we're gonna go into a recession, there might be another flush to come because we didn't get extreme enough. But it is very possible that we don't go down as much as prior recessions because profit margins are so high. 

Katie: We love that corporate greed, baby. 

Liz Young: Yeah. Well, all it is…but like the stock market is really just a collection of corporate stocks. So if the corporations are doing better, the stocks don't have to go down as much, the earnings don't have to go down as much, and if the profit margin is higher, that means there's a bigger buffer for them to absorb some of those cost pressures, blah, blah, blah, blah, blah. Right? So and always think about that too, I would say to investors. The stock market is a collection of stocks, right? It's driven by emotion, very much so, and psychology, but it's still a collection of stocks and a collection of companies that are trying to earn money by doing business. If their businesses don't get hit as hard because their profit margin is bigger, things don't have to get as bad. 

Katie: That is the perfect note to end on. Thank you so much for being here. That was such a pleasure. 

Liz Young: Oh, I loved it. I loved it. Thanks for letting me ramble. 

Katie: Absolutely. 

Welcome back to Rich Girl Roundup. As a reminder, we will take listener questions every month. I'll put out a call for questions on Instagram, so follow @MoneywithKatie, if you're not already—shameless plug—and we'll pick one that feels interesting and widely applicable. As my standard disclaimer, I am not a licensed financial professional. This is not financial advice. This is just “What would I do if I were in your situation?” 

And now a message from our sponsors. This segment is brought to you by Betterment, the online investing platform that gives you the tools, inspiration, and support that will help you become a better investor. Investing involves risk. Performance not guaranteed. 

Here's today's question, from Carrie: I'm a little overwhelmed with all these Roth IRA options. Any tips on how to choose which company? 

I have very good news for you, that within reason, it doesn't really matter which one you choose. You have a spectrum of options, right, from the most hands-on to the most hands-off. On the hands-on side of the coin, you could choose a brokerage firm like Vanguard or Fidelity or Charles Schwab. All three are known for having low fees, but unfortunately, they're also known for not having a great UX/UI. So if you're confident in your ability to navigate a financial interface, and crucially, you know what you want to buy, these are great options. In the middle of the road, we would have a firm like M1 Finance. M1 Finance is a newer product, and its users buy their securities in what's known as “pies.” So think about them like Easter baskets full of index fund eggs that are premade for you, and each basket is labeled like conservative, aggressive, or moderate, somewhere in between. You just have to determine what level of risk is appropriate for you, select your basket, and then voila, you're done. And then on the most hands-off side of things, you have platforms like Betterment. So when you go through the setup process for Betterment, you're just gonna answer questions about your age and your goals and your timelines and things like that. And then the algorithm is gonna determine what an appropriate level of risk is for you and the holdings that make sense for you. So all you have to do is then funnel cash into the account and you're done. 

So depending on which platform you use and which investments you select, your fees will vary….tend to pay more when you have a more hands-off experience for you, but not necessarily. Based on your comfort level with these types of decisions, you can determine whether you should raw dog the Roth IRA with something like Vanguard, or go full-service with something like Betterment.

Beyond that major decision, though, it doesn't really matter where you open it. What matters is that you're funding it and that your cash is actually invested in something, as it is terrifyingly common for people to open a Roth IRA, put cash into the account, but then forget to actually invest the cash anywhere. 

All right, y'all, that is all for this week. I will see you next week, same time, same place, on The Money with Katie Show. Our show is a production of Morning Brew and is produced by Henah Velez and me, Katie Gatti Tassin, with our audio engineering and sound design from the talented Nick Torres. Sarah Singer is our VP of multimedia, and additional fact checking comes from the lovely Kate Brandt.