Motley Fool Money - Foolish Advice for College Grads

Episode Date: May 13, 2023

Congratulations on finishing up college! So what are you going to do now?   Mary Long caught up with four Fools to get some actionable advice for new college grads. They discuss:  - What to do when you get your first paycheck. - How risk-averse grads can get in the stock market. - Preparing your finances for job hopping.  - The difference between being a Rule Breaker and a Bridge Burner.  Stocks, ETFs mentioned: SPY, QQQ, BRK.B Host: Mary Long Guests: Ron Gross, Alison Southwick, Robert Brokamp, David Gardner Producer: Ricky Mulvey Engineer: Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

This episode is brought to you by KolaGard. Do you know what's really scary? Not screening for colon cancer when you turn 45. The KoloGard test is non-invasive, requires no special prep or time off work, and ships right to your door. In just three simple steps, KolaGar takes the scare out of colon cancer screening. If you're 45 or older and at average risk, ask your health care provider about the KolaGard test. KoloGard is available by prescription only. Learn more or request a prescription today at KolaGar.com slash screen. A lot of people, especially younger people we're hearing, have not been as positive, understandably. We had our college interrupted by COVID, not as bright-eyed and bushy-tailed as maybe graduates of the past, but that's very temporary.

And I think more than anything, the key to happiness and thriving is when you feel like you are aligned with a purpose in the organization for profit or not-for-profit that you're working for. I'm Mary Long, and that's Motley Fool co-founder and Chief Rule Breaker, David Gardner. Commencement season is underway, so I caught up with Four Fools and gathered some tips for college grads about investing, budgeting, and starting your career. We kick things off with Motley Fool's senior analyst Ron Gross for insights about getting into the stock market, even if you don't love risk. I think if you're the type of investor, certainly at a young age where you're either wary about the stock market or you're not comfortable with risk, I still believe the guidance should be getting involved in the stock market at a young age

for a lifetime investing is the way to go. But you can do it in a more conservative way. You can do it through blue chip stocks, really well-known mature companies. Something like Berkshire Hathaway would come to mind. You could use exchange-traded funds that mimic an index like the S&P 500 or the Russell 2000. So get invested in the stock market, but if you don't want to take it, you know, on a lot of risk. I think that's perfectly acceptable. The past few years have seen a surge in day trading followed by a general distrust of the

market after that didn't really work out so well. What's your advice to someone who went through a crypto or day trading phase and got burned out on investing? So I would say that person actually wasn't investing. That person was speculating. And it's good to learn that lesson early on. We often do. I learned a little lesson like that using options when I was younger. So put that behind you and say, I'm no longer going to be a speculator or a trader. I'm going to be a long-term investor. I'm going to invest in companies, not stocks. It's a little bit of a nuance, but it does make you feel a little bit different, different about what you are doing. So get invested in companies you believe in, companies that you use or know well,

and hold them for long periods of time. The less selling you do, you'll probably end up having a better experience over the long term. Whether it's a speculator turned investor or just someone who is interested in investing, but a super, super beginner, is there an ETF, a stock, a REIT, anything that you recommend someone could start to play around with to kind of teach themselves the trick of the game? The trick of the game. Let's think of it more as a lifetime of learning and investing to build wealth over very long periods of time. And I think index funds are a perfectly good way to go here. I own all of the funds

I'm about to mention. And I've been a stock investor for 30 plus years. So I think the S&P 500 Spiders, SPY, is a great way to go. Russell 2000 index fund, IWM is great. And the NASDAQ100 QQM, all three great index funds. And for a stock, I will throw in Berkshire Hathaway, which is a collection of wonderful, wonderful businesses, kind of acts in a sense like a mutual fund, but it's an individual stock. What's a lesson you learned from investing over the years that you wish you could go back and share with your just graduated from college self? Or would you stay quiet and avoid the butterfly effect of saying anything at all?

Well, I would definitely start sooner. A little less beer money is fine. Get in the game as soon as you can, even if it's just slowly, invest in your 401k if you can, at least up to the match if your company matches. That's free money. And then my second thing would be, don't sell so quickly. Hold on to great companies for very long periods of time because they'll continue to produce results for much longer than you probably would have originally thought. Next up, Alison Southwick has some career advice that she'd offer her fresh out of college self. As an adult, you're going to end up in a lot of different rooms full of a lot of different people.

You're going to go to office happy hours, industry conferences, friends of friends cookouts. And here's the bad news. You're never going to be the smartest person in the room or the most attractive or the most clever. But you can always choose to be the kindest person in the room. So as soon as possible, get comfortable with the act of walking up to complete strangers, particularly those who maybe look a little scared or alone and learn how to say, hi, I'm Allison.

What's your name? And then take it from there. You'll be surprised at all of the really interesting, great people you're going to meet who might even change your life. Maybe before or after you've gone to those different networking events, those happy hours, you might find yourself in your first job. And does your first job have to suck? Or is there a possibility that could be something more?

Well, your first job likely won't suck at all. And it can feel a lot like college, except you can maybe afford more expensive beer. So in your first job, you're likely going to be working with other people your age, and you'll gravitate to them, and you'll become work friends, and you'll send snarky slacks during meetings, and you'll get drinks after work, and you'll probably even date a coworker at some point. Your first job, it can be an amazing experience. And if it's not, then consider it a learning experience, because you are never done learning. College taught you maybe 20, percent of what you need to know to have a successful career. And your first job is where you're

hopefully going to learn the next maybe, let's say, 50 percent. School years have this definite timeline of finals, quarters, one year after the next. You know where you're going next time after time. And now you, what, have to sit at a desk for forever, like until you die, until you retire, which feels super far off. How do you prepare for that transition? All right. So I'm going to put on my cranky old Katie Glass is here for a second. Because the question is tinged with the assumption that work, and particularly working at a desk, sucks. And it's this life of drudgery spent formatting Excel spreadsheets. But the truth is that you are extremely lucky to not just be employed while thousands are being laid off right now, but you also have a sitting all day sipping coffee job. Many people

are out there literally breaking their bodies down every day doing physically demanding labor for not a ton of money. so that you and I can sit in comfy office chairs all day and shout you're muted at coworkers through Zoom. So here's the good news for all you college grads. If you don't like your job, you likely have the education, the means, and the time to build your skill set so you can find a different job. And when you are a bright young thing, you are largely the source of and the solution to all of your life's problems. So feel free to be equally parts terrified and comforted by that. Whether it's your first job or your second or further down the line, what are some early signs that you've found something that's really good and that you're a part of a healthy company

culture? Well, to crib Tolstoy, because I feel like I can get away with that on this podcast, great managers are all alike. Every bad manager is bad in their own way. So great managers trust you to get work done. They give you supportive guidance. When you go off course. They have your back. They're rooting for you to succeed. But bad managers can be bad in all sorts of ways. So some might micromanage you, some might undermine you or throw you under the bus. Some might ignore you completely. And so you're going to have all kinds of bad managers in your life, even at companies with supposedly great cultures. And a bad manager will make or break your happiness at work. So cherish a great manager. And more importantly, learn for

from them so that you can be a great manager to someone else one day. If you've just gotten a job, what do you do with your first paycheck? Robert Brokamp has tips on crafting your very first big kid budget. Well, there's this one sort of rule about budgeting that has become more popular over the last 15 to 20 years and it's become known as the 50, 30, 20 rule. So it goes like this. 50% of your budget should go to essential expenses like your rent and utilities, 30% for discretionary expenses like travel, and then 20% of your budget.

20% towards your savings for goals like retirement, buying a house, and things like that. It's just a framework that everyone will be able to follow it exactly, especially if you have a lot of school loans. But I like its emphasis on keeping essential expenses to only half your budget, especially housing, since that'll be the biggest item in your budget. If you can keep that to a third or even a fourth year budget, that's a solid foundation. And of course, I like the idea of saving around 20% of your income. In fact, I think that's where you should start. If you can manage that, then how you spend the rest of your money may not matter so much. All that said, I am a big fan of doing things in your 20s that are more difficult when you're older.

Things like backpacking through Europe, doing interesting but low-paying, volunteer-ish-type jobs, living in a dumping apartment with a bunch of people in a big city. I did all those things, and I don't regret any of them, even though I'd probably have a little bit more money if I had made different choices. I love that you mentioned that because I followed a very similar path, worked a lot of odd jobs, a lot of dumpy apartments. But great memories, right? But great memories, great experiences. Can't take those away.

You mentioned siphoning off a certain bit for like retirement and other savings goals. But retirement, especially when you're starting off, your first big kid job, feels super far off. What is the point in saving for it now? The bottom line is that time is one of your biggest assets when you're younger. And I'm going to demonstrate this with some numbers. So someone started, let's say you're 22 years old and you start investing $400 a month at age 22. You would have more than $900,000 by the age of 65, assuming a return of 8% a year. But if that person waited a decade and didn't start until age 32, they'd have just $390,000 by age 65.

So less than half of the person who started a decade early. So begin saving as soon as you can as much as you can afford. Chances are that that first big kid job that you find your way into might not be one that you love and that you intend to stay in forever. How should someone think about the future if they plan on job hopping? I'm going to give you the most boring advice in financial planning of that is have an emergency fund. That's three to six months of must-pay expenses set away somewhere safe like in a savings account or a checking account. Because if you go from one job to the other, you may have to have a month or two where you don't have a paycheck, so you have to live off

that. But the other thing I'm going to say is that if you were participating in the retirement plan of that first job, maybe contributing to the 401k, you want to make sure that when you leave that job, you roll that 401k over to an IRA or your new 401k. Unfortunately, around 40% of people cash out their 401ks when they switch jobs. They'll then owe taxes plus a 10% penalty if they're not 59.5, plus, they've lost out on those years, if not decades of growth that that money could have earned. So make sure that you do something smart with your old 401k. Does the possibility of a recession change how you think new graduates should think about their finances, especially being so new to the workforce and to this recurring and fixed paycheck? What can they do to prepare

for and create stability amid a potential downturn? So this might might be the best answer for the question you're asking. But here's one piece of advice that my dad gave me when I started cutting lawns for our neighbors when I was a teenager. He basically said this. You always do more than what is expected of you. Always look for ways to add value. So when my dad was telling me about this with mowing lawns, he said, well, make sure you trim the bushes, you take out the garbage, you pull some weeds, stuff like that. But once you have a full-time job working for an employer, you just don't just fulfill the requirements of the job description. Do it in such a way that after six to 12 months, of you during that job, your colleagues will be able to say, of all the people who had that job,

you're among the top 10% of people that do it. That'll get you bigger raises, get your promotions, open doors for you. And it'll make it less likely that you'll be laid off if a company needs to find a way to save some money. But it's not a guarantee. You're just trying to stack the odds in your favor. And even if you do get laid off, your previous employer will be able to write you a glowing recommendation. And that value seems to be always important, but especially kind of in this age of chat GPT and the questions about what that might do to jobs. You have to find some way to add value that is unique to you, to be able to point to three to five, ten things say, if I didn't do these things that were unique to me, our company would

not have this, our customers would not have this, our colleagues would not have this. If you could go back to that younger, perhaps backpacking bro, what's a piece of financial advice that you would give to yourself right after college? So, to be honest, I was pretty good with money when I first graduated from college. I avoided debt like the plague, and I started saving for retirement in my mid to early 20s. I would say really my biggest mistake was that after I got married, my wife and I bought a house too soon. And I know everyone loves the idea of owning a house, but the problem with a house is it is a big upfront purchase, and there are large transaction costs.

My wife and I bought a house that fit our family at the time, but our family grew. So we had to move up to a bigger house. We would have been much better off if we had waited until we bought a house that was the right size for the family we knew we eventually were going to have. So I would say, do not buy a house unless you are very confident that you'll be happy with it for seven to 10 years. Finally, I spoke with Motley Fool co-founder David Gardner about what he would say if he could hop in a time machine and give some advice to his recently graduated self or if he'd

just avoid the butterfly effect. I would definitely hop in the time machine. It's worth doing. And what I would say to my younger self is, wherever you are as you graduate, ask yourself, where are the bleeding edges of new technology in our society, in our culture?

And it almost doesn't matter what job you do. I would get to a company that's working in that space. So, for example, genomics, that's an exciting area. I'm an English major, but I would be telling myself, just go answer phones over there at the Genomics company. Or if you're a product manager, project manager, those kinds of experiences can be taken to any one of a whole bunch of different organizations. So I would really focus on where is the future and be there today. If you're trying to get to the future, would you give yourself any stock advice or is that insider trading if you go back to talk to your younger

yourself. I think, first of all, that it should not be considered insider trading. I definitely would give myself a few stock tips. And let's be clear, time travel clearly has not been invented because no one's been passing through our time as far as I can tell or any other time. And if it was invented in the future, we'd know it by now. When you're starting out in a job in your career, you're young and ambitious. What's the difference between being a rule breaker and more of a bridge burner. Well, first of all, a bridge burner to me implies that you are just thinking mainly about your own career.

And if things don't work, you're just going to burn that bridge and move on. And I hope you wouldn't burn the people that you leave behind you. I think even if in our early jobs, we don't stay very long as we get to know ourselves and what the world wants from us, I hope we're building good relationships with people all the way through. But I think part of being a rule breaker is that you are realizing it's not about you. you. It's actually about the rules that are being broken. It's about what's happening in our society in a good way that you can contribute to. So I know a lot of people, especially younger people we're

hearing, have not been as positive, understandably. We had our college interrupted by COVID, not as bright-eyed and bushy-tailed as maybe graduates of the past, but that's very temporary. And I think more than anything, the key to happiness and thriving is when you feel like you are a with a purpose in the organization for profit or not for profit that you're working for that fits who you are, that you're excited to get out of bed each day to go to work. That's such a good indicator. It's no secret that you're a diehard optimist. What's your advice to someone who's graduated or is about to graduate and they're feeling down

and out? Maybe it's because they're struggling to find a job or they kind of know where they want to be but are afraid that that job might be replaced by chat GPT or they're just scared of kind of leaving the structure of academia. Well, I have two thoughts for anybody who is feeling a little down and out. The first is if that's tied to loneliness, and I could easily understand that. In fact, the surgeon general said earlier this month that there's an epidemic in America. It's not cigarettes anymore.

It's not three packs a day. That was an earlier era. It's loneliness. And so if you are down and out, that might well be part of how you're feeling. And what I would say to you then is let's make sure we're getting out and connecting and building friendships. It helps a lot if you do have a job and you meet somebody who cares about you at work, your boss or somebody older than you, really value those relationships and look for those relationships.

But of course, your friends from college are making friends at work, making an effort, even if you're in a hybrid or remote work situation, to get to know people, even if you're working at a hybrid company, you can still have coffee with people, you can still go out to happy hours. So I think loneliness is a big problem right now, and I really just think the antidote is obvious, spend more time with others face to face. On the other hand, if it's not loneliness, it's just a sense of not knowing what you want to do. I would say that this is the smartest generation ever born. And part of how smart younger people are these days is they're so caring about what they want to spend their lives on. And the degree of angst felt by many,

in terms of what job you take and what that says about who you are or how you're spending the precious time we have on this earth, I think there's one aspect of it that can be a little bit overweening, that we might be overthinking things sometimes. And just get out there, get your feet wet, get active. And again, meet people. Yeah, you kind of started to touch on this just in pushing the idea of meeting people, even in a virtual first world. But beyond like friendships at work, how would you suggest someone go, like a young person, go about finding a mentor in the virtual first world? Well, I think that for me, a lot of it is either going to come from new relationships that you have. And, you know, virtual first still means real second, I think. I prefer virtual

second and real first. I think that's going to be the healthiest version of me and for most people. But if you do find yourself in a truly a virtual first environment, then you either have two choices is finding a mentor. The first is finding somebody new in that virtual or real environment. But the second is if you're somewhere around 21 years of age, you have 21 years of relationships that you've built up. I bet there are already people, school teachers, someone from church, somebody from a past summer job, parents, friends, uncles, aunts. There are lots of opportunities for us to get to spend time if you feel that you want to with somebody who has some wisdom for you. And I would say, try to seek out people who have a genuine interest in you. That's easy to

assume from family members or from past coaches, let's say. But if you're talking about new relationships, make sure that this is somebody that you trust is really thinking about your best version of yourself. That's easier said than done. But I think that's really important. The best mentors are going to be people who really want the best for us on our terms, not on theirs. Any party, advice for someone who's just recently graduated? You know, one other bit of advice that occurs to me is my experience with my first job, and that is I quit it within about four months of getting it. And in a lot of ways, as sort of the oldest child in my family and the classic duty-bound

elder child, I thought, you know, this is not what I should be doing. You shouldn't be taking a job and then not even nailing down your first year at that coming. That's not going to look good on your resume. The punchline is I had to help start a company instead of getting hired by anybody else's at that point. But I will say it was one of the best decisions I've ever made. After four months, I just let my employer know. It didn't feel like it was for me. I didn't really like the office culture very much. I didn't talk about that with them. But I just realized it was a creatively deadening job. And I sometimes ask myself, had I decided I should give it the old college

try and stay there, a minimum of two years, et cetera, I might have missed ever helping start a start the Motley Fool. And I certainly would have missed the excitement of the internet as it got started. And so I'm really so glad I pat my younger self on the back from time to time in my head that I've made the gutsy decision to leave a job that felt creatively deadening. As always, people on the program may have interests in the stocks they talk about. And the Motley Fool may have formal recommendations for or against. So don't buy stocks based solely on what you hear. I'm Mary Long. Thanks for listening. We'll see you tomorrow.