highyield

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We’re back and we’ve upgraded! After an extended break since March, we’re back with our regular Lev Finance and CLO podcasts, and with our updated logo. Stay tuned for even greater insights into the world corporates and CLOs.

In episode 5, Hina and Sandeep are joined by Paul Watters, head of EMEA Research at S&P to discuss global macro-economic conditions since the start of the Covid pandemic. Listen in as we also discuss the shape of the economic recovery, the divergence in performance between corporate sectors and how recent trading by European CLO managers highlights a similar trend pattern.

The U.S. Leveraged Finance and Recovery team is producing a monthly podcast series entitled “The Upgrade.” This series focuses on leveraged finance issuers that have upward rating potential, providing listeners with concise insights from the primary analyst along with relevant CLO market implications. In the time of Covid-19, other timely topics are also being discussed.

In episode 3 of “The Upgrade”, we discuss why retailer BJ's Wholesale Club Holdings was upgraded in the midst of the sharp downturn from COVID-10 containment measures and prospects for further improvement. Also discussed is CLO investor exposure to BJ’s before and after the upgrade.

Let’s address the elephant in the room first: what does the phrase “stock market” mean to you? 

Fear! Panic! Crash! 

We get it. But we’re here to tell you… the stock market ain’t that bad!

There are a lot of misconceptions about investing in the stock market, thanks to fear-mongering in the news, horror stories from family and friends, and a lack of education about the stock market in general. Your fears are valid, but they can also hold you back from growing your wealth. Your fears may also be why high yield savings seems like the better option for your money. 

In this episode (Episode 100, by the way 🎉), we talked about the differences between high yield savings and stocks. We know you’re probably a big fan of saving because it’s “safe,” right? Well, we’re about to rock your world.

WHAT YOU’LL LEARN

• [00:49] First, Danielle and Dustin get personal

• [05:40] Why people are talking about high yield savings

• [08:02] Comparing $10k in high yield savings vs. $10k in stocks 

• [08:28] The return on high yield savings

• [09:39] How the inflation rate affects your savings

• [10:44] The return on stocks

• [12:42] Which conditions affect your return

• [14:12] How high yield savings are best used

• [17:50] Why “high yield” is a misleading marketing term

• [19:52] How fear can hold you back from investing

• [22:19] Where misconceptions about the stock market come from

• [26:02] How to use fears to your advantage

• [27:45] What to remember when you hear a stock market horror story

• [30:04] The secret to investing

• [33:04] The three things to remember when investing

Comparing investments in high yield savings and stocks

What would happen if you put $10,000 in a high yield savings account five years ago, and it compounded 2.5% every year? You’d have a little over $11,000 now, just for keeping it in the bank. If you started ten years ago, make that a little over $12,000. If you added $100 into it every month, too, you’d have over $26k. Compound interest + saving =  a pretty decent return, right?

That’s what it looks like… but don’t forget about the inflation rate, folks. Online banks may sell you on a 2.5% compound interest rate, which seems better than other banks who might offer you less than 1%. But the inflation rate usually averages out to about the same. Which means, as we talk about in the episode, that you’re really just keeping up with the cost of living when you save with a high yield account! The interest rate and inflation rate are the same. You’re not growing your money; you’re treading water. *Insert Debbie Downer noise here*

So how can you actually potentially grow your money? With stocks. Using historical data, we found that if you invested $10,000 in the SMP 500 five years ago and it compounded yearly, your return would be nearly $17,000. How about ten years ago? You’d have nearly $35,000. 

And here’s the kicker: if you invested in the stock market ten years ago and added $100 every month, you’d have over $57,000. That’s more than double the amount in your hypothetical high yield savings — and it’s almost a 600% return on your money. Bananas, right??

Clearly, stocks are the winner, but that’s not to say that high yield savings accounts don’t have a place in your financial strategy. High yield savings are great for emergency funds, or having cash on hand should you need it for the next few years to buy a house, for example. Use a high yield savings account for your short-term bucket, and for the projects you know are happening in the next year or so. Stocks, on the other hand, are great for your long-term bucket, like saving for retirement or revivement.

Now that you’ve done the math and the proof is in the pudding… are you ready to start investing? Good. The rest of the episode is devoted to showing you how to get started!

Three steps to investing 

One of the biggest frustrations we hear when we talk to our clients about stocks is “Why weren’t we taught this stuff in school??!” Unfortunately, we’re just not told how beneficial this could be to our lives and security, but we’re gonna change all that for you. In the episode, we walk you through the first rule of Investing Club: don’t talk about Investing Club.

Just kidding. Your first step to investing in the stock market is to understand how it works so you can make informed decisions — and shout it from the rooftops if you want! In our library of resources, we have a Stock Market 101 resource you’re definitely gonna want to check out.

Step Two: Be disciplined. Tune out the noise from 24/7 news that will stress you out and make you worry about your investments. A disciplined approach to investing is dollar-cost averaging, where you put in the same amount of money each month like clockwork, no matter what the market is doing. As we said in the episode, dollar-cost averaging takes your ego out of the equation.

Step Three: Have a zen mindset. Okay, we know that you can’t completely tune out the noise around you. Instead of blocking out “negative” news, see it as a positive. Look at a market drop as a reset, not a reason to panic. Embrace the changes in the market and see it as part of your strategy. The stock market is composed of businesses, after all. Every business experiences peaks and valleys. That’s normal.

Know when to hold ‘em… and when to invest ‘em

Hopefully, this episode really helps you see the logic of investing in the stock market. With our three-step approach, you can overcome your fears of investing and finally stop leaving potential compound interest on the table. We dive deep into the stock market and high yield savings in this episode, including what conditions affect your investment and why “high yield savings” is a tricky marketing ploy.

So make sure to listen to the full episode to get all the other details and tidbits on this topic!

This material is for general information only and is not intended to provide specific advice or recommendations for any individual.

RESOURCES & PEOPLE MENTIONED

• Danielle’s personal Instagram @showmeyournola
• Psst...here’s Dustin’s Instagram too, @dustinrgranger
• NerdWallet’s Compound Interest Calculator
• The Bucket Strategy
• Saving for a revivement
• Get your Stock Market 101 resource now!
• Dollar-Cost Averaging (which we also discuss in Episode 17) 

CONNECT WITH DANIELLE AND DUSTIN

• Ask Your Questions
• On Facebook
• On Twitter

With George Putnam, Founder of New Generation Research and Editor of the "Turnaround Letter"