- Welcome to a new episode of "Bright Ideas",
where we're going to get real about savings goals.
And I can already hear you adding
"in this economy?" to the end of that phrase.
And I know personally,
because I went through a phase where I added the words
"in this economy?" to everything that I said,
whether it made sense or not actually.
And the answer is yes though,
because the milestones that are important to us,
they're just gonna keep milestoning.
So let's learn to prepare for them with you guessed it,
bright ideas.
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So you are gonna come out of this episode
with a whole new glossary of terms.
And who doesn't love expanding their vocab?
And while the saving and investing concepts
we'll talk about today can apply to just about all of us,
obviously, whatever savings goals you're tracking toward
are going to be personal to you and so is their timing.
Primarily today, we're gonna be talking about goals
that might hit us in the next year or couple of years
versus something super long-term like retirement,
which hopefully one day I'll be able to retire.
But spoiler alert,
we'll get around to that later this season.
And those goals don't even have to be all that serious
to qualify for being the focus of an investing strategy.
Somebody who does take generating short-term income
from investing seriously is Christine Thorpe.
Christine is an Institutional Portfolio Manager at Fidelity
and she's our first guest today,
here to talk to us about some ways investing strategies
can help us with the short-term savings goal.
Hi Christine, and welcome to "Bright Ideas".
- Hey, thanks Rod.
Well, I'm happy to be here
to talk about generating income for goals
that viewers might have on the horizon.
- Yes, we are a very goal-oriented generation
and that shows with the amount of hashtags
we've come up with that uses the word #goals, right?
But I've always tended to think about investing
as something that might take years and years to play out.
So the fact that it could help me in the short-term
is cool to know, but how does that work?
- So it really does all come back to your goals
and the timeline that you associate with those goals.
So it could be those goals that are most meaningful to you
that are coming up in the near term.
That could be a happy occasion,
maybe you're planning a wedding or you wanna buy a new car,
trade up the one you have.
It could also be maybe there's a big special trip
you have in mind.
- So folks can slide into an investing scenario
that could help even on those timelines?
- Yes, so one way we talk about sort of mapping towards
a short-term savings goals through investing
is with a strategy called fixed income investing.
Now, you probably know what the term fixed means
and you probably know what income means too.
- I mean, you're half right. I do know what income means.
Just kidding, I know what fixed means as well, I think.
But a further explanation would definitely help.
- Either way is okay, I'm gonna define as I go.
So the reason that a fixed income investing strategy
can work towards a savings goal is because
it's really based on a certain amount of money
that you've invested called the principal
and that generates regular cash flows
that you receive on a schedule that is fixed.
Now, I'm gonna give you an example
that's based on a real dollar amount
and I'm gonna talk about that in terms of a loan.
And the reason for that is because one common way
to generate fixed income is by purchasing a bond,
which essentially is a loan made to a bond issuer
and you get to collect regular interest on the loan
until the bond matures,
which is the date on which you are repaid in full.
So I'm phrasing it in terms of loan terms.
So you're the investor, I'm the bond issuer.
You're gonna loan me, let's say a hundred dollars
and I'm gonna have big plans for that.
- Well, congratulations.
- (chuckles) Thank you.
Now to you,
this loan looks like purchasing a bond, right?
So you're gonna ask me to pay back
that a hundred dollars in five years
and let's say you're gonna charge me some form of interest.
We'll call it 4% annually.
- [Rod] Okay and just to be clear,
this example is more for the sake of the amounts
and timeframe you're discussing rather than it being as DIY
or as person to person as it sounds.
- Yeah. Exactly.
There is a direct option for bonds for sure.
But you can also work with a professional
who can arrange all of this for you.
Now with your interest payments on the bond,
typically they're paid semi-annually.
So for the hundred dollars that you loaned,
that fixed income is gonna be a $2 payment in June
and then another $2 payment in December.
- Okay, now we're actually talking #goals.
- Yeah.
Well, I use a kind of snackable amount
for the sake of the example,
but you can see that knowing
when those regular interest payments are gonna hit
and in what amount can really be helpful
when you're tracking towards some type of savings goal.
- But I as the theoretical investor
would adjust my initial outlay accordingly,
or at least according to what I could afford
at that time to invest.
- Yes. Absolutely.
And knowing your time horizon as we like to say,
is just so important because that helps connect you
to the right investing tool,
which might be something like a money market fund or a CD.
- Okay, so you don't mean compact disk,
like that thing I burned in 2004?
- No, not in this case.
So CD is short for a certificate of deposit
and it's a fixed income investment
that's gonna pay a set rate of interest
over a fixed time period.
- Okay, before you mentioned time horizon.
And when I hear that,
I can already imagine this whole sci-fi time travel movie
what it would be called.
I'm already casting it in my head,
but what does it actually mean?
- Well, let me just say I would be the first to be in line
for that movie. - Well, thank you.
- But in this context, time horizon means
when would seeing a return on your investment
be the most meaningful for you or your goal.
Now let's say again,
going back to that wedding you're planning,
or maybe that new car you're buying,
something that you're doing in the next few years.
Then your time horizon might accommodate
a few interest payments from a shorter term bond
that could help get you to your goal.
- Yeah, I love that.
Now, as you know,
this is a series of conversations we're having
around some investing basics, all of them illuminating.
And that means I'm now able to do
callbacks to earlier episodes,
which I'm really excited about.
For example, we've learned about sustainable investing
or just in general making your investments
match things you actually care about.
Is that possible while still tracking towards
that short-term goal?
- Oh my gosh.
Well, first I'm so honored to be your first callback
to a previous episode and yes, definitely.
Now, if you covered sustainable investing,
I'm sure you covered thematic funds.
- [Rod] We did.
- [Christine] So investors can definitely choose
to plug into bond funds that screen for sustainability.
So I call that a win-win.
- Yeah, me too. I love that.
And where can viewers go if they want to dig a bit deeper
into fixed income investing?
- Sure.
So check out the URL that we've put up on screen for folks.
Hopefully this discussion we've had
is gonna provide some good context
for the terms and the tools that folks are gonna see there.
- Well, Christine, thank you so much for joining us.
I hope whatever lies on your immediate time horizon
keeps you happy and prosperous.
- Well, thanks Rod. Same to you.
- So when we're talking about creating extra savings
through a form of investing,
that's probably going to get bundled
with other forms of savings
that might be collecting in your bank account.
And all of it takes planning and discipline
and sometimes even unlearning some lessons
and habits we've picked up around money and savings.
Here to do a quick gut check
on overall savings behaviors is Sarah-Catherine Gutierrez,
author of the book, "But First, Save 10:
The One Simple Money Move That Will Change Your Life."
Sarah-Catherine, welcome.
- Thanks for having me Rod.
- Of course.
I mean, I would love to change my life
with one simple money move.
And as you know, a main theme of our show today
is how to go about saving for a shorter term goal.
- Yes and you could imagine this
because I wrote a whole book about it,
but to me, goals-based saving
is really the ultimate form of self-care.
- Self-care is so important.
And with luck,
you're just at the start of your earning potential.
- That is exactly right.
So what I'm trying to disrupt in my book
is this notion that we have this money coming in,
we pay our bills, we spend on discretionary items,
and then we hope that there's some savings on the other end.
That is a pay yourself last system.
In a pay yourself first system,
you get to become the CFO of your money.
So imagine this, you've got your income coming in
and then you've got your goals, whatever it is.
Maybe it's an emergency fund, maybe it's a longer goal,
like saving for retirement, the thing I love the most,
or even a short-term goal.
And so you put your money there first
and then you spend on your bills
and then you spend on any discretionary items.
This is a fundamental just shifting
of how you manage your money and it may seem simplistic,
but it's actually really powerful.
- Wow.
So this idea of paying yourself first for short-term goals,
I'm really interested in this.
So what would be the first step I would take?
- So again, sounds simplistic, but imagine this.
So you set your goal, it could be a small goal
and I'll get to an example in a second,
and then you set up a savings account
and then you name that savings account
very specifically for that goal.
So let's say that your best friends are getting married
within the year and you are gonna have a primary position
in that wedding.
And you estimate it's gonna cost about a thousand dollars.
So you set up a savings account, maybe call it "Wedding"
and then you transfer $125
from your checking account to your savings account.
There's your first deposit. But don't stop there.
Then you go into your bank and automate that.
So have the same transfer happen the same day
of every single month until you've achieved that goal.
- That's so insightful.
And I think a good thing
about establishing a savings practice
at an early stage in your career
is that you're at a formative time
in developing habits that are likely to stick with you.
Hopefully for the better, but either way,
for better or worse, they're likely to stay right there.
- And that's the most important goal.
So it has never been a better time to try to become a saver
because we have so much technology available to us.
And we now know from studies of our brain and money
that we have got to have something more
than just initial inspiration to be able to save.
You can have that initial inspiration
but when it wanes, automation,
make sure that you continue to save no matter what.
And in the end, it's not about saving that thousand dollars
for the wedding in my opinion.
In the end, it's maybe you being able to say,
"I am a saver."
Having the identity of a saver which is the lasting benefit
of having that first savings goal met.
- So this has been such a great conversation.
I love your presence here on "Bright Ideas"
and I thank you so much for being here.
- Oh my gosh. Thank you so much for having me.
- And if you're out there watching, thanks for tuning in.
I hope you have a savings goal for yourself,
even if it's a small one,
because it means you're invested in the future
and that's better than the alternative, right?
I also hope you feel a little bit more empowered
about reaching that goal.
I feel like personally I mastered a new concept
and that's fixed income investing.
And if that's something you wanna know more about too,
check out the Fidelity resource right here on your screen.
We'll see you next time.
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