Smart Money Podcast: Refresh Your Fall Finances: A Money Check-Up and Investment Diversification Deep Dive

Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:

Get fall-ready with budgeting tips and strategies for diversifying your investment portfolio to achieve financial goals.

How can you reset your finances for fall and prepare for the holiday season? Can you grow an undiversified investment portfolio by $28,000 over seven years without additional contributions? Hosts Sean Pyles and Sara Rathner discuss seasonal budgeting and investment diversification to help you understand how to effectively manage your money during the fall season and optimize your investment strategies for long-term growth. They begin with a discussion of preparing your finances for fall, with tips and tricks on reviewing your summer spending, adjusting savings goals for the holidays, and early holiday planning.

Then, Smart Money cohost Elizabeth Ayoola joins Sean and Sara to help answer a listener’s question about how they can diversify their investment portfolio to reach a savings goal of $28,000 over four years. They discuss the importance of mitigating risks through diversification, real-life cautionary tales of emotional attachment to investments, and the complexities of assessing stock performance.

Use NerdWallet’s free investment calculator to estimate how much your investments or savings will compound over time, based on factors like how much you plan to save or invest, your initial deposit and your expected rate of return: https://www.nerdwallet.com/calculator/investment-calculator

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Have a money question? Text or call us at 901-730-6373. Or you can email us at [email protected]. To hear previous episodes, go to the podcast homepage.

Episode transcript

This transcript was generated from podcast audio by an AI tool.

Sara Rathner:

Hey, Sean, are you ready for fall?

Sean Pyles:

I'm so ready for fall, Sara. I have lived in the Pacific Northwest long enough where after just a few weeks, really, of sun and heat, I begin to miss the coziness of rain and cloud cover. Plus, the pumpkins in my garden are looking more and more like jack-o'-lantern fodder by the day. So I say bring on the fall.

Sara Rathner:

Yeah, I'm with you. I am so over just the back-to-back heat waves that we've been experiencing where I live. I just want to wear a light jacket anytime I go outside. I think I look better in it.

Sean Pyles:

Yeah, it sounds nice.

Sara Rathner:

Well, listener, whether you're grasping onto the last bits of summer or you're already drinking pumpkin spice lattes, even though it's still about 85 degrees where you live, this episode will give you some tips to prepare your finances for the coziest season of them all.

Sean Pyles:

Welcome to NerdWallet's Smart Money Podcast. I'm Sean Pyles.

Sara Rathner:

And I'm Sara Rathner. In this episode, Sean and I are joined later by our co-host, Elizabeth Ayoola, to answer a listener's question about how they can hit their investment goals with a pretty undiversified portfolio.

Sean Pyles:

But first, Sara and I have three fabulous financial tips for fall. We'll help you pick up the pieces if your finances got a little scattered over the summer and get you on track to finish the year strong.

Sara Rathner:

This is a great time for a financial reset because summer can be so expensive. So what should folks do first to prep their finances for the new season?

Sean Pyles:

I would say folks can start by reestablishing your baseline because it can be easy to get a little lax with your finances and budgeting over the summer, but now that vacations and summer events are winding down, take stock of what you did financially this past season. Pull up your budgeting app or spreadsheet or even your bank and credit card statements and review what you did with your money.

I realize this can be an anxiety-inducing exercise for some people, so try to look at your summer spending as if you are looking at someone else's information. Introducing some separation from your actions can help you review them a little more neutrally. So you might see, "Oh, this person spent $70 on margaritas one night. Good for them. I hope they had fun." But now they might want to direct a little more money into savings.

Sara Rathner:

That can definitely help you look at your spending a little less judgmentally because it's so hard to review where your money went because you don't necessarily know where it went until you actually see the list and oh, the shame.

Sean Pyles:

Yeah, especially if you've had $70 worth of margaritas, you may not know what you've done.

Sara Rathner:

Maybe they were really good margaritas though.

Sean Pyles:

Depending on where you live, it might not even be that many margaritas.

Sara Rathner:

That could be one margarita if you're in New York City.

Sean Pyles:

Yeah.

Sara Rathner:

So once you've gone through that exercise and made it as minimally painful as possible, you’ve reviewed your finances from this summer, think about one thing you want to keep doing, like having margaritas, and one thing that you want to improve, like having margaritas but maybe fewer of them. And maybe you kicked butt on your savings goals for the summer, which is great, take this opportunity to give yourself a pat on the back, but as we head into the fall, maybe you can bump up the amount you're saving to prepare for holiday expenses, like if you're saving $25 a month, maybe save $40 a month.

Sean Pyles:

And on the flip side, what is the one thing that you want to change? Maybe as you were reviewing your accounts, you realized that your credit card balance is getting a little high. Obviously, in an ideal world, we could all pay off our credit card balances monthly, but this expensive world we live in is less than ideal.

Think about what expenses you can cut back on even just for the next month so you can have more cash to pay down that credit card debt. And then beyond credit card debt, no matter what is going on with your money, my challenge to you is to find one thing in your finances that you can change for the better as we head into fall.

Sara Rathner:

All right, next up, we alluded to this a little bit earlier, but you know they're coming: prepare for the holidays. Yeah, I know, it seems early, but they're coming fast and it's already September, so just around the corner. There are two parts to this. First, know how much you want to spend on gifts this year, and then make a plan for your holiday travel or other expenses like entertaining.

Sean Pyles:

So on the first one, you might be thinking that it is way too early to make your holiday gift list, but I would argue that right now is the perfect time to do it. Sitting here in September, we have a little remove from the emotional intensity of the holiday season. So you can use this time to make a list of everyone that you want to get a gift for and think about what is a reasonable amount to spend on them.

It's better to do this now before you are swept up in the excitement of shopping and your budget just goes out the window. Also, bonus tip, think about actually doing some of your holiday shopping now if you know what you want to get someone. This can help you spread out your holiday expenses so you're not dropping a bunch of cash on gifts at once. My personal approach is to try to find gifts for people on my list throughout the year, especially when I travel.

Sara Rathner:

Speaking of holiday travel, if you haven't started doing some research about Thanksgiving, now is the time if you're planning on booking flights or hotels. Pull up Google Flights or wherever you find your flights and see what your options are. And if you can, extending your travel around the holiday, so potentially flying out the Sunday before Thanksgiving and then flying back the Sunday after, could be a cheaper way to book your flights. Or maybe you're driving, leave on Thursday, like Thanksgiving Day, instead of the Wednesday or Tuesday before when everybody else is out on the road. That can save you a lot of angst too because sitting in traffic is the worst.

Sean Pyles:

Yeah, we're currently running a series all about holiday travel, so if you want more holiday travel tips like how you can save on luggage expenses and make the most of your credit card points this holiday season, I recommend you give that a listen. Okay, onto our next tip so you can prepare yourself for the fall: brace yourself for open enrollment.

Sara Rathner:

I hate open enrollment, and I'll be honest with you.

Sean Pyles:

It is not fun, but it's important to prepare for, Sara.

Sara Rathner:

I know, but logistically, it's hard. Here's my beef. Let's say you're married or partnered, your open enrollment and their open enrollment are never at the same time, so you can't actually compare who's got the better insurance at the same time. You just have to go with whoever's first. So let's fix that, America. I don't know, just fix it.

Sean Pyles:

There's a frustrating amount of guesswork in the open enrollment process.

Sara Rathner:

Yeah, nobody I call at the insurance company can be like, "This is exactly how much this procedure is going to cost you with this plan." They can't do it. They can't tell me anything. It's the worst.

Sean Pyles:

You often also can't anticipate if you'll even need a procedure like that, right?

Sara Rathner:

Yeah. How do you predict this stuff? If you are sitting there dreading upcoming open enrollment, you should know that we are with you in the trenches and nobody's happy. So listen, this is the time of year to think about what kind of healthcare you want. Your employer might be providing information pretty soon about what plan options they're going to offer for the next year. Pay attention to those communications and look over your options. So for me, I'm actually considering paying slightly higher premiums for a lower deductible because I find that I'm avoiding doctor appointments out of fear of the out-of-pocket costs, and that's not good for my health.

Sean Pyles:

Not good, Sara. No, no,

Sara Rathner:

I know, but it's reality. That's the thing. I was quoted a diagnostic test that would've been $800 out-of-pocket. What do you do? So if I can blow through my deductible a little bit more quickly, I will be more likely to feel okay seeing specialists later on in the year, and that's the trick I'm going to play on myself.

Sean Pyles:

There you go. Whatever it takes.

Sara Rathner:

America, healthcare is great. Everything is fine. If you've got the time and open enrollment's coming up for you, for some people, it's in the spring, but for many, it's in the fall, spend an hour or two thinking about your needs, your family's expected healthcare needs, and what kind of insurance might be the best fit out of the options you're given.

Sean Pyles:

And while you're at it, since we're on the topic of exciting fun things to do, take a moment to review a little something called your beneficiary designations on your accounts. This can be for your bank accounts, health savings accounts, retirement accounts, that sort of thing. Your beneficiary designation directs who would get the money in that account upon your death.

And yeah, sure, you probably don't want to be thinking about death, but really, setting these up and making sure that they currently reflect who you'd want to get that money, not your ex-boyfriend or that sibling that you don't talk to anymore. It's super important and it really doesn't take that much time to do. We all know that a lot of people don't have wills, even though they should. So this is a really easy way to look out for your loved ones without having to draft a formal will.

Sara Rathner:

Yes, and no matter the time of year, it doesn't have to be open enrollment, it could be anytime, always review your beneficiaries after any major life change like getting married or divorced or having a child.

Sean Pyles:

Yes. Solid advice. Well, listeners, I hope this helps you manage some of the administrative burden of life as we head into fall and enjoy this cozy season.

Sara Rathner:

Yeah, go pick some apples. You've done the administrative stuff, now reward yourself with a uniquely fall activity.

Sean Pyles:

Exactly.

Sara Rathner:

And then after you picked those apples at a farm, go realize that it's cheaper and easier just to buy them in the grocery store.

Sean Pyles:

But then you don't get the cute Instagram photo from that. That's what you're really paying for.

Sara Rathner:

You could just buy some apples in the grocery store, put them in a bowl, and take a picture of it and post it to Instagram and it'll cost you less and it'll have the same effect.

Sean Pyles:

That's fair.

Sara Rathner:

Yeah. Follow me for more money tips.

Sean Pyles:

Love the budget hacking tips. Thank you, Sara.

Sara Rathner:

Yeah.

Sean Pyles:

Awesome. Well, let's move on to this episode's money question segment. That's coming up in a moment. Stay with us.

Sara Rathner:

We're back and answering your real-world questions to help you make smarter decisions about your money. This episode's question comes from Cat who sent us an email. Here it is.

"Good morning, Sean and Sara, and hello to Liz. Hoping she's enjoying retirement. I have a goal to save $44,000 over the course of seven years. I currently have $16,000 in a Computershare stock purchase. I usually receive a return of $400 annually. I received a windfall of $10,000 from an inheritance from a family member in 2004 and purchased stock in only one company because my dad worked there, funded my education with his stock sale, and I'm loyal to the brand. I have sold about $8,000 worth for some home renovations over the years. All that being said, what's the best way to diversify this investment to reach my $44,000 goal by 2031? So increased by $28,000 or about $4,000 a year. Is this even possible?"

Sean Pyles:

To help us answer Cat's question on this episode of the podcast, Sara and I are joined by our other co-host, Elizabeth Ayoola. Hey, Elizabeth.

Elizabeth Ayoola:

Hey, guys. I love this topic and I am hoping that the universe is hearing and is going to send me a windfall because moving is hurting my feelings. The cost is hurting my feelings.

Sean Pyles:

It's expensive.

Elizabeth Ayoola:

It would be awesome.

Sara Rathner:

All right, so before we get into Cat's question, this is a good time to remind our listeners that we are not investment advisors and this is not individualized advice. What we nerdy people are about to discuss is for general educational purposes only.

Sean Pyles:

Thank you for that reminder, Sara. Okay, so our listener has a really interesting investing puzzle. They have an undiversified portfolio and a very specific investing target. They want to grow their money by $28,000 in a matter of seven years. Without any additional investments, this is likely impossible, but fortunately, our listener has a lot of options available to them to mix up their investing strategy that might get them closer to their goal.

So I ran some numbers in NerdWallet's investing calculator using the average annual after inflation return of the stock market on the whole, which admittedly is a little bit different from what our listener is currently dealing with because they have a pretty undiversified portfolio. It's really just in one stock.

Elizabeth Ayoola:

So what did you find, Sean?

Sean Pyles:

Okay, so I ran a few different scenarios. One where they don't invest any additional money and get a 7% return. In that case, their balance is estimated to be about $26,000 in seven years, and that's an increase of about $10,000, but it's not where they want it to be. Another scenario I ran is one where they invest $150 per month in a diversified portfolio that reflects the stock market and they get that same 7% return. That would get them to a little over $42,000 in seven years, and that's fairly close to their goal, but still not quite there.

Then I ran a third scenario where they invest $200 per month in a diversified portfolio, but only get 5% growth on their investments. In this case, their balance would be a little under $43,000 after seven years, so that's getting them to their goal, effectively. So what's the point of running all these numbers? It's to show that there is a huge range of possible outcomes when you invest, and your returns are going to depend on a lot of factors, including how much you can continue to invest, the return of the market, and importantly, the types of investments that you hold.

Sara Rathner:

Yeah, inflation has something to do with it too, so you definitely want to keep that in mind. What I like about looking at the numbers this way is it gives you a monthly contribution goal because it's so easy to say, "I want a five-figure sum in a few years," or, "I have X amount of dollars to invest per year," but somehow it seems attainable if you break it down into how much you need to contribute per month because then you could work it into your budget with all of your other monthly expenses.

Elizabeth Ayoola:

I know that's right. And I actually love calculators for that reason. I always end up motivated when I'm bored in my free time. Who uses calculators in their free time? Anyway.

Sara Rathner:

We do.

Sean Pyles:

You do.

Elizabeth Ayoola:

Right. I do. But I love to see the potential returns that I could get. And I do think these tentative numbers are great, but I also still worry about the risk, as the listener does too, because there's no guarantee the company they're invested in or the stock market will yield any of the mentioned yields consistently over the next few years. So I think this is a good time to touch on the diversification piece because that can increase the odds of the listener achieving their goal.

Sean Pyles:

Absolutely. And I want to talk about why Cat's portfolio might be so undiversified. I suspect it has to do with something called familiarity bias. With familiarity bias in investing, people tend to invest in companies that they are familiar with, as you might imagine. In Cat's case, it's the one that their dad worked at.

Sometimes this happens when people work for a company for many years and they want to keep investing in it because they believe in the company's performance, it helped them over their life, and they probably still feel some kind of loyalty to that company. But this can be a very risky way to invest. So, Sara and Elizabeth, I would love to hear what you think about this kind of investing strategy and what it could mean long term for someone.

Elizabeth Ayoola:

I love when people ask me what I think. Okay. I think it's noble to want to invest in a company that you have some kind of sentimental attachment to, but I don't think it's the best financial strategy because companies can underperform at any time, right? I do think a great real-life example for me is that I was recently looking to rent a house and I only applied to one house and I fell in love with that house. The shower was incredible.

I was picturing myself in the house, all the things I'm going to be doing, quote-unquote, manifesting, and then unfortunately, I did not get the house and I shed some tears. And I had to start back at square one because I did not diversify my options. And there was some financial risk too because I went all the way to the place I'm moving to, spent money to look at all these houses, and in the end, didn't yield any fruit.

Sean Pyles:

Yeah, you put all your eggs in one basket-

Elizabeth Ayoola:

I did.

Sean Pyles:

... and that's the risk of not diversifying, right?

Elizabeth Ayoola:

Mm-hmm.

Sara Rathner:

Yeah. Not only do you have that risk of putting too many eggs in one basket, but simply investing in a company because it's familiar to you doesn't necessarily make it a good company to invest in. How familiar was Enron to a bunch of people, right?

Sean Pyles:

Yeah.

Sara Rathner:

We all know what happened there. So the thing is, companies are run by human beings and human beings are flawed. Companies are susceptible to things that could affect their performance over time that any one person who works in the company can't necessarily control all these forces outside of the company that affect it.

The thing is, there are ways that you could analyze performance and assess a stock's fair market value to determine if it's a good time to buy or sell shares of that company. But honestly, most of us don't have the knowledge and experience to do that analysis.

Sean Pyles:

Or the time.

Sara Rathner:

Or the time. I don't want to do it. That's a lot of spreadsheets, guys.

Sean Pyles:

Yes.

Sara Rathner:

So then you're left picking a stock based on feelings, which is essentially gambling. It's pulling a lever on a slot machine. There's no art, science, or math involved in making that decision. It's literally just, "Well, I've heard of this company. My friend works there, my family member works there, I've worked there. I like the people there. I like their product." That's all good, and that's a really great place to start, but it's not the only determining factor in whether or not to invest in a company. That's why diversifying your investments can be so helpful because it saves you from yourself and your flawed decision-making. And we all have flawed decision-making, even us.

Sean Pyles:

Right. If someone really wants to invest in a company because they just love that company, that could be their financial goal. However, Cat's goal is to grow their money, and as we know, the best way to do that typically is by having a well-diversified portfolio that is just more efficient on the whole. Let's talk a bit about how Cat could diversify that portfolio of theirs. To do this, they would probably first have to sell a certain amount of shares in the stock that they are currently invested in, the one from their father's company.

That would give them cash to then invest in a more diversified way. And I should note here that there are tax implications to selling stock, but I will leave that rabbit hole unspelunked for now because it is a deep one and I don't want to get lost in there. But, team, let's talk about this with the perpetual caveat that we are not directing Cat or anyone else how to invest, what are your thoughts and ideas around how to invest cash that is more diversified than going into a single company that your dad worked at?

Sara Rathner:

I've actually done this. I held stock in a former employer, and at the time, because of where I was in life, it ended up being a pretty high percentage of my overall portfolio and it was making me a little uncomfortable, so I sold off some of that stock to reinvest in index funds. And I did owe some taxes on the gains, but otherwise, it was a pretty forward process, sell the stock, get the cash, and then use it to buy shares of funds, done.

Elizabeth Ayoola:

I have actually not done that. I don't have experience in that, but one thing I will say is I invest mostly in index funds and ETFs.

Sean Pyles:

And let's quickly just state what index funds and ETFs are for people who may not know.

Elizabeth Ayoola:

They're essentially like a basket of stock. You get a little bit of this, a little bit of that. There are different kinds of ETFs and index funds that you can get that exposes you to different industries and different types of companies so that if one is underperforming, hopefully, the other one is doing pretty well.

Sean Pyles:

And they can mirror the performance of the market on the whole, depending on what type of index fund or ETF you're investing in.

Elizabeth Ayoola:

Exactly. Did y'all know that Sean was studying for his CFP exam? See, the knowledge is poking through.

Sean Pyles:

Just sprinkling it throughout the conversation.

Sara Rathner:

This is how he reviews course material.

Sean Pyles:

Truly it is. Yes. Anyway, go ahead, Elizabeth.

Elizabeth Ayoola:

I do have some stock that I am hoarding, and to be honest, I do need to sell it and would like to put it in an index fund because I have quite a bit of it. What the listener could do if they're savvy with investing is do some research and analysis to see which stocks have consistently performed over the past few years and invest in those companies. But I have to put a clause there.

They should also keep in mind that just because the stock did well in the past, it doesn't guarantee it will in the future, and that, my dears, is the risk of investing. They will need to know how to do the numbers to do that. There are different websites and platforms they can use to do that. There's also the option of throwing their money into an index fund or a mutual fund with relatively high returns, but again, they need a calculator to run the numbers. Another alternative is to pay a fee-only investment advisor who can give them some strategies to try.

Sean Pyles:

And another pretty easy option that might be really cost-effective too for Cat, and this is something that I do, is regularly investing in a robo-advisor account where you can tell the platform what your financial goals are, what your timeline is, and then I make regular deposits into this account. I basically am saying, "Hey, I want to retire this year, so right now when I have a long time horizon, let's maybe have some riskier investments and then taper them off to be less risky as I get closer to when I want to actually have this money to spend and fund my life." So robo-advisors do a lot of that heavy lifting for you. They're really inexpensive. So I think that there are all sorts of great options for someone like Cat to look into in terms of ways to invest their money that make it so they don't have to do a lot of the work themselves.

Sara Rathner:

Yeah. And, Sean, you mentioned investment timeline, so let's talk about that. Let's talk about Cat's investment timeline, which they say is seven years. What could that mean for their investment options?

Sean Pyles:

Yeah. Well, that actually is so key to this whole puzzle that I'm so interested in. A lot of financial advisors and investment advisors will recommend that you don't invest money that you need within five years, and that is to account for the volatility of the stock market. You want to give yourself the best shot that you possibly can to have your money grow while, of course, understanding there are no guarantees with investing, really.

With that in mind, Cat is pretty close to that five-year benchmark, and if I were them, I would probably choose something like a lower-risk ETF or index fund so that I have less of a chance of losing the money that I'm putting into the stocks that I'm going to be hoping grow for me. If they want to be even more conservative, Cat could just funnel as much money as possible into a high-yield savings account.

Elizabeth Ayoola:

Yeah, I definitely second the savings account because I had just been popping in there, unfortunately, having to make withdrawals for this move, and I've been seeing lots of green that didn't come from me. So I've been getting some nice healthy deposits in there from the great interest rate. So that's definitely a good option for people.

Sara Rathner:

And with such a specific goal and a specific timeframe, that tells me that Cat already has a plan for that money, because if not, why seven years and $44,000? Those are not even round numbers.

Sean Pyles:

Yeah, I'm really wondering what Cat's doing with this money.

Sara Rathner:

Why not 10 years and $50,000? You know what I mean? What's going on, Cat? Follow up with us. Tell us what's going on with you.

Sean Pyles:

Please tell us. Yeah, we're nosy.

Sara Rathner:

I'm so curious.

Sean Pyles:

Let us know.

Sara Rathner:

You want to invest with that timeframe in mind, and then if your goals change, you can also make changes to how your money is invested. So maybe things change for you and you're like, "Well, I can bump this goal out another three years. What does that change for me?" So periodically reassess, because even though seven years is a pretty short timeframe when it comes to the investing world, it's still time to reevaluate once in a while what you're doing and if it's working for you.

Sean Pyles:

Well, I think that about covers it. Cat, I really hope this helps you achieve your investing goals.

Sara Rathner:

And that's all we have for this episode. Remember, we're here for you and your money decisions. So turn to the Nerds and call or text us your questions at 901-730-6373. That's 901-730-N-E-R-D. You can also email us at [email protected]. Also visit nerdwallet.com/podcast for more info on this episode. And remember, you can follow the show on your favorite podcast app, including Spotify, Apple Podcasts, and iHeartRadio to automatically download new episodes.

Sean Pyles:

And here's our brief disclaimer, yet again. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.

Elizabeth Ayoola: