Investing for Young Artists
While living in Los Angeles and traveling to New York, I have made a lot of friends that work in the industry. (Not the finance industry, the entertainment industry. ) These are the worlds artists, the creatives, storytellers, actors, makeup artists, production assistants and sound engineers. The list goes on and on. These careers are essential, but it comes at a cost. To be an artist you have to be a hustler, which means work is on a project by project basis with odd hours and many different employers at a time. Traditional employers provide 401ks, which are great investment vehicles where employers will contribute towards the investment fund. Artists on the other hand do not have this advantage. So what is an artist to do? Well there is hope. You don’t need a PhD in Finance to be financially independent and you don’t have to be a “starving artist” to enjoy life’s beauty. You can have both.
First off, investing is actually really simple. Its spending that will kill you. Once you have the discipline to spend less than what you bring in, you can begin the investing journey. Fortunately I’ve noticed many of my artist friends are actually really good at this savings concept. They’ve learned to live below their means. Investing is the foreign concept.
Here is a quick cheat sheet of what you need to do.
Open a ROTH IRA account with a brokerage company (TD Ameritrade, Fidelity, Charles Schwab etc.)
Set aside a few dollars every week towards this ROTH IRA account. (Start small even $20 a week makes a world of difference in the future. Check out my post on what a Starbucks a day is worth in 30 years.)
Invest in a Vanguard Total US Stock Market ETF (VTI) and Total International Stock Market ETF (VXUS)
Do NOT look at your account every day.
Open your account in 30 years and voila! you will be wealthier than 90% of investors.
I’ll go over each of these points one by one.
First open a ROTH IRA. Why? It has to do with taxes. As a young artist you likely will not make a lot of money. As you get older you WILL make a lot of money. Therefore when you are older you will be in a greater tax bracket. A ROTH IRA allows you to invest away your after tax earned dollars in almost any public investment, grow it tax free and withdraw that investment in retirement tax free. Essentially you are already being taxed now by the IRS and not taxed in the future when you want to withdrawal your funds.
Secondly you want to build a habit of putting away money every week into this ROTH IRA account. Building good habits is always hard. Starting small is the key. I recommend a few dollars a week is sufficient. In time you will get into the habit of putting away larger amounts. Keep in mind the maximum amount you can put away into this account is six thousand dollars per year. In time this should be your annual goal.
Third and most importantly. Invest into a diversified portfolio of global stocks such as a Total U.S. Stock Market ETF and Total International Stock Market ETF from either Vanguard, Blackrock or State Street. I personally use Vanguards VTI and VXUS. There are two reasons for using these funds, diversification and lower fees. You may have heard of the word diversification. Diversification allows you to obtain the greatest reward with the least amount of risk. The world of investing is hard. Its hard to find any one stock or asset that will do extraordinarily well, its even harder to avoid the many stocks that will have mediocre returns. Most stock returns are pedestrian. Most importantly you want to avoid total loss. With time on your side your job should be to make consistent returns, never total losses. Therefore you want to diversify across all asset classes and stocks. Also you want to avoid high fees for holding the entire market. Many investment funds will charge you 1% or greater to manage your money. This is a ripoff. For every $10,000 that is $100 a year that you could utilize for so much more. 1% a year may not sound like much now but over time as your investment account grows that fee will become a hefty amount. Many index funds such as Vanguard’s VTI charge just 0.03% annually. That’s just $3 for every $10,000 invested.
Fourthly do not look at your account everyday. The truth is you are young and it doesn’t really matter about finding the best stock or finding the right time to be in the market. Timing the markets vs time in the market are two very different things. It doesn’t matter what the market does today or tomorrow or next week. Nobody knows. Don’t be fooled by anyone that works in finance that tells you otherwise. What we do know is that over the span of many decades, the world does become a better place. Therefore your portfolio of diversified companies will also be in a much better place and your account size too.
That brings me to my fifth point. Open your account in 30 years and be happy. Over the years you will see people get rich and poor. You will have neighbors that win the lottery on some high flying stock and buy a brand new Ferrari or house in the fanciest neighborhood across the city. You on the hand will be consistent in your investments, letting them compound and grow. You may be surprised to know in those 30 years you will be much better off than many of your so called get rich quick friends. Those friends or neighbors that got rich quick, they spent it all on fancy cars and homes that were not necessary. Unfortunately many will have thought they had skill, continue to trade on the next hot investment trend, only to lose it all in one single bad trade. You will see friends lose a lot of money on bad financial advice or trendy investments. On those days be kind and humble. Do not brag. You on the other hand will have a fortune to do with whatever you want. You will be able to spend that money on anything. Travel, charity, fancy cars and clothes. The thing is you will probably not want to spend it on fancy cars and clothes because through your investment journey, you learned to be humble and enjoy life’s simple pleasures. Not the extravagant fake ones. You will be rich not only financially but in heart and spirit.