When I worked in corporate America, I was serious about my savings and retirement accounts. I needed them to have commas and a minimum number of digits in them. When I left corporate America for a creative career, my commas eventually left me. I've since embarked on a scavenger hunt to find them.
But seriously, though. I'm always interested in ways to generate income and grow my money. And despite my age, I'm not risk-averse. I'm OK with a bit of volatility because I want to maximize my return. I'm also open to investing funds outside of a traditional savings account, 401(k) or IRA as long as I'm not scammed because, like I mentioned, a sis does not play about her money.
That brings me to a few types of financial products we've been hearing a lot about these days, namely Forex, individual investment apps like Robinhood, and most recently, the group economics savings club called sou-sou.
Here's the scoop on all three:
The Tea On Forex
Forex is shorthand for foreign exchange, which is simply the process of buying one currency while simultaneously selling another one, but in this case, the goal is to make a profit. We're all familiar with the foreign exchange market, especially if we travel internationally or make international purchases. It's the world's most traded market with a daily turnover of $5.1 trillion. (The U.S. trades about $257B per day.) That's the easy part, understanding what it is.
The difficult part, at least for 60% of forex traders, is that it's extremely risky and you can lose all of your money quickly. It would take some real research to know what you're doing. For one, you need to be especially skilled in speculating the direction currencies are likely to take in the future. And two, you'll need to be pretty knowledgeable in the spot market.
The good news is that when you're ready, you can start trading with a minimal amount of money, sometimes as little as $5 to $10. However, some forex brokers require a minimum account deposit of $500 to $1,000. Forex.com has a downloadable guide that introduces you to trading currencies and walks you through your first trade.
Buying stocks as an individual may be a bit safer than forex––or at least it should be. And we should see our money add up, with a few dips and rebounds, over time.
The Tea On Robinhood
We've heard of apps like Acorns, Stash, Robinhood, and even Cash App where we can buy stocks or buy into portfolios directly from our phones. It's called micro-investing, which means we're only owning a fraction of a stock to begin with because the amount we're investing is much less than the full share price. Micro-investing also means micro results, as Dave Ramsey personality Chris Hogan says. Since you're putting in so little, say the spare change from your morning frappuccino, the return is small. And let's not forget to account for any monthly maintenance fees (not to be confused with $0 commission fees.)
Micro-investing is great for beginning investors who want to educate themselves but it's not a good way to build a retirement fund.
What's particularly interesting, or scary, about Robinhood and apps like it is that some critics consider it to be riskier than gambling, especially for young users, because it allows users to engage in margin trading. Margin trading is an investment option where you use "borrowed" money to trade. NPR recently reported that a 20-year-old may have lost upwards of $730,000 in margin trades. Mind you, a few of these apps have attracted mainly millennials and novice investors with free stock during this pandemic. They just kept on trading with no money. So again, it's important to know the terminology, how much you're spending and how much is physically in your account.
Another thing worth noting about Robinhood is its leaderboard, or a snapshot of the company stocks most Robinhood investors own, can be somewhat misleading or it provides an incomplete picture. It doesn't mean these are hot stocks investors should buy. For example, Hertz car rental was on the leaderboard but that was because tons of inexperienced investors were buying it. Hertz is actually in bankruptcy and had bet on another company buying them. It didn't happen so now Hertz has to scramble for even more funds in order to cover those stock purchases. Any shares Hertz issued after receiving permission from the bankruptcy courts is now worthless. And those Robinhood investors have simply lost their money.
The Tea On Sou-Sou Savings Clubs
If you're at a point where you say, "To heck with the foreign exchange market and those stocks, I'll stick with cash right now," then let's talk about the sou-sou that everyone's suddenly considering.
The sou-sou originated in West Africa but is widely practiced in African, Caribbean, Latino, and Asian immigrant communities as a way to raise quick money as a group and distribute lump sums to individuals to launch businesses, send kids to college, etc, upfront. I've even heard of an adapted version in the form of a birthday club, where members receive cash on their birthdays, and it's worked well for years.
How it works is that the group appoints one person to collect a set amount of funds from each member (including the collector.) The pool is paid out on a rotating basis to each member on a predetermined schedule. For example, if five individuals contribute $100 every week, then one person receives $500 every week and the cycle starts over after five weeks. It's particularly beneficial to the person who receives the initial payout if they needed it right away; they would've put in $100 and received the first $500 the following week. Granted they would need to put in the second $100 at that point, too, but you get my drift.
In the 2020 version, which surfaced after the rise of the Rona, the rules have changed. This more modern sou-sou requires a $500 contribution plus the introduction of two friends, who will also invest $500 each. In four weeks, the initial investor will receive $4,000.
To many people, this is where it begins to sound a little Ponzi-ish. In fact, The Washington Post posted a story in early August stating that the sou-sou is an illegal pyramid scheme. The article points out that "Eventually, the whole enterprise collapses and the last folks coming in — the wide base of the pyramid — lose their money."
At least in the traditional sou-sou, the math works but in the modern sou-sou, it seems that all of the funds aren't distributed and it raises the questions of who gets that money and what happens when investors leave the group — especially when they get their $4,000 — or no new ones join before current members get their return on their investment? That's both risky and unfair to say the least.
The best and safest way to reap the intended benefits of a sou-sou, in my opinion, is to go in with well-trusted individuals and not a group of iffy or flaky strangers.
Working as a freelance creative forces me to find different ways to earn money. Living in the thick of a pandemic forces us all to find ways to save and grow our money. Trust, I get that the uncertainty of it all does tempt us to want to try clever ways to maintain or reclaim those commas in our bank accounts. But it's also important for us to fully understand the pros and cons of these financial products if we want to keep those commas coming.
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