Episode 22 – Options & Margin Trading Features

I share what some intimidating investing terms ACTUALLY mean when you’re opening accounts. I help clients open up investment accounts all the time, and the most common roadblock they face is when they’re asked if they want to add these “trading features”: Options and Margin. In this episode, I explain what these fancy white men words mean.

Margin is basically all about borrowing money to buy stocks. I just use it to take out cash from my Brokerage account if I need to, but I transfer the money ASAP from my savings account to my Brokerage account so I don’t pay interest. Options trading is an advanced trading tool that I have also used in my day trading days, but I don’t anymore, because honestly, I would much rather buy stocks I can set and forget so I can move on with my baller ass life.  

The language of money is intended to be exclusionary, but I’m changing that. Say no to the margin and options features when opening investment accounts if you are a beginning investor. Here’s why!

Book a call to learn more about 1:1 money coaching.

Podcast Transcript Below:

Hello everybody. Welcome to the Unicorn Millionaire Podcast. I’m your host, Charly Stoever, a non-binary Latinx money coach, helping my first gen clients become millionaires. I’m a formerly undocumented Mexican American and currently digital nomad traveling all over the worlds. Super excited to have you here along with me on my journey.

I talk about personal finance, money, mindset, twerking, unicorns, rainbows, you name it. We’re here, we’re queer, and we are going to build wealth for ourselves and our communities.

I’m really excited today to talk to you about my client’s win. Which as a money coach, I feel like I get used to the amazing things that my clients are doing for themselves. Throughout the six months of working with me, I had one client who just finished six months of coaching and I just kept telling them how proud I was of them.

And their progress because when they first came to work with me, they were first like hiding guilty. And I get that so much that people feel like they don’t deserve to, to talk about money or build wealth. There’s a lot of stigma and shame we’re, we’re not out here trying to feel guilty and bad about building wealth anymore.

Cause it’s not about us. It’s about helping each other build wealth and live in a place of abundance instead of scarcity and fear. So it was really cool to end my six months with that client, who at first came to be very scared and shy about investing tens of thousands of dollars to then telling me that they were ready to.

Invest $30,000 in a brokerage account, and I helped them open up a Roth IRA at a brokerage account. And throughout our course working together, they’re of course very nervous to invest their money, and they started off in relatively small amounts. Sometimes I have clients investing a few dollars. To start off with that, this client started off investing $6,000 at a time, and then in the next two weeks, $10,000 and then they’re ready to make a $30,000 investment.

It’s so cool to see people’s progress once they understand how investing works. And I just got off a call with another client who is in her forties, has kids, and today we looked at her 401(k), which she previously wasn’t really understanding what the heck she was investing in, which I feel like a lot of people overlook what they’re investing in within their 401(k) because when you’re first starting a job, you’re excited about the coworkers and the benefits.

And what have you, and you gloss over your 401(k). But whenever I work with anybody who has a 401(k), it’s important to go over what that is because a lot of people come to me wanting to learn about investing, but you’re already investing. A lot of you are already investing thousands of dollars without really even knowing it.

So this client, In the morning, we went from at the start of the call to her saying, I don’t really know what’s going on in my 401(k). I’m just letting it grow. And I was like, we need to know exactly what you’re investing in so that you can understand what’s going on here for when you do decide to retire.

Her 401(k) had about almost $60,000 in it in a 20 year target date fund, which she didn’t understand what that was all about, but basically target date funds, I can see them as soon I know what they are. As soon as I see them, they have a date 2020, 2025, 2060, 2040, which means that you’re paying a team of rich white men to manage this fund for you actively so that by the time you hit the year 2040 or 2060, which is an arbitrary random day that you decide you’re going to be retiring.

By the time that date hits, the investments are going to be mostly converted to cash, which theoretically is good. If you’re ready to retire and you don’t want to deal with the swings of the stock market and what have you, you’re not gonna be worried about stock market crashes. However, that money is not going to be growing anymore cuz it’s, it’s no longer invested and it’s going to lose value to inflation, which right now is about 7%.

A lot of people are always excited about like, oh, my savings account, the interest rate is 3%. People always ask about what savings account has the highest interest rate? It’s all a scam. You’re still losing money to inflation in a savings account. It’s so important to have your emergency fund, but I am very aware that all of my cash is losing value every day to inflation, and I’m paying for that peace of mind knowing that it’s okay, it’s losing value, but if an emergency happens, if I wanna pay my bills, I’m not depending on what the stock market doing, cuz that can be dangerous as well.

By the end of the hour working with that client, we ended up with her deciding to leave that investment nearly $60,000 in that target date fund as it was. But we decided together, once she understood what the fuck was going on, to change the future allocations, which you can do within your 401(k). You can also call the 401(k) provider and ask them exactly how to do this or hire me to work with you and Zoom screen share, and I’ll explain it all.

She decided to just change how her future paychecks, what they were investing in too. And it was really cool to see that transformation of her going from, I don’t know, what I’m invested in to saying, okay, I’m going to have like whatever, 30% invested in what I’m already invested in. But the rest I’m gonna do a ladder of a target day fund invested 2050, 2060, 2065.

She understood that retirement is an arbitrary social construction. The IRS tells you that by the time you’re 59 and a half, you can start withdrawing from your retirement accounts, cuz it’s all be Gucci. Or when you’re 65, that’s when you should leave the job that you’ve been at for 35 years.

And that’s when you can start living your life and traveling the world. But as I’ve shown you, you can retire early. And for me, retiring early does not look like me. Chilling on the beach, doing nothing at all. For me, retiring early means, traveling the world, getting to spend as long as I want to in different countries.

I’ve been in Taiwan for a month and a half, and in, in two days I’m going to be in the Philippines. That’s what early retirement means, but I’m also still working and showing up, doing lives and podcasts and letting y’all know, uh, what’s going on in the finance world and making things less scary because it’s something that’s aligned with me in my life.

That’s retirement means to me, and I actually did another podcast episode on why to Retire Early doesn’t mean we’re chilling and not working. It means that we have the financial freedom and ability to say no to things that don’t align with us and say yes to things that do. And that includes helping others who are more and more marginalized than you are so we can all lift up and build together.

So a little tangent there, but I honestly love tangents and stories within stories, so, Back to my client. She ended up changing her future paycheck allocation contributions to have that ladder of target date funds. So let’s say in the year 2045 that whatever, 10, 20% that she chose will be converted to cash, but then she’ll still have other target date funds investing.

So 2050 fund, 2055 fund. They’re converting to cash at different times so that you know that even though you can withdraw part of your retirement account goes to cash, you’ll still be invested. And it’s important to remind y’all that investing isn’t about all or nothing. It’s about knowing what your options are and knowing that you cannot predict the future and you cannot depend on a date that society tells you that you’ll be able to retire and it’ll all be groovy.

We have to understand that there ebbs and flows, especially this year with the stock market being low. Last year, stock market was popping. I made $7,000 in my investments when I sold them, because I knew the stock market was over price. This year I’ve sold at a loss to lower my tax bill cuz I understood what I was doing and that the stock market is gonna be cyclical up and down.

So all of this informed how my client was able to decide, actually I do want to change my future investments. I understand what I did previously and I’m okay leaving that there. We don’t have to radically change everything, but she made the informed decision to change her future contributions and that was really powerful and really cool for her to see how quickly she could do that when she understood what was going on.

And I was like, if you don’t understand something or have a question, definitely hit me up. All my clients in between are calls every two weeks, have access to WhatsApp me questions, or you can call customer service if you’re working with me. Definitely utilize the WhatsApp feature, which is something that I also wanted to mention today.

I’m about to have a call with another client, Nora, who is 25, and I think it’s super cool that a 25 year old reached out to work with me. I think she’s the youngest client that I’ve had, and I’m like, dang, I wish I had somebody like me when I was 25 to teach me about investing because the younger you are, it’s less about the amount of money you have to invest and more about just getting freaking started because you have more time on your side to let that money grow.

And she also has a sister that she’s helping out with a retirement account, but Nora is a great example of a client who takes advantage of the WhatsApp feature and asks me questions in between calls. And she recently was trying to open up an investment account through Schwab, which is a low cost brokerage firm like Vanguard and Fidelity.

I personally use Schwab. She sent me a screenshot because she wasn’t sure about an account opening question that was asked. I’ve helped hundreds of people open up accounts when I was working as a stock broker, and it can be overwhelming. People throw around, like open up an investment account, start investing, but even just the account opening process, which is designed by rich white men and has that exclusionary language can be hella intimidating and overwhelming.

And one of the questions that I see people get tripped up on when they’re opening an investment account is the question, do you want to add the margin feature to this investment account? Which I think should be explained in detail. Personally, when I was working as a stockbroker, I saw a lot of people open accounts, but also inherit accounts that had the margin feature turned on.

Margin is just a fancy white men word for the ability to borrow money to trade stocks, which is insanely risky. We’re not out here borrowing money to invest. The stock market is already risky enough. You have no business as a new investor borrowing money to invest. I personally have the margin feature turned on, not to borrow money to invest.

Because my day trading days are over. One time I borrowed like $16,000 when the election was happening, when the stock market was zippity doo dying, uh, to buy shares of Amazon. It was like three or four shares of Amazon. Bought it, borrowed the money, sold that in like five minutes and made $200. I could have easily lost all that.

So that’s why I, I just use margin to take out cash if I need to, if I don’t have any money in my brokerage account. But you bet you’re ass the next day I’m transferring the money from my savings account to my brokerage account cuz I have atm card that reimburses me the fees.

I actually take out my cash from ATMs all over the world with the Schwab brokerage account, reimburse the ATM fee. So I don’t have to worry about foreign transaction fees, and that’s really convenient. But the interest rate for cash and brokerage accounts is crap. It’s even worse than in the high yield savings account that I have at Ally.

And I literally just use cash to take out from ATMs as needed, and in case I don’t have cash from my savings account, that’s why I have the margin feature turned on. But you, there’s also different requirements for margin. You have to have like $2,000, I believe, in value in stocks to even have that feature turned on.

I don’t recommend turning on the margin feature. I always tell my clients who are starting off say no. I can’t tell you how many people had no idea the margin features turned on. I remember one client at Schwab had the margin feature turned on for 10 years. He was basically borrowing money and had no idea until the stock market crashed.

And then he got a phone call from Schwab saying, pay up. You owe us. You’ve been borrowing money for 10 years. And Schwab’s not donating this money. These brokerages firms, they’re going to send you to collections if you can’t pay. They’re gonna sell your stock to cover that if you can’t transfer the money quickly.

And I saw this happen so much, I saw them sell out of millions of dollars of people’s stocks without their consent because they were owed money that they were borrowing, that they didn’t even know they were borrowing or that they were just trying to play the stock market and be risky. And that’s not where all what we’re about.

I teach my clients how to invest for the long term. I’ve lost thousands of dollars day trading. I’ve made a few hundred bucks, but it was not something that was aligned with me. Um, anymore. I feel so much more aligned, making money from my own business that I’ve started. That’s a social impact business.

That is my money coaching business. So I say no, say no to the margin feature. The other question that Nora asked that a lot of other clients ask is, what is the options feature? You get asked if you want to turn on the options feature. That’s another advanced trader feature too, that I’ve also dabbled in.

Again, made a couple hundred bucks, but I’ve also lost money through that. If you’re a beginning investor, click no. We’re not trying to day trade and use charts. Just say no to the margin feature and the options feature. Because I’ll help you buy the low cost index funds that are tracking the stock market, so you can put your money in there, invest, hopefully automatic investing every week, every month, consistently, whether or not the stock market is up or down so that it can grow over the long term.

So don’t even worry about margin or options, y’all. That’s some advanced trading stuff that I don’t even go into detail anymore with my clients because I don’t see the value. It’s too risky and I want you to make more informed strategic decisions with your money. I share this to show you how exclusionary just even the account opening process can be.

But hopefully this helps you understand what they’re asking so that you don’t feel as intimidated when you are opening up an investment account and it does feel like something that you’re able to. So if you’d like to work with me, I want to work with you to help you build wealth. DM me book a call at the link in my bio to get started so that we can open accounts together, invest together, and uh, start off the new year.

Right? And I said this before, and I’ll say it again. We don’t have to wait until the new year starts. We can start now getting your mindset right and getting your money right so that you can live the life of your dreams, become financially independent, reach that millionaire status before you think, which will happen a lot faster than you think, as long as you’re being strategic and taking responsibility for your money.

And I’d love to help you out on that journey. So that’s y’all, I’ll send pics and share more when I’m in the Philippines and I’m super excited and blessed to be on this journey and so grateful for y’all. If you could please leave a review on the podcast, if you leave a written review on Apple Podcast, I really appreciate that.

Thank you all. Have a great day.