How to use historical stock market data to build your investing intuition, and move one step closer to becoming an investing superhero
On Monday, October 17, 1987, the S&P 500 dropped a little over 20%. Going back to 1950, this was the single worst one-day drop in the stock market. It showed and taught a lot then, and it can still teach market participants and investors today if they are willing to listen.
Historical financial data can be magical - it can help you travel into the past and see the forests from the trees. By listening to historical data, we can more easily understand that a single-day drop of 20% in an index such as the S&P 500 is possible. By knowing that a 20% stock market drop is possible -- and by seeing the number present itself to us in the data -- we can better understand the risks we face by investing and participating in the financial world.
How do we know whats or of stock market drops are possible?
What exactly does possible mean in the context of investing and considering severe market declines? Sure, we know it's "possible" for the S&P 500 to drop by this amount or that amount. But until you ground your understanding in some historical data, you're not going understand this possibility at a deep level.
Observing the S&P 500's daily price movements will help you learn what sort of severe drops are possible for your portfolio
First, a quick note on using the S&P 500: The S&P 500 is a great place to start because it's a reasonable proxy for the market. The S&P 500 surely doesn't represent the entire market of equities, financial assets, and let alone of all assets; but, it's a reasonable and easily-manipulatable proxy for "the market."
If we care about how bad things can get in a single day (eg. an extremely severe yet plausible one day decline in your portfolio), we'll want to look at daily price data. This type of data is readily available online. There's a lot of free data, but you'll have to pay to access longer time horizons or more esoteric data.
Below, we have S&P 500 data April 3, 1950 to September 6, 2019. This represents an almost 70-year time horizon, a bit less than the expected lifespan of a person today. You can see this in the screenshots below (bottom and top of the table shown; table ordered earliest to latest).
The data has three columns - one shows the date, the other the closing price of the S&P 500 on that date, and the last column is the day-over-day change int he S&P 500 stated as a percent. The day-over-day change is easy to calculate - it's merely the one day change divided by the previous day's closing price. Declared as a formula, it is: [Day 2 - Day 1]/Day 1
This is called the arithmetic return. More complex return types -- namely the geometric return -- exist, but they are outside the scope of this discussion. The simple arithmetic return above is sufficient for our purposes.
Observing financial market data can teach you a lot and help to build a bit of market-related intuition
Just observing stock market data like this can be useful. Exploring data visually without graphing it can give us some interesting and potentially-valuable preliminary insights. This is especially true for people who haven't done this sort of data analysis before. For example, we can observe that in the very beginning of our data set (the first few days of April 1950), the S&P 500 was around $18. This is in sharp contrast to the almost $3000 S&P 500 level we observe below for September 2019. This plainly shows us that there has been some dramatic growth over the last 70 years in absolute metrics.
Although we can see some things by observing the financial data, it's hard to determine summary statistics about the S&P 500 data set visually. Stats like mean, median, minimum, and maximum are hard to see because all of the data needs to be taken into account. Taking all of the data into account can't easily be done relying on the human mind - it's just not what it's made to do. The data set has almost 17,500 rows - that's simply too much to comprehend without the use of computing devices/methods (or without a considerable amount of time to devote to this endeavor). Luckily, such devices/methods are easily available for free (eg. Google Sheets) or cheap (eg. Microsoft Excel) in the form of software. More complex options are available that are both free and paid (eg. R, Matlab, Tableau, etc.). Something like Microsoft Excel would be enough for the vast majority of use cases, however.
Finding the minimum, or the worst stock market day over the last 70 years
Some relatively easy functions can be used in Excel -- the tool of choice for most finance people -- to get some stats on the data. In the screenshot below, you can see the average, the max, and the min. The min is what we care about most here - it represents the lowest day-over-day S&P 500 change; it represents the most severe single-day drop in the S&P 500 over the last 70 years.
We can see that the worst drop is -20.47%. That means that in one single day, the stock market effectively dropped by over 20%.
Black Monday - an over 20% one day drop in the stock market
We can see the drop occurred on Monday, October 19, 1987, by examing our data set in greater detail. By filtering the data from largest to smallest, we can see what date corresponds to the worst stock market drop. Once we have the date, we can observe what happened around it in the days before and after Black Monday, which is what Monday, October 19, 1987is called in the financial industry.
The image below is the copied and pasted data from around Black Monday. It's interesting and useful to observe what happened around that time. We can see in the 10 days around Black Monday, 7 out of 10 days were losing days. We can also combine the losses to see what the cumulative loss over the 10-day period would have been. We can see that it's even worse - over the 10 days, the stock market dropped over 26%.
That means you could wake up one day over the course of your investing life and see that your portfolio is down 20% in a single day. That event would be tough to deal with - you'd be in for a very rough day and rough week. It would take some time to recover from the loss, but recovery would definitely be possible. A mistake, however, would be to panic and deviate form your long term investment strategy for no real reason beyond the fact that you're freaked out.
Use this knowledge to avoid panic sales and other forms of freaking out during the next inevitable stock market disaster
We all get freaked out in investing - it's your money that's on the line, and you don't want to lose it. Even small drops can seem bad. Even times where there's no movement could be perceived as bad if you were anticipating gains. You can't let these investing difficulties make you make investing mistakes, however. You've got to do your best to maintain a long-term perspective on investing. Something that helps us do that is exercises like the one we just went through. Looking at historical market data, understanding how the markets have moved over time, and understanding how markets may tend to move int he future are all essential things that will buffer you from foolish investing mistakes made out of fear.
If you'd like to explore the Excel file form which the above screenshots originated, you can download the file here. You'll be able to copy and paste the S&P 500 data to do your own data analysis work, like finding the maximum one-day increase.
Can investing in your career provide more financial benefits than investing in the financial markets? Maybe...
For most people -- especially for those in the 1st half of their working lives/careers -- investing time, energy, and even money into their careers might prove to be very valuable investments. For many, investments in their careers might prove more rewarding than typical financial investments.
The reasons why this is the case for many people are two-fold. First, most people don't have a lot of initial capital to start off with - saving and investing is key for them, but with so little capital there's not much that can be achieved in the short run for the typical retail investor. Second, investments in your career (e.g., investments in your skills and knowledge) have compounding effects over time as one progresses in his/her career.
It's hard to give a useful guide on what to pour your money, your time, and your energy into because each job is different and careers are diverse. However, it's a safe bet that building the following skills/attributes within yourself will prove very beneficial over time:
Newton said there's inertia in the universe, so we now know more about our world and physics is better for it. That's not the inertia we're talking about here. Forget the universe for a second - focus on inertia in your mind.
Mental or spiritual inertia is a real thing. We won't try to define it here, but everyone who has experienced it knows what it is. It's when
Here are some examples of using interim in your own favor and taking quick, small, but intense bursts forward in whatever you'd like to achieve:
The problem with modern Western self-improvement and self-development thinking is that it treats the human mind as a machine when it should instead be treated more like a tree - we'll get into what this actually means in below. But, the vital thing to note is that this type of thinking has permeated self-improvement and self-development thinking quite profoundly. It has penetrated so deeply that when most people think of becoming better human beings are strictly in the machine paradigm; most people don't even understand that a different way of thinking about the mind and self-improvement exists.
Machine vs. Tree: Be a tree, not a machine
Machine: The machine paradigm is easy for most Western readers (e.g., readers who grew up in an environment where Western post-Platonic thought formed the foundation of academic/scientific thought) to understand. Treating your mind like machine means having a paradigm where you believe improvements to the machine (your mind) are to be made based on external analysis/planning/thinking (exogenous improvements) and where those improvements can be immediately implemented (e.g., upgrading the machine).
Tree: The tree paradigm is more difficult for Western-oriented thinkers to understand and is somewhat more in line with Eastern, though, but not completely. The tree paradigm is where you believe that mental "upgrades" are impossible or exceedingly rare, and you acknowledge how little control you actually have over your own mind. Instead, with the tree paradigm, you more clearly see the only real way to make lasting changes to your mind: through feeding it with useful information over a long period of time and allowing that information to be absorbed, integrate, and recalled later. Someone who understands the tree paradigm has a far clearer perspective on their own mind, their ability to improve or develop it, and the timeframes it takes for such improvements. This is just a brief into the tree paradigm - there's as much and more here as there is in the well-known machine paradigm
The descriptions above are accurate, but they might seem confusing to readers without proper examples. Often, the best way to illustrate a point quickly is to give examples. So, here are a few.
Problem: A man realizes he's terrible at relationships - his wife is unhappy and he finally realizes that there are things he just doesn't know about women, relationships, and how to have a happy marriage.
Problem: A man's friends sit him down and tell him that they feel he has a deep problem with aggression - at bars he picks fights, friends are always afraid of him getting upset when he's drunk, and they remind him of how he became aggressive with his wife a few months ago.
Problem: A high school kid who is good in school but self-conscious, timid, and possibly under-developed physically compared to his peers gets harassed at school by older, more aggressive kids looking for easy prey.
News is by definition most relevant in the short term – as time moves forward each piece of news information degrades quickly in terms of how relevant and/or useful it is. In effect, information can be thought of as having a half-life. If we map things out in this respect, we can see that not all information is equal:
So, if you’ve got a limited amount of time and energy -- and your goal is to maximize the amount of useful information you obtain -- you’ll want to focus on things with a far lower half-life. In practice, that means making choices like this:
Here are two great articles that in-part inspired this piece:
If you cannot save money, the seeds of greatness are not in you.
To become an excellent saver over the long term you must get some sort of mental reward from saving - if saving is a difficult process (like resisting eating food when dieting), you might be able to do it for a little while but over time you'll fail because we all only have limited amounts of willpower and energy. The real secret to being an amazing saver is to love saving - the secret is to have saving be a very enjoyable thing.
For some people saving money is very easy - they were either born with a mind or a disposition that rewards them when saving or they developed such a mind or disposition over time. Rarely will you see a really excellent saver who has to consistently battle himself or herself to put money away for the future or to resist spending in order to save - it's just too hard to do over the long term.
Other people, however, just can't seem to save. They spend all of their incomes (and sometimes even more) and they don't seem to feel any reward by putting money away - it feels like a chore to resist spending all of their money or putting some money aside. They won't become wealthy unless they strike it rich through luck or unless they have extremely high incomes. For most people who can't seem to enjoy saving money, they will need to change their mind a bit in order to be able to become truly excellent savers capable of building real lasting wealth overthe long term.
How can you change your mind? That's the hard part. You'll need to force or will yourself to start saving at first despite any internal resistance you have to it. When you do save some money, take the time to sit down and think about what you just did:
Reward yourself with a nice dinner, a nice movie on Netflix, or anything else you enjoy. Let the pleasure sink in and try to associate the pleasure with the act of saving money. Do this consistently and over time saving will seem more pleasurable and easier.
5 tips and tricks to get you on the path toward saving immediately
Here are some other tips to help you become an excellent saving:
Now, it's possible that not everyone can be an excellent saver - as much as we want it to be true, it seems like some people either don't have the personality or the internal energy to become excellent savers. That's a sad proposition. However, if you're reading this post, you're very likely not one of those people - you've already shown excellent initiative and you're already ahead of the game in your search for high-quality information. Go out and practice the tips above with vigor and intensity until you saving feels amazing for you also.
Exchange Traded Funds (ETFs) are like a mix of stocks and mutual funds in terms of their diversification and liquidity characteristics
An exchange-traded fund is an investment fund (similar to mutual funds) but can be traded throughout the day with general liquidity (like stocks). In a sense, an ETF combines the best parts of mutual funds and stocks:
ETFs are relatively new - they first appeared in the United States in 1993 and in Europe in 1999. They began as index funds - index funds are investment funds that are created to track indexes such as the Dow Jones Industrial Average (DOW), the S&P 500 Index (SP500), the FTSE in England, or the DAX in Germany. Over time, ETFs have evolved beyond index tracking and now come in a plethora of tilts and styles (eg. US oil, emerging markets, technology, biotech, etc.).
There are other important differences that distinguish ETFs from mutual funds, but they aren't truly very important to a novice (or even an intermediate) retail investor. If you want to know more about the legal structure of ETFs, you can visit this Wikipedia article for more.
The main thing we should point out is that ETFs are almost like a hybrid between mutual funds and stocks. Mutual funds are usually not as liquid as stocks and can't be traded throughout the day. Mutual funds are usually priced once a day (at the end fo the day) unlike stocks, which are priced continuously by the market. Stocks are usually very liquid and can be generally bought and sold throughout the day. An ETF combines these two - you can purchase an ETF easily through your online stock broker the same way you would purchase a stock. There generally are no minimums for ETF purchases and it really feels like purchasing a stock.
Since most ETFs are indexed (and not actively managed) fees are generally lower for ETFs - this is an incredibly attractive aspect of ETFs because it is generally believed that active management isn't worth the fees investors pay for it (most of the time, BUT not all of the time).
What is a mutual fund? Mutual funds are generally professionally-managed investment funds comprised of many assets.
Although there's no general legal definition for the term "mutual fund," a mutual fund generally refers to an investment fund that is professionally managed and pools together money from many investors with each investor owning a share of that investment fund. However, let's go a bit further...
We won't go into the laws of mutual funds - almost every country has its own laws on how a mutual fund can be set up and managed. Briefly, mutual funds are usually regulated well and have certain tax advantages if they comply with certain requirements.
The more important thing about mutual funds for retail investors, however, is their general structure. A mutual fund is actually a very amazing financial creation that allows investors to purchase shares in a large amount of companies (allowing them to diversify their holdings) very easily with little effort and little cost relative to replicating the mutual fund's portfolio with individual securities.
A mutual fund basically is a company that buys a bunch of shares of different companies (or bonds) and then packages them all together. Then, it sells shares of that new package. So, when you buy a share of a mutual fund, you actually buy a small piece of each of the shares of the individual stocks that the mutual fund is made up of.
Mutual funds usually have specific tilts or styles - some mutual funds focus on US equities while others focus on international equities while others focus on oil while others focus on real estate while others focus on bonds and so on and so on. There are a plethora of mutual funds to choose from and you should easily be able to find a fund that matches your investing strategy. There are even target date mutual funds that are specifically designed for people planning to retire in certain years - these funds become more conservative as the target retirement date fund approaches.
Fees are important for mutual funds - mutual funds charge a fee for the services they provide. Fees are very important - be mindful not to pay too much in fees because paying high fees will deeply eat away at your earnings over the long term. A popular firm that specializes in low-fee mutual funds (and the one that pretty much started the low-fee mutual fund sector) is Vanguard. Their average fee (according to their own website) is 0.18% while the average mutual fund fee in the industry is 1.02% (also according to Vanguard's website). Be mindful when choosing a mutual fund - you don't want your earnings to be consistently eaten away by high fees.
The 2 types of mutual funds: open-end funds and closed-end funds
Finally, there are generally 2 types of mutual funds:
P.S. For more on how detrimental high fees can be to your long-term returns, check out this bulletin produced by the SEC
A stock is a share of ownership in a corporation - buying a stock means buying a piece of ownership in a corporation. However, there's more to know than just this..
Shares vs. Stocks - What's the difference?
If you want to speak properly, there's no such thing as stocks - there is the "capital stock" of a corporation and that capital stock is divided into "shares" that you can buy and own. Those shares represent little pieces of equity in the firm - they represent ownership of a small piece of the firm.
In popular usage, however, the term "stocks" are often used in place of "shares" - we can say that we own "stocks" instead of "shares." It's ok to use the term this way because most people will understand you and most people use it this way, although it's a good idea to understand the proper way the term should be used.
What does a share (or stock) represent
We said above that a share represents equity ownership in a corporation. What this means is that when you buy a share (or a stock), you are literally buying a piece of a corporation.
For example, if there are 1 million shares that are publically traded and you buy 1000 shares of the operation, you now own one-thousandth (1/1000th) of the corporation.
But, what do you actually own when you own shares of a corporation? You literally own piece of everything the corporation owns (eg. buildings, equipment, patents, copyrights, etc.) and you have an interest in the future income of the corporation - all relative to your ownership size (eg. if you own 1% of the shares you own 1% of the firm). If you owned a small business (eg. a small ice cream shop) in your neighborhood free and clear, you would own 100% of that shop - the same is true for a corporation except you will own a small percentage of it instead of owning it outright.
As the owner of the firm (as a shareholder), you are usually able to vote for certain things regarding firm decisions. The owners of the firm cannot run the firm by themselves (unlike the owner of a small business) so they appoint a board of directors who then hires managers (eg. CEO, CFO, COO, etc.) to run the day-to-day business of the corporation.
How does debt play into stock ownership?
As we said above, you literally own a piece of a corporation when you own a share of a firm, but that ownership is net of liabilities (debt) - that means that shareholders are second in line behind bondholders. If the corporation has no debt (if it's totally financed with equity), then there's no reason to even discuss debt at all. However, most corporations have significant amounts of debt (it's rational for corporations to use debt to finance various things), so we must take debt into account when calculating our ownership.
How can we take debt into account? We just do what you would do when calculating your net worth - we subtract liabilities from assets to come up with equity:
Once we figure out how much total equity is in a firm (the portion of assets financed through equity), we can divide that by the number of shares to determine the equity that corresponds to each share (this is somewhat of a simplification).
Additionally, as we stated above, we must keep in mind that debtholders hold senior claims to equity holders - that means that debts must be paid first before shareholders receive anything. Just like if you owned a house with a mortgage where the mortgage would have to be paid off first after you sold the house - the debt of corporation must be paid back before shareholders receive anything in a liquidation.
Assets > Financial Assets > Financial Derivatives
Another way to think of stocks is by understanding that they are financial assets. Real assets are things such as computers, desks, machines, and equipment while financial assets derive their value from these real assets. You can own real assets (eg. owning a computer or a piece of heavy equipment) but you can also have a claim on real assets through financial assets. A stock or share is a financial asset that gives the shareholder a claim on the real assets of a corporation and the income that those real assets produce.
Going a step further, we can have financial derivatives, which derive their value from financial assets. Financial derivatives such as options, futures, and forwards allow holders to have an interest in financial assets without actually holding financial assets.
8 Things to do Before Starting College - How to set a college freshman up for a successful financial life
An undergraduate degree is a wonderful thing and college or university can be an amazing experience. You’ll learn a great deal, but almost as importantly as your educational experiences in college, you’ll expand your horizons and your mind beyond basic academic pursuits and you’ll grow personally into a more interesting, sophisticated, and happier (hopefully) person. However, to have an amazing college experience, you’ll want to make sure you to do the below 8 things - they’ll help you manage expectations and reduce both financial and personal stress so that you can focus on school. They’ll also set you up for a successful financial and professional life once you’re out of school.
1. Understand What an Undergraduate Education Really Means in the 21st Century
An undergraduate education isn’t what it used to be. Today, a college degree is more like a high school diploma than a ticket to a great job and a great salary. You must understand what an undergraduate education really means in the 21st century for your learning and for your career if you are to make the most of your college or university experience and if you are to avoid being disillusioned and disappointed in the future.
We won’t go into the history of education here, but since the end of World War II, a Bachelors degree was an almost sure fired way to get a good job and earn a good income for your entire life in the Western World. Almost regardless of what you studied, if you graduated from a decent college or university, you would very likely be able to enter the workforce and earn a good income as some sort of white collar worker (or a more technically-oriented blue collar worker). You would have a stable job with a stable financial life.
Since the turn of this new 21st century, however, things have been gradually changing. The 1990s saw a massive proliferation of high-powered, connected, and affordable technology for both consumers and enterprises. Today, that technology is reaching even the most remote and forgotten parts of the world. That technology, which was a novelty for many years, is now permeating deep into everything and is beginning to transform enterprises around the world in ways that are too numerous to describe in this article, but here are just a few:
Who would have thought ten or twenty years ago that so many smart college graduates would be working in places such as Starbucks - this would have been almost unimaginable to someone int he 1980s, for example, where a Bachelors degree from a reputable college or university meant you would almost surely find a decent career. Today, however, too many college graduates can’t get good work or are forced to go to graduate schools to pursue a Masters degree or professional degrees in order to have the same shot at a good job their parents or grandparents had just by obtaining a Bachelors degree.
Whether or not this is “right” or “wrong” or why this is occurring are are very interesting discussions, but they are beyond the scope of this article, which is intended to make sure you’re very successful in your undergraduate education and beyond. What you need to understand is that times have changed and that your college degree might just turn our to be the equivalent of a second high school diploma. Your college degree might be very useful to your personal and intellectual life, but it might not be very useful for your career unless you choose one of the handful of majors whose graduates are very in demand with only a Bachelors degree (majors such as certain types of engineering, accounting, data science, or computer programming).
Don’t take the above as anything more than it isn’t meant to be - a simple statement of what seems to be currently occurring. The above discussion is not at all meant to dissuade you from pursuing a college degree. An undergraduate education is way more than a ticket to a job - it is an opportunity to grow both personally and intellectually, it is an opportunity to become a more interesting and well-rounded person, and it is now an opportunity to see what you might really want to do with the rest of your life. Unlike past generations, graduating with your Bachelors degree will just be a starting point for most students in terms of their careers and their professional development.
Check out the very interesting (and slightly dark) video below for one take on what the future of work means and how the "rise of the machines" will affect employment:
2. Save at Least $1000 for a Small Emergency Fund
Having a $1000 emergency fund before heading off to college is a must and a bear minimum - do your best to save more. There will very likely be unexpected expenses that come up and you’ll want to have the cash available to take care of them without going into debt and without stressing out too much over them. Here are just a few examples of possible finical emergencies in college:
You might already have $1000 or more saved up from gifts you’ve received over the years or from a job or two you’ve had during high school. If you don’t have that $1000 saved up, then start saving it now. You can easily save up $1000 with a part-time job (or two) during the summer before you start your freshman year at college or university. You probably won’t want to work hard the summer before college and that’s understandable, but if you can manage to work hard anyway and do the right thing of putting a starter emergency fund in place, you’ll set yourself up for a much better college experience with a lot less financial stress and worry.
Remember, $1000 is a bare minimum - try your best to save as much as you can. A big cash cushion for when you’re in college will almost never be a bad thing. Don’t worry so much about where to keep the money - keep it in a simple and safe savings account and don’t invest it until you’re really ready.
Now, as a young college or university student, it might be tempting to spend some of your money on frivolous and unnecessary things. That’s not good, but it’s understandable - we’ve all made financial mistakes (and other types of mistakes too). However, you must have the discipline to not touch the money unless it’s an actual financial emergency or unless you’re going to purchase something that is fundamentally important for your education, career, or health. Don’t waste the money you sacrificed to have (you either sacrificed by earning it or you sacrificed by not spending it if the money was a gift) on frivolous and useless pursuits no matter - your future self will thank you.
3. Set up a Ride-sharing Profile (eg. Uber or Lyft)
Ridesharing services such as Uber and Lyft are transforming transportation around the world and have the ability to create a much safer world. If you’re heading off to college, you will be wise to make sure you have a profile properly set up on at least one ridesharing service so that you will never drive under the influence of alcohol or any other sort of mind-altering substance and so that you will have a ride in case your only other option is riding with someone who is under the influence of alcohol or some other mind-altering substance.
If you’re under 21 in the United States, you shouldn’t be drinking at all per the law, but students don’t always follow the law on most college campuses - in fact, it’s statistically very unlikely that someone will reach the age of 21 in the Unites States without having had an alcoholic beverage. So, you have to be smart and prepare beforehand.
A ridesharing profile will allow you to be able to leave your car at home if you know you’ll be drinking. Even if you didn’t plan to drink but decided to drink anyway, you can leave your car at your destination and take an Uber or a Lyft home safely if you have ridesharing profile set up - you can return the following morning to your car in a sober state. Additionally, if you happen to ride as a passenger with someone who ends up drinking, you can safely ride home using Uber or Lyft instead of having someone who is under the influence drive you home.
Read The 7 Habits of Highly Effective People by Stephen Covey. There are many great books you can read (both fiction and non-fiction) that will expand your mind and heart and make you a more effective college student, but the 7 Habits of Highly Effective People is a book that can be counted on in many different situations and for many different people - that’s why I am comfortable recommending it to pretty much every reader.
The book is slightly geared towards an older individual than an 18-year-old freshman. There’s a book written by Covey’s son titled The 7 Habits of Highly Effective Teens as well, but a person entering college is too old for that book. An entering college freshman is sort of in a limbo zone between the two books (People vs. Teens), but I would recommend reading a book that’s a bit out of your league than a book that you’re already too old for. As you grow older and mature in your personal and professional life, you’ll be able to refer to the book and reread parts of it (or all of it).
5. Make Sure Your Health Insurance Is Set up Properly
Your college or university will likely require that you have health insurance in place. You’ll either still be on your parents’ health insurance plan or you’ll have to purchase it on your own or from your school. This is basic stuff, but it is important. You have to make sure you have good and proper health insurance in place because you don’t want to get sick or injured and have to incur debt to pay for your medical bills while you're pursuing your undergraduate degree. You want your college or university experience to be safe and fun, but if it somehow ends up unsafe or unhealthy, you want to make sure your medical treatment is covered and that you won’t have to stress out too much about it. Speak to your parents about this to make sure you're on their plan but take initiative on your own - you might want to call your health insurance provider and let them know you’re going to school and see what they say if you’re planning on remaining on your parents’ health plan. If you’re going to purchase health insurance at your college or university, take the time to see what’s covered, what doctors you can go to, and what the copayments are - you’ll likely be able to find this information on the college’s or university’s website.
6. Check Your Credit Score (and Monitor It Consistently)
Your credit score is important because it roughly is used by lenders and other institutions to determine your creditworthiness - to determine how reliable you are financially and how likely you are to pay back a loan based on various metrics. A good credit score isn’t a necessity for finical success (especially if you have a lot of money and won’t be borrowing money throughout your life) but it is very useful to have a good credit score and a strong credit history.
You’ll likely have none or maybe one credit card of your own as an entering freshman and you probably shouldn’t be applying for more during college, but you still will want to know your credit score and monitor your credit score and credit history over your time as an undergraduate and beyond.
It’s a good idea to check your credit score and credit report at least once a year, but I recommend that you do it at least every six months. There are a lot of free online tools that can help you do this. Credit Karma is a popular and free tool but there might be other products and service that do a better job. Credit Karma is free, but there is advertising involved - they pitch various credit cards and other financial products to you.
Every time you check your credit score, see if your credit score dropped since the last time you checked. If it dropped, find out why. Additionally, check your credit report to see if there are any new things on it that you didn’t do (eg. new credit cards, new loans, etc.). Finally, check to see if there are any derogatory remarks (eg. late payments) on your credit report.
Your credit score is going to start out low because you don’t have much of a credit history as an entering college or university student, but you’ll want to make sure your credit score doesn’t fall and that your credit history doesn’t have derogatory remarks. If your credit score is low in the future, you might find it difficult to purchase a car, rent an apartment, get loans for graduate school or professional programs, open up new credit cards, or get a good loan for the purchase of your first home. You have your whole life ahead of you and you hopefully won’t go into debt, but you might - you might need some sort of loan. You want to make sure your credit score is top notch so that you actually can get the loan and that when you get it, you get it at a good interest rate.
7. Create a LinkedIn Profile
You probably have a Facebook profile set up already (Like us on Facebook if you do!), but there’s another profile you should create before you begin college - a LinkedIn profile.
If you don’t know what LinkedIn is, think of it as a Facebook profile for your professional life. Your LinkedIn profile is like an extensive online resume where you can list not only your work experience, education, and skills, but where you can also:
LinkedIn will become more useful as you go through college or university and then enter the workforce, but it’s a great idea to get a head start now. Here are a few things you can do on LinkedIn starting in your first semester or quarter at college or university:
If you do the above, you’ll have a solid LinkedIn profile when it’s time to look for part-time jobs, internships, and even full-time positions after graduation.
8. Sign up for Khan Academy
Khan Academy is a very useful free online learning platform that’s great for anything but especially seems useful for mathematics. You can use Khan Academy to review basic things before you start classes, but it also proves useful during actual exam preparation for many students. Khan Academy has short videos on a variety of subjects such as mathematics, life sciences, physical sciences, economics, finance, and other useful subjects. Surprisingly, Khan Academy’s videos are of decent quality and seem to provide quite accurate information in relatively easy to understand video bites.
What if you’ve already started college or university?
If you’re already in college or university (whether you’re a freshman, sophomore, or junior), you can and should still do everything on this list if you haven’t done so already. Just because you didn’t read this article before you started college (it might not have been around then) doesn’t mean that it’s too late do do the important and useful things above - it’s never too late to do the right things and it’s surely not too late for a young college student like yourself to move forward in your life and make some wise moves.
The 3 Fundamental Questions of Economics: A definitive explanation of the questions that give rise to this field of study
Lots of people studying economics don't know what it's really about
Unless you've taken an economics course (and maybe even if you have), you probably have the wrong idea of what economics is. Economics is obviously a very complicated and broad field of study, but what is at the most primal core of economics? Throughout my conversations with people unfamiliar with the subject, I have realized that people generally have a misconception of what economics really is at its most fundamental core. Some people seem to think of it as something close to accounting. Other people seem to think of it as close to business or entrepreneurship. Others still think of economics as having something to do with the political realm. Although they are all moving in the right direction with these definitions, they are pretty much all wrong.
Economics might touch on accounting, business, entrepreneurship, politics, and many other human endeavors, but it does so only incidentally. It touches accounting because accounting is the language of finance and economic sometimes deals with things related to finance. It touches business and entrepreneurship because firms and individuals act in rational ways that economists attempt to describe. It touches political science because economists attempt to answer important questions about how societies organize themselves to produce things. It touches other things also, but only incidentally. Economics, narrowly defined, is actually something quite different than what most people believe it to be - something very different than accounting, business, or politics. Economics, at its most basic core, is the pursuit of something much simpler - it is an attempt to answer just three basic questions:
These three questions are more macro-oriented (economics can be divided into macroeconomics and microeconomics). All societies and all nations must answer these three questions.
Why do these economics questions need to be answered?
Why do all nations have to answer these questions? Because we live in a world of scarcity and we want to efficiently allocate the scarce resources that exist. In a world of unlimited resources without any scarcity of any kind, these three questions wouldn't make sense because no choice would need to be made - everything could be produced for everyone. In a world of scarcity, however, a choice must be made, either implicitly or explicitly. By its very nature, the scarcity in our world imposes constraints upon our actions and forces an answer to those three questions. But that might be a bit too philosophical for our purposes here, so we'll continue.
These question show you how broad the study of economics is, at its core
Looking at those questions, you might be puzzled. If this isn't what you thought economics was about that's ok. Economics is obviously a very broad field of study and goes way beyond those three questions, but pretty much everything that economics is and does emanates from an attempt to answer those three questions. That is why I love economics so much and that is why I am so intrigued by it.
Econ Question 1: What is to be produced?
Every society must answer this question and has answered this question since antiquity. To sustain life, water and food are required. Some for of shelter is also a primary necessity for life and safety. Society has managed to move beyond the basic necessities of life and much of the world (specifically the Western world) lives in a state of such affluence that past generations would not even be able to comprehend our lifestyles.
A society, whether that society is a small tribe in our distant past or a modern nation, must decide what is to be produced. Economics looks at this question at both a macro and a micro level, but we'll focus on the macro level here for the purposes of explanation.
Asking, "What to produce?" might sound a bit confusing, but it shouldn't be. The question is simple and straightforward. Economics literally is concerned with the final mix of goods and services produced by a society during a certain time interval (usually a year). The question's answer is also easy to see or observe. You just have to look at the final mix of goods and services produced by a society. For example, we can observe the final mix of goods and services produced in the United States in a given year. Obviously there are a lot of things produced and it would be extremely difficult (if not impossible) to count or list them all, but that isn't a problem and that isn't a concern. The point isn't to count or list the goods or services produced. We can understand in our mind that every year a certain mix of goods and services is produced in the United States and we can understand that this mix of goods and services is society's answer to the question of "What to produce?"
Here are a few examples that might help illustrate the meaning of the question:
Econ Question 2: For whom to produce it?
The next logical question after it is determined (somehow) what is to be produced, is "for who?" This makes a lot of sense. After all, everything produced is for the benefit of the society. Whenever anyone makes something, it is either to benefit himself or herself directly, or it is to obtain income by selling that product or service to another. The only way to do that is to provide some sort of value to the other. Obviously, this is a bit idealistic, because sometimes useless things cloaked in a lot of marketing are sold to unsuspecting buyers, but we won't go down that path in this piece.
Here are a few examples that might better illustrate the question:
Econ Question 3: How to produce it?
Finally, once we decide what to produce and for whom, we should think about how to produce it. This question might not seem as important as the other two at first glance, but it is actually very important. How we produce something reflects our beliefs and values. It also downstaters our society's technological abilities.
Here are a few examples to better illustrate what this question is getting at:
But wait, there's a 4th question! - Who decides?
The above 3 questions really are the main questions that economics attempts to answer, but in answering those 3 questions, a fourth question organically arises:
This question is a very interesting one to answer. It makes sense to ask it, doesn't it? We're answering three questions. So WHO should answer them? Who should decide what to produce, for whom to produce it, and how to produce it? Question 4 has been answered in man different ways throughout history. Let's examine a couple of these answers:
It's important to understand that what we presented above was a very basic description of capitalism and command systems. Additionally, it's important to realize that no nation fits a mold perfectly. Most nations that are capitalist, for example, have aspects of a command system (eg. some socialism with a generally capitalist framework). Sometimes command economies have capitalist pockets in place (eg. relatively sophisticated black markets where a more capitalist structure prevails).
There are other interesting ways to answer the 4th question - they go beyond capitalism vs. command economies
Let's examine a few other possibilities for answering Question 4 (Who decides?), with a few interesting, creative, and potentially outside-the-box approaches:
Brining this all together
This was a long piece on what started out as three simple questions. The thing is, they are not that simple. They might sound simple, but they are incredibly deep and it takes years of study and thinking to truly understand how profound the questions are and how beautifully economics attempts to answer them. That's one of the many reasons why economics is so interesting and enjoyable.
Economic Expansions and Contractions: What the Fear the Boom and Bust EconStories music video can teach investors about the economy and government intervention in it
I learned about this video while I was an undergraduate pursuing my degree in economics. Learning economics and being a genuine economics nerd, I fell in love with the video and the concept. I remember thinking that it was amazing that someone or some group would make a video like this. I thought that the ideas presented were important, but that the subject matter was fairly narrow and that only a small audience would really appreciate this video. I was surprised, therefore, that the production quality of this video was so high.
I later found out that the video was made by a group called ECONSTORIES and that the host of my favorite podcast, Russ Roberts, was a big part of the making of this video. Russ Roberts has a weekly podcast called EconTalk that I listen to every week and highly recommend. You can learn more about this great economics-related podcast here.
The Keynes vs. Hayek rap video is a short music video with characters playing the roles of economists John Maynard Keynes and Friedrich Hayek. John Maynard Keynes is portrayed as a confident, self-assured, slightly wild, and popular man while Friedrich Hayek is portrayed as more cautious, attempting to obtain recognition, and a lot less popular. This parallels the real world as a lot of a people know of British economist John Maynard Keynes, while in my experience it seems that only economists and policy makers have some knowledge of the Austrian economist Friedrich Hayek.
Each economist describes his world-view and economic philosophy in the music video in simple and easy to understand ways. Being an economist I understood everything, but I feel that the video will not have the same effect on a non-economist. It's easy to understand, but it seems to me that a non-economist might not understand certain concepts and terms (eg. Keynes’s “animal spirits”). Keynes describes his top-down stimulus spending approach and how that approach can help reenergize the economy when there is a general glut. Hayek argues that such a top-down approach only leads to perverse incentives and ignores the importance of savings to changes in the economy and increases in productivity, which Hayek believes is the true path to prosperity. Hayek believes that the government intervention that Keynes argues for creates boom and bust cycles.
The video was created by ECONSTORIES, a media channel dedicated to exploring the world of economics with visual storytelling and entertainment. You can learn more about them and watch other very interesting and informative videos here.
"The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist."
And now, given the rise of cyrptocurrencies and crypto assets to quasi-mainstream financial assets, we're dedicated to providing quality, relevant, and interesting material on cryptocurrencies and cryptoassets. Articles on Bitcoin, Ethereum, Ripple, Cardano, and many more cryptocurrencies and cryptoassets can be found on Pennies and Pounds - all that in addition to a plethora of information on what cryptoassets are, how the entire crypto industry came to be, blockchain/immutable ledger technology, mining, proof of work, proof of stake, and how to prudently invest in crypto if you are so inclined (based on your risk tolerance and ability to withstand the volatility that will come with a crypto portfolio).