This spring, as Kevin Oâ€™Leary was applying for Paycheck Protection Plan loans for his companies, he came across some alarming statistics. Company records suggested that his young employees were not saving.
â€œI was stunned to find out that almost 95% of my employees in their late 20s and 30s have nothing set aside,â€ he told Forbes Advisorâ€™s Taylor Tepper during a socially distanced interview this week.
His employees are hardly alone. Almost a quarter of Americans have nothing saved for retirement and about 40% wouldnâ€™t be able to cover a $400 emergency, according to the Federal Reserve.
Given these glaring facts, Oâ€™Learyâ€”or Mr. Wonderful, as heâ€™s known from the hit ABC show â€œShark Tankâ€â€”has made it his mission to help improve the financial literacy of all Americans. To that end, he launched Beanstox in 2017. Originally a micro-investing app that let users buy fractional shares of more than 1,000 companies and exchange-traded funds (ETFs), Beanstox has more recently evolved into a robo-advisor that aims to make investing intuitive and automatic.
The following conversation has been edited for length and clarity.
You rightly point out that too many Americans donâ€™t save for the long term and arenâ€™t prepared for retirement. Over the years there have been plenty of attempts to remedy this problem, from new laws to countless financial products. Why is Beanstox different?
When I started to get involved in Beanstox, what I found was that as a society we make the assumption that people know how to build a diversified portfolio and know how to trade stocks. But they really donâ€™t.
This is a huge mistake. People were never shown how to do these things. What I wanted from Beanstox was to make it incredibly simple, so anyoneâ€”even my employees, even if theyâ€™ve never traded a stockâ€”could use it.
How does Beanstox work?
Letâ€™s say you set aside $100 every week in savings. Well, I want Beanstox users to save $10 of this to build up an emergency fund. You should set aside 90 daysâ€™ worth of cash in an emergency fund because life throws you curveballs.
I also wanted users to be able to save for projects, such as a vehicle or a home. Above all, I wanted users to be able to put the remaining portion of that $100 into a diversified portfolio to invest for the long term.
Put 5% into your savings account, put 10% into your project account and the rest goes toward the long term.
If the market keeps performing like it has for the last centuryâ€”basically returning 6% to 8% a year, and you just let your investments grow, youâ€™ll build up a portfolio of around $1 million or even $1.5 million by the time you turn 65. Thatâ€™s the goal Iâ€™m trying to help people reach.
How do you get people to actually follow through with the savings component?
There are two challenges. The first is to get the word out. Luckily, I have a very large social media following, and Iâ€™m well known as an investor. So Iâ€™m happy to talk about this company in a broader context of financial literacy
Step two is to help instill financial discipline by getting people to put aside a portion of their paychecks. I learned this strategy from my mother long ago. She worked at a clothing manufacturing company, saved 20% of her paycheck and died a very wealthy woman. Her whole life, she kept her account secret from both of her husbands (she married twice).
The point is she was a saver, and I learned that from her. I never got around to saving 20% of my paycheckâ€”and Iâ€™m not telling people to do that. But Iâ€™m certainly saving 10%, and for users that means a minimum of $100 a week. Everybody thatâ€™s working can afford $100 a week.
What do you say to people who are dealing with a lot of debt?
The whole idea of investing is all built around the discipline of taking a portion of your income and putting it aside, even if youâ€™re servicing something like student loans. Credit card debt is a self-inflicted wound because youâ€™re spending more than you can pay off every 30 days.
In fact, having a credit card, using it on a daily or weekly basis and paying it off completely is a good strategy. Thatâ€™s how you build a credit rating. But the minute you donâ€™t pay the balance, someone else is making 17% to 20% off of you in perpetuity.
You need to simply commit to saving $100 a week and putting it toward one of these three goals.
Youâ€™ve gained a reputation for investing in the â€œnew, new thing.â€ But putting $100 a week into a diversified portfolio of ETFs and earning compound returns is pretty much the exact opposite of that approach.
I love being involved with the startups on Shark Tank, and Iâ€™ve made many, many investments in various sectors. But those are high-risk investments.
The majority of my wealth is tied up in a bunch of different strategies. Itâ€™s built on owning very high-quality companies that have profitable business plans and generate cash.
The whole idea behind investing is the preservation of wealth and growing wealth over time. Thatâ€™s the right strategy. The most horrifying outcome would be to reach the age of 65 and have nothing saved: No cushion, no investment strategy, no money. Iâ€™m trying to help 100 million people avoid that outcome.
Letâ€™s talk about the economy and whatâ€™s in store for 2021. The Covid-19 vaccines are coming, and itâ€™s likely thereâ€™s going to be more federal stimulus. Peopleâ€™s finances have been upended by the lockdowns, but stock markets are at all-time highs. How do you feel about 2021? Where do you see value and opportunities?
I was very concerned in March and April by what was happening to my own portfolio companies, which Iâ€™ve invested in privately. I manage these companies by watching two numbers: sales and free cash flow. Spring 2020 was the first time I saw all of them go cash flow negative. Thatâ€™s never happened to me before, and it was very scary.
I never would have imagined this, but what happened was that many of my companies started buying licenses from Shopify, Zoom and DocuSignâ€”all of the digital platforms that helped convert their frozen retail business into direct-to-consumer business.
Today, in the fourth quarter, weâ€™re still dealing with the pandemic. But Iâ€™m in a situation where 80% of my companies are beating estimates for free cash flow for the quarter, even though their revenues are flat. Thatâ€™s because they replaced the majority of retail sales with direct sales.
The lockdowns have accelerated direct-to-consumer trends in a matter of five months that might have taken six years otherwise. Something extraordinary is occurring here that might have never happened. Companies would have never risked staff working remotely and shifting their entire mix of sales for an unknown outcome.
Iâ€™m extremely optimistic and so is the market. And some of the savings businesses are seeing are going to remain and accrue into the economy, like the reduction in business travel, for example, or a larger focus on direct to consumer in almost all my businesses. So Iâ€™m more than cautiously optimistic. Iâ€™m very, very excited about what America 2.0 looks like.
So this is the new reality?
I can say that 15% of my employees are working remotely. Weâ€™ve already reduced our office space across the country. Weâ€™ve budgeted business travel and entertainment for the first half of 2021: Weâ€™re planning to spend about 20% to 50% less than a year prior.
Iâ€™m not saying that 100% of remote workers will never go back to the office. Iâ€™m saying 15% wonâ€™t go back, and 20% of business travel is not going to return.
So, why do we need to bail out the airlines? Let them go bankrupt. We donâ€™t need that much capacity. The middle name of any airline is bankruptcy. They go bankrupt every 10 years, reduce their capacity and then they come back. We donâ€™t need PPP for airlines.
Iâ€™d rather just get more unemployment checks for another 14 months and direct support for employees that have been displaced.
Are people ready for massive economic change, especially when so many are at risk, even if they get more money from the federal government?
People hate change, and they love stability. Itâ€™ll always be that way. You know, if youâ€™re an entrepreneur, you can handle change.
A vibrant economy thatâ€™s growing is not stableâ€”itâ€™s constantly evolving. All thatâ€™s happened is that change has accelerated as a result of whatâ€™s occurred to us in 2020.