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Investing for Beginners: The Complete Investing 101 Guide for 2019
Portfolio and Diversification
- Your portfolio reflects your long-term wealth building investment strategy – not the short term. It includes everything you own. Your retirement accounts, your investment accounts, even your home are types of investments.
- Diversification is a way to describe owning multiple types of investment assets. Diversification is smart because you both protect yourself from failure and position yourself to take advantage of multiple robust methods for building wealth.
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Investing
... is the trading of your money today for a lot more money in the future. It is a high yield over the long term.
What happens to your money
Banks don’t like to give away their money. That mindset is reflected in the interest rates of checking and savings accounts of 0,5% and 0.9% avg. annual interest respectively.
When you deposit your money in the bank, the bank turns around and invests that money at 7% a year or more. After they collect their profit, they give a tiny shaving of it to you.
3 base components of the market
- Productivity Growth: Equivalent to technology getting better, faster and us constantly learning from our mistakes. We will always be able to do more with less time and resources than we were able to in the past.
- The Short-Term Debt Cycle is defined by a growth period and then a recession period. These cycles last about 5 – 8 years and peaks when loans become more expensive.
- Long-Term Debt Cycle is similar to the short-term debt cycle and takes typically 50 years to play out. It peaks when the economy is saturated with debt and it literally can not take on any more.
The Average Investor...
- does not try and time the market – buy low and sell high,
- also does not try to beat the market,
- just try and achieve average returns,
- realises that it does not involve a lot of work or stress and locks in a nice healthy return over the long term.
You Don’t Need a Financial Advisor
- A financial advisor’s compensation is rarely if ever tied to your success. The majority of their income is based upon the amount they get you to invest.
- You will pay a fee to your chosen fund plus a fee to the financial advisor.
- You Might Not Get The Best Financial Advisor. Would you even be able to tell the difference between a good financial advisor if you had a chance to talk with 100 of them? Or will you go with the best salesmen?
- It is neither difficult nor time-consuming to invest yourself because you're just going to mirror the market average.
The Average Investor’s Commandments
- Think Long-Term. It’s very rare for a sudden move in price to mean very much Things will balance out so be patient.
- Always keep a few months expenses around in case something happens and invest the rest.
- Buy What You Believe In. If you do not know or understand what you’re buying, don’t buy it. Invest in something that you personally believe in.
- Do Your Own Research.
- Set It and Forget It.
- Consistently Contribute.
- Be Fearful When Others Are Greedy.When everyone is a winner you should be concerned.
- Be Greedy When Others Are Fearful.The best time to buy is when the world is on fire, not just the typical knee-jerk reaction of the media.
- Find and Remove Frivolous Fees. When the stakes are highest, so are the fees. Even a 1% fee can become significant over the long-term.
- Diversify. If it can fail, it will fail. Plan ahead for failure.
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Investment explained
An investment is a gamble: instead of the security of guaranteed returns, you're taking a risk with your money.
You can invest in Shares, Bonds, Funds, Government bonds (gilts), ...
How stock markets work
- A stock market is simply a place where buyers and sellers meet to sell shares.
- A share is a divided-up unit of the value of a company.
- Shares exist to boost profits of firms to turn a business into a financial success.
- Enter a stock market: in return for your cash, a business offers you a share in its future – so you essentially own a tiny slice of that company and become a 'shareholder'.
- This slice of the company you own can then be traded with anyone who wants to buy it.
Share price of a company can rise and fall
- The price is initially set by the firm offering shares.
- Its price on any given day can be determined by poor financial results, the economic health and so-called 'sentiment', ie, if City buyers think a firm will struggle, its price can fall.
- Shares are listed on an 'index'.
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Common investment questions
Two of the most common investment questions are "what do you invest in " and "what are the best investing strategies"?
The best investing strategies are...
Shady investment advice
Bad investing advice can come from many quarters, such as wealth expos or financial advisors. If anyone promises you any type of return over 12%, 99% of the time, they are probably playing you.
There are great financial advisors out there, but many people who sell investment products just want your money. However, it's not that hard to invest for yourself.
How to avoid bad investment advice
- Never buy a financial or investing product from someone you just met.
- Getting returns over 12% per year is ridiculously hard. If it sounds too good to be true, it is.
- If you don't understand it, don't invest in it.
- If one of your friends recommends an investment that's making them a lot of money, they are probably suckers too. If you see the "results not typical" on any marketing materials, move on.
- There are no "secrets of the super-wealthy" that anyone will sell you for $500 or that you can take advantage of unless you have hundreds of thousands of dollars.
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Investing defined
Investing is about laying out cash or assets now, in the hope of more cash or assets returning to you tomorrow, or next year, or next decade.
Most of the time, this is best achieved th...
Productive assets explained
- Productive assets are investments that internally throw off surplus money from some sort of activity.
- Each type of productive asset has its own pros and cons, unique quirks, legal traditions, tax rules, and other relevant details.
- The three most common kinds of investments from productive assets are stocks, bonds, and real estate.
Investing in Stocks
- It means investing in common stock, which is another way to describe business ownership or business equity.
- When you own equity (the value of the shares issued by a company) in a business, you are entitled to a share of the profit or losses generated by that company's operating activity.
- Equities are the most rewarding asset class for investors seeking to build wealth over time without using large amounts of leverage.
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