Investing For Beginners
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.
Investing for Beginners: The Complete Investing 101 Guide for 2019
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.
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.
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. The goal is to grow your money, not lose it.
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.
6 ideal investments for beginners
If you have a 401(k) or another retirement plan at work, it’s very likely the first place you should put your money— especially if your company matches a portion of your contributions. A robo-advisor. These services manage your investments for you using computer algorithms and typically costs 0.25% to 0.50% of your account balance per year. Target-date mutual funds often hold a mix of stocks and bonds and automatically invest with your estimated retirement year in mind. Index funds are like mutual funds on autopilot: Rather than employing a professional manager to build and maintain the fund’s portfolio of investments, index funds track a market index. Exchange-traded funds. ETFs operate in similar ways as index funds: The main difference between ETFs and index funds is that rather than carrying a minimum investment, ETFs are traded throughout the day and investors buy them for a share price, which like a stock price, can fluctuate. Investment apps like Acorns or Stash.
6 Investments for Beginners
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), UK property market or even Farmland, Vintage cars, Wine, Fledgling technology, firms or art. For most, investing means putting money in the stock market.
Investing for beginners
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'.
5 golden rules of investing
The greater return you want, the more risk you'll usually have to accept. Diversify as much as you can to lower your risk exposure, ie, invest in different companies, industries and regions. If you're saving over the short term, it's wise not to take too much of a risk. It's recommended you invest for at least five years. Review your portfolio. A share might be a dud or you might not be willing to take as many risks as you did before. Don't panic. Investments can go down as well as up. Don't be tempted to sell or buy shares just because everyone else is.
Investment as a good fit
Ask yourself WHY you're looking to invest. It is better to try and sort out your personal debts first before you take the risk of making them worse. You don't need a load of cash to be able to invest in the stock market. You can 'drip-feed' in small sums on a regular basis. As a rule of thumb, you should never invest more than you can afford to lose.
How to invest
You can buy shares or funds from different providers. The cheapest offers you'll want to do it through is a website, often called a platform. It's a two-stage process. First you need to pick which platform to buy your shares or funds from, then you need to decide what investments to buy. As a rule, you'll be charged for using the platform and buying the investment.
2 ways you make money from investing
One is when the shares increase in value (and you profit when you sell), the other is when they pay dividends. Dividends are a bit like interest on a savings account. If a company makes a profit, it gives some of it back to you.
A fund explained
A fund is simply another way to buy shares. Instead of you buying a slice of a company directly, you give your cash to a specialist manager who pools it with money from other investors (like you) to go and buy a job lot of shares in a stock market. Each fund is made up of 'units', so if you want to invest you'll need to buy units. The value of each unit will rise or fall depending on demand in the market for the fund. Funds can invest in almost anything – countries, energy, gold, oil, even debt. All funds have a theme – anything from geography (European, Japanese, emerging markets), industry (green companies, utility firms, industrial businesses), types of investment (shares, corporate bonds, gilts), to the size of the company. An FTSE 100 tracker fund invests in the UK's 100 biggest companies and therefore is much more mainstream.
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 through the acquisition of productive assets.
Investing for Beginners
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.
Types of business equity investments
Investing in Privately Held Businesses: These are businesses that have no public market for their shares. They can be a high-risk, high-reward proposition for the entrepreneur. Investing in Publicly Traded Businesses: Private businesses sometimes sell part of themselves to outside investors, in a process known as an Initial Public Offering, or IPO. When this happens, anyone can buy shares and become an owner.
Publicly traded stocks
If you are the type of person that likes companies that are stable and gush cash flow for owners, you might be drawn to blue-chip stocks, dividend investing, dividend growth investing, value investing. If you prefer a more aggressive portfolio allocation methodology, you might be drawn to investing in the stock of bad companies. Even a small increase in profitability could lead to a disproportionately large jump in the market price of the stock.
Investing in Fixed-Income Securities (Bonds)
When you buy fixed income security, you are really lending money to the bond issuer in exchange for interest income. You can buy certificates of deposit or money markets , or invest in corporate bonds , tax-free municipal bonds , and U.S. savings bonds . They are purchased through a brokerage account. Selecting your broker will require you to choose between either a discount or a full-service model. You can work with a registered investment advisor or asset management company that operates on a fiduciary basis.
Investing in Real Estate
Real estate investing comes down to either developing something and selling it for a profit or owning something and letting others use it in exchange for rent or lease payment. It can allow someone without a lot of net worth to rapidly accumulate resources, controlling a far larger asset base than he or she could otherwise afford. Real estate can also be traded like a stock. Usually, this happens through a corporation that qualifies as a real estate investment trust or REIT.
Owning Assets
Once you've settled on the asset class you want to own, your next step is to decide how you are going to own it. If you decide you want a stake in a publicly-traded business, do you want to own the shares outright, or through a pooled structure?
Outright vs Pooled Ownership
Outright Ownership: You will buy shares of individual companies directly. To do this right requires a certain level of knowledge. Pooled Ownership: You mix your money with other people and buy ownership in a number of companies through a shared structure or entity. The downside is a near-total loss of control.
Decide Where You Want to Hold Those Assets
Your decision can have a major impact on how your investments are taxed. Choices include taxable brokerage accounts, Traditional IRAs, Roth IRAs, Simple IRAs, SEP-IRA, and maybe even family limited partnerships.
