The Best Personal Finance Summaries – 9 December 2019
Just a friendly reminder that there are a bunch of giveaways that you can win.
[VIDEO] Book Summary: Money Master the Game
A personal favorite, this book interviews the 50 most successful investors for us to learn from. There are so many great lessons in this book. Many will surprise you.
Reply to this email to let us know what you think or what you would like us to summarise in the future!
Grow Your Wealth
If you’ve held off on investing in stocks because of the perceived barriers to entry like a small budget, intimidating processes, and lack of know-how, this guide—an easy-to-understand “investing in stocks 101″— is just what you need.
A. How to Invest in Stocks: Step-by-Step
1. Choose how you’re going to invest in stocks.
Typically, you can choose to ‘DIY’ – select and pick your stocks, or use ‘Hands-off’ strategy – use a robo-advisor!
2. Open a brokerage account.
If you choose to ‘DIY’, you will need an online-brokerage account; similarly, for ‘hands-off’ strategy, you will need to set up a robo-advisor account.
3. Get familiar with the basics of investing in stocks.
You should do your due diligence to understand the basics of how stocks and stock markets work. They will be covered below.
4. Determine how much you want to spend.
You need to set your budget for your investment. Know how much you need to get started (which vary for different types of brokerage accounts) and how much should your regular investment be.
5. Start investing and monitor your investments.
Keep an eye on the stocks you hold. After all, stocks are meant to be a long-term investment.
B. Stock Market for Beginners: Basic Investing Terms
|Common vs Preferred Stocks||Common stocks give owners claim to company profits and sometimes, voting power. Preferred stocks give owners the priority to receive dividends.|
|Market Index||General market performance. Give the insight to make decisions about investment.|
|Robo-advisor||Automated financial planning and managing service for investment.|
|Stockbroker||Professional who buy and sell stock on your behalf.|
|Bid vs Ask Price||Bid is the highest amount someone is willing to pay for the stock. Ask is the lowest amount the seller is willing to accept for the stock.|
|Beta||Metric to measure the volatility of a stock. A beta coefficient above one means a stock is more volatile.|
|Investing vs Speculating||While both can give you a profit; investing means you are fairly confident about the likelihood, speculating has a higher risk.|
|401k||Investment option offered by employers. A portion of your paycheck is put into your retirement saving’s account.|
|Individual Retirement Account (IRA)||Investment vehicle dedicated to building your retirement fund.|
|Mutual Funds||Investors can access to a diversified portfolio of stocks, bonds and other securities.|
|Exchange-Traded Funds (ETFs)||Similar to Mutual Funds, but are based on a specific Market Index.|
|Real Estate Investment Trusts (REITs)||Investors can buy shares in a portfolio made up of real estate properties which generate regular incomes.|
C. How to Buy Stocks: Create a Brokerage Account
1. Choose a brokerage firm.
Do your research. Know the relevant fees, commission rates, reputation and incentives offered.
2. Apply online.
Complete the online application. Prepare the required information and documentation.
3. Deposit funds.
Do electronic funds or wire transfer to top up your account.
D. Things to Consider Before Investing
- Your financial situation.
List your financial obligations and debts. Make sure that you are financially stable before investing in the stock market. Also, make sure you have an emergency fund established.
- Your risk tolerance
Understand how much risk you’re willing to assume – how much money you’re ready to lose. If your risk tolerance is low, consider investing in stocks with a lower beta coefficient.
- Your time frame
Stocks are a better option for those who are looking to make a long-term investment. For short-term financing, you may want to consider other options (certificates of deposit, money market funds or interest-bearing checking and saving accounts).
E. Setting Investment Goals
Outline your goals. By having your goal in mind, you will be motivated to invest wisely.
F. Common Investing Mistakes
Prevent the following mistakes:
- Setting and forgetting your investments. Instead, you should monitor them regularly to ensure you are on the right track.
- Stagnant portfolios. Always look for the strategies to diversify and increase your investment portfolio.
- Emotional buying and selling. Do not be overly excited or panicked about the ups and downs in the stock market.
- Waiting too long to start investing. Anyone can start investing – even with a small budget.
G. When to Sell Stocks
Typically, you sell to cash-in on big profits or to prevent further losses. According to Investopedia, sell your stock when you have:
- 20 – 25% in profits.
- losses approached 7% or above.
- the stock hit your target price.
- realised buying the stock was a mistake (due to their financial performance).
- share rise dramatically in a brief period.
The article also listed some FAQs for those who would like to start investing. Do check out the link above!
Tens of millions of investors around the world have read and studied his letters in search of insights to what or how they can do better when it comes to managing their investments.
#1: Investments into Productive Assets
Warren Buffett invests for steady and rising cash flows for the long-term. In Warren Buffett’s 2011 letter, he described stock as a ‘commercial cow’ which could produce ‘milk’ – recurring profits and cash flows. Later in 2013, he once again denounced the emphasis on ‘prospective price change’ when buying stocks. Therefore; as investors, we should be focusing on a stock’s long-term income-generating ability to ensure sustainable profits!
#2: Be Prepared for the Thousand-Year Flood
Warren Buffett jokingly wrote in 2014 that he would be the guy selling life jackets during the occurrence of ‘thousand-year flood’ in the future. According to the writer, the ‘thousand-year flood’ means the ‘financial staying power’ of an investor. To learn from Buffett, we should prepare a sizable cash balance to allow flexibility during the purchase of stocks when the opportunity arises.
#3: The Use of Debt or Borrowings
According to Warren Buffett, debt is a double-edged sword. He often favours stocks which have a good return on equity (ROE) without or with little use of debt. As investors, we could learn from this as well.
#4: Reduce Investment Fees at All Cost
In his letter in 2017, Warren Buffett wrote a profound statement: ‘Performance comes, performance Goes. Fees never falter.’ He has challenged any investment firm to create a fund to beat cost-free unmanaged S&P 500 index fund for 10 years, but none has succeeded to do so. The takeaways are straightforward – some ‘fees’ involved are not free, and we should rethink the worth of our money paid to the fund managers.
#5: Continuous Learning is Important to Investors
Warren Buffett is an avid reader, an active learner and one who appreciates the power of mentorship. He publicly admitted that two books he read – ‘The Intelligent Investor’ by Benjamin Graham and ‘Common Stocks and Uncommon Profits’ by Philip A. Fisher had shaped his investment life. The continuous learning attitude is something we could learn too!
A way for females to get free insurance
We were talking to our super humble financial advisor friend one day and she started talking about some insurance product for females that provides coverage for all these female related illnesses. But more importantly, the contract also states that all the premiums will be returned at the end of the contract.
Seriously something for all females to consider!