To be a millionaire,
You need to learn how to invest.
It can be scary, but it doesn't have to be.
Here's an Investing Primer every person needs to know:
You need to learn how to invest.
It can be scary, but it doesn't have to be.
Here's an Investing Primer every person needs to know:
• Risk and return
As returns increase, so does your risk.
Investment types in order of risk:
• Cash
• Fixed income
• Real estate assets
• Publicly traded equities
• Alternative private investments
Understand your risk profile and reconcile it to your desired return.
As returns increase, so does your risk.
Investment types in order of risk:
• Cash
• Fixed income
• Real estate assets
• Publicly traded equities
• Alternative private investments
Understand your risk profile and reconcile it to your desired return.
• Cash
Cash includes bank accounts, money market accounts, certificates of deposit, or treasury bills.
A challenge is it loses value to inflation.
If inflation is higher than the interest you're earning, the cash loses value.
Warren Buffet calls this an option cost.
Cash includes bank accounts, money market accounts, certificates of deposit, or treasury bills.
A challenge is it loses value to inflation.
If inflation is higher than the interest you're earning, the cash loses value.
Warren Buffet calls this an option cost.
Cash is low risk and has high flexibility.
As you work from cash in your bank account to treasury bills:
• Returns increase
• Flexibility decreases
• No large risk increases
Cash should be a small portion of your investments, including your emergency fund.
As you work from cash in your bank account to treasury bills:
• Returns increase
• Flexibility decreases
• No large risk increases
Cash should be a small portion of your investments, including your emergency fund.
• Fixed income
Bonds are debt instruments that pay a fixed interest.
They include in order of risk:
• Federal bonds
• Municipal bonds
• High-quality corporate bonds
• High-yield corporate junk bonds
Bonds provide a steady income stream and reduce equity volatility.
Bonds are debt instruments that pay a fixed interest.
They include in order of risk:
• Federal bonds
• Municipal bonds
• High-quality corporate bonds
• High-yield corporate junk bonds
Bonds provide a steady income stream and reduce equity volatility.
• Bond terms to know
Price is what the bonds trade for on the secondary market.
Yield is the interest the bond pays relative to its price.
Coupon is the interest rate paid by the bond.
Face value is the amount the bond is worth when issued - also known as "par".
Price is what the bonds trade for on the secondary market.
Yield is the interest the bond pays relative to its price.
Coupon is the interest rate paid by the bond.
Face value is the amount the bond is worth when issued - also known as "par".
• Bond risks:
• Liquidity
• Interest rate
• Credit default
• Re-investment
Liquidity risk refers to your ability to sell a bond quickly at a reasonable price.
Interest rate risk is the risk that a rise in interest rates will lower the value of your bond.
• Liquidity
• Interest rate
• Credit default
• Re-investment
Liquidity risk refers to your ability to sell a bond quickly at a reasonable price.
Interest rate risk is the risk that a rise in interest rates will lower the value of your bond.
• Bond Risks (2)
Credit default risk refers to your counter-party not being able to repay the bond.
Re-investment risk refers to an inability to reinvest the cash on the maturity of your bond.
A rule of thumb is bonds should mirror your age as a percentage of your portfolio.
Credit default risk refers to your counter-party not being able to repay the bond.
Re-investment risk refers to an inability to reinvest the cash on the maturity of your bond.
A rule of thumb is bonds should mirror your age as a percentage of your portfolio.
• Real estate assets
Real estate assets can be accessed publicly or privately.
Real estate available through public vehicles includes senior debt on properties, stabilized income properties, and REITs.
Private strategies include mezzanine debt and real estate development.
Real estate assets can be accessed publicly or privately.
Real estate available through public vehicles includes senior debt on properties, stabilized income properties, and REITs.
Private strategies include mezzanine debt and real estate development.
Real estate asset classes include:
• Retail
• Commercial
• Multi-family residential
• Single family residential
For more on real estate, read:
• Retail
• Commercial
• Multi-family residential
• Single family residential
For more on real estate, read:
• Publicly traded equities
One of the methods companies use to raise money is to list their shares on a stock exchange.
After being listed, the stocks are publicly traded.
When investing in stocks, you should consider understand the stock market and they type of stock.
One of the methods companies use to raise money is to list their shares on a stock exchange.
After being listed, the stocks are publicly traded.
When investing in stocks, you should consider understand the stock market and they type of stock.
• Stock market indices
The primary indices in the United States are:
• Dow Jones industrial average
• Nasdaq composite
• S&P 500
Investments can be:
• mid-cap
• large cap
• small-cap
• growth stocks
• dividend stocks
• international stocks
• emerging market stocks
The primary indices in the United States are:
• Dow Jones industrial average
• Nasdaq composite
• S&P 500
Investments can be:
• mid-cap
• large cap
• small-cap
• growth stocks
• dividend stocks
• international stocks
• emerging market stocks
• S&P 500
The S&P 500 represents about 80% of the value of U.S. stock market and includes the top 500 companies.
Given its wide holdings and share of the U.S. stock market value, the S&P 500 is often a barometer of how the stock market is performing as a whole.
The S&P 500 represents about 80% of the value of U.S. stock market and includes the top 500 companies.
Given its wide holdings and share of the U.S. stock market value, the S&P 500 is often a barometer of how the stock market is performing as a whole.
• Dow Jones Indudistrial average
The Dow Jones, or DJIA, is one of the oldest, well known, and frequently used indexes in the world.
The DJIA includes the stocks of 30 of the largest and most influential companies in the U.S. and accounts for ~ 25% of the U.S. stock value.
The Dow Jones, or DJIA, is one of the oldest, well known, and frequently used indexes in the world.
The DJIA includes the stocks of 30 of the largest and most influential companies in the U.S. and accounts for ~ 25% of the U.S. stock value.
• NASDAQ
The NASDAQ is an index of 3,700+ stocks listed on the NASDAQ exchange.
NASDAQ is where most of the major technology companies are listed.
The performance of the NASDAQ composite index is a barometer for how technology stocks are performing.
The NASDAQ is an index of 3,700+ stocks listed on the NASDAQ exchange.
NASDAQ is where most of the major technology companies are listed.
The performance of the NASDAQ composite index is a barometer for how technology stocks are performing.
• Small, Mid, and Large Cap Stocks
Market capitalization refers to the market value of all outstanding shares of a company and it has historically had an inverse relationship with risk and return.
Market capitalization refers to the market value of all outstanding shares of a company and it has historically had an inverse relationship with risk and return.
Large caps are generally mature, grow slowly and have less volatility.
Small and medium caps are more affordable, offer higher growth, and are more volatile.
Small: $300 million - $2 billion
Medium: $2 billion - $10 billion
Large: greater than $10 billion
Small and medium caps are more affordable, offer higher growth, and are more volatile.
Small: $300 million - $2 billion
Medium: $2 billion - $10 billion
Large: greater than $10 billion
• Growth Stocks
A growth stock is expected to have higher than average growth for a given market.
Growth companies reinvest earnings to:
• grow sales
• increase profits
They typically trade at a higher price to earnings ratio.
A growth stock is expected to have higher than average growth for a given market.
Growth companies reinvest earnings to:
• grow sales
• increase profits
They typically trade at a higher price to earnings ratio.
• Dividend Stocks
A divided is a payment of cash, or stock, from a company to its shareholders.
A dividend stock usually represents a more mature company that has a history of paying cash dividends to its shareholders.
The higher the dividend rate, the higher the risk profile
A divided is a payment of cash, or stock, from a company to its shareholders.
A dividend stock usually represents a more mature company that has a history of paying cash dividends to its shareholders.
The higher the dividend rate, the higher the risk profile
• International Stocks
International stocks are consistent with the above re:
• small, mid, or large cap
• dividend stocks
• growth stocks
They simply aren't U.S. stocks.
For example, you may decide to invest in Europe or China.
International stocks are consistent with the above re:
• small, mid, or large cap
• dividend stocks
• growth stocks
They simply aren't U.S. stocks.
For example, you may decide to invest in Europe or China.
• Emerging Market Stocks
These stocks are represented by a country that has a developing or emerging economy.
They offer high growth and come with increased volatility.
Historically, emerging markets focused on BRIC countries, Brazil, Russia, India, and China.
These stocks are represented by a country that has a developing or emerging economy.
They offer high growth and come with increased volatility.
Historically, emerging markets focused on BRIC countries, Brazil, Russia, India, and China.
• How to invest in stocks
You can invest in stocks directly or through:
• mutual funds
• Index funds
• ETFs
If you want to invest directly, open up a trading account with your bank and buy, or sell, individual stocks.
You can invest in stocks directly or through:
• mutual funds
• Index funds
• ETFs
If you want to invest directly, open up a trading account with your bank and buy, or sell, individual stocks.
• Mutual Funds
A mutual fund is a company that pools investments from multiple investors and invests in stocks, bonds, and debt instruments.
They have high fees and carrying costs, but are actively managed.
A knock on mutual funds is active management rarely beats the index.
A mutual fund is a company that pools investments from multiple investors and invests in stocks, bonds, and debt instruments.
They have high fees and carrying costs, but are actively managed.
A knock on mutual funds is active management rarely beats the index.
• ETFs and Index Funds
ETFs and Index funds are both passively managed vehicles that are constructed to mimic a specific market, such as:
• Dow Jones industrial average
• Nasdaq composite
• S&P 500
ETFs and Index funds are low cost, and are meant to tack the market.
ETFs and Index funds are both passively managed vehicles that are constructed to mimic a specific market, such as:
• Dow Jones industrial average
• Nasdaq composite
• S&P 500
ETFs and Index funds are low cost, and are meant to tack the market.
• Alternative private investment
Alternative private investments are generally restricted to accredited investors and include all investments not described already, such as:
• hedge funds
• syndicated real estate
• infrastructure projects
• private equity investment
Alternative private investments are generally restricted to accredited investors and include all investments not described already, such as:
• hedge funds
• syndicated real estate
• infrastructure projects
• private equity investment
TL;DR
If you want to be a millionaire, you need to be invested.
Before you invest, you need to understand the risk, return and mechanics of each investment type:
• Cash
• Fixed income
• Real estate assets
• Publicly traded equities
• Alternative private investments
If you want to be a millionaire, you need to be invested.
Before you invest, you need to understand the risk, return and mechanics of each investment type:
• Cash
• Fixed income
• Real estate assets
• Publicly traded equities
• Alternative private investments
That's a wrap.
We're here to help you be better, achieve more, and become financially free.
Help me do that:
1. Follow @IAmClintMurphy
2. Retweet the first tweet
We're here to help you be better, achieve more, and become financially free.
Help me do that:
1. Follow @IAmClintMurphy
2. Retweet the first tweet
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