Welcome to this 7 step guide to understanding the stock market. I’ve created this easy-to-follow Investing for Beginners guide to simplify the learning process for entering the stock market.
By leaving out all the confusing Wall Street jargon and explaining things in simple terms, I’m hoping you’ll find this as the perfect solution, if you are willing to learn.
Before we get started, here is a breakdown of the 7 categories for the official Investing for Beginners guide.
1. Why to Invest?
2. How the Stock Market Works
3. The BEST Stock Strategy and Buying Your First Stock
4. P/E Ratio: How to Calculate the Most Widely Used Valuation
5. P/B, P/S: The Single Two Ratios Most Correlated to Success
6. Cashing In With a Dividend Is a Necessity
7. The Best Way to Avoid Risk, and Putting it all Together!!
Why is investing so important?
Let’s imagine a life without investing first. You work 9-5 for a boss all your life, maybe get a couple raises, a promotion, have a nice house, car, and kids. You go on vacation once a year, eat out regularly, and attempt to enjoy the finer things in life as best you can.
Now since you haven’t invested, you get old, become unattractive for hiring, and live with a measly social security allowance for the rest of your life. You might’ve made good money when you were young, but now you have nothing to show for your lifetime of work.
Now let’s say you did save some money for retirement, but again this money wasn’t invested and won’t be invested.
Let’s even stay optimistic and assume you saved $1400 a month for 26 years. This would leave you with $403,200 to live on, which on a $60,000 a year lifestyle would only last you 6.72 years. You’re retiring at 65 only to go broke at 71 and you’ve been a good saver all your life.
Well then what’s the point of saving you may ask? Now let me show you the same numbers but add investing into the equation.
The Power of Saving + Investing
Again, lets say you saved $1400 a month for 26 years. BUT, this money was invested continuously as part of a long term investment plan, solid in the fundamentals you learned from this investing for beginners guide.
Now, including dividends in long term stock market investments, I can confidently and conservatively say that you can average a 10% annual return on these investments.
The same $1400 a month compounded annually at 10% turns your net worth into $2,017,670.19 in 26 years!
But the story gets even better.
With this large sum of money at your retirement, again conservatively assuming a 3% yield on your dividends, you can collect $60,530 a year to live on WITHOUT reducing your saved amount.
Answer: Compounding Interest
By letting the power of compounding interest assist you in saving, you leverage the resources available in the market and slowly build wealth over time.
It’s not some mystified secret or get rich quick shortcut; this is a time tested method to become wealthy and be financially independent, and it’s how billionaires like Warren Buffett have done it all their life.
For those who don’t want to think about tomorrow, I can’t help you. But tomorrow will come, it always does.
Would you rather spend the rest of your life with no plan, dependent on others and unsure of your future? Or would you rather be making progress towards a goal, living with purpose and anticipating the fruits of your labor you know you will one day reap for years after you sow?
The choice is yours, and only YOU will feel the consequences of that choice.