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  • The median age in the U.S. is 36.8
  • The median income in the U.S. is $51,939
  • The average 401k match is $1 for $1 up to 6%

A 36.8 year old investing 10% of their $51,939 income with a $3,116.34 match:
With just average stock market returns of 10% would have $1,114,479.31 by retirement.

Join 15,000+ other readers who have learned how anyone, even beginners, can easily make this desire a reality. Download the free ebook: 7 Steps to Understanding the Stock Market.

Investing for Beginners 101: 7 Steps to Understanding the Stock Market

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.

investing for beginners

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.

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The Emotional Decision of When to Sell Stocks in Your Portfolio

Every new investor wants to know when you know that you should buy a stock, but it seems like the question is never asked about when to sell stocks.  Why is that?  Well, to be honest, I think it’s because people think that knowing when to sell a stock is easy – but they’re wrong!

Selling a stock is much, much harder in my eyes.  You’re going to sell a stock after one of three situations:

  1. The stock has gone up
  2. The stock has stayed about the same
  3. The stock has gone down

If the stock went up, then why would I sell?  Sounds like it’s on a hot streak!  If it stays the same that’s just because it’s taking a little longer than normal to really get going and realize it’s full potential.  What if it’s gone down?  Well, I liked it at a higher price, so I definitely love it now, right?!

See what I just did there?  It’s so incredibly easy to find a way to spin it into thinking that the stock you own is primed for success.

Buying a stock is very easy because you don’t have any emotional attachment to that stock.  You can simply base it off of facts.  Quantitative and qualitative facts – and that’s it.

When you’re trying to sell the stock, you have the added consideration of your own personal attachment and emotion to the stock.  Maybe it’s good, maybe it’s bad – but you absolutely have certain opinions and feelings about every single stock in your portfolio, and it’s impossible to ignore them.

In a recent episode of the Investing for Beginners Podcast, Andrew and Dave talked about this in depth (for an entire episode!) and how to try to avoid making a decision that you’ll regret someday by relying on your emotions only.

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IFB140: Simple Ways to Save Money on Car Maintenance

Announcer (00:00):

You’re tuned in to the Investing for Beginners podcast. Finally, step by step premium investment guidance for beginners, led by Andrew Sather and Dave Ahern. To decode industry jargon, silence crippling confusion, and help you overcome emotions by looking at the numbers, your path to financial freedom starts now.

Dave (00:36):

All right folks, welcome to Investing for Beginners podcast. This is episode 140 tonight. Andrew and I are going to take a little bit of a detour on that. Talk about something he would not talk about. But before we’re going to talk a little bit about cars. We’re going to talk about car maintenance and the compounding interest that you can get from car maintenance. So Andrew had some great ideas that he wanted to share with you guys cause he’s, he’s had some car problems recently, and this has sparked an interest in this. And so he, and I thought we could riff on that a little bit. So, Andrew, I’m going to go ahead and turn over the keys to you, and we’re going to go from there.

Andrew (01:09):

Very nice. Yeah, toss over. I, I think, you know, I thought about this topic before we got on and I know it’s not the most exciting of topics because either car isn’t interesting to you or you think you make a lot of money. Like you could also be in a position where it’s like, well, I like cars so much that you know, I’m going to spend as much money on them as I want. Or you could be like the third situation where it’s like, I have so much money that car expenses aren’t a lot to me. And so like Mr. Wonderful and Shark Tank, you can’t relate. So you know, whether you fall in either of those three categories, I want to challenge some commonly accepted ideas about cars and car payments and car maintenance because for the middle class, outside of housing costs or rent costs, your car costs are going to be pretty high up there.

Andrew (02:20):

You start throwing gas into the equation. Now you’re talking about, you know, not, and not an insignificant amount. So when you start to break it down, and we’ve talked all over and over and over and over again about how you can take small amounts of money and by using compound interest and investing that over the years and, and letting those dividends come in and reinvesting those you can make small amounts of money turn into big amounts. And so, you know, if you’re somebody who, let’s say you’re, you have a lot of wealth and, and some of these car expenses don’t mean anything to you. While maybe that difference in compound interest, you know, let’s say you’re thinking about buying a Tesla now, and instead you downgrade; hopefully, you’re inspired by the episode. Maybe you downgrade to like a middle-sized luxury vehicle instead of like a higher-end Tesla. Then maybe in 20 years, you’re buying a Lambo instead of the next base model. Tesla. So, you know, you can think of it that way. You can think about if you feel like you have no money to invest, and you’ve never really examined where your car costs are coming from and how much those are affecting your budget. And you think about how

Andrew (03:51):

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How Cost of Goods Sold (COGS) Can Help Find Great Company Moats

A company’s Cost of Goods Sold, or “COGS” for short, are the costs directly associated with the goods that the company sells. COGS are variable depending on how many sales take place which means that if a sale does not take place, then these costs are not incurred. For companies which sell customers a service, the figure is commonly referred to as cost of sales or cost of services.

For this article, we will use the COGS acronym as we discuss where COGS can be seen on the income statement (and even the balance sheet!), what type of expenses make up COGS, and the figures usefulness in analyzing a company.

We will finish with an example analyzing wide-moat companies Coke and Pepsi compared to a couple more narrow-moat companies in the competitive chemicals industry .

COGS on the Income Statement

COGS sits right near the top of the income statement under revenue as can be seen in Coca-Cola’s 2018 income statement seen below.

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4 Top Passive Income Books for Building Lasting Wealth

Lately I’ve been on a sort of book review kick and have given some suggestion for best investing books but not I want to tackle the best passive income books that I would recommend that you read! 

If you’ve never considered a side hustle/passive income/second job before, you’re missing out.  Now let me clarify and say that it’s absolutely not for everyone.  Some people truly have no more time in their life to be able to devote anything extra to a passive income stream, but I’d challenge you to really think about if you have the extra time or not.

If all that you do every night is come home from work and watch tv, and you replace that time with a side hustle, are you actually worse off?  I’d argue that not only are you making more money, but you’re stimulating your brain more, and now maybe you can even cut cable and go to just Netflix!  I love lazy days as much as anyone, but a side hustle can truly be a fantastic way to help you reach your goals and also increase the satisfaction in your day-to-day life. 

Watching tv all night, every night, can become very boring and even depressing…

It might not seem like it’s worth your time, but if you could spend a few hours a week, look at the possible returns you could have for retirement if you invested it all in the market:

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Understanding Buffett’s Owner Earnings for Beginners

As we continue to get more and more into the weeds with Warren Buffett in his book, ‘The Essays of Warren Buffett’, he focuses on Owner Earnings in this chapter and just how skewed that they can become if you’re not evaluating them properly. 

Buffett begins the chapter by showing a balance sheet of two different companies and asks the reader to identify which company is worth more.  The balance sheets look very similar to one another except the Net Income of the first company is just over $40 million while the second company is just under $29 million.  I mean, obviously the company with the $40 million in earnings is worth more than the other, right?

Well, turns out that the two companies are actually the same exact company – Scott Fetzer.  The only difference is that the company with $40 million in earnings would be if Berkshire didn’t purchase Scott Fetzer and the company with $29 million in earnings is the actually reported earnings by Berkshire.

So, why the heck are the earnings so drastically different when literally nothing about the business has changed?

Essentially, it all boils down to the fact that Berkshire paid a premium (which is very common when buying a business) of $142.6 million to purchase Scott Fetzer.

All sudden done, Scott Fetzer was now worth $142.6 million less, on paper, after being purchase by Berkshire than it was when it was still a standalone company.  Make sense?  No?  Didn’t think so.

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4 Popular “Theta Gang” Strategies to Collect Premium from Options

What is theta gang? Simply put, these are options trading strategies that capitalize on the fact that the prices of options decay over time. Instead of trying to predict if a stock will go up or down, you simply play the time game– collecting premium which turns to profit as time goes by, then rinsing and repeating.

The strategies you could employ to take advantage of theta can really be endless, but I’m going to focus on 4 popular ones that have a high probability  of closing in the green and are relatively simple to understand. 

This guide will assume you at least know the basics of calls and puts, which should be the bare minimum requirement of anyone trying theta gang strategies. If you need help with that I created an Options for Beginners guide that really breaks down the basics of options contracts without getting too overly technical.

Here are the 4 popular theta gang strategies I’ll cover [Click to Skip Ahead]:

  1. Put Credit Spread
  2. Call Credit Spread
  3. Naked Puts / “The Wheel”
  4. Short Iron Condor

The first two theta strategies are great for Beginners and seasoned traders alike because your max loss is limited and you know exactly what that max loss would be. Yet at the same time, you can profit from these trades if either A) the stock moves in the direction you like, or B) enough time has passed and time decay has worked its magic.

These strategies are called the put credit spread and call credit spread. I’ll start with the put credit spread first because that’s generally preferred if you are bullish on the market or stock.

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Stock Repurchases: How They Work and Their Effect on Earnings

In today’s market, stock repurchases are the choice that most public companies use to return value to their shareholders. Investing giants such as Warren Buffett and Jamie Dimon applaud these efforts.

Warren has commented multiple times in his Berkshire Hathaway Letters to Shareholders on his fondness for stock repurchases, also known as buybacks.

Buffett’s thoughts from his latest letter, 2019:

  • “Repurchases will benefit both those shareholders leaving the company and those who stay.”
  • “When stock can be bought below a business’s value, it probably is its best use of cash.”

As for Jamie Dimon, CEO of JP Morgan, who has bought back 20% of their shares over the five years to the tune of $55 billion, per it’s 2018 annual report.

Dimon’s thoughts about stock repurchases:

  •  “We believe stock buybacks are an essential part of proper capital allocation.”
  • “Buybacks…are an important tool that businesses must have to reallocate excess capital.”
  • “Buybacks should not be done at the expense of properly investing in our company.”

Stock repurchases have been the main driver of shareholder value over the last bull market certainly and will continue long into the future. According to the Wall Street Journal, total spending on stock (or share) repurchases projects to reach $940 million in 2019.

Although share repurchases have been all the rage in capital allocation among public companies, there has been some opposition to this practice.

The opposition comes mostly from the Democratic side of the aisle, leading candidates for the upcoming Presidential elections, Bernie Sanders and Elizabeth Warren have been highly critical of these practices. More on this topic to come.

In today’s post will discuss the following topics:

  • What are stock repurchases?
  • How do they benefit shareholders?
  • How can we see the effects from a financial statement point of view?
  • Are there any risks to share repurchases?
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What Value Investing Blog Would You Recommend for Beginners?

So, you’re finally drinking the Kool-Aid about value investing, but the issue is that you’re a brand-new beginner.  So, as expected, you come to your favorite blog of all time (this one, duh) to try to find some recommendations about where to start.  Well, I think that Andrew has a great blog post about where to start investing just in general, but if you’re looking for a great value investing blog, I highly recommend you check out Jae Jun’s blog called Old School Value.

I think that this blog has an absolute ton of information, ranging from beginner topics to topics for the advanced investor.  Being an excel nerd, I was immediately sucked in as soon as I clicked on the main page and saw this message:

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IFB139: Beginners Guide to Investing in Bonds

Announcer (00:00):

You’re tuned in to the Investing for Beginners podcast. Finally, step by step premium investment guidance for beginners led by Andrew Sather and Dave Ahern. To decode industry jargon, silence crippling confusion, and help you overcome emotions by looking at the numbers, your path to financial freedom starts now.

Dave (00:36):

All right folks, welcome to Investing for Beginners podcast. This is episode 139, tonight, Andrew and I are going to have a little discussion back and forth. We’re going to talk about bonds, so I’ve written three blog posts over the last week or so about bonds and the different aspects of them, the different kinds there are and kind of the ins and outs of them, and Andrew and I thought that too actually. Andrew thought that this would be an interesting conversation for us, and he thought he could maybe ask me some questions and see what I could do to help people learn more about this particular asset class. This is something that’s not talked about a lot. It’s certainly not taught in schools and most people are very unfamiliar with bonds and how they work. And as we know, if you’re unfamiliar with something, it can be a little bit scary or overwhelming. So we hope we can help illuminate this asset class a little bit more and give you some insights. And if this is something that you’re interested in learning more about, we’re here to help you. So without any further ado, I’m going to turn over my friend Andrew and he’s going to grow me with a lot of really hard questions. So fire away.

Andrew (01:42):

I’m not going to put you into the grill, not today. Maybe we’ll say that for another episode. Yeah, you wrote three great posts on the blog, and I think if people hear our conversation and they’re interested in getting down to the nitty-gritty, I suggest breeding those. You know, it’s spaced out in the publishing schedule. But really if you go on the website, investing for beginners.com you go to the search bar, you type in bonds and you’re going to talk about several different types of bonds. And I think that will be very helpful. So if you have like, let’s say you want and learn more about municipal bonds, you could type that into the search, the search bar, and you’ll see Dave’s masterpiece on there. These in-depth guides and those can be very, very helpful.

Andrew (02:30):

But first, before we get into all of that, let’s talk about maybe why bonds are, what kind of investor would find it attractive? I think not only, you know, I think when we think of bonds in general, but you also start to think of people who are in retirement or close to retirement. And there are good reasons for that because we’ve talked in the past how the stock market over the very, very longterm, it’s, it’s great for returns. But if talking about the one year, the market could drop 20, 30, 40%. Even in the five years, not always a guarantee. You’ll make money. So if you don’t have that 10 to 20 year time period, plus you might want to find something that’s not as volatile as stocks. So kind of break down for somebody who doesn’t know what a bond is, the basics of it why the way it’s structured makes it attractive for certain types of things.

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How to Find and Invest in Tax Free Municipal Bonds

“I’m proud to be paying taxes in the United States. The only thing is – I could be just as proud for half the money.”

Arthur Godfrey

No one likes to pay taxes, imagine an investment that allows you to avoid paying taxes on your returns, legally. Is there such a thing?

Yes, there is, and they are called municipal bonds.

In our continuing series on bonds, this week’s adventure is going to explore the world of municipal bonds.

Funny fact, but that quote above actually appeared on the home page of the IRS at one point! I kid you not, who says they have no sense of humor.

Taxes aside, these bonds can be a great source of income and fantastic investments in their own right. We will discuss in this post the formula to determine whether a tax-free muni would mean greater take-home than a taxable bond.

After all, that is what this is all about, finding the best investment for us all.

In this post, we will learn:

  • What a municipal bond is.
  • What kind of rates they pay.
  • The different kinds of municipal bonds
  • How to determine the best tax-free rate for us.
  • How to Buy a Muni
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