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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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Ally Brokerage Basics: A Guide for Beginners

A common first step for any potential investor is to try to find out what brokerage is the best for them to open their account with. I personally believe that Ally is a fantastic option for someone to start their investing journey.

Andrew has talked on his podcast in the past about how he uses Ally for his brokerage account.  He said that the thing that initially attracted him to Ally was that they were one of the cheaper brokerage firms as they only charged $4.95/trade. 

While things have recently changed drastically with many brokerage firms going to $0 fees, including Ally, I still do think Ally has a really strong platform and is a great option when it comes time for you to decide on your preferred brokerage.

One of the things that I think sets Ally apart is their ability to be a “one stop shop” for your money. I use Ally for my high-yield savings account as it doesn’t carry any risk at all but I use Fidelity for my investing. 

The only reason that I use Fidelity is because that’s where my 401k with my employer is, but I’m questioning if it makes sense to leave it at Fidelity and maybe I should switch everything to Ally. 

When you first login, you will see the page below where they’re advertising their 1.7% interest High-Yield Savings Account – not too bad to put your emergency fund!

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9 Top Benjamin Graham Quotes on Value Investing

Benjamin Graham is one of the most successful value investors of all time and he also has given us some freaking amazing quotes throughout his life!  I have written quite a few posts on Benjamin Graham and maybe you can even call me a bit of a fanboy, so why not keep the train going with some of my favorite Benjamin Graham Quotes!

“You must never delude yourself into thinking that you’re investing when you’re speculating.”

This is one of the most important rules of value-investing!  You need to create your own checklist of what is important in a stock and stick to that checklist. 

benjamin graham checklist

Make sure that all of your investments are backed with great quantitative and qualitative analysis, but never based on speculation alone!

“Buy not on optimism, but on arithmetic.”

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IFB128: HSA and How It Can Reduce Your Taxes

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 number, your path to financial freedom starts now.

Dave:                                    00:36                     All right folks, we’ll welcome to the Investing for Beginners podcast. This is episode 120 gig tonight. Andrew and I are going to talk about a couple of subjects that we have not talked a lot about or in some cases, not at all. If you are enjoying the show, please subscribe here. So we’re going to talk a little bit about taxes and a couple of tax vehicles that you could use to help save you some money on taxes. One of the vehicles we’re going to talk about is an HSA. And we’re also going to talk a little bit about a Roth IRA. So, Andrew, I know you’ve had some recent experience with an HSA, so why don’t you tell me your thoughts on that, and we could chat a little bit.

Andrew:                              01:09                     Well, let’s chat less about my experiences with okay. Medical issues and expenses because that will piss me off. Yep. But you know, an HSA is something that a lot of people can take advantage of. And even if you think you can’t, I think maybe you can. So HSA, what is that? And you know, how can it help the average person? I think when you kind of look at the landscape of, particularly if you live in the United States and the way that our, the expenses and hospital bills and doctor bills and surgery bills and how it’s just through the roof and astronomical and it’s, you know, if you don’t have good insurance and even when you do have good insurance, a lot of times these, the healthcare system in America is just the way it’s structured has really made a lot of services. Be expensive.

Andrew:                              02:12                     And you know, I, I remember reading a stat somewhere a while ago that said, one of the biggest causes of bankruptcy is medical debt. And it’s also one of the expenses in retirement that people sorely under the plan for. And so it can be something that really, you could have what you think is a great path to retirement and financial freedom. But when you’re not kind of taking some of the big medical expenses that can pop up into a cow in a lot of these things happen with, you know, just out of nowhere and so that can be detrimental and, and hurt you. So I wish I had the magic solution and outside of saying maybe move out of the country other than that like we have to deal with it as we live here. And the HSA can be one great way to do that, particularly if you start at a young age.

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A List of Today’s No Fee Brokers (2019) – What They Mean for Investors

Recently, many different stock brokerage firms have become no fee brokers compared to previously charging anywhere between $5 – $7 on average per transaction. 

Andrew and Dave recently talked about this in an episode of the Investing for Beginners Podcast and they really outlined a potential way that this could impact the average investor.  This change to many brokerage firms has been the talk of the investing world because this is how a lot of brokerage firms make their money. 

No fees means great things for investors, right?  The average investor is going to save $10 – $14 for each stock since you’re going to pay $5 – $7 when you buy the stock and then another $5 – $7 when you sell that same stock. 

If you’re following Andrew’s eLetter where he puts $150 into a stock in each month then you were going to lose 3-5%  right off the bat simply based off the commission fees that you were being charged, but now that they’re free, you’re not experiencing that extra disadvantage that you now need to hurdle!  That sounds like good news to me!

But, I do think that there are some major disadvantages that could arise for investors that we need to be weary of:

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Some of the Greatest Multibagger Stocks Snagged by Famous Investors

Have you ever heard of the term ‘ multibagger’ before?  If you haven’t, then you probably haven’t had any multibagger stocks!  Don’t worry, neither have I, but I am anxious for my first time to get there.  A multibagger is a stock that has increased in value many times over what you initially bought the stock at. 

For instance, if you bought a stock at $10/share and that same stock is now at $100/share, then that is a tenbagger because the current price is 10 times the initial price that you bought the stock at.

It almost feels like a hole in one in golf – yes, talent and preparation do play a huge part in the ability to accomplish the goal, but luck is definitely something that is also needed.  Experience and knowledge are so important when picking a stock, but it does take a certain amount of luck to find a stock that is going to be worth 10+ times the value that it was when you bought it. 

Typically, stocks that are multibaggers are going to be stocks that you buy at a fairly low dollar value, such as the #1 multibagger example that I like to bring up – when Warren Buffett bought Coke.

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Portfolio Leverage

Portfolio leverage is the classic double-edged sword, magnifying returns to the upside and cutting deep on the downside too. Portfolio leverage needs to be understood and respected before contemplating its use in a portfolio.

It is a tool not necessarily suited for every retail investor’s toolbox and many investment funds will have strict rules about its application contained in the fund’s offering memorandum. That being said, let’s dig into the various forms of portfolio leverage and other important items for investors to note.  

Various Forms of Portfolio Leverage

There are three main methods in which leverage can be added to a portfolio. The commonality among them is that all the methods change the systematic risk (ie. market risk) the portfolio is exposed to disproportionately with the amount of an investors own capital being invested. This increase in systematic risk per amount of investor capital in the portfolio can be considered the definition of portfolio leverage. Below are the three main methods to add leverage to a portfolio:

  • Borrow from the broker/bank – This is probably the most common way to leverage a portfolio and will be discussed more broadly later. By keeping the amount of investor capital the same and borrowing cash to invest in additional securities, the investor is increasing their exposure to systematic risk/beta. Borrowing can be as simple as making use of the “margin account” from one’s broker but other sources of financing should be considered if they provide cheaper rates of interest and are documented in such a way that the interest expense on the borrowing keeps its tax deductible status.
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A History of the DIS Dividend and Where It Could Go From Here

Disney (DIS) recently just rolled out their new online streaming platform, Disney Plus, and it has sparked a huge amount of conversations about the company and their stock price, so why not take a look at the historical DIS Dividend and see if we can take a stance about what might be happening in the future!

DIS implanted a divided for their company in 1989 and they have experienced quite a bit of volatility over that time in the average annual increase in total dividend payments vs. the prior year. 

Below is a really cool set of graphs from one of my most frequently visited investing websites, Macro Trends

The first graph shows you what the DIS stock price has done since 1989 and as you can see, you should be very happy if you bought into the company at that point and held onto the stock throughout the years as DIS is now being priced right around $150/share. 

The Total Dividend Payout in the second graph follows a pretty similar path as the share price which makes sense. 

As the price of the stock is increasing, you would expect for the dividend payments to increase at a very similar rate unless there was a major disconnect between the earnings of the company and the share price at some point.  So far, so good!

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What are Value Factors, and Which Are Considered the Best?

Value Factors – what the heck are they?  In the book ‘What Works on Wall Street’ by James O’Shaughnessy, he has an entire chapter (Chapter 10 – you should read it!) dedicated to the ‘Value of Value Factors’ so let’s dive in!

Value Factors are where you’re looking for different factors that might identify a stock that is potentially undervalued, therefore being a very key belief of value-investing. 

Some of the more popular factors would be the Price/Earnings (P/E) ratio or identifying a higher than normal dividend yield, but O’Shaughnessy has found that when you only look at these two value factors, you’re actually much more likely to underperform the market.

Instead of looking at P/E and dividend yield, you should be focusing on other value factors such as finding a low Price/Book (P/B), a low Price/Cash Flow (P/CF), or a low Price/Sales (P/S or PSR) ratio. 

Throughout O’Shaughnessy’s research, these three factors are all much more likely to lead you to be a more successful investor than if you would focus on some of the typical factors for identifying an undervalued stock.

When I was reading Chapter 10 in What Works on Wall Street, I couldn’t help but think about how much we focus on having a contrarian view when it comes to investing.  Value-investing in itself seems to be contrarian if you’re watching CNBC and they’re talking about a ‘final trade’ or options trading, but you can even be the contrarian when it comes to value-investing in itself. 

Challenge the status quo! 

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Important HSA Rollover Rules: How to Utilize them Efficiently

Have you found yourself in a situation where you might need to rollover your HSA?  If so, no worries!  There are a few HSA rollover rules that you need to keep in mind but they’re all very easy to follow as long as you take the time to understand them.

If you’re like me and the acronym of HSA, which stands for Health Savings Account, really gets you excited then guess what, you’re a total nerd!  I’m not saying that to make fun, I’m saying it as a term of endearment as I am that exact same way.  I personally think that an HSA is one of the underrated tools that you can use to get ahead in life. 

An HSA offers a triple-tax advantage that I thoroughly explain in a previous post but I will spare you from going through that again because that’s not why you’re reading this – you’re reading because you want to know how to efficiently rollover your HSA!

For starters, there are a few different times that you can, or should, rollover your HSA – let’s discuss!

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A Complete ‘Common Stocks and Uncommon Profits’ Book Summary

If you have been following my recent posts then you know that I’ve recently been putting together some chapter summaries with key highlights for the book Common Stocks and Uncommon Profits by Phil Fisher. 

You also will know that we’re now at the end of the book, so it only makes sense for me to go through and highlight some of the key takeaways that I have had from reading, and summarizing, the book!

book summary

You need to create your own checklist and stick to it.

Fisher has 15 key points that he evaluates when deciding to purchase stock of a company that range from all different types of evaluating metrics such as quantitative metrics like wide profits or sales growth to qualitative metrics such as the management having a high-level of integrity or having depth to their management. 

Only you can determine what is important enough to be included in that checklist, but you need to decide that for yourself.  Some people will lean much more on the financials while some will lean on the qualitative, cultural aspects of the company. 

Some will prefer revenue growth while some will focus more on earnings growth.  There’s a never-ending amount of metrics that you can use to evaluate a company, but the important thing is for you to find out what is the most important in your own evaluations.

There are ways to evaluate qualitative metrics without being a professional investor

For instance, I always would see people say that you should evaluate the culture of the company but how the heck am I supposed to do that?!?!

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