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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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How to Identify a Cash Flow Pattern of an Asset (from Rich Dad, Poor Dad)

As I continue to read through Rich Dad, Poor Dad, I must say that it’s becoming one of my favorite books and admittedly a book that I read much earlier in my investing and finance journey.  In this chapter, Robert Kiyosaki focuses on explaining the differences between assets and liabilities and the true cash flow pattern of an asset vs. a liability.

“It’s not about how much money you make.  It’s how much money you keep”

The chapter starts with this quote that I think really hits home for me.  Making money is great.  Saving money is better.  Sometimes you’ll see these crazy news stories about couples that make $500,000 between them and that they’re broke…like how?

Well, it’s because they’re either financially illiterate, don’t care, or are morons.

I know, that might sound harsh, but if you spend $500,000+ in a year and save $0, then you are one of those three types of people, if not two or even all three of them.

“If you want to be rich, you’ve got to read and understand numbers.” If I heard that once, I heard it a thousand times from my rich dad. And I also heard, “The rich acquire assets, and the poor and middle class acquire liabilities.”

That’s a quote that Kiyosaki had in the chapter that also hits home – what category do you want to fall into?  I don’t know about you, but I want to be rich…I guess I should start acquiring some more assets.

Kiyosaki has a very extensive list of his rules to make sure that you’re properly setup for financial success and man, is it extensive or what.  Here we go!

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How Benchmarking Performance to an Index Keeps Investors Rational

Have you ever heard the saying that “anyone can be a genius in a bull market?”  Well, it’s true, if you’re not benchmarking performance of your portfolio.  Not benchmarking your portfolio can really cause some major issues if you’re not careful and will have some major, long-term negative effects on your portfolio.

So, what even is benchmarking your performance?  Well, it’s pretty simple in all honesty – all that you’re doing is you’re taking the performance of your portfolio and then comparing it to the stock market average.  For instance, you would take your portfolio performance, let’s say it’s 8%, and then compare it to the stock market average over the same time period that you’ve been investing, and let’s say that’s 6%. 

Did you actually make 8% on your money?  Heck yeah you did!  But is that a fair representation of how your portfolio performed?  Nope!  What you should say is that your portfolio outperformed the stock market by 2% (which is very good by the way).

But why would you actually want to do this?  Well, it’s to keep you rational, honestly, but let me really focus in on two main points:

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IFB145: Finding Great Balance Sheets with Braden Dennis

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, we’ll welcome to Investing for Beginners podcasts 145 tonight; we have our good friend, Braden Dennis, back for another show. He’s going to be talking to us from Canada. He is locked up just like we are, but a, and he’s got some great ideas for us. And for those of you who are not aware of Braden, for those of you who lived under a rock, Brayden works with stratosphere investing. He’s also with the Canadian investor, which is as of today, well I guess more recently is the top Canadian investing podcast in Canada, which is awesome. So congratulations, Brayden. Thank you for coming back on the show. And why don’t you tell us a little bit about what’s been going on? What are your thoughts on all the fun with the market fluctuations, shall we say? And the effects of coronavirus from your point of view.

Braden (01:24):

Fun is a good word that you just use to describe it. Another one would be confusing. And the third one I might use is just uncertainty is the name of the game when it comes to the stock market right now and more than the stock market. Our lives are regular day to days are just kind of in this whirlwind every morning when I open up my laptop working from home, I have to check what day it is. I told Nolan the last time I was in a routine where I just absolutely had no idea. So it is a weird thing, and it is unprecedented in terms of history. This is a game-changer. And for me, the way I think about it with my investments and my customers a stratosphere investing is what are you learning about yourself right now with the Coronavirus pandemic, what are you learning about how you react in a bear market?

Braden (02:25):

That self-awareness is key right now, and that alum lock with how you should think about your portfolio in the future. And right now, if you are panicked on the sell button, then you need to rethink the type of companies you might hold and your style in general. If you’re just not able to sleep at night, knowing that 25% 30% corrections in stocks are actually not a new concept by any stretch. So although this, what we’re dealing with right now is unprecedented, and his historic mortgage drops are not. So you have to take a step back, take a little bit of, you know, self-awareness. And for myself, quality, quality, quality, quality businesses are the ones that you will be able to look in your portfolio and go; I know that this company in five years, ten years, 20 years, we’ll continue to be a great free cash flow generator and compounder. And that is how I look at my portfolio right now.

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The Structure of the Federal Reserve Explained in the Simplest Way

The Federal Reserve or the Fed is America’s central bank. One could argue that makes it the most important factor in the U.S. economy, maybe the world. And with all the chaos today in the markets and the world as a result of the Coronavirus pandemic, we must understand how the Fed is structured.

It can be complicated, and some feel that ‘secret societies run it,” but it is broken down into understandable parts. The Fed does manage the flow of money in the U.S., albeit the world, by their actions, but there is nothing secret about how it is done.

Created in 1913, the Fed has “helped” guide us through two world wars, a few recessions, the Great Depression, and the Great Recession. I put parenthesis around the helped comment because more than a few people disagree with the Fed’s actions.

There is a tremendous amount of criticism in regards to the Fed’s actions, and their overall effect on the world’s economy.

Are they correct?

I am not sure, but understanding the history of the Fed and their structure can go a long way towards helping us understand the impact on the markets and the economy, and thus help us make decisions regarding our financial well being.

The series about the Fed is timely because there is a lot of scrutiny of the Fed for clues about how they will go about trying to stabilize the economy and markets during all the chaos.

Let’s take a look at how the Fed is setup:

  • The Three Major Components of the Fed
  • Federal Reserve Banks (12)
  • Federal Open Market Committee
  • The FRED system
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How Often to Monitor Portfolio? Controversial Take, But I Say DAILY

Anyone and everyone will tell you that you shouldn’t check monitor portfolio performance too often because it is going to cause you to make an impulsive decision and sell when you shouldn’t, right?

I googled “how often should i check my investments” and what do you think came up?  I took the first five results and listed them below:

*I want to add the caveat that with this article, they explicitly said that “The most important thing is not how often you check your stocks. Instead, the important thing is how you react to the moves you’re seeing. And checking stocks too often can lead to knee-jerk reactions.” 

PREACH!

So, my title probably gave away my hot take a little bit, but I disagree with all of these recommendations, and I think that you should check your portfolio DAILY…at a MINIMUM!

You probably think that I am a lunatic right now, and more often than not, I would agree with you, but this is not one of those times!

The general assumption is that the more you look at your portfolio, the more likely you are to make an impulse decision and buy or sell a stock before you normally would because you’re caught up in the hype, and I 100% agree with that. 

You probably will do that. 

You’re going to have a stock that beats earnings and you’ll sell it after a 4% jump just to have it continue to climb and climb but don’t worry, you just made $40 off your $1000 investment!  Talk about a banger!

Or, you’re going to have a stock get pounded with a negative press release, just for you to sell it on the news, and then the stock will rebound pretty quickly because nothing likely actually changed about the fundamentals of the business, right?

This is the definition of buying the rumor and selling the news and this is a surefire way to lose money…and that’s why I am encouraging you to look at your portfolio every single day.

Hear me out…

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Interpreting the Statement of Cash Flows: Operating, Investing, and Financing

A lot of critical information can be learned from the statement of cash flows. As cash flows to shareholders are what investing is all about, being able to understand all the great information provided by the cash flow statement is very valuable stuff to investors. When doing a valuation, investors will be able to adjust their analysis for non-cash or growth items, as well as spot problems in the business’s sustainability.

This article will discuss some of the most important items in the cash flow statement using Coca-Cola as an example for some important items.  

The Direct vs. Indirect Method – A Quick Note

There are technically two methods to produce a statement of cash flows; the direct method and the indirect method. However, it is the norm for major companies, such as Coca-Cola to report under the indirect method. The direct method is, as it sounds, a recreation of the income statement based on cash flows rather than accrual accounting standards. The indirect method can more accurately be described as a reconciliation of net income to cash flows, with all the reconciling items listed out in categories within.

Cash Flows from Operations (CFO)

As the lifeblood of the business, positive cash flows from operations (CFO) prove that the business can sustain general operations before making any long-term investments (to be discussed next). Under the indirect method, the statement of cash flows starts at net income and then adjust for the items where cash hasn’t changed hands. As will be seen, not all income under accrual accounting necessarily makes it into CFO. Current assets and liabilities on the balance sheet will eventually flow through CFO when the actual cash changes hands, which is not always the same as accrual accounting based income.

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How is the Nasdaq Calculated? – A Simple Guide

The NASDAQ, or the National Association of Securities Dealers Automated Quotations, is a market index just like the S&P 500 or the Dow Jones Industrial Average, but it is an index that is different in nature than both of those indices, so it really begs the question – how is the NASDAQ calculated?

While the S&P 500 tracks the 500 largest publicly traded companies by market cap and the Dow tracks 30 of the largest and most influential companies on the market, the NASDAQ Composite tracks every company that is traded on the NASDAQ, which is over 3,300 as of 2020.  In essence, they’re giving you a true representation of what the market actually is doing.

By tracking every single company, there is a major benefit that they’re getting the true market representation because every single company is being accounted for, but how is the price actually calculated? Well, it’s simpler than you might think!

Essentially, they’re taking a weighted average of each company based off of the market cap of those companies, multiplying them by the share price of that company, and then using a “divisor” to be able to make the NASDAQ a more realistic number for us to track and utilize.

It’s really no different than how the S&P 500 is calculated and quite frankly, makes the most sense!  A company that has a market cap of $100 billion shouldn’t be equally weighted vs a company with a market cap of $50 million, right?  That wouldn’t exactly be an accurate portrayal of what the market is doing.

So, all three of these track an index, so it doesn’t really matter what index you should use for your own tracking purposes, right? 

Wrong!

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The History of the Federal Reserve: Its Creation and Role during Tough Times

Is there a more controversial function in finance than the Federal Reserve Bank? From its beginnings, history, and the purpose of what the bank does… There are tons of rumors and theories about what the Fed does, and who controls the Fed.

In today’s craziness surrounding the financial world with the stock market in a frenzy from fears of the Coronavirus and its effects and the overvaluing of the market, I thought it might be useful for us to explore this topic.

What do we know about the Fed besides speculation and theory? The makings of the Fed is interesting and start as early as the beginnings of our own country.

The bank began its birth among quite a bit of criticism and scorn from the beginning. Charles A Lindbergh, Sr., father of the famed pilot, said that:

“This [legislation] establishes the most gigantic trust on Earth…the worst legislative crime of the ages is perpetrated by this banking and currency bill.”

And from Henry Cabot Lodge, Sr., another extremely wealthy individual during the early 1900s:

“seems to me to open the way to a vast inflation of the currency.”

In today’s post we are going to explore these topics relating to the Fed Reserve Bank:

  • What was before the Fed?
  • How did the Fed start?
  • What was Jekyll Island?
  • What is the purpose of the Fed?
  • The Structure of the Fed
  • Monetary Policy of the Fed

What Was Before the Federal Reserve?

To give you a background of the Federal Reserve, I think it is good to look back at history to get an understanding of the events that led up to the creation of the federal reserve bank.

Let’s look through a brief timeline of money in the US at its founding.

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Simple Vehicle Maintenance Checklist to Save Your Budget

Don’t get a nice car.  Pay for your car outright.  Maybe don’t even get a car if you can manage without one.  If you’re into the Financial Independence world, you have heard all of these things said, but they’re easier said than done.  However, a simple way for you to save money on your car every month is to create a vehicle maintenance checklist and STICK TO IT!

In episode 140 of the Investing for Beginner’s Podcast, Andrew and Dave talked about a lot of different ways to save money on vehicle maintenance and I wanted to add to that with an actionable checklist to help you save money on your budget.

Before I get into the checklist, I want to comment on something that I’ve heard on other podcasts and Andrew and Dave somewhat spun it on its head on their podcast.

Anyone in the financial independence community is going to tell you to buy a clunker and drive that thing until it dies.  Like, maybe find an old Honda Civic with 150K miles on it for $5000 and then pay cash outright and drive it nonstop. 

You likely can get that thing well over 200K and close to 300K miles if you continue to take care of it and it was taken care of for the first 150K. 

That’s perfect, right?  No car payment for you!  While that’s true, your car maintenance is going to be much higher than if you were to buy a new Honda Civic.  For instance, a $5000 clunker being bought outright might require a lot more repairs and maintenance, so it could just offset the savings that you’re getting by having an older car.

Now, I’d doubt it’s a perfect offset, but even if it’s close, you’re essentially paying the same amount for an older, crappier car – no Bueno.  I found a really cool cost of ownership calculator at Edmunds where you can simply put in the year, make and model of your car and it gives you a 5-year breakdown of anticipated expenses based off driving that car for 16K miles/year, see below:

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The Best Budget Planner Online Today (That’s Also the Simplest to Use)

This blog post is something that is really near and dear to my heart.  I truly think that so many people are in debt because they don’t know how to budget or simply don’t want to.  Well, I have developed what I think is the best budget planner and I have made it available to you all as well!

If you’re wondering what makes it the best, and I would be wondering that too if someone claimed this, I would say that it really comes down to a few things:

  • Simplicity
  • Forcibility to track
  • Fool Proof

Boom!  End of post – that was easy.

Kidding!  I really think that these are the three most important factors when you want to see success in anything.  Let me explain better:

#1 – Simplicity

The Doctor Budget Spreadsheet is super simple to use.  All that you have to do is enter in your family’s income and your allotted budget amounts for each category and then simply track the actual expenses that you have throughout the month.

To fill out the spreadsheet for your first time, it will take less than 15 minutes (significantly less if you know how much you plan to spend in each category and your income) and then tracking the expenses takes about 15 minutes as well.  To track them, literally all you will do is download your expenses from your credit card or bank account and input them into the spreadsheet.

Then you finish month one – what do you do now?  Simply copy the tab into a new sheet and get going again!  Again, super simple and user friendly – but don’t worry, if you have any questions, I am more than willing to help answer them for you.

Don’t know how to do this?  No worries!  I show you exactly how to do it.  And as you might expect, like everything else, it’s extremely simple.

You might be at this point thinking that if it was really all about simplicity, then you should just download an app like Mint and use that since it’s automatic.  And I completely agree.  But guess what – it’s not all about simplicity.  It’s also about the tracking aspect!

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