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HEY! DID YOU KNOW…


  • 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 10,300+ 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.




IFB59:Listener Q&A: DCA, Canadian DRIPs, Recent Negative Earnings

 

canadian drips

Welcome to Investing for Beginners podcast this is episode 59. Tonight Andrew and I are going to answer some reader questions, he’s gotten some emails and we wanted to go take a moment and read through those. We’re going to read some stories and we’re also going to answer some questions so I’m going to go ahead and start us off.

The first one I’m going to read is from Anthony the letter starts with:

Andrew,

I just wanted to express my gratitude for what you and Dave are doing with your podcast. One of the things you both preach frequently it’s patience and resisting the fear of missing out. This recently saved me a decent amount of money. There was a stock that I really liked because they were selling in a bargain I mean this stock would look great. I invested once a month in research during the time in between about two weeks before I would normally make a purchase I noticed the price kept going up and going up. I felt like I needed to buy in NOW or else I would lose potential gains it took all of my willpower to just hold off and wait until the month was up before buying in.

I’m sure you can guess what happened next they went back down to its original price the next week then I went down a little further by the time I bought it it was actually spent less than it would have been if I had bought it a month prior this just goes to show how little things like having a little patience can help you in your financial success.

Thank you for your time and hard work you put in your effort is truly helping others towards achieving financial freedom.

Thank You,

Anthony [click to continue…]

7 Reasons to Prioritize DRIP Investing in Your Portfolio

DRIP stands for “dividend reinvestment plan”, and is the action of buying more shares of a stock that an investor already owns with the dividends the investor has received. It is a fantastic way to earn compound interest, which is the key to long term investing success.

drip investing

There are many pieces of evidence that DRIP investing can result in serious returns for your portfolio. This blog post will examine 7 of them. Hopefully you will fully appreciate its power and implement with your own investing strategy.

  1. DRIP adds “Double Compounding” to Investors

Though not talked about much, DRIPs add an additional layer of compound interest to a stock investment.

Take the average stock, for example. Buying a stock means buying part ownership of the underlying business. That business earns a profit, then uses some of that profit to reinvest in the business. They do that by buying assets. This unlocks the ability to earn even greater amounts of profits in the future, which enable higher reinvestment. Like a snowball, the effect compounds.

But…

Businesses don’t only use profits to reinvest in the business for future growth. They also pay some of their excess cash back to shareholders, in the form of dividends or share buybacks. This allows the shareholder to experience a compound effect in addition the one from profits.

Just like the business reinvests for higher future profits, investors can reinvest into the stocks they already own for higher future gains.

The longer an investor “DRIPs”, the more shares that an investor accumulates over time. As the investor’s overall share count increases, more and more shares are able to be purchased for additional reinvestment– creating an explosive compounding effect.

Combine the two compounding forces and you have a sort of “double compounding”. Having more overall shares means an investor gets a higher return from a compounding/ increasing stock price than one if he never reinvested.

2. Dividend Growth Adds 3rd Power Compounding

There is a third part of all of this compounding talk that is unique to DRIP situations.

When a stock grows their dividend in addition to growing their earnings, the DRIP effect multiplies again.

Remember that each subsequent year of reinvestment means higher and higher levels of reinvestment. The dividend an investor receives in year 1 is going to be less if he only has 100 shares compared to a dividend in year 2 where he might have 103 shares.

The higher potential levels of reinvestment accelerate even faster if the stock dividend is growing. Say a stock pays a $2 dividend, then increases their dividend to $2.20 the very next year.

Well as a dividend investor, you don’t have to do anything to receive dividends. As long as you hold the stock, you’ll get paid a dividend.

What that means is that if the company continues to grow their dividend year after year after year, you’ll continue to get higher and higher levels of dividend payments every single year.

Again, that means higher and higher levels of reinvestment potential. So the investor sees compounding in the share price, in the actual dividend payment, and from the accumulation of additional shares through his DRIP plan.

Sounds great to me.

The massive potential of dividends and a “back to the basics” explanation of dividend paying stocks is covered in depth here:

3. DRIP = Major Portion of S&P 500 Returns

I got the cold, hard facts for this point after being prompted by a great question from a subscriber to The Sather Research eLetter.

Daniel: I think I understand the DRIP concept and how it compounds. Your holding slowly grows with each dividend and each dividend slowly grows based on your holding. But I did not think this would be a serious part of the expected 11% of the total, at least not yet. Am I wrong about that?

Most people don’t know actual contribution that reinvested dividends have towards overall investment returns, hence the poor public misconceptions that dividends are for old people.

There’s a great S&P 500 return calculator on dqydj.com. I ran a scenario investing in the S&P 500 for 40 years– from May 1978 to May 2018. Returns were as follows:

  • Without dividend reinvestment: 8.6% CAGR
  • With dividend reinvestment: 11.6% CAGR

That extra 3% is 25% of that 11.6% annualized return, which is a serious component of the overall performance.  [click to continue…]

IF58: Efficiency and Financial Ratios Formulas: ROA, ROE, & ROC

 

financial ratio formulas

Welcome to Investing for Beginners podcast, this is episode 58. Tonight Andrew and I are going to talk about financial ratios and we’re going to talk about some ones that we have not discussed before so this will be fun.

We’re going to take a shot at talking about return on assets, return on equity, and return on invested capital as well as maybe a few other tidbits so Andrew why don’t you go ahead and take our first shot at return on assets.

Andrew: okay yeah I could do that. Return on assets so basically the three of these ratios a good way to think about them is they’re kind of like efficiency ratios. They are ways to evaluate whether a business is good at creating cash with what they have.

We’ve talked about some ratios in the past we talked about valuations episode 11 really good for that so we should I think we also talked about the cash flow statement I know we did that we might have done the income statement so we’re trying to piecemeal these lessons here and there.

[click to continue…]

IFB57: Comprehensive List of the Best Investing Books for Beginners

 

investing books

Welcome to Investing for Beginners podcast episode 57, Andrew and I are going to take a stab at talking about some of our favorite books.

Books are a fantastic way to learn and as Andrew and I are both self-taught investors we thought we would share some of the books that have helped shape our views and philosophies. So without any further ado, I’m going to turn it over to Andrew and he’s going to talk about his first book.

Andrew: yeah love to talk about them and it’s so crucial right if you want any chance at jumping into the stock market I think it’s important to instead of immersing yourself immediately in the media and in the charts and everything that’s going on the business world. You can build a base and a foundation and get some wisdom from people who’ve done this for decades.

Getting a huge head start on the rest of the investors who are going to they’ll go out and they’ll learn these expensive lessons where you can kind of shortcut all of that and you can really get your skill set get that at a much higher level in the beginning and the only compound from there.

[click to continue…]

The Average American is Drowning in Debt – Here’s Your Life Preserver

This is a guest post from Joseph Hogue.

As a financial advisor, I’ve seen the frustration Andrew talks about when he hears people just don’t have money to invest.

It doesn’t help that wages have barely budged over the last decade. The cost of healthcare and education are rising faster than paychecks and many families struggle to pay the bills, let alone have money left over to invest.

Andrew shared some great ideas on finding a little extra to start investing, from starting a side business to developing new skills and creating a budget.

There’s another problem though that is keeping people from the financial lives they deserve, an emergency that most families feel powerless to overcome.

americans in debt

The average American is drowning in debt. Like drowning, we struggle and flail about but just can’t seem to keep our head above that tsunami of bills washing over every month.

Saving your financial life means not just learning how to tread water in all that debt but how to get back to dry land. Only after getting out of the sea of debt will you have enough to invest and reach your financial goals.

How Bad is the Debt Crisis in America?

According to the Federal Reserve, total household debt in the U.S. surged to $12.84 trillion in 2017, jumping by more than half a trillion in just one year. In fact, the average American household owes more than $52,500 not including a mortgage.

It costs the average household a dollar of every $5 earned just to make these monthly debt payments.  [click to continue…]

IFB56: New 2018 GAAP for Marketable Securities Will Inflate Earnings


marketable securities

 

Welcome to episode 56 of the Investing for Beginners podcast. In this week’s episode we’re going to talk about something that Warren Buffett dropped in his latest shareholders letter and he was also mentioned on a video on CNBC that was released recently and this is relating to new GAAP figures that are going to potentially inflate earnings figures and we’re going to dive into that.

Andrew is going to start us off and talk a little bit about some of the background and then we’re just kind of go back and forth, so Andrew one should go ahead and start us off there big guy.

  • New GAAP accounting rule will affect financial institutions, like banks, insurance companies.
  • This new rule could inflate earnings for said companies.
  • Isn’t the first times accounting rules have changed
  • If you invest in these types of companies you need to be aware as the rule takes effect.

Andrew: yeah sounds good and like my M.O. for this podcast has been kind of to hate on CNBC. I just have to say like they put up a new video series and it’s probably the best thing on YouTube other than my own stuff obviously.

Okay great there they did like three hours with Warren Buffett on Squawk Box and edit it down and I think it’s about an hour to an hour half of the content on their YouTube channel right now and this was back in I think early February’s when they interview him mid-February is when it was released so he’s that’s straight from the Oracle himself talking about some of the stuff we saw with Bitcoin a lot of the market volatility we saw at the beginning the year and most importantly.

[click to continue…]

IFB55: The Worst Money Advice that Beginners Always Hear

 

money advice

Welcome to episode 55 of the Investing for Beginners podcast.  Tonight Andrew and I are going to discuss some of the worst money advice you can get.

  • Invest 10% of your income
  • Investing in a quick fad to make money quickly
  • Try to get to cute and taking on more complexity just for the sake of it.
  • Buy a ETF index fund and be done with it.
  • Don’t get caught up in all the hype of the market.
  • Budget till it hurts

Andrew: yeah so I kind of I kind of made a list here. It’s kind of long try that keep it I’ll try to be concise but you we always know how that goes right so.

You see all the time and the more that time goes on the more and more people go to the internet looking for advice on how to handle their money a lot of times you’ll have people talk about hey I got $20,000 I got $40,000 maybe I have an inheritance what should I do what should I do what should I do? [click to continue…]

How a Stock’s Total Assets Can Be Evaluated for Higher Potential Returns

Total assets are a very important component of a company’s balance sheet. Without assets, a stock can’t create earnings, which are fundamental for growing the stock price over the long term.

While the concept of earnings and P/E ratio seems like a relatively easy concept to grasp for most investors, the idea of investigating where those profits come from tends to get lost. The balance sheet and breakdown of total assets is a little bit more involved than a breakdown of a company’s revenue, expenses, and profit—and involves more financial jargon-type terms.

This blog post will fix that today and hopefully give investors, who wish to do fundamental analysis themselves, a broader understanding of exactly what is comprising of a company’s total assets and if these numbers indicate a strong financial position or not.

total assets

An asset, in basic terms, is a store of value. That $100 bill is an asset. Your house is an asset. Yes, your car is an (depreciating) asset.

Ok, well we all know that, right? What about the assets of the stock you’re about to buy?  [click to continue…]

IFB54: Company and Industry Maturation in the Stock Market

 

industry maturation

Welcome to Investing for Beginners podcast this is episode 54. Andrew and I are going to talk about the maturation of different industries. We’re going to discuss how when you’re looking at companies to invest one of the things you want to look at is
how the industry that it’s in is maturing and what stage of growth they might be in along that path.  Without any further ado, I’m going to turn over to Andrew and he’s going to get us started.

Andrew: thanks Dave, this is something that actually really haven’t read anything about when it comes to investing and everything it’s just one of those things I kind of noticed as I was looking through financial statements, kind of trying to observe like how different stocks kind of move throughout the years.

I’ve done a ton of research and a post on my blog about companies that have failed also companies that have really succeeded and looking at the financials and trying to piece together what happened in the very beginning and then how did it play out as the years went on and I’m sure this is probably like common sense stuff for I don’t know business majors econ majors whatever.

But we’re DIY investors and we’re just trying to soak in as much information as we can and  it’s good to keep our eyes open try to be observant in a similar fashion to one of the previous episodes where I talked about unconventional investing rule to have for your portfolio I figured this would be kind of another cool thing to discuss and talk about. [click to continue…]

IFB53: Dave and Andrew Debate Negative Net Income (Earnings)

 

negative net income

Welcome to Investing for Beginners podcast this is episode 53, Andrew and I are going to take a stab at talking about negative earnings. We had some interesting event happened this week in Andrew and I were having a conversation prior to coming on here today and we wanted to talk a little bit about negative earnings.

Just to kind of give you a little of a bit of a backstory, so last week Andrew sent me a text message telling me that one of the companies that he and I both own had negative earnings on their 10k and this caught me completely by surprise. That was shocking and I had no idea that if that happened and I was a little bit like wow Oh crazy and I was it kind of caught me because it I felt like it came from out of out of the blue.

And I had no idea that that this company had happened and you know I wasn’t paying that close of attention honestly and so something that really caught me off guard and as Andrew and I were talking about it it’s you know Andrew and I see eye to eye on almost everything but in this particular case we differed a little bit on our viewpoints of how we handled it and so it was kind of an interesting snapshot into how value investors think about things and it’s not always exactly the same.

And so I had a different viewpoint and Andrew had a different viewpoint I thought it would be interesting for us to talk a little bit about that tonight so Andrew why don’t you go ahead and tell your side of the story if you will and then I can tell mine.

Andrew: well what is this a divorce are we fighting hardly well let me get my lawyer and we’ll have somebody in between and they can relay this message and then you can calm down think it over maybe take a walk cool off.

[click to continue…]