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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 21,000+ 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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Tony Robbins and His 7 Steps to Financial Freedom

I’ve decided to take a little bit of a turn in my book readings and wanted to focus on a book that I personally know has motivated some people in my life to take the journey into financial freedom – Money Master the Game by Tony Robbins. In the book, Robbins outlays his list of the 7 Steps to Financial Freedom, which personally I always think these lists are a bit “clickbaity” but I am going to go in with an open mind.

MONEY Master the Game Audiobook by Tony Robbins - 9781442384941 | Rakuten  Kobo United States

I’ve been pretty heavy on some of the investing books that I have been reading lately and decided it was time to take a bit of a step back and get to some of the basics. I think it’s a good refresher to keep some personal finance topics front of mind because these are much more controllable than some of your investments.

Sure, you can always pick how you invest, but you don’t have nearly the control over how those perform that you would have over how your income and budgeting perform.

In this first introductory chapter from Robbins, one thing that really stood out to me was when he said, “anticipation is the ultimate power”.

I think that this is just so incredibly true in really anything that you do. If you take the time to think ahead and anticipate what might happen, you’re going to be much, much better.

  • Dieting – Going out to eat with friends? Look at the menu online before going to decide what you’re going to eat rather than being tempted to get something unhealthy.
  • Grocery Shopping – create a list so you only buy what you need.
  • Buying a new home – decide what your “needs” and “wants” are beforehand so you can stick to your budget and not get wrapped up in a really nice house that actually doesn’t meet your needs.
  • And of course, with personal finance:
    • Save for short-term expenses coming up
    • Have an emergency fund ready 
    • Make sure you have some “opportunity” money set aside for that rainy day 
    • Plan your budget in advance and think about any new expenses that month such as if you’re traveling your gas bill will go up
    • Retirement – Tony said that there’s a 50% chance one spouse lives to be 92 years old and a 25% chance that one of you will live to 97 – do you have the money for that?

Is there literally any scenario where planning ahead isn’t better? Maybe if you’re trying to be spontaneous, but that’s about it!

Tony also gave us an outline to his 7 steps to Financial Freedom with a few teasers to get us super excited about the chapters. I’ve included these teasers below and a few of my immediate thoughts on each:

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What is Net Book Value?

Net book value (NBV) is an accounting term which refers to the value of an asset as it can be seen on the balance sheet of the financial statements. The term carrying value is also commonly used to refer to NBV. The “net” in NBV signifies that the figure is the asset’s gross original cost less any accumulated depreciation, amortization, or depletion depending on the type of asset in question.

Net Book Value (of an Asset) = Original Cost – Accumulated Depreciation

The term net book value can also be used when discussing a company as a whole and signifies the “net” assets that are attributable to shareholders after subtracting liabilities. This phrase is more commonly shortened to the “book value” of a company and is synonymous with the amount of equity seen on the balance sheet.

Net Book Value (of a Company) = Assets – Liabilities

Either for a specific asset, or a company as a whole, net book value is an important concept for investors to understand because it is a conservative benchmark against which a company and its assets are valued.  

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Global Wealth, Money, Real Estate, Bond, and Stock Market Statistics

With so many trillions and billions of dollars changing hands around the world today, how can the average investor make sense of it all? Follow the money. The global wealth picture is hard to follow but easier to understand through some basic money and stock market statistics.

As an investor I’m curious to the actual size of each of the major markets in terms of dollars, because bigger money forces tend to impact the macroeconomic picture, and certain ones more than others.

To understand statistics about global wealth and markets, we’ll need a few economics 101 concepts under our belt.

Wealth and Money Definitions

First, what is money?

Money is used to exchange goods and services. Money is used as investment in order to earn interest (future flows of money). Money is lots of things.

As it stands today, money around the world is mostly exchanged through the U.S. Dollar. The USD is the world’s #1 reserve currency, which means it is used the most today for monetary transactions.

Next, let’s define what wealth is.

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Can You Get Rich Only by Sector Investing?

I feel like the debate of sector investing is one that has lasted ages and so many people have different opinions on the practicality of it. Truthfully, I think that investing in a particular sector that is primed for a rebound makes a ton of sense, but there’s also some risk involved.

For the most part, there are 11 primary sectors in the stock market, including:

  • Consumer Discretionary
  • Consumer Staples
  • Energy
  • Financials
  • Health Care
  • Industrials
  • Information Technology
  • Materials
  • Real Estate
  • Communication Services
  • Utilities

Within all of these different sectors are many different subsectors that can get even more specific, but these are the main 11 categories that the stock market is broken up into.

Seeking Alpha has a pretty nice breakdown of some of the ETFs that you can pick if you wanted to invest in a particular sector:

One thing about ETF investing, however, is that you can always find tons of different ETFs that essentially accomplish the same goal. This is nice because you can essentially price shop by finding the lowest expense ratio but also, I have found that the ETFs are all just slightly different in how they operate.

Anytime I want to find specific information on ETFs, I always go to ETF.com because it’s such a large database of all the information that anyone could possibly want with an ETF. I find it extremely helpful as I can search any and all ETFs to find their holdings, performance, expense ratios, etc.

When I type “Consumer Discretionary” into the search bar, I get 48 different ETFs that would fall into this category:

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Making a 3-Variable DCF Sensitivity Analysis in Excel

A DCF sensitivity analysis is a fantastic way to estimate valuation on a company because it gives you a range of intrinsic values instead of just one steady state number. DCFs inherently rely on future assumptions, and we can’t be precise on these (because the future is unknown), so it’s better to estimate them with a range of values.

Creating a DCF sensitivity table in your Excel valuation spreadsheet provides a quick and easy way to visually see how varying inputs lead to a final intrinsic value estimate.

From there, you can quickly calculate a range of intrinsic values, as well as edit your sensitivity table inputs and observe instant updates to these values.

This type of analysis is a very visual one, and so let me first provide you a visual of what it should generally look like:

You can see how the top row provides us the option to vary the terminal growth rate, from 0% – 4% in increments of 1%. You can easily update this range however you please, down to multiple decimal points if you desire.

Notice how even just a 1% change in the terminal growth rate leads to huge swings in valuation, which really highlights how important this assumption is.

The FCF growth rate estimate is a DCF input that most analysts spend much time on, and you can see its impact on the intrinsic value as you move from percentage points. Notice how the 1% change in the FCF growth rate provides less of an impact than the 1% variance in terminal growth rate. But, this can also depend on

Here’s a visual of what a big picture DCF sensitivity analysis looks like with 3 (!!) variables—within a  complete valuation spreadsheet:

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IFB187: Red Flags, CFDs, What’s The Appeal of SPACs?

Welcome to the Investing for Beginners podcast. In today’s show we discuss:

  • How to spot red flags in financial statements
  • Investing with margin and some of the dangers
  • Assessing Intel and other Semiconductor ETFs
  • What are SPACs and how to invest in them?

For more insight like this into investing and stock selection for beginners, visit stockmarketpdf.com

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Transcript

Announcer (00:02):

I love this podcast because it crushes your dreams and getting rich quickly. They actually got me into reading stats for anything you’re tuned in to the Investing for Beginners podcast led by Andrew Sather and Dave Ahern with step-by-step premium investing guidance for beginners. Your path to financial freedom starts now.

Dave (00:32):

All right, folks, we’ll welcome you to the Investing for Beginners podcast. Tonight. We have episode 187 tonight. We’re going to answer some listener questions that have a bit of a theme to them. We’re going to talk a little bit about red flags. We’re going to talk about things that maybe give you pause or holding off on investing in a company or different ideas. So I’m going to go ahead and read the first question, and Andrew and I will go ahead and do our usual give and take. Let’s go ahead and read the first question. This is from Louis. I am from the UK and have been tuning into your podcast. That’s the start of the pandemic in March. Thanks for your podcast. I have significantly improved my financial literacy. I have been reading a few annual reports, but I can’t seem to make a judgment about which companies not to invest in.

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Share Based Compensation Expense – How to Locate it in the 10-k

The use of stock based compensation has grown over the last twenty years, not just among the CEOs and other C-suite management but also among the lower tiers of employees. As many of the newer companies become public, the increase of stock-based compensation continues to grow.

It makes sense when you think about it; enticing employees to work harder or stay longer is a smart way to go about rewarding employees. And treating employees as owners by giving them a stake in the company encourages better performance.

But the growth of stock based compensation is not without some controversy, which we will cover in the upcoming post. Many of the top minds in valuation differ on the accounting treatment of stock based compensation expense and its impact on its value.

Never, ever, think about something else when you should be thinking about the power of incentives.”

In today’s post, we will learn:

  • What is Stock Based Compensation?
  • Why is Stock Based Compensation an Expense?
  • Controversy Around Stock Based Compensation Expense
  • Investor Takeaway

Okay, let’s dive in and learn more about stock based compensation expense.

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Interpreting Off-Balance Sheet Items: Analyzing Risks in the Finance Industry

There are two main types of off-balance sheet items for investors to consider. One regards future obligations, and one regards potential off-balance sheet risks. These can be critical towards understanding the true potential of a company’s future free cash flows, and are found in a company’s 10-k.

While there’s no official categories for the two main types of off-balance sheet items which I’ve observed, we can think them as one of the two buckets:

  1. Future obligations (rent, POs, debt, etc)
  2. Major financial risks (credit, counterparty, etc)

The reason why these types are “off-balance sheet” is because, well, there’s generally no line item to correspond with these real obligations or risks.

Future obligations: Recently, the FASB changed the rules around operating leases in order to require a separate balance sheet item to account for the long term liabilities that an operating lease represents.

But there are still other aspects of contractual obligations which are not represented as a long term liability on the balance sheet (such as the interest expense owed over the life of a senior note), and thus they need to be disclosed in the off-balance sheet section of a company’s 10-k.

I went over how to find the contractual obligations (in the off-balance sheet section) of a 10-k previously, which I recommend reading also to get insight on these key items.

Major financial risks: When it comes to understanding the potential risks involving (sometimes) exotic financial instruments which also don’t show up on the balance sheet, you’re going to want to deeply understand the sections covered here.

This post will cover the following key points to learn around off-balance sheet items:

  • Introduction to Off-Balance Sheet Risks
  • Counterparty Risks (Off-balance sheet item)
  • How to Find Off-Balance Sheet Items from the 10-k (Goldman Sachs Example)
  • Interpreting Off-Balance Sheet Items for Finance Companies
  • Evaluating Credit Risk Through Off-Balance Sheet Items (JPM Example)
  • Investor Takeaway

Go through these steps at your own pace, but I do recommend going through in the correct order. You’ll get some important background to how these major financial risks have really affected the economy and the businesses involved (and it wasn’t all that long ago either).

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How Bonds Are Rated – Your In-Depth Guide to Understanding Credit Risk

Have you ever tried to buy a car or home? If you have, you have gone through having your credit checked, not always a fun process. When companies borrow money or lend money to raise funds, they go through the same process known as bond ratings.

Many investors have heard the term “triple AAA-rated,” but not all of us understand where that phrase originated from and the meaning behind the term.

The debt market or bond market is multiples larger than the stock market, and the business behind all those bonds is the ratings of those bonds. One of the more effective methods for companies to sell their bonds is to advertise their bond ratings, and business is good. But most of us are not familiar with the bond rating process and how to interpret those ratings.

The ratings of bonds were also front and center during the Great Financial Crisis in 2007-2009, as there was a LOT of discussion around the ratings of many “questionable” bonds.

In today’s post, we will learn:

  • What is a Bond Rating?
  • Bond Rating Definitions
  • What is a Triple-AAA Bond Rating
  • Where Do I Find Bond Ratings?

Okay, let’s dive in and learn more about how bonds are rated.

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Looking for New Investments? Beware of Biased Sell Side Research!

When it comes to the sale and purchase of different securities, there really are two sides – sell side and buy side. The sell side really is something that I think is imperative for an investor to understand because it’s effectively what we’re doing when adding new positions to our portfolio. So, the question is – are you conducting your personal sell side research the way an analyst would?

If you’re overwhelmed just thinking of the term “sell side research” don’t be alarmed. I total get it.

One thing that I have learned in my investing journey is that things are almost never as complicated as they sound. In the grand scheme of things, I have only been investing for a few years and am what many might consider a “newbie”, if that word is even still cool to use…?

Or maybe it never was cool. Whatev.

Essentially what is happening is that there are two sides of the coin:

Investopedia defines them as the following:

Sell Side – The sell-side refers to the part of the financial industry that is involved in the creation, promotion, and sale of stocks, bonds, foreign exchange, and other financial instruments.

Buy Side – These include insurance firms, mutual funds, hedge funds, and pension funds, that buy securities for their own accounts or for investors with the goal of generating a return.

In simple terms, the sell side is made up of banks or advisors that are then selling the equities to the buy side, which is typically investors, hedge funds, etc.

The Corporate Finance Institute created this chart to help show the differences a little more clearly:

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