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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.




A Guide to Investing for Beginners— Your Path to Financial Freedom

“Investing is the process of laying out money now to receive more money in the future.”

Most people think they need thousands or millions of dollars to start investing. The good news is you don’t. We will discuss how to start investing if you are new to the whole idea.

There are some simple steps to follow to get started as early as today. And the sooner you start, the sooner you arrive at your destination.

In today’s post, we will learn:

  • Why Invest in the Market
  • Things to Consider Before Starting
  • 6 Perfect Investments for Beginners

Okay, let’s dive in and learn more about investing for beginners.

Why Invest in the Stock Market?

For most of us, retirement is a long way off, which we think we will do later. But today is the best time to start, and most people put it off, either because they fear what they don’t know or feel they don’t have enough money to start.

The stock market is one of the greatest places to create wealth. Of course, starting or owning your own business is a great way too, but that is not for everyone, where the stock market is open for all.

Starting to invest in the stock market seems scary and full of noise, confusion, and the potential to lose lots of money.

But investing is like anything else; once you learn the basics and understand the reasons behind the behavior, it all makes a lot more sense.

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Can a Company Really Have a Negative EPS?

You might be familiar with the term EPS, meaning Earnings Per Share, as a general use to justify the value that you can get from owning one share of a company. but did you know that some companies actually can have a negative EPS? Yeah…no bueno!

The concept might seem outlandish at first, but a lot of companies that are in their early stages are going to lose money. If a company loses money then they in fact are going to have a negative EPS by nature, as the formula for EPS is literally the total earnings of the company divided by the total number of shares.

Now, the whole point of a company being in business in the first place is obviously to make money, but sometimes things can completely turn upside down. Think about some of the major pitfalls that some companies went through in 2020 with the coronavirus. A lot of companies were hit extremely hard that rely on people going out and traveling.

For instance, three different industries immediately come to mind – Oil & Gas, Airlines, & Cruiseleines. Let’s take a look at some EPS charts from Zacks.com.

Below you can see the EPS for Exxon Mobil (XOM) over the last 12 months showing that they just barely dipped into negative EPS territory during COVID, right at the beginning of 2021:

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Inflation is Looming… Where Can Investors Hide?

With the inflation genie starting to make its way out of the bottle, it is time for investors to refresh themselves on which asset classes provide the most protection to rising prices. The recent June 2021 numbers out from the U.S. showed the consumer price index (CPI) climbing 5.4% year-over-year which was its largest gain in 13 years. Canada’s recently released May inflation numbers showed a slightly lower 3.6% increase over the past year which was still the largest increase seen in 10 years.

While central bankers such as Jerome Power, US Federal Reserve Chairman, are quick to say these figures are “transitory”, there may be more price hikes coming through the production chain on their way to the end consumer. The more forward-looking producer prices index showed an even higher 7.3% increase over the past year to June.

With that being said, let’s take a look at which asset classes protect investors best (and leave investors most exposed!) to rising inflation.

Which Assets Provide Protection Against Inflation?

Treasury Inflation-Protected Securities (TIPS)

TIPS are a type of fixed income security where the principal face value is adjusted based on changes in the consumer price index. This is not to be confused with a variable rate bond, which adjusts the interest rate being paid but leaves the principal amount of the security exposed to the risks of inflation. Since the principal amount of the bond is the more significant part of the valuation, TIPS can provide better protection against inflation than variable-rate bonds. Like regular Treasury bonds, TIPS are backed by the government.

However, there are some limits to the inflation protection of TIPS. Since they are perceived as safer than regular Treasury bonds due to their lower inflation risk, investors are compensated less in terms of yield on a risk-return basis. Furthermore, the yield seen on regular bonds already implicitly prices in the expected inflation rate as well as the credit risk of the borrower. Under efficient market theory, this means that TIPS will only outperform if inflation turns out to be higher than market expectations.

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Curious How Much Of Your Paycheck Should You Save? I Got You Covered!

One of the most controversial debates that occur in the Financial Independence Retire Early (FIRE) community are ones that are based on your savings rate. People debate numbers and methods that are all over the board so I’m here to cut through the nonsense and answer the question once and for all – how much of your paycheck should you save?

One thing that absolutely drives me bonkers is when people give blanket advice that says “save 15% of your income”. There’s so many issues with this and it’s infuriating.

Is this 15% of your gross or net pay? Is it 15% regardless of if I retire tomorrow or in 40 years? What if my employer matches 10% – should I only put in 7.5% and waste the rest of the match?

It’s blanket advice that not only doesn’t apply to everyone, but really doesn’t apply to anyone. That’s why we ALWAYS need to dive in and do the calculations ourselves. So how much should you save?

Well, in short, the obvious answer is as much as you humanly can, right? Let me show you a little infographic that should tell you all that you need to know!

Of course, I am being extremely facetious with that chart because the goal is always to save as much as you can. But my chart is actually a bit misleading…

Having a 0% savings rate is actually not the worst case. If you’re spending more than you’re making, you’re actually going to have a negative savings rate. If you make $50K/year and you spend $55K, then your “savings” are -$5K. -$5K/$50K = -10% savings rate, or, you’re spending 10% more than you made and are now in a much worse position than you were at the beginning of the year.

That’s why I put such a high importance on something as simple as knowing where your money is going and tracking your expenses. There is no better way to truly understand your financial situation than if you were to just track your expenses as I do with Doctor Budget.

For you to properly identify what your savings rate is going to be, I think there are a few different things that you need to know.

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IFB202: Derivatives, Tobacco, and Inheritance

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

  • Andrew discusses the ins and outs of derivatives, how they work, and their potential impact on companies and your investments
  • Dave and Andrew discuss their thoughts on investing in Tobacco, and other similar investments such as utilities and oil
  • Andrew talks about dollar-cost averaging (DCA) and how to use it to its full potential

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

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Transcript

Announcer: [00:00:00] What’s the best way to get started in the market—download Andrews ebook for free@stockmarketpdf.com.

Announcer: [00:00:13] I love this podcast because it crushes your dreams of 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. Step-by-step premium investing guide for beginners. Your path to financial freedom starts now.

Dave: [00:00:00] Welcome to investing for beginners podcast. Today, we have episode 202 tonight. We are going to return to answer some great listener questions we got recently.

So without any further ado, I’m going to go ahead and jump in and read the first question. So I have a good morning; if you don’t usually answer questions like these, sorry for taking up your time. I’ll get to the point. A mutual friend of mine recommended it. Take a look at JUSHY J U H J U S H F. The stock meets zero of your prerequisites dividends, cash flow positive market cap, et cetera.

But I have a question about their financial statements located on SEDAR operating income for 2020 was negative 92 30. But a fair value change in derivatives of negative, 173,707 drops net income to a negative 1 92, 2 33 further derivative liabilities account for over half of their total liabilities.

I cannot find any information about these derivatives and why there is such a large part of the business. Professor Google and their annual report have not yielded much. Is there somewhere else you recommend working, or could you explain why companies generally use derivatives? The whole thing confuses me.

Thank you so much. Liam. Andrew, what are your thoughts on Liam’s really good question. I’m curious to know, too, because I’m not super up on derivatives myself.

Andrew: [00:01:20] Yeah. It’s one of those where. Derivatives are basically like options, so if you want to go back and listen to the episode, we just did with Cameron.

And that could be a good primer for talking about different sorts of options. In his case, he was talking about puts, we have called, and you have putts. So options are derivatives, but a derivative doesn’t always have to be an option, but, we saw with the great financial crisis, what can happen with Really messy. And we saw it more recently with the art arch to if I knew how to pronounce or take us, I think that’s it. Yeah. I PR well, we still bet drain it, but the Archegos goes thing. You had a lot of derivatives exposure. And so it’s just one of these weird things and, I don’t know why that’s the case.

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Translating a Bond Indenture into Simpler Terms (Real-Life Example)

A bond indenture is simple in theory. It’s a document outlining the terms of a bond; what the issuer’s (or borrower’s) obligations are to the bondholder (lender).

A common application of a bond indenture today is with publicly traded corporations who issue bonds to investors through investment banks like JP Morgan or Bank of America. This document will precisely outline things like the amount owed, both principal and interest, and at what cadence (or times due).

Examining the bond indenture document itself (rather than reading a summary) is important because it could contain certain covenants, which potentially restrict future actions of the issuer and could impact a company’s financial performance for equity investors.

Unfortunately bond indenture documents tend to be filled with legalese, making them hard to translate even for the most willing CFA graduate or candidate. We’re going to tackle this today with the following sections:

  • Why are Bond Covenants there in the first place?
  • How to Find a Bond Indenture from a Company’s 10-k
  • Should I read all of a company’s Bond Indentures?
  • Other Indentures to Be Cognizant Of
  • When Bond Indentures Are Violated

Hopefully this post will make that task easier by providing context through a real-life example and its publicly filed bond indenture documents. But first, let’s start by talking about covenants.

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Stop Bleeding Money with Activity Based Budgeting!

Many of you know me as Doctor Budget, which I absolutely love, but I personally think one of the most important things for a doctor to do is understand that not everything in life is a one-size-fits-all approach. That being said, one of the approaches that I use in Doctor Budget is with activity based budgeting, and I think it’s a great method for everyone to use!

In the past, I have always been the type of person that has been adamant that there is one way to do things but I am quickly learning that this is simply not true. For instance, and not to get off on a tangent, but while I personally could never wrap my head around using the debt snowball method instead of debt avalanche, I do understand why people do it.

A long time ago I had a personal trainer and they told me that “the best diet is the one that you will do” and that’s exactly how personal finance is, so while debt avalanche might be more optimal, it might not be the best for your specific situation.

The same exact thought process applies to budgeting! The best budget is the one that you will stick to. And while I hate to associate a budget with a “diet”, it really is that. You’re going to learn to practice some self-control and stick to really the core essentials. All that mindless spending will need to stop so you can correct your financial life.

One of those great options is with activity based budgeting, but what exactly is it?

Well, activity based budgeting is something that you typically will see quite frequently in the business world and maybe a little less common in someone’s personal life. Corporate Finance Institute defines it by saying,

“Activity-based budgeting (ABB) is a budgeting method where activities are thoroughly analyzed to predict costs. ABB does not take historical costs into account when creating a budget.”

To me, all that this means is that you’re going to go back and look at previous expenses to try to identify some sorts of trends to allow you to better plan for where your money is going to be spent. This makes a ton of sense, right?

If all that you know is that you end the month with less money than you started but have no insight into where that money is going, how are you ever going to get better?

You’re not!

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What a Good Debt to Asset Ratio Is; How to Calculate It

In today’s low-interest business world, many businesses are using debt to fuel their growth. Because the cost of debt is far lower than equity, many companies choose to raise cash to grow by taking on larger amounts of debt.

The debt to asset ratio is one means of measuring that debt level and assessing how impactful that might be for any company.

Debt can lead to big problems if it gets out of hand, and that is why it is important to analyze the company’s debt situation and determine the potential impact, good or bad.

Not all companies choose to use debt to grow, and many of these decisions depend on the sector the company operates, and the cash flows the company generates. Many companies can self-fund their growth, but others are choosing to use debt to fuel their growth.

In today’s post, we will learn:

  • What is the Debt to Asset Ratio?
  • How Do We Calculate the Debt to Asset Ratio?
  • What is a Good Debt to Asset Ratio?
  • Investor Takeaway

Okay, let’s dive in and learn more about the debt to asset ratio.

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Recognizing High Barriers to Entry to Enhance Returns

Barriers to entry are often one of the first concepts learned in business strategy classes. Barriers to entry describe the factors which would deter new competitors from entering a market. Barriers to entry can be natural or human-made obstacles that make it difficult for a new entrant to compete with established incumbent firms.

Understanding barriers to entry is important for investors because higher barriers allow a company to earn outsized returns on invested capital (ROIC) as competition is scarce. High barriers to entry industries are typically called monopolistic or oligopolistic because of the low, or even non-existent, competition. This article will discuss common barriers to entry with industry examples where they can be seen.

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Understanding Run Rate and Applying it to Your Stock Investing Strategy

The term “Run Rate” is one that you quite possibly might have heard before, but many people do not know what it means. It is a term that frequently is said on shows like Shark Tank but also oftentimes used in the business world.

Essentially, run rate means that you’re taking the current market conditions for something and extrapolating them out over a future period of time to use as a predictor of what might happen. For instance, a younger company on Shark Tank might say that they’re losing money at a rate of $50K/month.

If they have $300K left in the bank, that would mean that they’re going to run out of money in six months at their current run rate, as $300K/$50K = 6 months.

Run rate can also be used for metrics such as revenues and earnings, and truthfully any other metric where people are looking for a short and simple way of predicting what the future might have in store.

Now, there are some issues, or risks, with using a run rate as the end all, be all for a company.

  1. It assumes market conditions will stay the same
  2. The timeframe for run rate can be skewed
  3. Product releases like iPhone
  4. One-time sales

Market Conditions Do Not Stay the Same

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Andrew Wilkinson’s Tiny Tech Empire

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

  • Andrew’s origin story and how he became the founder of Tiny, the Berkshire Hathaway of the tech world
  • The idea behind starting to buy businesses based on the same framework that Warren Buffett uses for his investments
  • What Andrew has learned from running his own business and how that has made him a better investor, plus the advantages from reading to learn.

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

SUBSCRIBE TO THE SHOW

Apple | Spotify | Google | Stitcher | Tunein

Transcript

Announcer: [00:00:00] What’s the best way to get started in the market—download Andrews ebook for free@stockmarketpdf.com.

Announcer: [00:00:13] I love this podcast because it crushes your dreams of 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. Step-by-step premium investing guide for beginners. Your path to financial freedom starts now.

Dave: [00:00:00] All right, folks. Welcome to Investing for Beginners podcast tonight. We have a very special guest with us tonight. We have Andrew Wilkinson from Tiny. He is the CEO, founder, and entrepreneur and a really smart guy. And I think you guys are going to really enjoy our conversation. Andrew, thank you very much for joining us today. We really appreciate you taking the time out of your schedule to come and talk to us. I know you’re a busy guy, so I guess you tell us a little bit about you, your company, how you got started. I know that’s a lot of stuff to dump on us, but I guess throw it out there, and then we’ll see what we got.

Andrew W: [00:00:31] Sure. Thanks for having me, guys. Yeah, I have a bit of an odd story; my story really starts when I was in high school. I’m from Canada, grew up in Vancouver, which is a pretty big city.

And when I was 15, my family moved to Victoria, which is a very small city on an island. And I was not very happy about that. I was 15. I was moving away from my friends. I was bored stiff, and the city was all old people, and I didn’t know anybody. And so I had a summer before 10th grade started, and I spent all my time on the internet, just fooling around learning how to build websites.

And I ended up realizing that there were all these websites that reviewed tech products. So speakers, computers, iPods, that kind of stuff. And I learned that those companies get free review units sent to them. And as a teenage nerd, that sounded amazing. And so I started—a tech news site. I started writing articles reviewing products, and getting all this stuff sent to me for free.

And I was just in hog heaven. My family didn’t have a lot of money, and I was always using 15-year-old computers. So suddenly, Apple was sending me iPods and laptops and all sorts of amazing stuff. That ended up turning into kind of a bit of a business and hiring employees and managing a staff of writers.

I ended up getting to travel to all the Macworld conferences. I interviewed. Steve Jobs had just an amazing experience. And throughout all this, I kind of skipped high school. I was just barely passing. I think I got 49.5% on my math 11 final. Like I was just scraping by, and I went to my father when I graduated, and we’re driving down the street, and I said, dad, I’m not going to go to university.

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