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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 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.




Index Funds vs. Stocks: We Need to Talk About Investor Behavior

Today’s investor has a lot of options for investing money. Index funds vs. stocks vs. bonds vs. alternative currencies. The list goes on.

With lots of research confirming the superiority of stocks over dividends for the very long term, many investors are approaching the stock market but in very different ways.

indexing

Many books, experts, and financial advisors recommend buying index funds (through ETFs) rather than trying to pick individual stocks. However, the behavior of the average investor has suggested a different view– with the many resources and services available out there to support an investor trying to pick stocks.

Both methods have pros and cons.

Indexing is relatively new to the world of investing while the ability to buy individual stocks has been around since the before the 1900s.

In this blog post about index funds vs. stocks, I’ll briefly introduce what an index fund/ ETF is, and talk about what makes it distinct from individual stocks. I’ll talk about why indexing is a common recommendation for the average investor.

I’ll highlight some of the emails I’ve received from readers, who know I advocate picking stocks and challenge that viewpoint. Finally, I’ll get to the crux of the issue and take a deep dive to consider which approach can give the most optimal returns and if it is feasible for the average investor.

What’s an Index Fund?

Much like a mutual fund, an index fund is a basket of stocks grouped together that an investor can purchase outright. This is commonly done through an ETF.

The most common index fund is a market index ETF like ticker symbol $SPY, which holds a basket of all of the stocks in the market (commonly defined as the S&P 500). Instead of an investor having to buy all 500 stocks of the market individually, the investor can purchase an index fund comprised of all 500 stocks.

This has multiple benefits.  [click to continue…]

IFB76:Market Outlook and Predictions

 

market outlook

Welcome to Investing for Beginners pocket and this is episode 76. Tonight Andrew and I are going to do something a little different for us, we’re going to talk about some fun predictions. We’re going to go off the radar and off the range a little bit and talk about some upcoming predictions we think might happen and so we can give you an idea of what kind of great prognosticators we are now.

Well let’s talk a little bit about some stock market stuff maybe a baseball thing or two and just kind of have a little fun so Andrew why don’t you go ahead and start us off a little chat a little bit.

Andrew: all right you mentioned baseball obviously we’re recording this and there’s a game on so before we get into the stock market stuff I want to know who do you think is going to win the World Series this year?

We have to give a context if you’re listening this in the future right now there’s the Dodgers the Braves the Rockies and Milwaukee yes that that’s kind of crazy that’s./ I don’t remember the last time they were in the playoffs with I don’t know where that is just kidding killing and then I’m al there’s Boston New York that’s turned out to be really cool series they were always big rivals.

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How the Mr. Market Metaphor Helps Investors Buy Low and Sell High

The stock market is a very emotional place. Why? Because it is made up of humans beings. Fear and greed are felt and then played out, which is why you’ll see irrational bull and bear markets. Warren Buffett’s mentor, Benjamin Graham, tried to explain this phenomenon with a fictional character he called Mr. Market.

Graham used the Mr. Market metaphor to not only explain why the stock market behaves emotionally, but to discuss how investors can capitalize on these exact characteristics.

He tells the story to show exactly how stocks can become mis-priced, trading at prices that may be cheap one day and expensive the next. Investors who understand this can buy the stocks that are underpriced and sometimes sell stocks that become overpriced, to profit from the market’s madness.

Who or What is Mr. Market?

Graham described a character he called Mr. Market in his bestselling investing book, The Intelligent Investor. You are the owner of a very successful business. Say you have a man who has bipolar disorder. His name is Mr. Market.

Now because Mr. Market is bipolar, he gets really extreme mood swings. Everyday he comes up to you and offers to buy your business at a price. Some days he’ll be in a very good mood and offer you a high price for your business. Others he’ll be very depressed and offer such a low and unfair price.

mr. market

All along the way, you still own a successful business. That fact doesn’t change from day to day, but the prices that Mr. Market quotes does.

You wouldn’t sell your successful business to Mr. Market at a low price just because he is in a bad mood. Maybe you would decide to sell if the price is high enough, because you understand what your business is worth and that you’re getting a good deal.

This is exactly what happens in the stock market with investors and traders. Stocks represent ownership pieces of a public corporation. A business. Wall Street quotes prices on these businesses every single day, and the price quoted can vary wildly depending on the market’s “mood”.

You can see evidence of this exactly by looking at a 1 year chart of a stock. Many financial websites quote a 52-week high and 52-week low, and the difference between the 2 figures can be quite high. Yet in a one year period, it’s very unlikely that the actual value of a business is changing that rapidly.

The business world moves much slower than Wall Street, and that’s just the nature of the market. This creates pricing discrepancies to a business’s intrinsic value.

Why does Mr. Market Behave This Way?

You might be skeptical about this metaphor by Ben Graham. After all, the market is a very large place made up of some of the smartest people on the planet. How could it make such bad pricing mistakes all the time?  [click to continue…]

IFB75:Listener Q&A on Weed Stocks, What to Do When Your Stock Crashes

stock crashes

Welcome to Investing for Beginners podcast this is episode 75. Tonight Andrew and I are going to answer some listener questions. We got some great questions in the last few weeks and we wanted to take a few minutes to go ahead and answer those on the air for you guys. So Andrew why don’t you go ahead and start us off there big guy.

Andrew: all right sounds good. I’m going to start us off with wasn’t the question but it was a cool comment and it’s great to hear and hopefully some of you guys can relate to where she was where she is now give you some inspiration so this is from Shannon she says:

Hi Andrew, just wanted to say thank you so much for the podcast I was left feeling pretty powerless following my most recent meeting with my financial adviser who handles my retirement account. So I vowed to learn more about investments and that is when I came across your podcast I’ve learned so much and started my own account in addition to my retirement account and I’m having so much fun. I love that it is a constant and endless learning process I am surprised at how many of my female friends are in the same position I am and really know nothing about where their money is going. Anyways I just wanted to say thanks for giving me some power back over my money thanks Shannon

That’s really cool to hear and hopefully other people who might be struggling or feeling hopeless can find the inspiration to try to learn something and get yourself from feeling powerless to feeling excited.

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IFB74:Potential Investor Problems When Examining the History of the Market

investors problems

Welcome to Investing for Beginners podcast this episode 74. Tonight we’re going to talk about potential investor problems when examining the history of the market. Andrew has been on a bit of a history bent lately and I’m a big fan of history and I love learning more stuff about what has happened in the past. Because that can always help us in the future when we make decisions those who fail to learn from the past are bound to fail in the future.

So go ahead and starting off Andrew why don’t you go ahead and talk up to us a little bit about short time periods are valueless.

Andrew: yeah so I think this is a nice kind of follow-up to last week’s because we kind of examines the same type of thing right. a lot of studies academic studies about the stock market are looking at what happened in the past and let’s see if we can find a trend a correlation and maybe use that to have better success in the future.

And so we kind of focus in on like the acted the academic part of the particular problems that can arise when you’re looking at particular studies and then how they’re doing that.

Now we can kind of look also how people like you and I the average investor might do kind of similar things and this is particularly common with beginners if you’re not putting thought into this and how it can affect what kind of decisions you’re making then  you might not even realize you’re making these kinds of mistakes.

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IFB73:Wall Street Studies Pitfalls

wall street studies pitfalls

Welcome to Investing for Beginners podcast, this is episode 73. Tonight Andrew and I are going to talk about Wall Street study pitfalls, this is based on a book that Andrew is a big fan of by James O’Shaughnessy and we’re going to talk a little bit about some of the potential pitfalls that you may run into.

We’re going to start off by talking about data mining and I think the easiest way that I could explain this was a metaphor that James used in the book and he talked about if you’re in Grand Central Station which is obviously a very large place with lots and lots of people around.

If you find a specific area that has let’s say you go into one too but where one of the trains is running and you see 75 percent of the people there are blonde then you would be potentially thinking that hey everybody in Grand Central Station is 75 percent blonde and that’s not actually the case.

It just happens to be at that particular time at that particular place that you find that and so the data mining is something that if you’re doing Studies on different Wall Street things you different factors of looking for let’s say you want to buy stocks on a Wednesday every 16th month well that’s not necessarily that’s data mining because you feel like you have to only buy stocks on a Wednesday on the 16th of the month.

And that’s it could lead to a lot of pitfalls and okay that means dude but I mean.

Andrew: that’s now uh that’s part of I think having tests that look at history you have to be very careful I think when it comes to studies in general and I’m sure you can extrapolate this to things outside of Wall Street and it’s very easy to take facts and weaponize them and make them sound like basically a way to advance your own agenda and you can manipulate statistics to do that.

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How Negative Growth Calculations Can Actually Mislead Investors

Earnings growth is the life blood of Wall Street. You see this with the obsession of earnings season and analyst projections and estimates. However, when beginning investors try to make these calculations themselves, they can get really tripped up when it comes to negative growth.

Half of the time the calculation for negative growth is straightforward, and the other half of the time it isn’t. So it’s extremely important to know how you can make the wrong calculations for negative growth and instead make sure you’re accurately portraying the correct figures for your earnings growth calculations.

After all, you want to be buying stocks that are growing earnings over the long term– as these will have the ability to pay out increasing income streams in the form of dividend payments, which can compound fantastically over the long term. Oh yeah, and great earnings growth also tends to lead to great gains in share price.

negative growth

I know that the formula for negative growth can be misleading. I know it for an absolute fact because I’ve received several emails asking for help with it.

This blog post will outline some parts of those emails, which perfectly show where the confusions in growth calculations with negative earnings can appear. I’ll also walk you through my answers to these great questions, and hopefully give a good guide for investors looking to calculate earnings growth on their own.

How to Calculate Earnings Growth

Before we can differentiate between negative growth and positive growth, we need to know how to calculate growth in its simplest form. Here’s the most basic way I can think of to explain this.

Say you have $100. It grows to $125. So it’s now $25 more. $25 is 25% of 100, so you got 25% growth.

The formula for this is (present – initial) / initial. [click to continue…]

IFB72:Shareholder Yield Metric: Cheap Stocks with Good Capital Allocation

shareholder yield

Welcome to Investing for Beginners podcast, this is episode 72. Tonight Andrew and I are going to talk about shareholder yield, this is a term that I came across when I read a book by Meb Faber. One of my favorite podcasters, he’s a quant investor that runs a ETF that he’s a fantastic guy really interesting super smart and sometimes he can be a little technical.

But he’s very interesting and he wrote some great books that are on Amazon and quite a few of them were actually free. So the book that we’re going to talk about tonight that we’re going to reference let me rephrase that is actually free and I will put the link to that in the show notes. If you guys want to check out a little more deep dive into what Andrew and I are going to be talking about tonight that’ll give you an opportunity to check that out so well then further ado Andrew once you go ahead and start us off and talk a little bit about shareholder yield and capital allocation.

Andrew: yeah so shareholders yield a metric it’s a good kind of description for a metric where you’re essentially looking at a CEO management of a company and seeing how are they allocating capital. You have earnings that you get right profits up that these companies have and as we’ve mentioned in previous episodes two to three episodes ago these companies have various decisions that they can they have various purposes that they can use this cash that they have for.

And so shareholders yield is a measure to evaluate that and it can identify companies if there’s a high shareholders yield can identify companies that are really rewarding shareholders giving a lot of that cash and giving it back to shareholders and it doesn’t have to be in the form of a dividend that’s why it’s different than like the dividend yield.

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Robinhood DRIP Problems and What Dividend Investors Should Do

One of the drawbacks to investing with Robinhood for the dividend investor is that they currently (as of Sept 2018) don’t offer automatic DRIP with their positions. A Robinhood DRIP would be a fantastic feature for users– especially considering that many of the investors who use their platform are beginners.

There are many benefits to DRIP that can lead to serious long term gains over the long term. And while Robinhood can be a great place for investors to start (especially because of the no fee commissions), the loss of potential return from no DRIPs on stocks can more than negate this initial benefit.

However, many investors might have accounts with Robinhood already and an outright liquidation into a new brokerage account might not be the best choice. It really depends on the person.

robinhood drip

This blog post will talk about some of the implications for investors considering moving away from Robinhood, or even just getting into DRIP investing in the first place. Hopefully this will give you more clarity and information on what this means for your results and empower you to make the right decision for your finances.

We covered the basics and the pros and cons of the Robinhood platform in episode 39 of The Investing for Beginners Podcast. You can listen to it right here, or read the transcript here.

That discussion spurned additional concerns for a listener who wanted a Robinhood DRIP in place for their current investments. I’ll show case the question and my answer, which can apply to many of you who may be faced with the same problem. [click to continue…]

IFB71:Combining Entrepreneurship with Investing Through Website Flipping

 

website flippers

Welcome to the Investing for Beginners podcast episode 71. Today Dave is taking a break and I am taking over the reins. We have an interview for you today with somebody who has a really unique take on investing and it’s a cool little mix between investing and entrepreneurship.

We have Greg Elfrink from Empire Flippers and what his company does is provide an outlet and a unique investing possibility and approach where like I said it kind of mends these two ideas of investing and entrepreneurship. And it quite literally is something that wasn’t available before the internet.

This is something very new a new type of investment opportunity and for somebody who is particularly like me because I’m super passionate about entrepreneurship. I’m type A going to go out and spend way too many hours of my day kind of hustling and trying to make a secondary income and some of the who’s familiar with the online space is definitely this is a resource that you might be able to find useful for being creative and finding other investment opportunities.

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