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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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Philip Fisher’s 15 Points for Picking a Stock – Chapter 3 Summary

Philip Fisher, author of Uncommon Stocks and Uncommon Profits, boils down his investment research into 15 key points in Chapter 3 of his book, Uncommon Stocks and Uncommon Profits.  Not all of these are required for him to purchase the stock, but he does think that the company should check a large majority of these boxes for you to consider purchasing that stock.  I have outlined the Philip Fisher 15 Points and some quick summaries below:

1 – Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years?

An awesome example that Fisher gives when talking about this topic is that when televisions first really became prevalent, there was a huge boom of them being sold and then once 90% of homes had a tv, there was a steep drop off in demand because nobody needed more than one tv (which is funny to think about nowadays…or maybe it’s sad, actually). 

He says that there are two types of successful companies – those that are fortunate AND able, and then those that are fortunate BECAUSE they are able. 

For instance, the example that he states is that aluminum companies might be successful because the aluminum demand spikes and they have the ability to meet that demand, but on the flip side, a company like Corning, who was a light bulb manufacturer, was able to adapt their bulbs to make bulbs for televisions that allowed for the opportunity for endless demand.  So, they were able to adapt their product to meet the need. 

This is the type of company that you want to invest in – one that can adapt. 

He also gives Motorola as a great example. 

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The Top Stock Analysis Tools for the Average Investor in 2019

In one of the recent Investing for Beginners Podcast episodes (Episode 117), Andrew and Dave breakdown some extremely useful Stock Analysis Tools that they have used and would recommend that you use when evaluating stocks as well. 

One tool is something that I use quite frequently, on a weekly basis or more, while the other is a brand-new tool for me. 

Here’s a summary of what was discussed in the episode, along with an embedded player so you can listen right here if you prefer. Enjoy!

Stock Analysis Tool #1: Seeking Alpha

I personally use Seeking Alpha quite frequently.  In general, I think the best part of seeking Alpha is how easy they make it to compare a stock to another and to look at similar stocks.  In the screenshot below, you can see that I typed in the ticker ‘PG’ to see The Procter & Gamble Company:

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An Honest Stash App Review for the Average Investor

Are you new into investing and looking for a way to start investing your money?  Well, look no further. 

I go pretty in depth with this Stash Review, so you can understand the ins and outs of the app.

Personally, I think that Stash is a fantastic app for the beginning investor that really helps break things down in an easy to understand fashion.  One of the main reasons that I think that this app will be very beneficial to a new investor is because of the platform. 

The actual layout/appeal of the app is very sleek, and I think that in itself will make people more attracted to the app and more likely to use it.  I know it sounds ridiculous, but I am more likely to use something that is very eye-appealing than something that looks clunky, so why wouldn’t that translate over to investing?

So, what does the app look like?  When you first login, you fall onto the home screen where you can see what your total invested is as well as your total spend.  Take a look below:

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What Investors Can Learn from a Possible Amazon Stock Split

Amazon stock split? 

What the heck. 

“Hey, I have some AMZN stock, don’t split mine in half!” 

Was that you just now?  If so, take a deep breath, it’s going to be OK.  That’s not what we mean when we say stock split!

Let’s first start off by saying what a stock split even is…

When a company splits their stock, the reasoning is usually because they think that the price is so high that it might be deterring people from purchasing that stock. 

For instance, the AMZN stock price as of 9/6 was $1,833.51.  So, if you were saving $150/month, it would take you over 13 months of just saving that money before actually being able to buy any of that stock – and that’s assuming that the AMZN stock price won’t continue to rise! 

So, if you were saving $150/month, starting with $0, would that deter you from buying AMZN stock? 

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Security Analysis for the Lay Investor – Ch 11 of The Intelligent Investor

Benjamin Graham classifies the difference between the lay investor and the security analyst in order to give some direction to the “layman”, or average investor.

He saw a concerning trend within the security analysts of his day—more and more were using sophisticated math in order to justify high valuations on growth stocks.

Graham had a simple problem with this.

In order to justify high valuations, security analysts had to project growth far into the future and/or project high levels of growth in the future.

complex math stock projections

Notice the common theme there: both rely on the future.

Graham found it interesting (and concerning) that precise mathematics was being used on the very imprecise future. Any deviation from these projections could lead to a big discrepancy in the final valuations, which could lead to great losses on valuations where this error existed.

Perhaps it was within this problem that Graham saw an opportunity for the lay investor. At the very least, he wanted the lay investor to know this was going on and resist following the trend.

Before diving deeper, Graham lays out 2 important questions for the lay investor:

  1. What are the primary tests of safety of a corporate bond or preferred stock?
  2. What are the chief factors entering into the valuation of a common stock?
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IFB118: Questions about Investing an Inheritance as a 21 year old

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, welcome to Investing for Beginners podcast. This is episode 118 we are back with another session of answer question mode. We got some other fantastic questions. You guys are sending us some great stuff, and this was a lot of fun. So Andrew and I get to answer some questions and try. I hope you guys weren’t a thing or two. So I’m going to go ahead and read our first question and Andrew and I, we’ll do our little give and take. So, first of all, it says hi Andrew. I want to start by saying thank you for the time and effort you put it into your podcast. As a beginner, I can honestly say that every podcast I’ve listened to so far has been a little pot of gold for gaining knowledge and investing. I appreciate it. I’m a 21-year-old from the UK who recently came into some inheritance due to my father passing away unexpectedly. I’m looking for the wisest ways to invest this and creating a solid portfolio I can build on.

Dave:                                    01:26                     At the moment I’ve invested a large sum of money through Hargraves Landsdowne stocks and shares Isa into Vanguard strategy at 100% equity, which I plan on keeping it there to grow over the next 10 15 years. But I feel like there isn’t any anywhere near enough. I have a few questions. I hope you’d be able to find the time to answer. The first question I hear you talk about aiming for around 20 funds to invest in to minimize any loss. Would you advise that I invest in 20 funds over a course of say two years or aim to invest larger sums of money into four to five funds over a course of two years and keep adding from the money, which is returning from the Andrew, what are your thoughts?

Andrew:                              02:09                     First thing so sorry for your loss. I can’t even imagine. Having said, okay, so I’ll try not to jump ahead. I did read the questions previously, so I’ll try not to jump ahead. Specifically, when you talk about 20 funds, I’m assuming he meant to say 20 stocks. So let’s recap why we do that. There’s been a lot of research and data that shows that a small portfolio of the size of 15 to 20 stocks has tended to be pretty optimal for investors. So the reason behind that is once you get above 30 stocks your returns start to mimic the stock market. And so at that point, that’s like, well, why am I picking stocks when I might as well buy an index? So when you buy around, you know that many stocks, then, you tend to get results that are similar to just having the whole stock market.

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Combined Ratio – How to Calculate it With Examples

How do we determine if the insurance companies that we invest in are making money? Is there some secret formula or hidden clues in the financial reports? In a word, yes, there is. It is called the combined ratio, and it can reveal all to us.

Well, not all, but quite a bit if we know where to look and how to interpret the numbers.

Part of the fun of learning more about insurance companies is seeing what makes them tick. Or to see how they make money. 

Property & Casualty insurance companies will make money differently than Life insurance companies will. Keep this in mind as we investigate further the intricacies of the combined ratio. 

One note of caution, the combined ratio will not work with life insurance companies. How life insurance companies make money is different from property & casualty. Thus the reason it will not work

What is the Combined Ratio?

According to Investopedia:

The combined ratio is a measure of profitability used by an insurance company to gauge how well it is performing in its daily operations.

We can calculate the combined ratio by taking the sum of the incurred losses and expenses and then dividing them by the earned premium.

Thus we get the formula:

Combined Ratio = Incurred Losses + Expenses / Earned premiums

Analysts and investors alike usually express this ratio as a percentage. If it is less than 100%, the company is making a profit on its underwriting operations. 

A combined ratio of 100% might still mean the company is profitable, especially if it is making significant income from its investment portfolio. 

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Is Decreasing Term Life Insurance a Good Policy for You?

DECREASING term life insurance? That sounds backwards, right?

WRONG!

Not too long ago I wrote a post about term life insurance that really explained some great things about it.  Term life insurance can be a great tool as long as you are using it for the right purposes, which I fully outline here.  But have you ever heard of Decreasing Term Life Insurance?

It seems like many people have not, but I truly think it’s somewhat of a hidden gem when looking at different insurance policies.  

hidden assets picture

Decreasing Term Life Insurance is a policy where you pay the same amount throughout the entirety of the term, but your coverage will slowly decrease throughout that timeframe. 

When I first was explained this option I had to hear it a few times because in my head I kept thinking, “wait, so I am going to pay the same amount every year, but my coverage will only decrease throughout this term?  Why would I ever do this?” 

The answer to why you would do this might seem hard to comprehend at first – and it should be. 

The policy is essentially designed to help you accomplish two main goals:

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Dealing with Investor Buyer’s Remorse after Your Stock Drops

Have you ever bought a stock, and instantly had buyer’s remorse as you saw it fall in price?

Well in a recent episode of The Investing for Beginners Podcast, co-hosts Andrew and Dave fielded a question from a listener who had to deal with just that. After buying a stock and seeing it fall, the listener worried about having made the wrong decision despite being confident when buying it.

Later in the episode, Andrew and Dave answer 3 other great questions regarding investing from listeners, and I’ve summarized all of the answers in this post. You can listen to the episode right here on this page (below).

Question 1 – I bought WBA and all of the fundamentals look good but it’s starting to drop in price.  Did I miss something?

It is not uncommon whatsoever for a stock to drop in price after you bought it, and for you to feel buyer’s remorse because of that. 

The key is for you to stay focused on the long-term goal, which is why you chose to invest in that stock in the first place. 

In this case, WBA is closing 3% of their stores, which might sound bad, but it may actually help the company generate more value in the long-run as they can focus their efforts on the higher performing locations.  If nothing has drastically changed since you bought the stock in regard to the key factors that made you buy it in the first place, there is no need to sell.

Andrew provides a great metaphor here – if you bought a house in a booming housing market, such as Austin, TX, and the price dropped $25K in a single year, would you feel a similar buyer’s remorse? 

You might be, but if the market is still growing and it doesn’t seem like anything has changed, such as a natural disaster or a lot of new crime that would impact the market on a long-term basis, this is more of just a blip on the radar.  That happens sometimes.  The key is to stay patient.

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The 7 Ground Rules for Warren Buffett’s Partnership that Led to 24.5%+ Gains

At a young age of just 25 years old, Warren Buffett had a keen vision on how he would run his partnership and achieve superior returns for investors. He called these principles The Ground Rules, and ensured that his partners, friends and family, agreed to these terms so they could understand Buffett’s vision.

To say that Warren stayed true to his ground rules and used them for great success would be an understatement:

From 1956 to 1969, Warren Buffett recorded a rate of performance for his investors in the Buffett Partnership that is now legendary. For these 13 years, Buffett gained an astounding 24.5% CAGR after fees, turning $105k into over $7 million.

So what were these famous Ground Rules from Warren Buffett? I’ve included the 7 Ground Rules below with some commentary on why I think each were integral to his success as a fund manager.

1. In no sense is any rate of return guaranteed to partners. Partners who withdraw one-half of 1% monthly are doing just that—withdrawing. If we earn more than 6% per annum over a period of years, the withdrawals will be covered by earnings and the principal will increase. If we don’t earn 6%, the monthly payments are partially or wholly a return of capital.

From the onset, Buffett tries to set expectations and be sincere. There are no guarantees, and anybody who tries to tell you that about investing is lying to you.

What I like about what Warren Buffett did here is that he put himself into the investor’s shoes, and realized that just because he was in the wealth accumulation stage, his partners might not be.

In other words, his partners might want to withdraw capital so that they could have an income from their investment in the Buffett Partnership, and so the 6% goal would allow that while also still growing the partner’s total investment value in the fund.

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