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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.
To me, one of the hardest parts of understanding a DCF valuation was the discount rate. It didn’t help that the formula was complex. I’d like to make the discount rate simple, using simple words.
Maybe if you can understand the basic concept of the discount rate, it will help with calculating one for yourself, whether for a Discounted Cash Flow (DCF) model or for a Dividend Discount Model.
In my attempt to make the discount rate formula simple, we’ll go over the following:
What’s the point of a discount rate?
The main components of a discount rate
The two major types of discount rates
Let’s start with the discount rate concept itself. Using three birds.
What’s the point of a discount rate?
Warren Buffett has a fantastic way of helping us visualize the concepts of the discount rate formula and its role in a DCF valuation.
He says using a discount rate and a DCF is like the parable, “a bird in the hand is worth two in the bush”.
Think of a bird in the hand as your cash today.
As part of making an investment, you are letting go of cash in your hand, for more cash in the future.
How willing are you to let go of the cash in your hand?
[00:00:00] Dave: All right, folks. Welcome to Investing for Beginners podcast. Tonight, we have episode 210, and we are going to go back to the listener well and answer some great listener questions that we got recently. So without any further ado, I’ll go ahead and start.
So I have, hello, Andrew. I have been listening to the podcast for a few weeks, and I’ve learned a lot. However, I have a large student loan debt, a 500 K, and wanted to know if you had any type of account besides maybe a money market account to set aside money, to allow it to grow quickly over the years, to help me pay off my loan faster while I’m making the monthly payments, any suggestion, which would be much appreciated.
Thank you. And look forward to hearing from you. Very respectfully, Ryan. Andrew, what are your thoughts on Ryan’s interesting question.
[00:00:44] Andrew: First off, hopefully, studying to be a doctor, a lawyer or something, hopefully, either way, you, I think it’s a good idea that tries to knock this thing out more if you can.
So the question is, how do I set aside some money so I can pay off this loan faster? Is there a place I can put it, let it compound, and then throw that on the debt? And so it’s really going to depend on where interest rates are. Listen to people bemoan the fact that, oh, back in my day, 20, 20 years ago, you could put money at a bank and get 8%, 10% today.
“Mobile devices, high-speed data communication, and online commerce are creating expectations that convenient, secure, real-time payment and banking capabilities should be available whenever and wherever they are needed.”
Credit cards, debit cards, and mobile payments are helping make the use of cash transactions between customers and businesses less and less common. As the common chant goes, “cash is dead.”
Peer-to-peer payments are doing the same for informal transfers between friends and family to pay IOUs, split the bill at dinner, and much more.
According to the St.Louis Fed, users of P2P apps have grown from 64.4 million users in 2017 to 96 million by 2019, with expectations of growing beyond 126 million by 2021. Over 40.4% of all people have used a P2P payment app in the last year.
Many big fintech players promote peer-to-peer payments as an easy and safe way to transfer money; companies such as PayPal and Square with their Cash App are popular, and other services such as Zelle help enable quick, easy transfers of money.
In today’s post, we will learn:
What Is A Peer to Peer Payment Network?
How Does a Peer to Peer Payment Work?
How Peer to Peer Payments Make Money
Leaders in the Peer to Peer Payment Space
Investor Takeaway
Okay, let’s dive in and learn more about peer-to-peer payments.
What is A Peer to Peer Payment Network?
Peer-to-peer payment systems, such as Cash App, Venmo, and PayPal, are also known as P2P payments or money transfer apps, allow users to send money to each other via their mobile devices linked through a debit card or bank account.
The peer-to-peer payments are available to be sent either through your mobile phone app or online through a computer. The transactions can take moments or days, depending on the service and what amounts you send.
Through the P2P payment app, your account links to one or more of your bank accounts, typically through your debit card. When the transaction occurs, the account balance will show the money either pushing or pulling out of the account into the person you were trying to send it to via the Venmo app.
With growth investing absolutely destroying the market lately, people are wondering if value investing is dead. After all, the post-internet economy is much different than the pre-internet, value “hey days”.
Just look at the biggest and most popular stocks—Facebook, Apple, Netflix, Google… and don’t forget Amazon and Microsoft. All of those have several things in common: they are technology companies, they are growing at a blistering pace, and you wouldn’t consider them your typical “value stock”.
Before we write its obituary, how should we define value investing?
At its most base form…
Split the stock market in two. The 50% that is more “expensive” makes up the group of growth stocks, while the less expensive 50% make up value.
But, value can be like beauty, in the eye of the beholder.
The question and answer behind “is value investing dead” might be more about how you define intrinsic value than anything else.
First let’s talk about the two most popular reasons that people argue that value investing as we’ve always known it will never work again.
The Technology Economy
Value investing has traditionally relied on low relative valuation metrics, things like P/E, P/S, and P/B.
Buying stocks with low P/B used to work great because many companies used to need lots of assets in order to generate growth. So, if as a value investor you could buy more assets at a discount (hence low P/B), you could pick up bargains on companies that were temporarily out of favor.
The coronavirus pandemic accelerated the decisions businesses had to make about payments and how they would accept payments easily for both consumers and the business. These decisions were already in the works, but the pandemic only increased the acceptance. One of these methods is embedded finance, with a projected market value of $138 billion by 2026; this trend is here to stay.
Many of the top fintech players are big in embedded finance and are leading the charge. Companies such as Venmo, Monzo, PayPal, and Stripe enable easier payments for consumers, and consumers are eating them up.
Cash is dead is a popular term, and with the rise of fintech and the ease of making and taking payments, the acceleration of non-banking firms such as Stripe will only continue. As younger generations continue to adopt these types of payments, the way we bank will continue to evolve. The days of going to a branch to conduct business are on the way out, and embedded finance makes paying our bills, buying groceries, and investing all that easier.
Investors interested in learning more about this trend and identifying possible leaders need to understand the business models, how the fintech players make money, and how to take advantage.
In today’s post, we will learn:
What is Embedded Finance?
How Embedded Finance is Changing Financial Services
Examples of Embedded Finance
Key Players in Embedded Finance
Investor Takeaway
Okay, let’s dive in and learn more about embedded finance.
What is Embedded Finance?
Embedded finance, in simple terms, is the use of tools or financial services by a non-bank. For example, if a payment company such as Affirm (AFRM) offers to lend at checkout, embedded finance is an example. Another would be Walmart offering insurance on electronics at checkout. These are all examples of embedded finance.
Embedded finance’s main goal is to make financial processes easier for consumers by designing services and products that ease the payment process.
Back in the old days, if you wanted to buy a couch, you had to go to the bank, withdraw the cash, and buy the couch. Or you had the option of writing a check or using your new credit card.
With embedded finance, consumers can make those decisions at checkout, online, or in person. We can decide to purchase something and get financing options at checkout, with decisions made in seconds; compared to going to the bank, filling out tons of paperwork, and waiting days or weeks for a credit decision.
Sometimes it pays to be silly. If you’re willing to not take yourself too seriously, maybe some of these tips could help you save on your electric bill in ways you might not have thought.
Before we dive in, let’s review the components of my electric bill which contributed the most to the cost. The categories were, from highest use to smallest:
Cooling
Water Heater
Kitchen (Dishwasher, Refrigerator, Oven, Stove)
Lighting
“Always On”
Electronics
Laundry
You might find your top categories to be similar, especially in this age where lighting and electronics are getting increasingly more efficient.
Hopefully these tips, from a month of summer in the South, can help you cut your electric bill without having to do anything too majorly drastic. Let’s start with “cooling” (and then heating for the winter).
Note: This is a guest post collaboration from Frugal Kam, a woman who has been living and breathing a minimalist lifestyle just because it’s what she’s always known. We have much to learn.
Saving on Cooling
First think creatively, lighten up, and hear me out.
Buy Now, Pay Later, the “new” payment scheme trend many analysts project will generate $100 million in sales in 2021. The new way of making payments is buy now, pay later, or the BNPL program, is taking fintech by storm. Many BNPL companies such as Affirm (AFRM), Afterpay, and Klarna lead this new field.
Many other companies are climbing aboard the new way for consumers to pay. Companies such as PayPal, Square, Monzo, Revolut, Amazon, Walmart, and Mastercard are all offering BNPL options at checkout or are partnering with BNPL companies to offer this service to their customers; even the mighty Apple is climbing aboard.
The percentage of Gen Zers in the US using BNPL has grown 6x from 6% in 2019 to 36% in 2021. Millennials have more than doubled their use to 41%, and Gen Xers have tripled their usage; even the Boomers have gotten into the act.
Consumer’s use of BNPL for retail purchases of Peloton bikes, Nike shoes, or the latest TV grew from $20 billion in 2019, $24 billion in 2020, to over $100 billion in 2021, estimated. Many observers believe that BNPL and the companies that enable the service are here to stay. They also believe it will disrupt the credit card industry and enable those unable to get credit in the standard method to access those benefits.
And as investors, it is in our best interest to understand this “new” payment program, how it works, and who some of the major players are to make the best investment decisions.
In today’s post, we will learn:
What is BNPL (Buy Now, Pay Later)?
What Are The Benefits of BNPL?
What Are The Downsides of BNPL?
Top Companies Offering BNPL
Investor Takeaway
Okay, let’s dive in and learn more about BNPL companies.
What is Buy Now, Pay Later (BNPL)
According to Investopedia, Buy Now, Pay Later (BNPL) is:
“a type of short-term financing that allows consumers to make purchases and pay for them at a future date, often interest-free. Also referred to as point of sale installment loans, BNPL arrangements are becoming an increasingly popular payment option, especially when shopping online.”
Buy Now, Pay Later is a payment arrangement between the consumer and merchant that takes place at checkout, online or in-person.
It allows the consumer to purchase an item without paying for it all at once. For example, if you buy a pair of shoes from Nike, you can arrange through the BNPL app on the pos or online to make three to five even payments over a prearranged period.
Many BNPL companies such as Affirm or Klarna enable these sales by integrating their apps in the checkout process.
Not all BNPL companies operate the same or have the same terms and conditions, but the general breakdown of the process is:
You make a purchase at a retailer and choose the buy now, pay later option at checkout.
If approved, which happens in mere seconds, you make a minimum payment, as much as 25% of the total purchase.
We then pay off the remaining balance in a series of interest-free payments.
We have multiple options to pay our balance via check or bank transfer, using debit cards or bank accounts.
[00:00:00] Dave: All right, folks, welcome to Investing for Beginners podcast today. We have a very special guest with us today. Today we have Todd Wenning, who is the senior investment analyst with Ensemble Capital. He’s here to talk to us about all things, stock investing. So Todd, thank you very much for taking the time to come talk to us today. We really appreciate it. And with that, I’m going to turn it over to you guys, and we’ll go ahead and get our conversation started.
[00:00:23] Andrew: Yeah. Todd, thanks for coming on. Want to start with moats because I feel like it. Investors probably can’t talk enough about them, in my opinion. They’re fascinating, and they are key when it comes to looking at good companies. Maybe for somebody who’s just tuning in for the first time as a beginner, can you explain what the moat is? And then maybe we can talk about how you look for them?
[00:00:44] Todd: Sure. Thanks very much for having me. It’s a real pleasure to be here. I would say my introduction to moats came from joining Morningstar as a sell-side analyst in 2011. And that was really a transformational educational moment for me as an investor because before, I would think this company’s done really well.
Look how big it is. Look at its market share. Maybe that key part of its advantage, but that isn’t enough. You kinda need to have a framework for filtering companies and understanding Competitive advantage durable. And so that’s the key part of economic mode analysis. So moat, the term moat comes from Warren Buffettttttt’s moat described, in capitalism, you have a castle, and everybody’s trying to attack your castle, especially if you start generating good returns.
Peter Lynch has one of the best track records on Wall Street of all-time. You may have heard quotes from his best selling books, but you probably haven’t heard some of these more obscure investment quotes by Peter Lynch in his monthly columns.
Today we’ll look at some of his best gems in the 1993- 1999 time period, in several published columns from Worth Magazine, shortly after his retirement from Fidelity in 1990.
A little background on Peter Lynch before we dive in…
He was a workaholic: During his time as a fund manager Lynch spent an extraordinary amount of time fielding calls from analysts, visiting management, and reading annual reports. He famously worked ridiculous hours, which contributed to his early retirement.
He was a generalist: Instead of going deep with his stock research, he went wide and looked at thousands of stocks. That’s not to say that Lynch didn’t do deep research on his stock picks, but he didn’t specialize in any one industry. At any time his portfolio had 100s or 1000s of stocks.
He turned his portfolio over a lot: If I remember correctly, I once saw that Peter Lynch’s portfolio turnover was over 300% much of the time. To say he was constantly monitoring his investments would be an understatement; it fit in with his work ethic perfectly.
He believed the average investor could do great: If you haven’t read Peter Lynch’s fantastic books, you might not know that he thought everyone could find a way to make great money in the stock market. By simply “buying what you know”, you could have a unique edge over others.
Now that we have some context on the great Peter Lynch and his fantastic track record in the stock market, let’s look over some of his great investment quotes and think about how they could apply to our own portfolio decisions and stock picking.
One of the most common ways investors think about a company and analyze their portfolio diversification is by sector. There are 11 main sectors used by the S&P and MSCI in their popular Global Industry Classification Standards (GICS), which was started in 1999 to offer investors a standardized way to segment the market.
From these 11 main stock market sectors, the market is further divided by GICS into 24 industry groups, 69 industries, and 158 sub-industries. These are the categories that break up the common investment fund products, but certain ETF products get granular and focus on specific sub-industries.
For the average retail investor, the 11 main sectors will be enough to judge the diversification of one’s investment portfolio, but it is important to keep in mind that there are further sub-industries and that exposure within a certain sector might be concentrated heavily within a specific sub-industry.
Getting to Know the Market Sectors
As we introduce each sector, we will discuss its economic drivers and cyclicality while also listing the industry groups or sub-industries that make up each sector.
Consumer Discretionary
Communication Services
Consumer Staples
Energy
Financials
Health Care
Industrials
Information Technology
Materials
Real Estate
Utilities
Consumer Discretionary
As an economically cyclical sector, Consumer Discretionary businesses operate selling non-essential goods and services. As such, the Consumer Discretionary sector can also be referred to as the consumer cyclical sector. The Consumer Discretionary sectors thrive in high growth environments where consumers have lots of excess disposable income to spend on aspirational purchases.
