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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 13,800+ 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.




How the Endowment Effect Can Destroy Investor Returns in the Stock Market

Wikipedia, also known as the most trustworthy site of all time, defines the endowment effect as “the finding that people are more likely to retain an object they own than acquire that same object when they do not own it.”  Not going to lie, I feel instantly less credible quoting Wikipedia for my opening of an article, but it’s really just a definition – and a very fitting one at that. 

I always knew that the endowment effect was real, but I never really knew that there was a definition and a term specifically applied to it. 

Think about it – how many times will you refuse to sell something because it has some sort of perceived value to you that it doesn’t have to other people. 

tug of war money endowment effect

For instance, maybe someone doesn’t want to move out of their $200,000 house because it’s the first house they ever bought, raised a family there, and retired in that same house. 

Now they need to sell the house to downsize, but the problem is that the house is worth $200,000 but they view it as a $300,000 because of all the memories that are tied up into that house.  They’ve placed this incremental value on it, without knowing, due to their bias of the endowment effect. 

Is there an issue with this perceived value?  No – as long as you’re willing to never sell that house.

My favorite part about the endowment effect is that people don’t even realize it’s happening to them or that they’re experiencing it. 

I’m Guilty of it too…

For instance, I used to have thousands of sports cards from my childhood.  I mean, like 10,000 or more.  When I was still in school, my mom was having  garage sale.  I was very into the value of the sports cards and even bought a book that told me the proper prices of the cards to make sure that I was pricing my cards properly. 

My hockey and basketball cards I sold for a very cheap amount.  In fact, my book that I bought didn’t even address those values.  I just didn’t care how much I got, I just wanted some cash! 

My football cards, I tried to price at face value.  If I got a fair market price, I was happy.  If not, I would prefer just to hold onto them. 

Now my baseball cards…those suckers, those were all almost double the actual value.  Why did I price them this way?  I LOVED baseball cards.  I used to sort them by league, then by team, then by player.  My favorite team is the Cleveland Indians – I had my own binder with just the Indians in it.  I mean, like over 60 cards of just Jim Thome (my personal hero).  These Jim Thome cards were not even for sale. 

So why did I price the baseball cards so high and not even try to sell any of my Thome cards? 

Well, because they meant more to me than the dollar amount.  And guess what – I was fine with that!  They had a personal meaning to me. 

I used to watch SportsCenter for hours on end (this was when it was the same episode that played back to back to back to back) as a kid and flip through pages of pages of sports cards in my binder, recite stats to my dad until he was too annoyed to listen anymore,  and show them off to my friends in a bragging sense. 

I placed a perceived value on them because it meant a lot to me that was higher than the actual dollar amount.

Academic Study on the Endowment Effect

One of the most common examples of the endowment effect is from a study that was completed by Professors Kahneman, Knetsch and Thaler, which is commonly referred to as the mug experiment. 

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IFB108: Minimalism

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:                                    00:37                     All right folks, welcome to Investing for Beginners podcast, this is episode 108 tonight Andrew, and I are going to talk about minimalism. Yes, minimalism. We’re going to talk about how minimalism can help you in a variety of different avenues of your life. And of course we’ll talk about the stock market and finance and some of that fun stuff, but we’re just going to kind of go and see where this takes us.

Dave:                                    01:01                     So Andrew and I were talking off the air before we got on about this and I wanted to share some thoughts I had on somehow minimalism can help me with, for example, investing. So one of the things that have helped me a lot, and I’ve got this from some of my Gurus Warren Buffet, Charlie Munger, Monish Pabrai among others, Vitaly, many of these people. And one of the things that I do is I try to tune out the noise a lot. Uh, I don’t watch the news hardly at all. I don’t watch CNBC. I don’t have, you know, Bloomberg TV blaring at me all day long. I don’t pay attention to that stuff. It gets in the way. It distracts me from what I need to be doing, which is focusing on a company and trying to learn as much as I can about that particular company. And you know, thinking along those lines, thinking about how I can become smarter, better investor and getting distracted by all the different opinions and thoughts of things that go on. For example, you know, fin twit, that’s one of my guilty pleasures if you will, is going on Twitter and reading all the, you know, stuff that’s going on in the finance world from all these people that I follow. And it could be very entertaining sometimes, sometimes for good, sometimes for not so good. And it can take you down a rabbit hole.

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16 Vital Questions to Ask a Financial Advisor When Planning for the Future

Trusting someone to help you plan your future is a big decision, and it’s important to understand the right questions to ask a financial advisor to make sure it’s the right decision for you.

There’s so many factors to asking the right questions of your potential financial advisor, and contributor Andy Shuler does a great job of covering many of those in this post. Hopefully it will dispel some of the confusion around hiring a financial advisor and what it can entail.

questions to ask a financial advisor

Unfortunately, in my time actively listening, reading and experiencing the various financial community podcasts, blogs and forums, it really seems like having a financial advisor is almost deemed as a bad thing. 

It’s almost an assumption that all financial advisors are evil and only looking after themselves, and that if you need one, then you’re viewed as being unintelligent or beneath others.  I’m not going to lie – it absolutely disgusts me, for a few different reasons:

  • Not all financial advisors are out there, looking to pull a quick one over on you to benefit themselves only
  • Hiring a financial advisor doesn’t mean you’re dumb.  If anything, it means the exact opposite.  Most likely, you’ve hired them for one of three reasons:
    1. You don’t have the time to manage your finances
      • For me, personally, I can’t even fathom this.  But to be fair, that’s simply my ignorance.  There absolutely are people out there that have too much else going on to do this.  And quite possibly, they might make more money spending their time doing other things, or just think there’s greater value doing other things.
    2. You’re not confident in your financial understanding and wherewithal
      • Can you think of literally any other time where hiring someone to help you out, in an area where you might lack awareness, is considered a bad thing?  Me neither, but sometimes people give it that bad rap.
    3. You are confident in your knowledge, but you want to bounce your ideas off someone and trust their expertise as it is, you know, their job.
      • This is 100% respectable.  Why would you not want to trust a professional to have your best interest in mind and to help you reach your goals?

In my opinion, I think a lot of the bad rap in the finance community regarding financial advisors might come from people that have heard of others that bad experiences or maybe they’ve even worked in that environment. 

That’s great, and it’s ok to be skeptical, but I am here to say that not all financial advisors are out to get you.  However, some are.  Some will try to take advantage and pull one over on you.  Some financial advisors ONLY have their best interest in mind and will feed you lies so that they can collect that big commission check. 

So, what can you do? 

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What is a Good Payout Ratio?

Last week I talked about dividends and specifically tackled the question of “what is a good dividend yield?”  While a good dividend yield is extremely important, it can be argued that the payout ratio is even more important. 

The payout ratio is rather simple – it’s the ratio of the dividend/share to EPS. 

hands giving cash as a metaphor for a good payout ratio

For instance, if the company earned $5/share in a quarter and paid out $.50/share, then the payout ratio would be 10% ($.50/$5 = 10%). 

A payout ratio is a fantastic way to tell if a stock’s dividend is growing proportionately.  Is the dividend growing at the same rate as earnings?  Faster?  Slower?  Does it matter (yes, it does).

Example: Payout Ratio and Dividend Growth

To explain further, let’s get into the weeds and look at what Apple has done since the start of 2015.  Since 2015, Apple has grown their total earnings (not EPS but total earnings) an average of 3% each year.  Obviously, growing earnings is a good thing.  But, as you can see, quite frequently growing earnings result in a lower payout ratio.  See below:

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IFB107: The China Trade News is Killing This Stock… Should I Buy it?

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 are welcome to investing for beginners podcast. This is episode 108 and I got some great listener questions, and we’re going to take a few moments answer those. Who are we kidding? It’s going to be more than a few moments. But we’re going to go ahead and answer these questions for you guys on air and we’ll just kind of go from there. So I’m going to go ahead and read it.

Dave:                                    00:54                     The first question, so it says, Hi Andrew. First off, I want to sincerely thank you for all that you’ve taught me in regards to the stock market. I’ve always been interested slash intimidated, but once I caught onto your podcast, I couldn’t stop. They are just digesting more and more information on the market. So again, a huge thank you. Quick question, quick question. When it comes to dollar cost averaging, I am looking to invest $150 a month. With that being said, I am ready to purchase my first share, which happens to be this month stock pick, ticker blah blah, blah. It is trading at $91, so I’m only going to purchase one share, but I’m curious now if I should save the remaining $60 for next month that purchased two shares are used, the remaining $60 I have to purchase another share of a cheaper sock. Any feedback would be helpful. Thank you, Eric.

Andrew:                              01:44                     Okay, so to be clear, for people who don’t follow everything I do, I have a newsletter. It’s a paid newsletter called the say their research Eli there. In that newsletter, I’m giving monthly stock recommendations, and it’s following along a real money portfolio. So as Eric said in this example, the stock pick for this month is $91, so in the real money portfolio, we are buying $91 worth. So, and again in the real money portfolio, it’s $150 a month. The goal is to hit $1 million, which sounds crazy with such a small amount, but that’s kind of the point. I started this portfolio when I was 25, and I launched a newsletter miles 25, and so I wanted to show just how powerful compound interest is. So the goal of that is to invest $150 a month for 40 years, and hopefully, we’ll hit that $1 million mark, and we don’t need crazy returns.

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How Does Term Life Insurance Work?

Why are all of our most valuable assets insured, expect for the ones that you love? Contributor Andy Shuler is on a mission to explain how term life insurance works and how it can be the most responsible decision you can make for the ones that you provide for.

Picture this. Can you imagine if you relied on someone to provide for you and they didn’t have life insurance and they passed away?  You would be 100% SOL. 

Not only is your loved one gone, but you are now there with the same amount of obligations with none of that income. 

Guess what, those mortgage payments for your $300,000 house don’t immediately cut in half because your income did.  Your kids’ future college payments don’t decrease now.  Nothing changes – except your income. 

Think about it – what are your most valuable assets?  House?  That’s insured.  Car?  Also insured.  Your HEALTH?  Yup, that’s insured.  But what YOUR LIFE?  “eh, who cares – I’m gone anyways, right?”

Life insurance isn’t for you.  It’s not. 

It’s for your loved ones. 

Not having life insurance is one of the most financially irresponsible things that you can do for your family.  How often do you hear a company say that their people are their most valuable asset?  ALWAYS! 

So, if you’re the most valuable asset to your company, you’re definitely the most valuable asset for your family.  No life insurance?  WHAT ARE YOU DOING?

Ok – sorry for the yelling.  This isn’t supposed to be a rant – it’s supposed to be a blog, so I’ll get back to that.  Life insurance is just important to me and it should be to everyone else. 

So, how does term life insurance work? 

Life insurance really comes in two different ways to purchase – term and permanent life insurance. 

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What is a Good Dividend Yield?

Dividend (and dividend growth) investors have long debated on what is a good dividend yield. How little yield is too little, and is a high yield always better?

These questions and more are explored by contributor Andy Shuler, with a couple of great examples and data to back up his claims…

investor getting a dividend

If you’re like me, when I first started listing to the Investing for Beginners Podcast, I had absolutely ZERO experience with investing.  Sure, I took some finance classes in college, but that didn’t exactly focus much on dividends or investing, and even if they did, it’s now been quite some time without that being used in my daily life, so any knowledge learned at that point was completely gone from my brain. 

Sure, the company that I work for issues a dividend, so I vaguely understood that money was being given back to the investors, but I had no idea if the right amount was being given back, or anything really that defines the purpose of a dividend. 

So, as I listened to the podcast, I kept hearing Andrew and Dave talk over and over about dividends…and the power of the DRIP…and how they won’t really invest in a company unless it has a dividend.  So, I started to research and try to understand dividends, and there’s a ton of information on the internet about them! 

But, if you try to find what a good dividend yield is…you just can’t do it.  So here I am.  I’m going to tell you. 

What is a good dividend yield, you ask?  Well…

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IFB106: The Sears Bankruptcy Fallout – Is Telsa Next?

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:                                    00:35                     All right folks, we’ll welcome to the Investing for Beginners podcast. This is episode 106, tonight Andrew and I are going to talk about that, the disaster, true. That is Sears and all the goings on with that. And talk a little bit about bankruptcies and some other things. So Andrew, why don’t you go ahead and tell us about the article that you sent me today and we can talk a little bit about that.

Andrew:                              00:55                     Yeah, it’s actually kinda depressing then, would piss a lot of people off, especially the people that work there. So Eddie Lampert, he was the former Sears CEO. Um, and I don’t know, maybe you know better than I was. He, did he have like, um, a big ownership stake in the company too? Is that why?

Dave:                                    01:17                     I think so. Yeah. He’s a hedge fund billionaire. He was supposed to turn series into the next Berkshire Hathaway.

Andrew:                              01:26                     How’d that, how’d that work out?

Dave:                                    01:28                     Not so good,

Andrew:                              01:30                     So I guess he bought them out of bankruptcy. Sears had promised their workers that they would pay a week of severance for every year that they were at the company. So this woman, and this is from the CBS News, are the, this woman Brenda from California said after 21 years of service, I was laid off in January of 2019 and received just four weeks. Um, so obviously not that that’s a sticky situation for everybody involved, right? You have workers obviously very upset, nobody likes to lose their job. And then the severance debacle and then you have the fact that lamper probably lost a ton of money on this, I think somewhere on here. Yeah. He bought the struggling chain for 5.2 billion earlier in the year. So from our perspective as investors, maybe we, we understand like what happens in the bankruptcy and then from there, what that, what the implications are for investors.

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Stock Market Infographic Shows How Eerily Predictive the Shiller P/E Is

This single stock market infographic is perhaps the biggest selling point for Robert Shiller’s method. It clearly outlines that when the Shiller P/E has been high, the market has done poorly– and vice versa.

In this post, contributor Andy Shuler introduces Robert Shiller and also presents a great chart showing how the Shiller P/E has been less volatile than the regular P/E.

Shiller P/E and the Stock Market (Infographic Link)

But first…

Who is Robert Shiller and what’s the Shiller P/E?

Introduction to One of the Most Popular Stock Market Valuation Ratios

Robert Shiller is a very famous economist from Yale who wanted to develop a method to measure whether a stock was under or over valued by comparing against a much longer history than the normal year that is used when evaluating a stock’s Price to earnings (P/E) ratio. 

Shiller decided that the best way to do this was to use a period of 10 years and adjust it to inflation, to then determine the PE. 

This method is commonly referred to as the Cyclically Adjusted Price-to-Earning ratio (CAPE), or the Shiller P/E. 

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IFB105: Q&A: Is Acorns Worth it? Should I Buy Small Cap Stocks?

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:                                    00:37                     All right folks, welcome to Investing for Beginners podcast. This is episode 105, tonight. Andrew and I are going to read some listener questions and we’ll go ahead to answer those on the air and we’ll have our usual banter and witty, witty comments from each other as we go forward with all this. So I’m going to go ahead and read the first question. Andrew, would you like to say hello?

Andrew:                              00:58                     Hello.

Dave:                                    01:00                     Excellent. Good job. All right, moving on. Hello. I have been following your podcast for months and just recently signed up for your service. I noticed you’re using your Roth IRA for your stock recommendations and tracking your 40 year portfolio. I understand the benefits of using a Roth to avoid taxes but is absolutely unnecessary for the goal of your slash our investing. My Roth is being utilized with an advisor service from vanguard. So it was not available for individual stocks. I’m using a separate, separate taxable brokerage account for my stock picking. Would this still be beneficial in the long run with having to pay taxes yearly on dividends and capital gains are selling if in a taxable brokerage? Thank you Jared. Andrew, what are your thoughts on this?

Andrew:                              01:43                     So we were kind of talking about this off the air before I’m heading record. I think like, like what you mentioned Dave, obviously, um, you can have multiple Ross, so he talks about how he has an advisor who’s handling one of his, you know, his Roth account. You can open a second one and use that for your stock picking instead of doing it with a taxable brokerage account. So just as a quick overview refresher, maybe if you’re not well versed in all this stuff, the individual brokerage account, um, it gets taxed. And so like he said in the question, you get taxed on dividends, you get tax on capital gains. What’s key to understand is even if you’re doing a drip, like a dividend reinvestment, you’re still going to get tax on those dividends. So let’s say you’re reinvesting all of your dividends and the given year, let’s say you had like $1,000 in dividends and you invested all of them, um, you’re still going to get a bill come tax time.

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