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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.




IFB117: Sharing Our Top Stock Analysis Tools as We Analyze a Railroad Stock

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, Welcome to Investing for Beginners podcast. This is episode 117 we’re going to continue down the train. You’ll get the pun here in just a minute, a train tracks of answering some listener questions. We get another great one the other day and Andrew, and I wanted to go ahead and take a stab at answering this, so I’m going to go ahead and read the question. Andrew and I will do a little back and forth, so it says, Hello Andrew. I pray that your week is going well. I recently subscribed to your real-money portfolio and learning a lot. I’ve been listening to your podcast for some time now and appreciate you and Dave’s insights. A few months ag,o I ran a screen and found GBX that had some great appeal. I haven’t purchased your VTI but have something that I’ve been using to assess intrinsic value using Morningstar and guru focus information. Question with the market cap being around 750 million and the sales being 2.8 1 billion, how does that fit into your preferred metrics for screening? I liked the other numbers a lot, and I’m just wondering could this be a value trap just because it is a smaller company. Thank you for your time. Again. Thank you for sharing what you weren’t in an understandable way, Kevin. All right, Andrew takes a stab at and talk about what we were talking about before we came on the air.

Andrew:                              01:51                     Okay. Yeah. So my idea for this, obviously I’m going to answer the question eventually, and you’re going to have to remind me. But I think, so w we were looking at this. This is a stock I have; I haven’t looked at before. I don’t believe you looked at it before either. So we were in the pre-show going in and going through our approach on, you know, checking out stock like this. And I was thinking, well this is pretty useful. Why don’t we do the same thing but share it with the audience? So I have a lot of things that pop into my mind when I look at a stock like this. I’ll probably go on tangents to my tangents in this episode. So bear with me. I think when you look at any stock, you’re going to have a lot of different thoughts that pop in your head and it’s useful to try maybe to distinguish between how are these thoughts going to help me decide on whether I want to buy this stock or not.

Andrew:                              02:54                     I’m not going to pick, you know, and say that somebody should buy this or not. I think maybe that’s something the listeners I’ve gotten to use too. Now. The other thing. I want to make some other disclaimers I guess before even starting and then maybe we can dive in for some of the thoughts that pop into our head and take a stab at some of that. I would say, Oh, I hope this episode doesn’t get discouraging because it’s when you look at stocks, you can get into the weeds. You can jump down the rabbit hole, and you can do all the things we try to talk about. This is a show for beginners, so a lot of the things that we try to emphasize does not overanalyze, you know, do not try them, find everything out about +stock and do not be sitting on your hands and not buying stocks in general.

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7 House Hunting Checklist Items to Lower the Cost of Your Mortgage

As a recent first-time home buyer, I have learned (some proactively and some the hard way) some quick tips to that will help you save on the cost of your mortgage.  A lot of obvious things might be “lower your APR” or “put more than 20% down,” which are great, but not always realistic. 

checklist for buying a home

So, I wanted to dig a little bit deeper and “get in the weeds.”  To help you be able to afford your home and potentially even save some money, I have created this House Hunting Checklist to help make sure you’re covering all bases when buying that new home.

1. Shop Mortgage Rates and Closing Costs

This might seem obvious, but it’s not.  A lot of people that I know will get a rate, deem it to be “fair,” and then move on with their day.  Like….what? 

ALWAYS get at least a few different rates. 

Some employers might offer a program for you to get X amount of cash back going with a company but even after that cash back rebate, your total closing costs will still be higher. 

And guess what, the same sort of concept goes with APR. 

house hunting rates

I personally found almost an entire percent difference between the high and low offers that we received when picking a lender for our mortgage. 

Did you know that a .5% difference in an APR rate on a $250,000 mortgage will cost you over $25,000 over the 30-year term?  So, .5% difference means you’ll pay an extra 10% of the actual mortgage. 

Don’t assume your offer is great.  It might be.  It might not be.  You won’t know until you have AT LEAST three total offers.

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5 Debt Solutions for the Average Person that Don’t Cost Money

Somebody in debt is the last person who should be spending more money to try and get out of it. Having been there and done that, contributor Andy Shuler has 5 great debt solutions ideas to get out of debt that don’t cost a dime. He shares them here.

wiping out debt

Having debt is extremely costly.  I honestly cannot think of something that is actually so expensive. 

I mean, think about it – when someone tells you that they’re in credit card debt, is it usually because they had to be or because they were just being irresponsible with their money? 

I’m sure that there are definitely people out there in the world that have had to go into credit card debt to pay for hospital bills, or for groceries that they otherwise couldn’t afford, or maybe even to help keep their personal business alive (not an ideal use of a credit card, but there are worse ways).

But if you’re anything like me, the main reason is that people are blowing their money on things that they just flat out do not need. 

My Debt Story

Hey, take it from me for example.  When I received an offer from my employer for a full-time position after college graduation, I still had an entire semester of school left. 

I decided that I was going to “treat” myself. 

My “treat” was that for the first time since I was 14, I wasn’t going to work.  Instead, I was going to rack all of my expenses up on my 0% interest credit card and pay it off once I started working. 

Why would I do this?  I deserved it. 

I busted my butt through college and got a great job offer and wanted to have fun.  And while I’m at this point of “treating” myself, I shouldn’t be frugal, right? 

I should really do it up big.  So, I’ll go on a nice Spring Break trip too.  And since I’m not working, I now have about 35-40 extra hours a week to do fun things, so let’s do all of that and spend money. 

Long story short, I was up to $8,000 in debt in one semester.  Insane.

All in all, did this situation work out for me?  Yes, it did, fortunately for me, but sometimes life hits and that would’ve completely screwed me over. 

If my offer was revoked for some reason, or somehow, I had missed a class and my graduation was pushed back, or maybe I had some other major expenses come up – guess what, I would’ve been SOL. 

But this worked out for me because I was lucky by avoiding any major expenses or bad luck and by really focusing…and even utilizing a few of these free debt solutions below:

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The Best Way to Invest in Insurance Companies: How to Analyze Their Stocks

Insurance, one of the necessary evils of today’s world, right? We all have to have it in case of that one day you will need it, health, life, auto, home, and on it goes. The big question is, how do I invest in an insurance company when I don’t understand how it works or how they make money?

Well, you’re in luck because today we are going to tackle all of those questions and more.

insurance company claim

Question for you, do you know what Warren Buffett has invested most of his money into and how he makes most of his money?

Ding, ding, ding, you are correct! It is in the insurance industry, heard of Geico before? Yes, that little green gecko is peddling insurance for Uncles Charlie and Warren.

That’s right because at the core of what Berkshire Hathaway does is function as a holding company for a basket of businesses, among which are several extremely successful insurance companies, Geico being the most recognizable.

Buffett has been able to use the profits from his insurance businesses to invest that money from the “floats” of his insurance business into many other very profitable investments. The float has been the bread and butter of his whole operation.

More on floats and how they work in a moment, let’s move on to how does an insurance company work.

How Insurance Companies Work

So how do insurance companies work, and what makes them so darn confusing?

The basics of an insurance company are that they exist to spread risks around them among a bunch of different customers. A great way to think about an insurance company is like a bank; they take in deposits, or your premiums, and allow you only to withdraw money when you experience a large financial loss.

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Calculating Portfolio Return Using the 3 Main Methods from the CFA (Level 1)

Calculating portfolio return should be an important step in every investor’s routine. Efficient wealth management means to allocate money where it is generating the greatest long-term returns and for that reason alone, return is important.

This lesson will discuss the technical formulas in calculating portfolio return as well as the theory behind them and practical tips for retail investors.

calculator

How to Calculate Portfolio Return

Essentially the calculation is a simple growth formula with a little twist. The difference is that one also has to also take into account the external cash flows on the portfolio.

This means that deposits and withdrawals from the portfolio have to be adjusted for as they do not contribute to the return of the portfolio.

Investors can adjust for net deposits into the portfolio by both subtracting them in the numerator and adding them to the denominator as will be shown more when the different calculation methods are discussed later.

For net withdrawals, these external cash flows would be added to the numerator and subtracted from the denominator.

calculating portfolio return example

The Importance of External Cash Flows

The cash flows we are concerned about are essentially external capital from investors flowing into and out of the fund.

While some cash flows, such as dividends and interest, are generated internally within the portfolio and should be included, others are external and fall outside the return calculation.

Like a business, the return on invested capital (ROIC) is crucial in judging the profitability of any fund or investment.

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IFB116: Facing Stock Buyer’s Remorse and the China Tariffs

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, sirens, crippling confusion and help you overcome emotions by looking at the numbers, your path to financial freedom starts now.

Dave:                                    00:34                     All right folks, we’ll welcome to the Investing for Beginners podcast. This is episode 116 tonight. Andrew and I are going to answer some listener questions. You’ve been getting some great ones lately, and you guys keep sending us great stuff, so we want to keep talking about it, see if we can help you guys. We’re in a thing or two and answer any questions that you guys might have. So I’m going to go ahead and read the first question and then we’ll go from there.

Dave:                                    00:58                     So it says, Hello Andrew. I started listening to your podcast, and it is inspired me to start investing. I found a list of dividend aristocrats that ran each one through Finviz with filters. I did the research, looked into the balance sheet, and warned about what the companies I was interested in did. The one I finally decided on was WBA Walgreens Boots Alliance. I didn’t see anything to wrong, and a balance sheet is slower growing its profits at debt as well, and I saw nothing to my beginner’s eye that says it’s bad, so I bought three shares. That being said, now I think I miss something and I don’t know what the price immediately dropped in price hang it. They released an announcement saying they’re going to close down 3% of their stores. Now I know most people freak out about that, but they’re trying to do it to help more profitable because everyone says they should be doing better than they are. I guess my question is, as a new investor, I’m kind of terrified that I bought the wrong stock. Even after reading the 10 Q and 10 k I’m still not sure I miss if I miss something. Someone with more experience would have seen. I guess my question is, as a new investor, how do I figure out if I’m right or wrong? Andrew, what do you think?

Andrew:                              02:09                     Yeah, first off, Samantha, that’s, that’s a good question. And it’s something that I think crosses a lot of people’s minds on when they buy a stock for the first time. So I would say having these fears are, are valid, but they are fears you should have, I guess I’ll try to break it down with a, a sort of metaphor. Let’s say you bought a house somewhere and let’s say, let’s say you were buying as like an investment property or something like that. So if you bought and as a booming area, like, I don’t know, Austin, Texas or something. And so this is one that’s historically done well. The prices of homes in that area have been rising for quite some time and as you can s as most people can see, I know I visited there before. It seems like a lot of people are moving in, and it looks like a good place to live, not only just from a livability standpoint. But if you were to live there long term, um, you generally want to see property values growing to get property values to grow, you’d want more growth and more people moving in and, and you know, the city generally improving, you would want a situation like that rather than like something like Detroit.

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Which Investment Type Typically Carries the Least Risk?

When it comes to questions about investing and personal finance, the answers can be so subjective. Asking “which investment type typically carries the least risk” can prompt an answer that “it depends” on who is doing the investing.

You can also get into the can of worms that everyone perceives investment types differently (being better or worse than others).

In this post, contributor Andy Shuler breaks down some of the common investment types that you might be considering, and specifically puts them into the context of a “least risky” type of mentality. We’d love to hear your thoughts in the comments below if you agree or disagree.

risk investment types

A lot of times I’ll talk about ways to maximize your potential gains and that should always be your #1 goal when investing, but the honest truth is that sometimes, having your money in an asset class that might have a lower perceived return is actually the safest option. 

For instance, if the market is getting extremely volatile, moving some of your money into safer funds like a High-Yield Savings Account or CD, or into bonds, might be perceived as less risky. 

But what does “less risky” even mean?  I think to most people it means that there is a lower percentage chance that something negative will happen.  That likely sounds like a pretty obvious answer. 

But I want to challenge that really quick – risk, in my eyes, is doing something that might jeopardize the potential positive impact of a situation. 

So, risk in the stock market can really be viewed as two different ways – is the “risk” that your money is in the market crashes?  Or, is the “risk” that your money is sitting in cash when the market rebounds or takes off? 

Both sound risky to me, and to be quite honest, situations that I would like to completely avoid if possible, as I’m sure you would as well.  Regardless, I am going to list out five investment types that I think are great options to hedge your bets as they carry the least amount of risk of losing their value.

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CD vs. Savings Account: Which will make you wealthier?

There is a time and a place for a Certificate of Deposit (CD) and there is a time and a place for a high-yield savings account.  In all actuality, the two are very similar but they do have some distinct differences that can drastically impact which is most beneficial for you. 

cd vs savings discussion piggy bank

I personally view a CD as being riskier.  Not because the actual investment is risky, but because when you signup for a CD, you’re usually committing to lend out your money for a certain amount of time and given a fairly high interest rate that is usually higher than a savings account. 

The pro is that you gain more interest, the con is that you have to commit to not having that money for a certain amount of time.  In all actuality, the con isn’t a con at all, until you need that money for some unforeseen circumstance. 

On the other hand, a high-yield savings account has no time restriction and in turn has a lower interest rate (and the interest is able to change/variable), usually.  So, it really boils down to this:

Do you place more value on the higher APR or the liquidity of your cash?

Any normal person would say, “sign me up for that CD, and the higher APR, so I can STACK THAT CA$H,” right?  First off, I’m not sure why I said that, because I don’t talk like that lol.  Second, again, this sounds right in theory, until you need that money for something. 

So, let’s run across a few situations and think about where to put that money…

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The Enterprising Investor Portfolio Policy – Ch 7 of The Intelligent Investor

Benjamin Graham defines the enterprising investor as someone who will “devote a fair amount of his attention and efforts toward obtaining a better than run-of-the-mill investment result”.

Now, what are some ways that someone could be an enterprising investor?

Graham identifies 3 types of government bonds that an investor could buy, and 4 different ways that someone could approach buying common stocks. He defines those as:

1. Buying into low markets and selling into high markets

2. Buying carefully chosen “growth stocks”

3. Buying bargain issues of various types

4. Buying into “special situations”

Benjamin Graham; The Intelligent Investor

Let’s take a look at what Graham says about each strategy in the book:

Stock Approach #1 – Market Timing

Graham reiterates that while some people might think they are smart enough to time the market (essentially common stock approach #1), he doesn’t recommend doing it as there’s no real mathematical proof that it could work long term.

enterprising investor the intelligent investor summary

He does allow for the enterprising investor to adjust his stocks and bonds allocation depending on how he feels about the attractiveness of the market, as long as the stocks/bonds mix is somewhere between 25-75.

Stock Approach #2 – Growth Stock Investing

A growth stock is defined (usually) as a stock that has grown earnings and/or revenues better than the market for a period of time. So it should make sense for the enterprising investor to buy a group of the best of these for great profits, right?

Graham identifies two chief problems with buying growth stocks, which so perfectly and succinctly describe why many growth investors have done poorly over the years:

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Real Data Shows What the Best Times to Be Bullish and Bearish Have Been

We know when investors are bullish the stock market tends to go up, and when investors are bearish it goes down. But have you ever wondered when the market was most bullish vs. when it was most bearish?

The answers might surprise you.

Bull and bear markets have ran for much longer cycles than just 1-2 years. It’s been the investors who’ve either held their stocks long enough or found ways to trade very long term trends that have done the best during extended bullish and bearish times.

bullish vs bearish chart

When people think about the bullish and bearish cycles of the stock market, we tend to fixate on the big events. The crashes. The year or two of terror. What we don’t understand is how deep and long these cycles really run, and what that means for the average investor.

Consider this set of stock market data from Sunguard Institutional Brokerage:

AVERAGE ANNUAL REAL RETURNS
–1882-1897 (15 yrs): 3.4%
–1898-1902 (4 yrs): 15.6%
–1903-1921 (18 yrs): 0.6%
–1922-1929 (7 yrs): 25.4%
–1930-1949 (19 yrs): 3.2%
–1950-1966 (16 yrs): 14.1%
–1967-1982 (15 yrs): 0.2%
–1983-1999 (16 yrs): 15.7%

You know how they say that most of the returns from the stock market come on the recovery of a bear market?

This data shows that pretty explicitly.

I see a big takeaway from this data that can help us rather than cause us despair. 

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