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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.




Should Investors ‘Buy the Rumor, Sell the News’?

Have you ever heard the saying “buy the rumor, sell the news?”  I hadn’t heard it before until Dave said it on an episode of the Investing for Beginners Podcast, but the more that I thought about it, it seems like that’s the exact philosophy that so many people seem to have nowadays.

If you really think about it, that’s what a lot of people seem to be doing when they’re buying stock. 

For instance, Fast Money, a show on CNBC, ends every show by saying what their ‘Final Trade’ is going to be. 

The term ‘Trade’ in itself implies that you are treating that decision, regardless if you’re buying or selling, as a short-term decision.

CNBC even has a show where they only talk about trading options which is even more of a risky move where you’re betting that the stock will either increase or decrease by a certain amount by a certain date. 

You have the option to place a put, where you think the stock will fall, or a call, where you’re betting that the stock price will rise, by a specified date.  Again, this is extremely short-term thinking.

While this short-term mindset really seems to be the talk of the town lately, and I think it’s because people think that they’re savvy and can outperform the market (Spoiler, you probably can’t), I think it’s a good thing for us value investors. 

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AOS: Dividend Aristocrat’s Phenomenal 25 Year Track Record

In the most recent episode of the Investing for Beginners Podcast with Andrew and Dave, they talked about some of the companies that have recently been added to the Dividend Aristocrats.  One that really stood out to me was a company called A.O. Smith (AOS) and the AOS dividend. 

If you have listened to any of the podcast episodes before, you likely know that Andrew and Dave really focus on investing of a margin of safety, with an emphasis on the safety.  One part of accomplishing this is finding companies that offer a dividend.

Companies that offer dividends are typically perceived as a more conservative investment as they’re giving you some “cash back” every quarter when they report their earnings. 

Some people will use this as in income stream while some will reinvest that money back into the market, either in that same company using the Dividend Reinvestment Plan or into a different company.

But you know what’s even more of a “sure thing” than a dividend paying stock?  A Dividend Aristocrat. 

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The Information Ratio – CFA Level 2

An investor’s Information Ratio is a measure of the Active Return that is being achieved per unit of Active Risk. The Information Ratio is important to investors because it is one of the best indicators of the skill level of the portfolio manager or individual retail investor.

This article will discuss the calculations of the Information Ratio as well as its interpretations and implications for institutional and retail investors.

How to Calculate the Information Ratio

The Information Ratio can be calculated by dividing the portfolio’s Active Return by its Active Risk. Active Return is the amount that the portfolio return is above that of the benchmark.

Active Risk (also commonly referred to as Tracking Error) is the standard deviation of Active Return which means it is a measurement of the volatility of portfolio returns around the benchmark return.

information return formula
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How to Open an Investment Account for a Child

I talk a lot about the power of compound interest and how time in the market is better than timing the market, and I feel like I’ve shown some good examples, I really outline a great example in this post that shows the value of investing early and why you should start as early as you can.  I even touch upon the fact that you should Open an Investment Account for a Child if you can, but you should be sure not to do this at the detriment of your own retirement. 

If you want to pay for your kids’ education, you should start as early as you can – and the data shows that!

Below I’ve shown the impact of starting early with five different scenarios that show you should start as early as you can.

Click to zoom
  • The first scenario is simply a base scenario where you put in $50/month from birth and receive an 8% Compound Annual Growth Rate (CAGR), which is fairly conservative as the average CAGR since 1950 is 11%.  Try to view this as a “control” like you might think of from a science experiment.
  • The next situation is the exact same, except you’re starting with $1000.  So, starting with $1000 in your account will give you more than $4000 in 18 years when that child goes to college.  That’s some pretty serious motivation to start early.
  • Next shows that if you start 5 years before the child is born, you only have to put in $31/month to have the about the same amount of money when that child goes to school.  And, you actually put in $2,244 less than you would in the first example as $31*12 months*23 years = $8,556 total saved vs. $50*12 months*18 years = $10,800 total saved.
  • The fourth example shows that you would have to save $100/month if you started when the child entered first grade.  This would cause you to have to save a total of $14,400 ($100*12 months*12 years).
  • The last example is if you were a procrastinator and waited until they entered high school, and this would require you to save $425/month, which would result in you needing to save a total of $20,400 ($425*12months*4 years).

I mean, I think the data is pretty obvious, save as much as early as you can and invest that money and you’re going to be much, much more prepared for your future.

You might be wondering how much college really costs nowadays, and it’s going to blow your mind, so I’ve included an amazing chart below that shows the average cost of tuition for both in and out-of-state students by state, as well as how that tuition has changed, provided by the CollegeBoard website.

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IFB121: Analyzing the Growth of a Stock Pt. 1

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 walk up to Investing for Beginners podcast. This is episode 121 tonight. Andrew and I are going to talk about Benjamin Graham and growth. Andrew has been on a bit of a Ben Graham kick lately. He’s been writing some great blog posts about some of the stuff that he’s been discovered in the intelligent investor as well as security analysis, and we thought this would be a perfect time for us to talk a little bit about growth and Ben Graham, we teased this a little bit a few weeks ago and tonight is the night, so Andrew, why don’t you go ahead and start us off and we can have our little conversation.

Andrew:                              01:08                     Yeah, thanks, Dave. I think it’s always a good idea once you are established and you have a good base of knowledge when it comes to investing, and I think it’s good to reread stuff because now that you have a new context, you have a greater understanding. You can pick up things I didn’t pick up the first time. So you know, a few select books, whether that’s Benjamin Graham, obviously a huge, he’s an investing legend. Not only was he Warren Buffett’s mentor he taught Warren Buffett at Columbia. He also had his investment funds, and we return 17% per year. Quite a nicest performance. And I think it was over like 30 years. So not only was he a great teacher, but he also walked the walk and made some fantastic returns. And so his books his most popular one, the intelligent investor, that one’s probably one of the best selling investment books of all time.

Andrew:                              02:08                     That one’s recommended by many, many people. Security analysis is one of those that are literally like a textbook. I’m holding it in my hand right now, and it’s 700, almost 800 pages. They’re just reading it. Like I, I will admit, I haven’t read the entire thing through. There’s some stuff in there that’s outdated. There’s stuff on bonds which isn’t applicable. So, you know, it’s one of those like I kind of think of it like the Bible where I don’t even know pastors. I’ve read that all the way through. Right? But you pick different parts of it, and you try to learn the best you can and try to take the best parts. So while I think of security analysis, I think of that. And so I found a couple of things when I somehow I stumbled on this rabbit hole, and I found some things he talked about with growth that I never really noticed before.

Andrew:                              03:09                     And I think when people talk about Benjamin Graham, you know, when we’ve talked about Benjamin Graham, it’s always margin of safety, a lot of talk on the price, the valuation of a stock the price to book ratio, you know, buying stocks with more assets rather than less because asset values tend to fluctuate less than earnings, right? The fact that Mr. Market is irrational and the stock market can price things wildly different depending on how it feels at any given day. And that’s another concept popularized by Ben Graham. But you know, he did write some stuff about growth, and I don’t see it talked about much and I think it’s something that we can learn from. The thing with growth, and I think we got to tread carefully here, is there are so many different ways to talk about growth and to think about growth.

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Philip Fisher Growth Investing Process Breakdown – Chapter 10 Summary

In this summary of Chapter 10 of Common Stocks and Uncommon Profits, we are able to drill down into some classic Phillip Fisher growth investing tips. 

When it comes down to it, there’s really two things that you need to do, but first you need to understand that there is no shortcut to finding a good growth stock. 

There are literally thousands of stocks and it takes time to go through them all and find one that is worthy of your hard-earned money. 

So, how does Fisher actually find a company to invest in?

For Fisher specifically, he talks about how about he gathered his leads of what companies to invest in. 

20% of the companies that he looked deep into came from business executive/scientific classroom leads, or in other words, industry/investment experts. 

But, that 20% grouping of companies only generated 16% of his profits, so in other words, they under performed the remainder of his portfolio by 4%. 

On the other hand, the remaining 80% of companies that he looked into accounted for 84% of his portfolio’s profits, so it was performing stronger than the first 20%. 

That 80% grouping of companies came from many men that Fisher recommended in the business world – maybe they were very experienced or maybe brand new into the business but had a great train of thought.  It likely was from people in his “inner circle” that were very close to trends that were going on in a certain industry or a certain company. 

He preferred these types of people because he could usually get to some of the key points that he was interested in faster than your normal investment banker – and the answers were truer and less “political”. 

In other words, Fisher is trying to say that when he would trust those that were close around him for ideas of good companies to invest in, it typically resulted in better profits for him, rather than listening to some “industry expert” about a certain company.

So, now you’ve found some companies that you want to investigate – what should you invest in? 

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Stash vs. Acorns: Side-by-Side Investing Apps Comparison

Not long ago, I wrote an article really breaking down everything that you might want to know about the Stash app .  As I was writing the article, a lot of the benefits of Stash sounded like a popular app called Acorns, so I really wanted to break down the two different applications and do a comparison, Stash vs. Acorns.

As I mentioned, I recently wrote a really in-depth article about Stash, so I want to focus more on the Acorns app and then do a pros and cons in this article.  So, let’s go!

money apps

I first heard about the app for Acorns when I was watching an episode of Shark Tank and I thought it was a genius idea. 

Essentially what happens is that if you purchase something for $3.20, then Acorns (and Stash) can round up that purchase so it costs $4, and they put that extra $.80 into an account that you can invest in. 

I think it is truly amazing.  You are forcing people to invest that clearly want to invest (because they’ve downloaded the app) but they might not be good at sticking to a budget, so they have no money at the end of the month to invest.

Personally, I didn’t think that it would benefit myself at all, because I am the person that has a very strict budget, and at the end of the month, that leftover money will be redistributed into either savings or investment accounts, so taking out change here and there throughout the month doesn’t really benefit me, because I do that already. 

The person that this really does benefit is the person that thinks whatever is left in their bank account is how much money they have to spend.  And then they literally spend everything that’s in their account. 

So, what do people really get with Acorns, and how much does it cost?  Let’s take a look below:

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Float: How Insurance Companies Can Leverage Buffett’s Secret to Wealth

In the insurance industry, “other people’s money” is known as float. In a shareholder letter, Warren Buffett once said that that float “had cost us nothing, and in fact has made us money. Therein lies an accounting irony: Though our float is shown on our balance sheet as a liability, it has had value to Berkshire greater than an equal amount of net worth would have had.” Translation: Float is good.

Mentioned more than once in Warren Buffett’s shareholder letters, insurance float is the bread and butter of his wealth. He has used these monies to create his vast empire and allow him to invest in or buy outright great companies like Geico, American Express, Coca-Cola, Wells Fargo and recently, Apple.

What exactly is insurance float and how do we find such a thing, and what does it mean to us as investors? And why does Warren Buffett like it so much?

In today’s post, we will discuss that and much more.

What is Insurance Float?

We are all familiar by now with the terms premiums and claims, they are both the money that we pay every year for an insurance policy, and the money paid back to us when we have an accident, medical, or other circumstances.

But do you know what happens to the premiums once sent to the insurance company?

Insurers don’t pay out all the money right away. Instead, an insurance company will collect money in premiums, invest that money, and pay out claims as needed in the future.

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The Requirements and Steps to Using a Mega Backdoor Roth IRA

Chances are, you might be familiar with the term ‘Backdoor Roth IRA’, but what if I told you that there was a MEGA Backdoor Roth IRA? 

WOAH! 

Doesn’t that sound just so much better?  I’m having flashbacks to middle school where everything I described started with mega, super, enormous, or another adjective where you were about to hear a hyperbole.

But this is different!  This actually is a mega backdoor Roth IRA.

So, let’s start with some of the basics – first, what is a Roth IRA? 

Personally, I am a huge fan of a Roth IRA as you will probably be able to pick up by the end of this post.  Hell, you could even call me a ‘stan’ if you wanted to, since that’s what all of the kids say nowadays, which is essentially just a superfan, but I digress. 

A Roth IRA is a form of a retirement account where you can input post-tax dollars that will compound interest free and then you can withdrawal them at the age of 59.5 without any penalty and tax-free. 

If you want to compare some of the differences for an IRA and a 401K, you can read about that here.  A Roth IRA does have some stipulations though, like you can only input $6000/year (as of 2019) and that there is a maximum amount of earned income that a person can have to be eligible to contribute to the IRA. 

For instance, in 2019, this limit was $122,000 for an individual for full contribution, anything $122,000 – $136,999 was a partial contribution, and anything $137,000+ was ineligible to contribute. 

But – what if there still was a way that you can contribute? 

Spoiler – it’s called a backdoor Roth IRA.

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IFB120: 4 New Companies Added to the Dividend Aristocrat List for 2019

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, well welcome to Investing for Beginners podcast. This is episode 120 tonight Andrew and I are going to talk about about the dividend aristocrat list, and there were four new companies added in 2019, and we wanted to take a little brief overview of those four companies to kind of fill you in on some of the companies are added to that list. So for those of you who are not familiar with what a dividend aristocrat is, a dividend aristocrat is a company that has been paying a growing very key growing dividend for 25 years is listed in the s and p 500 and has met certain liquidity and market cap restrictions. And there are 57 companies I believe, that are considered dividend aristocrats right now. And there are also dividend kings, but where those are 50 years or more. But tonight we’re going to talk about dividend aristocrats. These are the more popular ones, and these include companies like Disney, Hormel, things of that nature.

Dave:                                    01:36                     So these are great companies that have been paying a dividend and growing dividend for 25 years. And these are some companies that could be fantastic investments for you if you know when to get into them and what to look for in the companies. Now keep in mind, these are, some of these companies are not always going to be great investments. They could be overvalued at a particular time. So they may not be the right thing for you to invest in, but they certainly would be worthy of putting on a waitlist or a watch list to keep your eye on in case the market takes a downturn, and you would have an opportunity to buy into some of these when they would be cheaper for you. So without any further ado, why don’t we go ahead and chat. Andrew, why don’t you talk about one of the first companies?

Andrew:                              02:21                     Yeah. So what, so first of all, what I find interesting about like the dividend aristocrats lists in general, you mentioned there’s 57 of them. So if we do some quick back of the Napkin math on that, there’s what, 500 companies in the s and p 500 now? I don’t know if all of the dividend aristocrats. Oh, they are. Okay. So first off, dividend, the rest of [inaudible]. That term itself is kind of, and there’s no like official thing behind it. It’s just something that kind of got popular. Secondly, I believe that the definition based on what my sources here say they are s and p 500 companies. So if you kind of think about that, that math 50 out of 500 we’re talking about 10% of the s and p 500 give or take is a dividend aristocrat. So I find that to be very inspiring because it kind of shows that it’s not this mythical creature.

Andrew:                              03:18                     It’s not like a year Unicorn. The these are though it’s not every company like Dave said, and though, you know, some of this, yeah, we’re looking at it with hindsight, and so it might’ve been better to buy these earlier than later. The fact that such a large portion of it, relatively of stocks we’re able to do this I think is very, very encouraging. I think it’s very reasonable to think that as an investor and the average investor who, who’s looking at stocks, that you could have a couple of these in your portfolio. You could maybe pick one that continues to be on that list 10, 20, 30 years from now and pick stocks that haven’t made it yet. But we’ll make it Disney is one of those or they; they’re, they’re not on the list, just so we’re clear. But a Hormel Coca-Cola, Proctor, and Gamble, the kind of stocks we do talk about all the time, those are on the list and have crane of fantastic rewards for shareholders.

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