Welcome together, we're gonna explore our personal finances and figure out how to improve them. Whether you're just getting started in life on your finances, or you may already have a home and a car payment and you're struggling to get credit cards under control, or you're getting in a later start in life on saving for retirement, Reducedebtincreasewealth.com is a podcast to educate those to improve personal finances, whether it's eliminating debt, or making smart investments. Mr. Chuck here, when I was doing research on what this episode was gonna be about, so I like to try to get a different topic every week so that you don't get bored with going over the same thing over and over all the time. So I like to throw some new stuff. And I in a few weeks ago, I mentioned that your emergency fund could be over funded, his savings account could be built up to the point where you have a lot of money in there, which is good. But in the long term, having a lot of money in a savings account that doesn't pay very much interest is not a good thing. Even if you transferred some of that money and put your emergency fund into a high yield savings, you're only looking at about 1.3 or one and a third percent entrust maybe one and a half if you're really lucky 2% because that rates been going down lately in the last few months. So there is a point where once you have enough money in your emergency fund and you get way more than what you need in your emergency fun which in past episodes I laid out how much you should have in there so I'm not going to go back over that he should look into investing in the stock market. I was doing research for this I kind of came across an article that said day younger people are afraid to invest in the stock market. I don't know why came to conclusion is because they don't understand what's going on and what to do. Also, in a previous episode, I covered hiring a financial advisor to help you make your investment choices and make sure that you are diversified and spread your money around and get into good funds that Oh, are good items that will go up in value over time because the stock market on a historical basis goes up between six to 8% a year, I believe It's around 8% is the average I didn't really look that up but if I from memory that's what I kind of remember. When I was in college I had a, you know, accounting concentration major. So I had to learn about you know, corporations partnerships, and a different entity and how they are funded and, and all that good information that most people don't have. So I want to start out with when I was younger and I started getting too much money built up into my emergency fund. I start looking I need to invest in the stock market, but I didn't know you know, like most people where to go, what to do, how to do it. So I did some research on my own. Through that research, I learned that a stock is ownership and a company so young stock. If you buy common stock, you own a percent of ownership of that particular company. Well, there's thousands of companies, how do you pick which one do you want to invest in? Well, that's where financial planners or financial investors come into play because they know where to go long term short term, your risk level and things like that. common stock company, most companies have only one type of stock, and it's referred to as common stock. And it has voting rights. So if you own enough shares of that company, you can can you can vote and decide who the executive officers are, what their goals and direction they're gonna go and you can you pretty much have control the country. If you own 51% of the stock, there's also another class of stock referred to as preferred stock. investors buy preferred stock because it may have a preferred dividend payout. So it may pay out $5 a share and dividends a year, and the common stock may only pay a few cents. Dividends are usually based on earnings for that particular quarter or a year. There's also companies out there that have a history of paying dividends on a quarterly basis or a yearly basis and they've been doing that for 30,40,50 years. General Electric was one of those companies until recently, I think about a year ago. Their dividend was three or $4 a share so it was a good investment even though the price So the stock wasn't going up a whole lot that the dividends made it a pretty good return. So there's a lot of factors. And the same thing with a preferred stock, you're gonna pay more for preferred stock, if it has a high rate of dividend, or whatever the preference is for that particular stock. And preferred stocks usually don't have any voting rights. So you got common stock, preferred stock, where you can buy into ownership of that particular one company, then that company can also issue bonds. And it's like an IOU from that company. That company in the words mill sell bonds in order to raise money to finance an activity of their business, maybe they need to upgrade their equipment, and they don't want to issue more stock, but they'll issue bonds to pay off some debt they are a incurred and may have a higher rate of interest or to use it to buy make an improvement to the company's assets. Maybe it's a building, maybe it's a machinery and equipment, everyone I'm gonna be different and the bond would pay you a be like $5,000 and matures in 20 years and I'll pay you 3% a year. So it may be a good thing to invest in or it may not be. Then it was also companies that are struggling that are referred to as junk bonds. And junk bonds would be a high risk investment because the company is struggling so they have to pay or they have bad credit. So they have to pay a higher rate of interest. Then you have mutual fund. And what is a mutual fund? mutual fund is a basket of stocks or bonds, it's usually within one industrial segment of the market. So what they do is a get investors you put money into the mutual fund for Pacific and segment of the market whereas large cap small cap, whatever the segment is, and then they go out and buy stocks and multiple different companies within that market segment. So, that spreads out the risk for that market segment where that stock in that one company is maybe a little more riskier because if it's a retail company sells, let's say, JC Penney's, And the retail there's a recession and everybody quits going to JC Penney's, and they start buying at Walmart, the sales go down. So you'll be that stock value probably will go down over time, because he got a higher risk as only one company where if you're a mutual fund, and you're buying retail and you got to spread out all over the retail market, say pennies Walmart, Target, Giant Eagle, Kroger, all the different companies and you got to spread all out. It's going to be a more stable fun because one part of the retail segment may be hurting but another part may be doing good. So you get a best of both worlds all in one investment. And then you have it's referred to as ETF or electronically traded funds, which is just Like a mutual fund, but it's all done by computers. So that's all the basics of what you should be investing in. And my story was I didn't know what to do. I started looking at different corporations, like General Electric or Procter and Gamble. You know, I read that. Maybe you should buy stock in companies whose products you use, I use tide. So that'd be crass. I'd be Procter and Gamble then maybe I should General Electric because they made toasters and small appliances at the time and had other things going on. I don't know maybe I should do and I couldn't decide. So I didn't do anything. So my money just sat there. So over time, I lost out. Eventually I got into a mutual fund. I bought 1 million fun and I put my money in there. I set it up as an IRA, individual retirement account and I put money in there. It was like 1000 a year to 2000 a year. And I build it up and eventually, over time, maybe 15 years or so, my $6,000 money that I invested turned in to like 90,000 Wow, I was doing pretty good. I was happy. So I just let it ride. I didn't do anything. And that mutual fund was one of the largest ones that was in there, it was doing pretty good at first, then it got too big and started sliding, then they closed the fine which means no new investors. But all vendors that was already in there could stay in there and add more money if they wanted to. And then we had the recession in 2008, where the banks failed and stockbrokers fail and it dropped down I believe, to about $40,000. And that's when I got smart and say I can't do this. This is something we need to look at on, you know, least quarterly basis, semi annual basis. So I need to find myself a financial advisor. So that's what I did. I got myself a good financial advisors and we pulled the money out where I had it and reinvest it. And now it's well over 100,000. Again, I don't have to do nothing I just put money in my financial advisor takes care of it. He makes sure I'm diversified. diversified means you spread your investments out over all the market segments, over all the different activities and things that you can do. So and we do that by buying mostly mutual funds, spread out over all large cap small Cap utilities, real estate, all the different things. So if one part of the economy goes down and the other part is still strong, I'm still doing fairly okay and still hitting that seven to 8% return every year. And another thing later on, I noticed you don't want to watch the market day to day today maybe week to week is okay, once a month is okay quarterly is fine. If you follow the market on a day to day basis, you're gonna see the market is going to drop. You know, the news will be on a market drop 90 points, the market drop 150 points. What's the point? Well, points is not $1. So you've actually would have to go into your investments and look how much did I lose today? If you're well diversify, maybe you didn't lose anything, maybe you lost 500 bucks. And the next day, you don't hear anything on the news, but the market goes up 3%. So you made $200. So you got some of that you lost the day before back the next day. So it's up and down, up and down on from a day to day basis. But over the long term, it's just like a bar graph there starts at zero on the left, and it's a gradual line going up to the right. So if you did look at the long term, you just got this long, gradual line that keeps increasing over the long term. And that's what I figured out so I said, Well, you know, we got to put money in the stock market. It's a lot better than a savings account a lot better than a certificate of deposit, a lot better than a money market. Those are also investments certificate of deposit is you go to the bank and you Put in $5,000, or a set amount, I think it's usually 5000 or more 10,000, whatever you got. And they give you a certificate that you have a deposit with that bank and it may pay two and a quarter percent. And it matures in two and a half years, five years, 10 years and they got all different lengths. Right now the rates are so low, you do not want to go long term on a certificate of deposit. You want to keep them three months or six months and keep renewing them over time. Hope that the interest rate goes up. If you lock in 2% rate of return interest rate on $10,000 for 20 years. Five years from now it might be paying 8% now you're losing 6% so you don't want to do that. So that would be a certificate deposit. a money market is the value of a share. Is $1 no matter what happens. So no matter what you do, it's always worth the same amount. So if you put in $5,000, you got 5000 shares, it's always worth $1. And it may pay an interest rate of two and a half percent or whatever the rate is, it pays a little bit more than a certificate of deposit pays a little bit more than a regular savings account. But the reason you want the savings account is because it's considered liquid. You can just go to your bank and pull the money out today and you have it or transfer it to your checking account for an emergency to pay for the repairs of your car, whatever happened and you can your money is there instantly. We're in the stock market. It's not considered liquid because in order to get your money out, you have to sell your investment or one of your investments when used Sally investment, you're gonna have a gain or a loss. If you sell it for more than what you paid for it, you're gonna have a gain. And that's subject to income tax. If you've held it in there for more than a year, I believe it's six months now, at least the six months or longer, then it's considered a long term gain. And it would be taxed at your long term capital rates gain, which is a lot less than ordinary income, maybe depending on your income. If it's in there for less than six months, it's going to be considered ordinary income because it's a short term investment. I believe it's six months now. It used to be a year for years and years. That's why I remember a year but I think that's been changed and it's six months now. Maybe it's been like that for a while. I just, I don't pay attention to it because I use tax. software and it does it for me. I just plug the numbers and it figures it all out for me. So that's that's what I had when I was younger when I decided to do and that's my course of action was I didn't start out with a financial planner early. And so I think that cost me some money in a long term. There's a lot more to these investments than what I covered in this podcast, such as bonds, he can buy them at a discount, or he can buy them at a premium. So before you buy anything, whether it's a stock and an individual company, or you buy bonds and some company, or you buy mutual funds and a particular market segment, whatever you do, do your homework first. Learn about where you put your money before you put your money and to that investment. Now, I'm going to go over the process of investing. How do you buy stocks? If you decided you want to buy one stock, say 100 shares and one particular company, you have the money to do it, you know, it's for long term. How do you do it? Well, you need to have a stock broker, which is companies like Charles Schwab, JP Morgan. Edwards, there's a bunch of them out there. I want to warn you stock brokers don't necessarily have stock brokers usually don't have the best for you in their interest. They're looking out to make a commission because a stock broker makes a commission on what they sell. So a stock broker may say, Well, you only have $5,000 to buy Invest and what that corporation that you pick. That's not a good investment for you. But this one here is a better investment. It's a little bit cheaper and it's going to go up in value. Are you going to take his word for it? Or are you going to do your homework and look into what he's pushing on you? Because maybe he wants you to buy this other investment, because it pays him more commission. You need to keep that in mind. They have their best interest in mind and not your best interest. But you need to have a broker. If you're just getting started. You want to get started with small amounts and don't want to put a whole lot in say you want to put in $50 a month, then that's where these Robo investing. companies come into play a robo investing, I covered it. previous episodes is an app purchases, electronically traded funds, which is a lot like a mutual fund. The fees are low. And the fees in these electronic Traded Funds are generally low because there's no body really working, there are very few people working on them. So that's a great way to get started. And as you build your portfolio up, member, you need to diversify. Don't put it all on one investment, spread it around. And that's where the robo advisors where I call them advisors, really a computer software, you go online, they have articles, they have recommendations, and but you make the final choice or what you want to invest in. So that's how you go about doing it. And if you don't want to have your own stockbroker than that, if you got enough money, say maybe 10 20,000 go find yourself a financial planner, who will charge you based on a percentage of your portfolio. They have your best interests at heart because they're not and they're not making a commission based on what they sell you, they're making a their fees based on how much your portfolio is worth. So if your portfolio goes up over time, going up, meaning going up more than what you're putting in there, like that 8% a year, then their fees are gonna go up over time. So it's their best interest to keep you invested and items that are doing good because they'll make more money down the road. And that's called a fiduciary advisor. So you Want to ask them if you are interviewing financial advisors, ask them if they're a fiduciary advisors. And if they say no, you say thank you and leave and don't even waste your time. And I said in earlier episodes, go to your bank, the bank has their products and their best interest in mind. If you go to an insurance company, the insurance company's gonna push their products that it's good for them. So, I would stay away from there, if you go to a stockbroker, they're gonna push what's best for them. So that's why I recommend either doing it yourself with a robo advisor investment app, or have a financial advisor. So that's how you do it. And then over time, what you want to do is consistently put money into your account, whether it's weekly, or monthly, or quarterly. No matter what the market is doing, you keep putting money in. As the market goes down, you keep putting money in, because it's going down. And that means when you do buy something, you're getting more shares. When the market goes up, keep putting money in. When you buy something, you're gonna get less shares. Don't worry about the dollar amount, look at the number of shares you're gaining. So in a down market is opportunity to buy and up market is opportunity to sell. But if you're doing it for the long term, like saving for retirement Then you don't want to sell when the markets up because it's going to keep going up, it's going to go up six 8% a year. Keep that in mind. If you're looking for a short term investment, there isn't any in the stock market, you should keep your money in the bank, a money market, certificate of deposit. That's short term mid term could be iffy he could go some in the market, some in a savings account. But definitely long term where you're saving for your retirement. You're saving for your children's education. If they're very young, then you can go into the stock market and over time, it's gonna outperform whatever the banks paying. That's pretty much guaranteed. And my show notes I have two articles and investing 101 investing for Dummies. That goes over all this information and will help you get a better understanding. If you don't think you grasp everything through this podcast, then go read my links I have in my show notes, but I'm not gonna be reading articles anymore. I might refer to articles from time to time, but I'm gonna just talk about the subject matter at my pace and my style, and hopefully, my podcast will get better. That's the end of another episode. I hope you found it useful. And if you'd like to share this episode with your friends, please do so. I'm open for any suggestions for improvement or for information that you would like to talk about in future episodes. You can go to my Facebook page and leave me a message more than glad to comply. Find my Facebook page go to reduce debt, increase wealth calm and click on the Facebook icon to go to my Facebook website