Welcome together, we're going to 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, a car payment, and you're struggling to get credit cards under control, or you may be getting a late start in life on saving for retirement, reduced debt increase wealth.com is a podcast to educate those to improve personal finances, whether it's eliminating debt, or making smart investments. Mr. Chuck here, in this episode, I talk about investing. And I'm going to focus on investing for beginners and investing for dummies a previous episode, I talked about the basics, what is stock, what's bonds, different types of investments, what to do in financial advisors, just the basics, with investing for beginners on I going to assume that you got your credit card debt under control, you got emergency fund build up, and you're building up some extra cash. And your first investment opportunity should be into a high yield savings account. He can go online and Google that just look for a high yield savings are generally an online bank, they're gonna pay a higher rate of interest and then your local bank, or you have your checking account and your current savings account. You want to build up at least four to six months worth of expenses. So something bad would happen, and you would have money to get by on for that period of time, the very basics of investing would be a high yield savings account, well a savings account to start with, then a high yield savings account. And maybe if you get five or $10,000, a certificate of deposit, and you should go short term on that, because interest rates are so low, the only way they're gonna go would be up. So you want to keep it short term for now, or a money market account, or the your shares always worth $1. And they may pay a little bit higher rate of interest and investing creates money for your future. So it's important for new investors to understand the basics about various types of financial products, including stocks, bonds, certificates of deposit and mutual funds. And those type of things that we talked about in the past episode in vesting for Dummies. What kind of investing is right for me, as well as it's important to determine why you're investing in your investment goals will dictate what you invest in, and how much money you invest and for how long factors to consider when investing your age and your income, your financial goals, your risk tolerance and your time horizon. So if you're going to be investing for retirement, and you're 30 years old, you have plenty at times you can assume more risk and most people invest with retirement of mine. Simply put retirement savings is expensive. And it can easily spend $1 million during 20 years in retirement. According to many financial experts, experts, investing now as a smart and simple way to reduce your chances of run out of money after exiting the workforce. And you cannot rely on so security to get you through retirement. It's all it's not intended to replace 100% of your income. It's only intended to replace 50% of your income. If you're used to making 200,000 a year and you got to get by on 100,000 a year Can you do that? That's why you invest and there's other reasons to invest too. And as smart and simple way is to make more money. He can invest on a shorter term for your children's college education, for starting a business or for buying a home. And the financial market offers various investment vehicles including stocks, bonds and mutual funds, which eats offers unique benefits and risks. With that said, we talked about mutual funds and that's why I go mutual fund is a fund that invest in a whole bunch of stocks in that industry group, such as retail. If you want to buy Sears, for example, you if you buy that common stock of Sears, you only buy in one retailer, a few buy and a mutual fund and they're gone to be buying stocks and all the different retailers Walmart, Sears, Target, Kohl's, I can't think of any other ones. But the me across the board a retail investment. Being a smart investors meeting have a good grasp on your own risk tolerance. certain financial products, such as stocks are riskier than others, such as bonds and s because there's no guarantee of profit when you buy stock. If a stock company performs poorly or falls out of favor, whereas investors, his stock can drop and you can lose money. Other investments such as government bonds and certificates of deposits are considered safe because they're often federally insured and ever returned from these investments are much lower as compared with stock. Thus, the key principle investment is striking the right balance between risk and reward. A balance the first of five portfolio should include a mix of both low risk and higher risk investments and timing is everything. Patience is key for new investors, long term investments are more likely to yield higher gains. That's because your investments need time to grow. They also need time to adjust for the ups and downs of the market. on any day, stocks can plunge. Sometimes the economy takes it downtime for months or years. If you sell stocks, when the market dips, you stand to lose a substantial portion, part of your investment over time, investors who had thought that set it and forget it mindsets are more likely to come out ahead of those who get in to the fear caused by market fluctuations. Think of this, the market is up and down, up and down. It's like if you just take your finger and go up five inches, come down five inches, and then go down another 10 inches and go back up 10 inches then up another 10. Up Down Up Down highs, lows, highs lows. But over time, if you would plot that out on a graph, it would be a steady rise over 20 years. And that steady rise would be around seven 8% a year. Now there's going to be some years where you don't have any increase of six or seven 8% there's gonna be some years where it's gonna be 20%. And but over time, if you average that out, it's gonna be somewhere around 8% movement of the markets and investing early gives you an advantage and compound is another reason to leave your investments alone. compounding interest occurs when you start earning money on the money your investments have already earned. It says essentially a snowball effect. So what they're saying is you bought an investment, it paid your dividend or interest and you put that of dividend interest back into that investments. A year later, it pays your dividend interest again. So you're getting interest or dividends on the interest or dividends that you already earned. So that's why they call it the snowball effect. The earlier in life. You start doing this, the more your earnings are gone to increase the more your portfolio is gonna increase. A portfolio is the makeup of all your investments of what you have. So the sooner the better. As you approach retirement, however, you should take fewer risks because it could jeopardize your nest eggs. So this is the age factor. When you're young, invest in things that are more risky. As you age, your eyes are starting to shift Your investments to a more moderate than a more conservative, so the less risk you're taken. When the time comes, you need that money. You don't want to have it in a instrument that's extremely risky in case the market drops, and the market could stay down for six months, then we got to do. A concept is simple subtract your age from 120. The resulting number is 2% of your money you should place in stock, the rest goes into bonds. That's the 120 rule. For example, a 30 year old would invest 90% in stock and 10%. In bonds, a 50 year old when the other hand should have 70% in stocks and 30% in bonds. It's important to note that these investments do not include your emergency savings account for natural planners suggests allocating three to 12 months of take home pay to savings for emergency, such as job loss. And if you're retired, you need to have at least six months money in a savings account. So if the market drops on, yeah, you don't have to sell investments to live on. How much money do I need to start investment? Well, that is a good question. If you're looking to have help with your investments from a financial advisor, you might need at least $1,000 or $5,000. That if you have a 401k through work, or if you set up a retirement on your own, you may already have enough money to get a financial advisor or planner interested in taking you on as a client, because they could look at that 401k that you have at work even though you're limited options of what you can invest in and they can help you decide which of those investments may be a right fit for you and your goals. Many been in all financial products have a minimum deposit requirements, you may need less money than you realize to start investments. While contributing to an employer sponsor 401 K plan is a great way to start invest in. Other options exist if you're a beginner or tight on cash. robo advisors, such as the betterment and Elvis offers zero account minimums likewise, investment apps such as acorn requires $5 or less to begin investing. I never used those, those to betterment and Elvis and I've never used a coin, I do use a robo advisor on my own, because you can download the app, five bucks and you started going there's many of them out there. So you want to look and see which one's better for you. I think I talked about that in an earlier episode on robo advisors. If you go to a stockbroker, I just want to give you some fair warning, such as Schwab, Merrill Lynch, and other brokers, this swab is to Charles Schwab, they're gonna charge you a fee. And they're gonna have a minimum amount. And it may be more than what you have. And then every time you buy or sell an investment, they're going to charge you a commission. So you want to be aware of that. If you use a financial advisor, they generally get you with a broker through them, and you're not paying the fees. You're just paying your financial advisor a percentage of the value of your portfolio. And I've talked about that in the past. Also. What if I have lots of cash but no investment experience and just because you're new to investment doesn't mean you're tight on money. Maybe the lucky recipient of an unexpected inheritance or your small startup finally made it big. Maybe you hit a casino jackpot or just won the lottery. Investing is crucial for maintaining wealth, as it is for growing wealth. Lots of cash sitting in your bank account loses value over time due to inflation and a concept called the time value of money. Martin investors can help you lessen your tax burden, earmark money for your heirs and safeguard yourself against economic uncertainty. Experts strongly suggest consultant an accountant or financial advisor. If you're recently received a large windfall that have little or no investment knowledge, a good planner can help you explore your options and discover the right solution for you and your family. I'm gonna say an accountant is only for tax advice. For investment advice, you should go to a financial advisor, a financial planner, that's one in the same thing. Because they specialize and investing money for their clients in the market, based on your risk tolerance, based on what you have, based on your age, and based on your goals, everything that we stated above mutual index and exchange traded funds. Instead of buying individual stocks and bonds a mutual fund allows you to purchase small pieces, many different assets in a single transaction. These investments, vehicles pool your money and other investors money. Mutual funds are typically overseen by a portfolio manager, index funds and exchange traded funds or ETF are certain types of mutual funds. When you buy an index fund or ETF, you're essentially purchasing a share of the future profits of all major corporations. And that's because these funds tracking and debt such as the s&p 500 so if you buy an s&p 500 index fund, effectively purchase small pieces of ownership and 500 of the largest US companies, mutual funds are considered good investment for beginners because they professionally managed, it saves time. And because mutual funds and index funds are diverse in nature, they are generally less risky than individual stocks. And then that's what I do. Even investment billionaire Warren Buffett has repeatedly touted low cost index fund investing as the thing that makes the most sense practicability all of the time, the risk of investing in mutual fund is determined by the underlining performance of the stock bonds and other investments held within the fund. No mutual fund can guarantee its return and no mutual fund is risk free. Remember, Warren Buffett is a long term investor, he says using bigger and bigger dollar amounts, bigger numbers. And he's buying stock and proven established companies. And that's what he's always done now. Just recently, he's gone little astray from that. I'm sure he has a reason. bonds and CDs, bonds, Certificate of deposits or CDs, are considered safe investments both offers only modest returns that carry little or no risk of principal loss. If you have a good financial advisor or financial planner, and you have a very low risk tolerance, or say you're 59 years old, and you're going to retire when you're 62. And you came in to $3 million of inheritance, hate that financial planners should be invested in that and a way to preserve your capital. It may not have a big yield, it may not have any big gains that you have, you should be beating inflation of two or 3%. But the money is still there, and you're less worried of losing that preserving your capital. There are three main bond types corporate monostable US Treasuries. Right now, none of them are paying a very high rate of interest. And if he can do it, you know, 10% a small amount. I'm not too excited about that. I don't follow it. I don't buy individual stocks. And because if you buy individual stocks you're buying into one company. That's why I always lean towards a mutual fund because it's many companies In the same type of industry, large cap small cap grouping, however, they are dividing up the market stocks and tax some Texas do only when you sell investment stocks, for example, at a profit, other taxes are due when you investment pay your distribution, also known as a dividend. investment tax is complex, but understand the basics can get you started. So when if you buy stocks or mutual fund, and it pays you a dividend, those dividends are taxable. Even if you're reinvested dividends 100%. You need to have a substantial amount of money invested before you get a lot of dividends, that's gone to really affect your tax return. That's where if you have somebody do your tax return, they can explain that to you. capital gains tax, you don't pay tax when your price stocks go up. And taxes are only owed when you sell investments for a profit. This applies not only to stocks, but other investments too, including profits from the sale of bonds, mutual funds and ETFs. So this say you bought a mutual fund five years ago, and you only put $1,000 in there and you hadn't added anything but you've reinvested all the dividends. Today, five years later, it's worth $5,000. As long as you don't sell it, you don't your gain would be the value of it, what you sell it for $5,000 less what you paid for it $1,000. So you'd have a gain of $4,000. That gain is not realized. So that would be considered an unrealized gain, until which time you sell the stock, the mutual fund, if you sell the mutual fund today, you're gonna have a realized gain of $4,000. Because you're going to end up with $5,000 in your pocket. So there's an unrealized gain, and there's realized gains. And that's terminology for taxes. You're not going to pay any taxes on any unrealized gain or capital losses or capital losses when you sell investment for less than what you paid for. beneficial for tax purpose because capital losses can be used to reduce your capital gains tax. In other words, if you sell one stock at a $3,000 profit, but so another stock at a $2,000 loss, you'd only be taxed on$1,000 difference. And that thousand dollars is not going to be taxed at your ordinary income is going to be taxed at 25% or your dividend taxes. Money you received from dividends is going to be taxed as ordinary income. And whatever rate your tax bracket is at that point. annuities and times the market uncertainly more people are turning into a nudies for added security and retirement planning portfolio. annuities technically aren't investment products. They're a type of policy issued by an insurance companies that designed to grow your money for retirement, and nudies are highly customizable. common types in annuities include fixed annuities, which provides a stable payout or variable annuities which fluctuate based on market changes. It's an insurance product, remember that if you buy an annuity, there's penalties if you want to get out of it too early. He generally had to put money in there years ahead and let it grow. I'm not a big fan of annuities. That's all I have to say, micro investment apps microvessel mass. There are apps that where you can invest money in small amounts, which are kind of like a robo investor. Same thing. We can start with small amounts of money and make the say and make a deposit every pay period of five bucks or $10. So it's a way to get started and start getting money in the market and you'd be surprised how fast you know five or $10 a pay will grow and before you know it, you'll have to think 5000 $10,000 in there. So it's a good way to get started, you can always sell them all, transfer it and have a financial advisor to help you. Once you get to say 50,000 or more money, you're probably wondering, because I hadn't told you yet. And all the episodes I've done and what to invest in, I told you different types of investments, such as mutual funds, stocks, bonds, and electronic traded funds, EFT, etc. But I didn't give you anything about what to invest in. Well, that's going to be up to you as the individual investor, you need to figure out based on your age, your income and length of time and your goals and what and how your investments should be made. If you use a robo investor, and they're gonna have an education based section within the app, so you can read, study and learn on how to make investments, what investments to make everything that you need to know to be successful. And that's what I like about the robo investor is they do have fees that are not that high. And he can start with a small dollar amount and they give you a lot of information that you can learn over time. And you can start making small investments, you're buying fractions of a share. And if you get too heavy in one thing, they usually give you warnings or tips of advice and to guide you a little bit. So you don't make a major blunder mistake in your investments. You need a car around to different financial advisors, some are willing to work with startup investors, other ones are not you would need a minimum of say$50,000 to get started with some of these advisors. Not all of them, but some of them. The article I use for this episode is from a nudie.or Financial Literacy investing for beginners and you can get a link for that article in my show notes. If you go to reduce debt increase wealth.com. 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. I am more than glad to respond. To find my Facebook page go to reduce that increase wealth.com and click on the Facebook icon