Investing 101: A Beginner's Guide

Introduction

• Investing is about allocating money to earn more in the long run.
• The lecture covers:
  • Why invest?
  • How to invest.
  • What to invest in.
  • Basic strategies.
  • Frequently asked questions.
  • A live investment example.

Why You Should Invest

• Purpose of Investing:
  • Make your money work for you.
• Savings Account vs. Investing:
  • Savings accounts at banks (e.g., Chase, Wells Fargo) offer low-interest rates (0.01% - 0.15%).
  • Example:
    • $1,000,000 at 0.01% earns $100/year.
    • At 10%, it earns $100,000/year.
• Compound Interest:
  • Interest earned on initial principal and accumulated interest.
  • Example:
    • $1,000 at 10% becomes $6,727 over 20 years (growing due to compounding).
• Inflation:
  • U.S. inflation target is around 2% per year, but recent rates have been 6-8%.
  • Inflation reduces purchasing power; investing helps counteract this.

How to Invest

• Types of Investments:
  • Stocks: Investing in companies.
    • Returns depend on company performance.
  • Real Estate: Property value increases over time (appreciation).
  • Collectibles: Items like Pokemon cards can appreciate significantly.
• Investing in the Stock Market:
  • Focus on stocks for better long-term returns.
  • S&P 500 Index:
    • Represents the top 500 U.S. companies.
    • Historically, returns are 8-10% per year.

Understanding Investment Trends

• Market Trends:
  • The S&P 500 has generally increased over time despite dips (e.g., 2008 crash).
  • Holding investments long-term typically yields profits.

What to Invest In

• Index Funds vs. Individual Stocks:
  • Individual stocks can be volatile and require active management.
  • Index funds are passively managed, tracking an entire index (e.g., S&P 500).
  • Index funds provide diversification and lower fees.
• Ticker Symbols:
  • Unique identifiers for stocks (e.g., AAPL for Apple).
• Diversification:
  • Investing in index funds spreads risk across many companies.

Risk Tolerance and Investment Strategy

• Assess your risk tolerance before investing.
• Younger investors can take more risks due to longer time horizons.
• Consistency in investing is key (set aside a portion of income).

Accounts for Investment

• Retirement Accounts:
  • 401(k), IRA, Roth IRA, etc.
  • Offer tax advantages but may lock funds until retirement.
• Brokerage Accounts:
  • Taxable accounts for general investments (e.g., Fidelity, Robinhood).

Starting to Invest

• When to Start:
  • Start as soon as possible, ideally after clearing high-interest debt and establishing an emergency fund.
• Initial Investment Amount:
  • Invest based on a consistent income; better to invest after building skills and generating income.

Live Example: Buying Shares

• Using a Brokerage App:
  • Select an ETF (e.g., VOO) that tracks the S&P 500.
  • Place a market order for shares or dollar amounts, confirming the trade.

Conclusion

• Investing doesn't have to be overwhelming.
• Focus on index funds, understand the basics, and start investing early.
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