basics of investing

How to Avoid Stock Investment Hype

February 17, 2021 By Vicky Monroe Leave a Comment

Recently it’s been hard to avoid stock investment hype. Everyone’s been talking about how amateur Reddit investors drove up the cost of GameStop stock and beat Wall Street.

Financial websites gave daily updates on the situation and tried to predict which stocks were next. Many people invested their hard-earned money into GameStop and other popular stocks like AMC at the top of the market hoping that they would continue to go up.

GameStop stock has fallen from nearly $350 a share at its peak to only $50. Given that the company closed 462 stores in 2020 and was struggling before this recent surge, it’s unlikely that GME will go back up.

AMC has also fallen back down to $5.65 after its rapid rise to $19.90 per share on January 27th.

Although some people made thousands of dollars off of GME and AMC because they got in early, it’s likely that many more lost money. The reality is that by the time you’ve heard about a stock, it’s usually too late to invest and still make a profit.

Why You Should Avoid Stock Investment Hype

If you pay attention to stock investment hype and allow it to influence your decisions, you’ll probably end up losing money.

By the time media outlets are covering a particular stock, it’s typically already at its peak because so many people have bought in and driven up the price. Getting in at the top of the market means that you’ll lose a lot of cash when the hype is over and the price of the stock falls back down to normal levels.

If you invested in GME or AMC and didn’t turn a profit, the good news is that you can deduct your losses to offset your income taxes up to $3,000.

But if you want to build real wealth instead of losing money on risky investments, here are some steps you can take to avoid stock investment hype in the future.

How to Ignore Investing Hype

The best way to avoid stock investment hype is to stay offline.

Amateur investing forums like WallStreetBets encourage people to spend money on volatile stocks and assets, which won’t help you grow your money long-term.

For most people, building wealth takes decades and involves diligent saving and investing in vehicles that track the market like low-cost index funds. They’re typically a much better bet than risky, overhyped stocks.

It’s usually not possible for the average person to beat the market by day trading individual stocks. Even Wall Street investors who have access to lots of financial analysis tools often have a hard time outperforming the S&P 500.

In fact, in two 30-year studies, the S&P 500 outperformed fund managers 97% and 94% of the time respectively.

Trading stocks can be fun and exciting, but there’s a chance that you’ll lose most of your money. So I tend to view day trading as a form of gambling.

I only put around $20 into my Robinhood account so I could try my hand at day trading as a hobby. Although the recent hype around GME gave me a little bit of FOMO, I don’t plan on putting any more cash into Robinhood.

I know that the best path to wealth is lower-risk investments that track the S&P 500, so that’s where most of my money will be going.

If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.
Check out these helpful tools to help you save more. For investing advice, visit The Motley Fool.

Save and Invest Like This to Become Financially Independent

January 18, 2021 By Melissa Batai Leave a Comment

Unfortunately, many Americans feel obtaining financial independence is impossible, so they don’t try to achieve it. Instead, they live day to day, buying their cars, furniture, clothes, and everything else on credit. They have debt and think that it’s just a way of life. But it doesn’t have to be. If you want to live differently, save and invest like this to become financially independent.

How to Save to Become Financially Independent

One of the first steps on the path to financial independence is to stay out of debt. However, that’s not enough to get you where you want to be in a few decades. You must also learn to save regularly. Try these strategies:

Always Pay Yourself First

If you put money in savings whenever there’s leftover money, you’ll probably never put money in savings. Instead, flip that way of thinking. Save money first. When you start saving, go ahead and start small. Maybe you only set aside $20 per paycheck. The important quality here is establishing a habit of saving. As your finances improve and you earn more, start saving more.

One of the best ways to save is to use an app that automatically saves. Here are some apps you can use. Start by signing up to one of these and it’ll change your financial situation forever.

App	Fess and minimum:	Best for:
Digit	30-day free trial period. $5 per month	Setting aside automatically
Acorns	$1 per month	Spare change investing.
Qapital	$3 membership	Letting you set rules to automate savings.

Make Some Sacrifices

Financially Independent — Photo by Wynand van Poortvliet on Unsplash

For many people, achieving financial independence requires some sacrifices. For instance, for the first 14 years of our marriage, we had only one car. My husband took the train to work every day. Sure, doing that was sometimes inconvenient for him, but we saved so much money not paying for a second car and the additional insurance premium, maintenance, and gas. If we ever move to a location with good public transportation again, we’ll likely go down to one car again.

Delay Gratification

In addition to making sacrifices, those who achieve financial independence also learn to delay gratification. You’ll likely not make too many impulse buys. If you want a new dishwasher, for example, you’ll save to pay cash and take the time to shop around and pay the best price. If you want a nice new car, you might way a decade or more to buy it, instead driving the car you currently have until it dies. That’s okay. Once you achieve financial independence, you’ll find your sacrifice and ability to delay gratification worthwhile.

Create Sinking Funds & an Emergency Fund

One of the most important things you can do to keep yourself out of perpetual debt is to create sinking funds and an emergency fund.

Sinking Funds

Sinking funds should be set aside for the yearly and semi-yearly expenses like house insurance, car insurance, property taxes, HOA dues, and other budget items that are paid ever six months or yearly. Likewise, you should have sinking funds for random expenses that don’t occur at a set time such as medical bills, car repairs, home repairs, etc. When you create these funds, you can easily pay the bill when it’s due without it affecting your regular monthly budget.

Emergency Fund

When you have sinking funds, when you’ve planned for the irregular expenses you face every year, your emergency fund can then be used for true emergencies. Depending on the stability of your job, experts recommend that you have three to six months’ living expenses in your emergency fund. This fund is only used for true disasters such as job loss or medical bills should someone in your family face a serious illness.

By having both sinking funds and an emergency fund, you buffer yourself from the unexpected expenses that can derail so many budgets.

Try These Savings Apps

App	Fess and minimum:	Best for:
Digit	30-day free trial period. $5 per month	Setting aside automatically
Acorns	$1 per month	Spare change investing.
Qapital	$3 membership	Letting you set rules to automate savings.

How to Invest to Become Financially Independent

While saving is important, investing is equally important on your path to become financially independent.

Use Apps

Be smart. Use these apps to get you started on investing. Some of these are for beginners while others are for seasoned investors. Start by signing up.

Platforms:	Fees and Minimum:	Best for:
Robinhood	Free	Beginner investing
Acorns	$1 per month	Spare change investing
The Motley Fool	$99 for the first year.	Stock advising

Start Early

The single best thing you can do to become financially independent is to start investing early. Teens can even invest in a Roth IRA if they have a regular job. The amount you need to invest, should you start at a very young age, is much less than if you start investing twenty years later. However, if you are older and haven’t actively invested much, now is the time. There’s no better time than now.

Take Advantage of a Company Match

An easy way to begin investing is to take advantage of your company’s retirement match. This is essentially free money to help you become financially independent! For instance, if you’re employer matches the first 4% of your salary that you invest, that means you should invest at least 4% because then with the employer’s match, you’re investing 8% of your salary for the price of 4%. If you make $100,000 and invest $4,000 a year (4% of your income), and your employer matches that, you’re now investing $8,000 a year. That is a huge bonus!

Always Rollover Your IRA

If you leave a job, always rollover your IRA. When you’re young or you only have a small amount in your IRA, cashing out the money is tempting. After all, you have plenty of time for saving for retirement. However, that money can grow and grow if you take it with you and roll it over. You’ve already done the hard work of investing. Now, roll it over so it can keep working for you.

Hire a Professional If Need Be

For many people, the idea of investing is scary or intimidating, so they just don’t do it. However, you can never achieve financial independence if you don’t invest.

There are plenty of free resources available to teach you about the many different investing options, but if you still don’t feel comfortable investing, hire a financial planner. Yes, you will pay money in fees, which isn’t ideal, but paying fees is better than not investing at all.

Invest No Matter the Economy

Likewise, many people invest money, but then, when the economy crashes, they panic and pull out their money. This is a sure strategy to avoid financial independence.

The savvy investor ignores the highs and lows of the market and stays the course with investments. There will always be ebbs and flows, but remember that overall, through the years, people make money by investing.

You’ll do even better if you train yourself to see the stock market lows not as proof you’re losing your money, but as a perfect opportunity to invest more. You’re likely able to buy stock at the lowest price. When the economy rebounds, you’ll make more money.

Apps To Try

Platforms:	Fees and Minimum:	Best for:
Robinhood	Free	Beginner investing
Acorns	$1 per month	Spare change investing
The Motley Fool	$99 for the first year.	Stock advising

Final Thoughts

Achieving financial independence isn’t easy. However, follow these steps, and you’ll be well on your way.

What would you add to this list to help people gain financial independence?

How to Make a Plan for Financial Independence

Reached Financial Independence–Now What?

Passive Vs. Active Investing

How to Find the Best Companies to Buy Stock In

January 17, 2020 By Susan Paige Leave a Comment

The hardest bit about stock trading for greenhorns is identifying the appropriate companies to buy stock in. It is a lot like looking for a car to buy. You have to consider the technical specs of the car, the opinions of past and current users of the model, and the reputation of the manufacturer. For traders, this is called fundamental analysis and it involves scrutinizing a company’s financials, competition, leadership and a range other factors to determine if a stock is worthy of a place in your portfolio. Read on for four easy steps to finding the best stocks to buy.

Step #1. Create a List of Prospective Companies

Select all the companies you would like to invest in and put them in a list. You could base your choices on any set of factors, but it is wise to choose established companies in industries you are familiar with or have an interest in. Create a list of at least 10 and not more than 20 companies and get on with your filter-down procedure.

Step #2. Find Important Stock Research Documents

Start by reviewing the financials of each company separately. This is referred to as the quantitative research phase, and it involves finding and going through official documents that companies are supposed to file with the SEC. The two most important forms are:

SEC Form 10-Q: A report on a company’s financial position and performance that must be submitted quarterly to the SEC.
Form 10-K: This is a report submitted annually to the SEC containing a set of audited financial statements, which include the balance sheet, the company’s income sources, and documents showing how it has handled its revenues, cash, and expenses over the past financial year.

If you don’t have the time to find and review all important documents of all the companies in your list of options, you can find the filings simplified in brokerage websites. If you don’t have a trading broker either, consider visiting dedicated review sites such as www.trusted-broker-reviews.com for some of the highest rated brokers in the industry.

Step #3. Focus on Specific Aspects

Financial reports hold tons of numbers and details about a company, and aspiring investors may struggle reviewing all their options. Here are the most important things to focus on:

Revenue: This refers to the money received by a company during a financial period. It is sometimes called the “top line” because it appears first on a company’s income statement. Check the figures against both the “non-operating revenue” and the “operating revenue”, if those sections exist. Operating revenue refers to money that comes from daily business transactions while non-operating revenue is the money from one-time transactions such as asset sales.
Net income: Also, known as the “bottom line”, net income appears at the bottom of the financial statement. It is the figure that is arrived at after subtracting depreciation, taxes, and operating expenses from a company’s total revenue.
Earnings per share (EPS): EPS is what you get when you divide a company’s income by the total number of shares. This is the best aspect to use when comparing a company with other investment alternatives.

Step #4. Conduct Qualitative Research

Qualitative research gives you useful insights into the operations of a business and the chances of its stock going up. Look to understand the following:

How the company makes its money: Companies make money differently, and some such as sports franchises do not have obvious income channels. Always consider “common-sense” businesses, whose operations you have a nodding acquaintance with.
The element that gives the company a competitive advantage: Find that thing that gives the company the edge on its rivals. It could be anything from patent ownership and research capabilities to monopoly powers and scale. Competitive advantage is determined by these factors, and the harder it is for competitors to access them, the likelier it is that the company’s success will be long-lived.
The risks that the company faces: Look at the foreseeable changes in the market and company’s structure that may take a toll on its success in the long run. Sometimes a patent is nearing its expiry or there is a new rival company on the rise. Be sure to understand the company’s state and everything that could go wrong on the way before investing.

Conclusion

There are many documents and research resources that can help you find a suitable company to invest in, but the most important thing is being able to see what the future has in store for the company. That is what separates the good from the great when it comes to stock trading. The above tips can help you narrow down your list of options to that one company that truly suits your interests. From there, try to understand the company better by reading financial journals, browsing the internet, and consulting experts before committing.

Reasons To Consider Investing In Savings Bonds

Investing In Art and Antiques For Fun And Profit

Paying Off Debt Or Investing

Photo credit: GotCredit, via Flickr.

How To Invest With No Commission

October 8, 2019 By Flanice Lewis Leave a Comment

Investing is now more inexpensive than ever. With the most popular firms reducing trade commissions to zero, investing is more accessible to everyone. Or it would be if everyone knew how to invest.

Choose Your Investment Firm

First, you have to pick a brokerage firm. This company will be your avenue to the stock market, and its website will process your transactions. The largest firm with no commission fees is Charles Schwab. Other commission-free firms are TD Ameritrade, Etrade, and Robinhood, with Robinhood being mobile-only. With these firms, you can buy shares of stocks, funds, and commodities. Most new users will start with stocks, exchange-traded funds, or mutual funds.

Choose a Percentage or a Whole

Any of the four would be good to buy and sell whole shares of stock. If you want to buy a percentage of a share, you can use applications such as Stash, Acorns or Stockpile. Also, there is a new option from SoFi called Stockbits. While Acorns and Stash may be mobile-only like Robinhood, they have a monthly fee. Stockpile has a cost of $0.99 per trade. Stockbits is free to use, and you can start investing with $1.00. Stockbits also offers access to financial experts.

Open an Account

Once you’ve chosen the firm or firms, you will apply for a new account. The process includes selecting your account type, funding the account, and gaining approval based on your answers on the application. They are similar to opening a bank account with additional questions related to the firm and what time of investing your plan to do. Additionally, they will ask if you are a stockbroker or if you’re related to anyone that works for the company. Also, don’t be alarmed that the firms will require your social security number. Investment firms, like banks, have to report any interest or dividend income for tax purposes.

Place Your Trade

To place a trade, you choose the stock or fund that meets your criteria, e.g., price, dividend yield, trend, etc. and complete a buy order. In most scenarios, you can click buy or sell, choose a quantity, set your desired dollar amount, and set any limits or expiration dates. You will confirm all of the details then submit your purchase order. Since the stock market fluctuates, your order may execute at a different amount than ordered. By setting limits, you can minimize the variance or cancel the order before it gets too high or low.

Invest in a Portfolio

If you purchase stock using Acorns, you won’t choose a stock or fund. You will assess your risk, and the app will choose a fund for you based on their current offerings. It will also automatically invest for you once you reach $5.00 in roundups or any figure you’ve allotted to transfer for extra investments. Essentially, you set up everything on your phone, and it rounds your purchases on connected cards up to the next dollar. This app is excellent if you want to start investing, but you don’t have a lot of money yet.

Other ways to invest in a ready-made portfolio are the Stash app, Ally Invest, SoFi Invest, and Etrade Core Portfolio. These may be great alternatives if you roll over an old 401(k) from a previous job but don’t want to pick individual stocks. Ally has a $100 minimum but no advisory fees. SoFi Invest has no fees if you have a loan with them, and you can start investing with only $1.00. Etrade has the highest minimum at $500. However, it has more educational tools if you see the value in those.

Whichever you choose, make sure you are comfortable. Read user reviews to gain insight into controls, customer service, and other important topics.

The Pros and Cons of Investing in ETFs

Stash App: Investment App Review

How to Invest in Online Gaming

Dave Ramsey Financial Peace University Review: Week 9

April 15, 2010 By Maggie Ellis 4 Comments

This week was about the basics of investing. Once you’re out of debt and have your emergency fund, it’s time to move on to creating serious wealth. You do that by investing (or winning the lottery, but Dave doesn’t advocate that method). Obviously in a one-hour lecture Dave can’t touch on all of the intricacies of investing. This lesson was a good primer, though, on the basic types of investments and the theories behind successful investing. Dave admits that you need to seek additional knowledge to become a successful investor, he merely intends to set you on the right path.

His first rule of investing is to never buy something you don’t understand. Only invest in companies and products that you can explain to a seventh grader. There is no such thing as getting rich quick and most investing schemes shroud themselves in complexity so you have no idea you’re getting taken for a ride. Stick to things that are simple and easy to understand.

Dave begins by covering the basics of risk versus return. In other words, the safer and more liquid that you want your money to be (low risk), the lower the potential return will be. Safe investments are typically CD’s and money market mutual funds. Riskier investments include single stocks, bonds, mutual funds, and real estate. Real estate requires particular care because it requires a lot of money both to get in and to stay in. You not only have to buy the property, you also have to maintain it. You also have to be able to weather the times when you don’t have a renter or when the property isn’t appreciating. It’s not a liquid investment and should never be used for short term gains.

He spent a good deal of time talking about diversification, which is investing your money in many different products, industries, and sectors. You don’t want to have all of your money in one company’s stock (even if it’s the company you work for), or one mutual fund. If that product crashes, you will lose all of your money. Investing in multiple funds, stocks, and industries makes sure that even if one product tanks, your others will take up the slack. Dave’s standard mutual fund diversification is as follows:

25% in Growth (mid cap): These are mid-sized companies that still have a lot of room for growth.
25% in Growth and Income (large cap): These are big, well established companies that grow a little but mostly stay stable.
25% in International: These are overseas and foreign companies.
25% in Aggressive Growth (small cap): These are small companies and emerging markets that have a lot of potential to go big, but they may also go bust.

Dave then tells us that your money will need to earn at least a 6% return in order to compensate for inflation and taxes. He claims that if you invest in “good growth stock mutual funds” you can expect an average rate of return of 12%. This is the one piece of this class I don’t agree with. Most investing experts allow for an average 8-10% return in the market. Earning 12% consistently over many years is not common. Granted, during the boom times we just went through 12% or more was easy to achieve. However, when you factor in the down times that make up an “average” return, 8% is probably more realistic. Dave throws this 12% around in this class and on his show like it’s readily achievable, but I know no one (who’s last name isn’t Buffett), expert or average investor, who gets that kind of return consistently over a period of thirty years.

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Dave Ramsey Financial Peace University: Week Two

Dave Ramsey Financial Peace University: Week Three

Dave Ramsey Financial Peace University: Week Four

Dave Ramsey Financial Peace University: Week Five

Dave Ramsey Financial Peace University: Week Six

Dave Ramsey Financial Peace University: Week Seven

Dave Ramsey Financial Peace University: Week Eight

Dave Ramsey Financial Peace University: Week Nine

Dave Ramsey Financial Peace University: Week Ten

At the end he talks about some terrible investments which include gold, commodities, futures, day trading and viaticals (buying the beneficiary position on someone else’s life insurance policy, betting that they will die within a certain amount of time). These investments are either too complex or risky for all but the most experienced investors (and even they don’t always understand them). There are also a lot of scams surrounding these investments so you have to be very careful.

All in all it was a good lesson, but there was very little actionable in it. Yes, you have to invest, but how you really go about that isn’t covered here. Maybe in later lessons we get to that, I don’t know. If you want to know exactly how to go about investing and how the market works, you need a different course. This lesson is simply an overview of the most popular types of investments and some general investing theory.

Our small group didn’t really talk about much this week. I think that most people in the group are intimidated by investing and don’t really know much about it beyond their 401k options at work. We did talk a little bit about the value of educating yourself on the topic and not letting an advisor do all of the work for you. One man shared an advisor horror story. He had put about $10,000 with an advisor and it was all lost during the economic meltdown. The advisor had talked him into putting all of the money into three stocks which were all in the same industry. They all crashed in value. He was not diversified at all. He said that, at the time, he felt uncomfortable with it but thought, “This guy is the expert, so I’ll trust him.” He learned two things. First, diversification is important. Second, you can’t trust an advisor to do the right thing just because they are an advisor. The advisor might be motivated by a commission on a product or some other type of kickback, not your best interests. You have to know about investing and make your own decisions. An advisor can help, but don’t let them be the last word. Others in the group concurred, having
horror stories of their own to share.

Most people in the group agreed that investing doesn’t have to be complicated, but it can be intimidating and hard to learn. For that reason, many people just check out when the subject comes up. As one woman said, “I have so much to do everyday, I just don’t have time to learn what amounts to a foreign language to me.” Another one said, “I’m afraid of messing up and losing all my money.” These are valid concerns, but we talked about how a simple savings account will never earn enough to outpace inflation and how, if you’re well diversified, you might lose money in the short term, but you’ll gain in the long term. We tried to explain to the second woman that a loss is rarely permanent, unless you have all your money in one thing. We tried to explain to the first woman that yes, it’s time consuming to learn about investing, but you have to do it if you want to be financially successful. There just isn’t any other real way to earn the kind of returns that will protect your money from inflation and taxes. In other words, she can’t afford not to take the time to learn. Both didn’t seem convinced when class ended, so I don’t know if they’ll ever get involved in investing.

Homework roundup: This week we’re supposed to calculate how much our debt payments are taking away from our retirement. Dave provides a chart for this that shows your monthly debt payment and then how much it adds up to at 5, 10, 15, 25, and 40 years assuming a 12% annual return. For example, $600 in debt payments a month would be $49,002 in five years, all the way up to $7,058,863 in forty years. While I’ll never agree with his 12% return, the chart does illustrate the point that the money you’re paying toward debt could be used to fund your retirement (or other goals). I don’t have any debt so I can’t really do this exercise, but I’m hopeful it will come up in small group next time. I’d like to hear if anyone had a realization about just how much debt is costing them once they did this exercise.

Lastly, if you aren’t interested in attending the course yourself, consider purchasing the Dave Ramsey Financial Peace University DVD Home Study Kit (9 Week Course) 2012 Release. It sells for under $200.00 on Amazon.

Next: Dave Ramsey Financial Peace University Review: Week Ten

This is a series of posts about what you will find in Dave Ramsey’s Financial Peace University course. You can find the previous posts here: week one — week two — week three — week four — week five — week six — week seven — week eight