Investing For Beginners

Welcome. This is where you’ll begin to learn how to invest. This page will help you learn what we call common sense investing. It’s not hard—in the sense that it is remarkably straight-forward. It may not be easy—in the sense that is is somewhat counter-intuitive. We’re constantly bombarded with messages from people trying to sell us something, and finally many of us simply get tempted with a dangerous dose of greed. Contents:

Select Video Tutorials about Investing For Beginners

Playlist about Investing For Beginners:

All are excellent videos. The transcripts can help you make best use of your time.

Commonly asked questions about investing for beginners

Investing For Beginners:

Quick answers to common questions about investing for beginners

What is common sense investing?

Main article: Ten Rules of Investing For Beginners(video)

See also: The ABCs of Investing For Beginners (video)

An abundance of evidence over the past half century leads to the clear conclusion that a passive investing strategy at the lowest possible cost is far superior to an active strategy of trying to beat the market. Once understood, a common sense investing strategy is very straight forward and can be accomplished with a very small number (as few as one) of good index funds. What makes investing difficult is both our own greed and a multitude of professionals that earn their living by “selling us” something we shouldn’t want.

What is an Investment Policy Statement (IPS)?

Main article: Rule #1: Develop A Plan (an investment policy statement) (video)

Time is your friend when it comes to investing and making long-term decisions is key to investing success. Those that think ahead to how the wealth they desire in their future have the greatest chance to achieve it. Writing down your goals is the best way to arrive at a personal plan that you can stick with. A plan helps us make tradeoffs like our savings rate, our spending priorities, and how to invest for our short-term needs as well as to achieve our biggest goals and dreams.

What is compound growth?

Main article: Rule #2: Invest Early And Often for the Miracle of Compound Interest (video)

Reinvesting your earnings causes your investments to grow exponentially. For most of us, this is the key to accumulating the impressive sum of money that we will need to fund the last 30-40 years of our life—when we are in retirement.

How can I control investment risk?

Main article: Rule #3: Control Investment Risk With Asset Allocation (video)

Clearly, investing is irrelevant until you are living below your means and create savings you can invest. So your most important habit is to save a significant portion of every paycheck. But your most important decision is to decide how much you wish to expose to the stock market. Choosing the ratio of stocks/bonds that is right for you will allow you to stay invested and rebalance confidently as the stock market goes through inevitable volatile periods.

How should I diversify?

Main article: Rule #4: Diversify Investments (Investing 101) (video)

While owning the correct proportion of stocks and bonds establishes your overall investment risk, the stock side of your portfolio becomes enhanced as it becomes more diversified. This is not only because the effect of a failure of any individual company becomes smaller, but because adding any stock that isn’t perfectly correlated with the rest of your portfolio increases your portfolio return/risk.

What is market timing?

Main article: Rule #5: Never Try To Time The Market (video)

This refers to the illusion that you can predict when interest rates are going to rise or fall, or that you can predict which category of stocks will be the next top performer, or that you’ll somehow know when to sell in a falling market and then know when to buy in a rebounding market. It is simple to say that nobody can do this consistently. A very few will experience a winning streak, but you cannot choose them in advance.

What are index funds?

Main article: Rule #6: Use Index Funds (video)

Instead of speculating which stocks will outperform tomorrow (loser’s game), index funds simply follow a benchmark–like all U.S. stocks, or Large Company stocks. Index funds are judged by how well they track their respective benchmark index and how low they keep all costs.

How much should I pay? What is low cost?

Main article: Rule #7: Keep Costs Low (video)

The total cost impact of your investments include fund expenses, unreported fund costs like transaction costs, additional management costs, and early tax consequences. The average fund expense for funds is reported under the name “expense ratio” and must be clearly reported. The other costs are hard for the average investor to identify and too easy to dismiss. And yet all these costs can easily total 2%. If your investment would have earned 4% before costs and you lose 2% in fees and another 2% to inflation, then your investment does not grow.

What do I need to know about taxes?

Main article: Rule #8: Minimize Taxes (video)

Stocks and bonds are taxed at different rates. Stocks held for long-term and taxed differently than stocks held for short term. Funds with high turnover can cause you to pay taxes this year rather than deferring them into the future. There can be big advantages to retirement and other tax-advantaged accounts. In short, taxes are a big cost that can be managed with some simple guidelines.

How can this be simple? It seems so complicated.

Main article: Rule #9: Keep It Simple (video)

It is possible, but unnecessary, to invest with a multitude of companies. Gee, isn’t it fun to try to understand how you are doing and put all the little bits into your tax return?

It is possible, but unnecessary, to invest in lots of low-cost index funds.

But there is a majesty to simplicity and eliminating this source of worry, work, and confusion.

What can go wrong?

Main article: Rule #10: Stay The Course (video)

Very often, we are our own worst enemy. We get greedy. We worry. We panic. Long-term investors avoid the mistakes that our emotions too often cause. Stay The Course is the mantra, and this is simply going to be easier for you to do if you write a simple plan on a sheet of paper that you can keep. Keep it. Change it if you change your goals. But use this as your plan to keep you moving toward your goals and to keep you from acting emotionally by some reason-de-jour.

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