Investing 101 - The Basic Nuts & Bolts To Investing | Jennifer Thompson | Skillshare

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Investing 101 - The Basic Nuts & Bolts To Investing

teacher avatar Jennifer Thompson, Buying Happiness Around The World

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Taught by industry leaders & working professionals
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Watch this class and thousands more

Get unlimited access to every class
Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

6 Lessons (29m)
    • 1. Investing 101 Introduction

      0:39
    • 2. Investing 101 Lesson #1 The 5 Benefits of Investing

      3:12
    • 3. Investing 101 - Lesson #2 - The 4 Investment Asset Classes

      5:35
    • 4. Investing 101 - Lesson 3 - The 3 Things That Determine What Asset Classes You Should Hold

      4:33
    • 5. Investing 101 - 2 Ways To Reduce Risk When Investing

      7:03
    • 6. Investing 101 - Popular Investment Vehicles - Mutual Funds VS Exchange Traded Funds

      7:29
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About This Class

A beginner's class to the basics to investing.

This class does not instruct or give any advise on the selection of individual investments. The aim of this class is to teach people the basics of investing.

By the end of this course participants will understand

  • Why Investing is a great way to meet their financial goals.
  • What asset classes are within the investment world.
  • What influences your asset aollocation (the selection of your asset classes)
  • Strategies to reduce volatility.
  • Common Investment vehicles - Mutual Funds Vs. Exchange traded Funds.
  • By the end of this, students will fell more confident in understanding one aspect of personal finance.

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Meet Your Teacher

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Jennifer Thompson

Buying Happiness Around The World

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Hello, I'm Jennifer.

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Transcripts

1. Investing 101 Introduction: I'm Jennifer Thompson with investing 101, the nuts and bolts of investing. Today we'll talk about why you should be investing. The five reasons why you should be investing will also discuss the four asset classes in the investment world. And finally, the three things that determine where you should be investing. What asset classes should you invest in? This is Jennifer Thompson with investing 101. Looking forward to seeing you in the next class. 2. Investing 101 Lesson #1 The 5 Benefits of Investing: I'm going to talk say we're investing 101, the nuts and bolts of investing. Today, we'll talk about why you should be investing. The five reasons why you should be investing. The first reason is investing allows you money to work for you instead of you working for your money. That's number one. The second reason why you should be investing is investing allows you to keep up or do a little better than inflation. Inflation has been averaging between two to 4% for the last 40 years. Inflation has the effect of eating away at your savings. So if you put your money in a savings account or just a bank account, you might get between one to 2% interests, whereas inflation is doing more than, that adds two to 4%. So it's eating away at your savings. But if you invested your savings, invested in stocks and bonds, your potential for returns are far greater than inflation. So that's the only way you can do better than inflation, so your savings are not eaten up by inflation. The third reason why you want to be investing is that it gives you the opportunity to take advantage of tax shelters that are available to you. So tax shelters such as 401 K's in the US or RSPs in Canada. So by putting your investments in a shelter, as your investments grow, the growth is not being taxed until you start to withdraw the money from the shelter at a much later date like your retirement. So that's a third reason why you should be investing is you get to take advantage of tax shelters. The fourth reason why you should be investing is that investing gives you the chance to receive passive income. If you're invested in bonds, you get the, you get, you might get income in the form of interest. And if you invest in stocks and chairs, if these are outside of a tax shelter, you want to receive some kind of passive income. Investment. Investments give you passive income. And the fifth reason why you should be investing is that investing helps you to achieve your financial goals much more efficiently than just saving your money in, let's say a bank account. And those were the five benefits to investing for your project. Think of three financial goals you'd like to achieve. And be really clear about them and list them according to when you'd like to achieve them. These can be simple goals such as traveling mixed into saving for a down payment on a house. Or it could be a long-term goal like putting aside funds for retirement. And I look forward to seeing you in our next lesson. 3. Investing 101 - Lesson #2 - The 4 Investment Asset Classes: So in the investment world, all investments fall under one of four investment asset classes. So the first one is cash and cash equivalent. And that could be just cash in your, in your hand or cash in your bank account. Cash and cash equivalents, the lowest risk. In fact, there's barely any risk on the money. The principle remains the same. It's safe and secure. And you might get some kind of return quite often it's between one to 2%, sometimes not even, sometimes barely any return at all. So that's cash and cash equivalents, no risk of very low and returns. The second asset class is called fixed income. Under this asset class, you have all kinds of bonds, government bonds, and corporate bonds. This asset class called fixed income, gives you a, an interest and income in the form of interests. And that could come, the interests come every three months or semi-annually. But you get bonds, bonds give you a return in the form of interests. So that's fixed income. If you hold a bond to its maturity date, then you get the principal back as well as all the interests over that time. And so those are bonds. If you sell a bond before the maturity date, you could sell it at a premium or you could sell it at a loss. So point also have the potential for some degree of volatility. Bonds a little more risky than cash and cash equivalents. They also have the potential to give a better return. And some balls, while their principle's quite safe, like municipality bonds, you know, you keep them right. Maturity, you get the, you get both the interest and you get the principal back. So that's bonds, fixed income. The third asset class is called equities or stocks and shares. Now that's ownership in a company. So stocks in chairs or equities are more volatile because they follow the stock market. They're more volatile than, let's say the first two asset classes. They also have the greater potential for returns that far greater than bonds. Generally. Not always, but generally they have better returns than, let's say boss, or definitely more than cash and cash equivalents. Equities can go your principle when you invest in stocks and shares, your principal could also drop. The value of your principle could drop. But the equities are meant for the long term. So that's the third asset class and equities can give you, add, give you a, give me passive income in the form of dividends. Not all companies pay you a dividend. Not all companies pay a dividend to the shareholders, but some companies in reinvested dividends and some stupid that. So the other thing that's great about shares, stocks and shares or equities is that you have the potential not only for dividends, but you also have the potential for the principal growing. It's called capital gains. Your, the value of your principal appreciating over time as the price or the value that stopping appreciate so improves over time. So equities have a greater, greater potential for returns, but also have greater volatility. The full asset class is called alternative investments, and that includes the likes of Bitcoin, It includes derivatives options. They can also include precious metals like gold and silver. So this fourth asset class called alternative investments, have a great potential for return, but also have the highest chance of any kind of volatility. And we've seen what's happened with Bitcoin over the last few years, tremendous volatility, potential for return is great, but also a lot of volatility. It's off the four asset classes that they are. The fourth one is the highest risk. So those are the four asset classes. Just go over them again. This cash and cash equivalents, fixed income, which includes bonds. The third asset classes, equities, which is stocks and shares, and the fourth is alternative investments, include Bitcoin, it includes commodities, it includes precious metals. Ot. For your project, I'd like you to look at all the investments you currently hold, or rather all the assets you hold. That could be real estate, bank accounts, mutual funds, a term deposit, whether they're short-term deposits, long-term deposits. Just look at all the assets you currently hold. And what percentage do you have in each asset class? What percentage do you have in cash and cash equivalents, fixed income equities and alternatives. I look forward to seeing you in the next lesson. 4. Investing 101 - Lesson 3 - The 3 Things That Determine What Asset Classes You Should Hold: So when should you invest? Where should you put your money? Well, the asset classes you choose for your portfolio if you're trying to create a portfolio, design one, yes, the classes are dependent on that you choose are dependent on three variables. The first one is your tolerance for risk. If you are someone that would not sleep that night, IV, your portfolio or your principal drops by 10% in value, then you might be conservative investor. So you might not want to invest in a inequities. So again, your risk tolerance is very important when deciding what asset classes you want to invest in. There's the risk of your principal or dropping. But if, you know, you might be willing to trade that volatility and you might say, you know, I don't want any volatility, even if it means that your principal or your money is being eaten up by inflation. So you want somebody really conservative. But, so there's a bit of a trade-off huma, have the potential for higher returns if you are willing to take some risk. So your risk, your tolerance for risk is key. In the asset classes you end up investing in. The second variables. I can think that's really key in where to invest or how to invest is also your time horizon. If you just have a short term time horizon, which means you want to access the money within a year or two. Let's say could be your parkings and inheritance because you're going to use it for the down payment on a house while you're looking for a house. So it could be you just wanted to invest for three to six months, let's say while you're looking for the house, you don't want to be invested in anything, has the potential for loss. Like equities, you might even just a short term time horizon whereby you need to access the money, then you might want to be induced cash or cash equivalents and pop the money for just a little top edge for just a short time. So the net, so this idea of your time horizon is very important in how you invest. If you're investing with the long-term in mind, like a retirement savings and you could be in your 20s and 30s right now and you go like 30 years before retirement, then you might be more willing to invest in the third or fourth asset class equities and alternatives because you're, you might be, you have the time horizon to see the market gyrations, the ups and down to the market knowing that over time, the markets go up, which they generally do. So time horizon is very important in determining way you invest your money. And one of the biggest mistakes people make is they invest for the long term. They invested in short-term vehicles, leave their money in a bank, in a bank account, and they leave it there for years without even considering that they had this huge potential for growth. So that's or else they invest in something high risk for the short-term thinking they can make a quick buck. So that's one of the big mistakes people make when it comes to investing. So remember, it's not just your risk tolerance is also your time horizons, that detail that will influence where you invest. And the third thing that's really important as well as your overall financial picture. So you could be a high risk invest I really high risk, or you could be somebody with a long term time horizon, but you have no other means of income, then maybe you shouldn't be taking any risk at all. You overall financial picture is really as well, quite important in determining where you should invest. In the next step. In the next few lessons we'll get, we'll get into more of the nuts and bolts about investing. But for now it's just why you should be investing. The four asset classes available and the three variables that affect way you should be investing. 5. Investing 101 - 2 Ways To Reduce Risk When Investing: I'm Jennifer Thompson with investing 101. And in today's lesson, I would like to talk about how to reduce your risk when it comes to investing. So when people think about investing, the first thing that comes to mind is like, Oh, they might be afraid of the risk of investing. And basically risk means losing your money. But risk really means the degree of volatility of your portfolio. Yes, it also can mean losing your money. But if you invest wisely, the thing that you have to face is the degree of volatility in your portfolio. How much does your portfolio go up and down? How much does it, how often does it go down? And by how much does it go down below you, your principal, or the amount you initially invested? So that's mainly the concern. Whether the investments will drop below what you've invested or the amount you invested. And that's the degree of volatility. Some investments can go up by 20 percent, but they can also go down by minus 20 percent. So you could see or your principal drop by 20% or more. So that's where most people are concerned with, is how much volatility is then the portfolio. And I'd like to give you some ideas on how to reduce that risk or the volatility, the extent to which your portfolio goes up and down. The first way to reduce risk is really by diversification, is when you create a portfolio of investments you want to diversify with by, by asset class. So you want to have all four asset classes in your portfolio. That's one way to diversify. And within each asset class, you can also go and diversify in many different ways. So let's say it's bonds that you're, you're investing in. You can also diversify within the duration of the bond. Long-term bonds, shorts and bonds. You can diversify as well by the issue of the bonds. So you want to have some corporate bonds, government bonds, maybe some municipality bonds. So even within a bond segment of your portfolio, you can diversify by duration, which is the length of the bonds are shorter bonds, long-term bonds. And you can diversify by the issue of the bonds. Who's issuing those bonds? When it comes to equities, you can diversify in various ways as well. You can, you want equities, you can diversify geographically, so you can have international equities to mastic as equity is, you could have equities diversified by the size of companies. So small cap equities are dive accompanies that are smaller in size and enlarge capitalize blue chip stocks, really large like banks. So you can diversify by size of companies that's invested within the stocks and shares or equity space. You can also type ossify layer with geography, international equities, us I could use, you can diversify with sectors as well. So you can have equities that are high-tech as well as baby equities that are oil and gas. Equity is that our utility company. So even within equities, you can layer all diversify even further. So that's one way to reduce volatility is to be well-diversified and even within each asset class, you can diversify even more. The second way to reduce volatility is $2. Cost average is what's called dollar cost averaging. Dollar cost averaging is an investment strategy that reduce the extent of volatility in your portfolio and what that ing, what dollar cost averaging is basically investing at regular intervals, a set amount of money. So let's say you've decided on the 15th of each month, you'll invest by a $100. What that does is that unintentionally, you end up buying more of the investment when things are down and you buy less when things are out. So you really evening out the volatility or the purchase price of what you're purchasing. So two ways to invest as one by diversifying and the second one is by dollar cost averaging into the markets. So other cost averaging is an investment strategy whereby you are investing a set amount of money at regular intervals. So let's say your chosen to invest in a, in an ETF that let's say it's an American equity and tf. So what you do is you just buy regularly, maybe at a set time every month, a regular price or regular amount. You're investing, I'd say 500 or 1000 dollars. That's another way to also reduce your volatility. And that, that's when you reduce your volatility. That's a way of reducing the risk on your portfolio. For the project on this class on diversification as a way to reduce risk. Google, Yahoo Finance and on Yahoo Finance looked up the mutual fund called fidelity balanced fund ticker symbol is FBA Lx, and on the sheet information sheet for that fun lookup, the following information. What is the management expense ratio, the asset allocation for the fun, which means what portions in bonds, what portions in equities and cash lookup as well, the geographic and sector diversification where the companies located. And then also look up the most recent value for the fun. And finally, the minimum investment required if you do want to invest in that fund, is it 500.1000 was the minimum fee required or what's the minimum investment required? I'm Jennifer Thompson with investing a one-to-one on a lesson on how to reduce risk, or rather, you'll volatility on your, on your income. 6. Investing 101 - Popular Investment Vehicles - Mutual Funds VS Exchange Traded Funds: I'm Jennifer Thompson with investing 101. And in today's class I like to talk about mutual funds and exchange traded funds. Mutual funds have been around for a long time. Mutual funds are really made up of a pool of money collected from many investors. And with that pool of money, the mutual fund company decides what securities to purchase and creates a basket of those securities. What they decide, what asset class they decide, what individual stocks and bonds they decide is dependent on the particular mutual funds mandate and objectives. So if they, if it's a, an international equity fund, then that particular Mutual Fun will just comprise of stocks and shares from companies around the world because it's an international equity fund. If it's a USA equity fund, then they'll just be stocks and shares from companies in the USA. Bond fund then. And it's just an international bond fund or maybe a cleaning bond fund, depending on what bond fund it is, then it's a clean bond fund. They'll just made up. That mutual fund will be made up of bonds from, from Canada. They could be corporate bonds, government, government bonds, provincial bonds. It's an international bond fund. Then it'll be made up of bonds from all over the world. So, and then there's balanced funds, which comprise of stocks and shares, as well as bonds and some cash and possibly some cash. So what is invested in a mutual fund is dependent on the mandate for that mutual fund M, the objectives. Exchange traded funds are slightly different from mutual funds. Exchange traded funds are made up of a basket of securities for an individual investor. So if you were to buy an exchange traded fund, you can buy throughout the day and it's just made up of, again, a basket of investments. So depending on what you, what kind of ETF exchange traded fund you want, then you buy that particular box basket of securities. So let's say you are interested in the S and P 500 ETF exchange traded funds. So that particular exchange traded fund will comprise of a basket of all the stocks in the 500 largest companies in the USA. If you want an ETF, that is Canadian equity ETF, then it'll be an ETF comprising of Canadian companies, companies in Canada. So you'll be buying stocks in chairs in that ETF made up of Canadian companies. So like mutual funds, ETFs are also, also comprise a basket of securities, unlike buying just one stock on the stock market. So an ETF, like a, like a mutual fund, is very well, has a lot of security, so it can be quite diversified. And depending on what ETF you choose, of course, depends on what you want, your goals for the investment. So mutual funds and ETFs both comprise of basket of securities. And ETFs like mutual funds, you can get bond ETFs, you can get balanced ETFs. And ETFs can be passively invested or actively, actively managed. So you can find passive ETFs first came out. They were primarily just passive investments, which means the box good of securities is really peg to an index or mimics and index. If it's an S&P 500 ETF, it'll be replicating the ETF. The, it'll just replicate all the stocks in the, the top 500 largest companies in the USA. And I'll just mimic the S and P 500. So, but now ETFs have, have branched out and they're also actively managed ETFs, mutual funds to have passively managed mutual funds, which are called index funds. And again, the mirror mimic a particular index or benchmark. If you go for a passively managed mutual fund, that's an S and P 500 mutual fund. Then it'll just comprise of the 500 companies, which is in the S and P 500. So mutual funds have actively and passively managed funds. And ETFs can also come in passively managed ETFs and also now actively managed ETFs. And this difference between mutual funds and ETFs is that the price of a mutual fund is only determined at the end of the trading day. At the end of the day, then the price is determined by the mutual fund company based on all the stocks and shares in that particular basket. An ETF, on the other hand, creates exactly like a stock in a sense like you can go on, I do want to treat it online. You can see that it's trading throughout the day, that particular ETF that you want to buy. So in that way, mutual funds are different from ETFs and the way they trade. The other thing that they're different is that mutual funds generally have higher management expense ratios than ETFs. The last few years, ETFs have just exploded because primarily because mutual funds have been seen as having very high fees, management fees. Whereas ETFs, they tend to be a fraction of what the management fees with mutual funds. And those are the biggest differences between mutual funds and exchange traded funds. And for the projects for mutual funds compared to ETFs exchange traded funds, I'd like you to, again Google, Yahoo Finance and looked up fidelity balanced fun, and compare it with Vanguard, balanced ETF. I'm free to these lookup, the management expense ratios, the asset allocation of each of these funds, The geographic and set to diversification, and also the closing value of the funds and the minimum investment required for Fidelity and Vanguard balanced funds. I'm Jennifer Thompson with investing 101.