Investing Essentials Masterclass - 401(k)'s, Stocks, Mutual Funds, Bonds and More! | Donald Fittsgill Jr | Skillshare

Investing Essentials Masterclass - 401(k)'s, Stocks, Mutual Funds, Bonds and More!

Donald Fittsgill Jr, Podcast Doc | www.podcastdoc.com

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15 Lessons (47m)
    • 1. IInvest trailer

      0:43
    • 2. Financial Foundation Introduction

      1:13
    • 3. iInvest Overview

      1:12
    • 4. 401(k) Fundamentals

      5:48
    • 5. 401(k) - Knowledge Check

      4:49
    • 6. 401(k) Summary

      0:39
    • 7. Stock Market Fundamentals

      6:23
    • 8. Stock Market Fundamentals - Knowledge Check

      4:52
    • 9. Stock Market Summary

      0:20
    • 10. Mutual Fund Fundamentals

      8:17
    • 11. Mutual Fund - Knowledge Check

      3:10
    • 12. Mutual Fund Summary

      0:37
    • 13. Bonds, Booms and Building Portfolios

      4:25
    • 14. Bonds, Booms and Building Portfolios - Knowledge Check

      3:49
    • 15. Bonds, Booms and Building Portfolios Summary

      0:42
11 students are watching this class

About This Class

iInvest is one course, in a 3 course series called Financial Foundation. Financial Foundation is designed to empower you with the knowledge and confidence you need to take control of your financial life. We use instructional design theory to shape our courses in such a way that information can be retained and put into action.

In iInvest you'll learn,   

- 401(k) Fundamentals  -  Learn why a 401(k) is important and how to get the most out of it for retirement planning.

- Stock Market Fundamentals - Learn why a stock price goes up and down and gain a true understanding of the stock market.

- Mutual Fund Fundamentals - Learn what a mutual fund is, how they work and their advantages and disadvantages.   

- Bonds, Booms and Building Portfolios -  Learn about bonds, booms and how to build a portfolio. You'll also learn the correlation between risk and investment horizon.   

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Transcripts

1. IInvest trailer: 2. Financial Foundation Introduction: let me ask you a few questions. Do you want to work for the rest of your life? Do you want to pay more for a car than someone else? Do you want to live paycheck to paycheck? If you're like most people, you answered a resounding no to those questions as you should. But the real question is how? How do you give yourself the best possible chance to live the life you want Free from financial stress? The answer is simple. Make good decisions. Make the decisions. You should know that the financial decisions that you make as an adult can and will affect you for a very long time. Unfortunately, many adults have to learn these lessons the hard way. And honestly, some never learn. But here's some good news. You don't have to learn the hard way. By taking this course, you are giving yourself a financial foundation that takes many people years to learn. Now, just like most things in life, you will get out of this scores what you put into this horse. I'm going to say that again. You will get out of this course what you put into this course, so pay attention and get ready to change your life. Let's go 3. iInvest Overview: Mikey was the captain of the football team, captain of the basketball team and captain of the soccer team. And for this reason, his friends called him captain. So when captain graduated high school, he started working for the largest employer in town and found it tough entering the real world because he essentially had to start all over. And starting over meant that this captain had to take orders from everyone. Captain said he felt like everyone at work would or him around like his parents. Captain, do this Captain do that? This was a lifestyle change indeed. When Captain went to his parents about his tough transition, they told him two things. Welcome to the real world and invest in your future today. So that's what Captain did. He went back to work to work as hard as he possibly could and invested in his companies 401 K right away. Without realizing it, Captain just did himself a huge favor. Let's find out how investing can affect your future. In this section, you'll learn about 401 K accounts, mutual funds, stocks and bonds, booms and building portfolios. So do yourself a favor and pay attention and get ready to learn how to invest. Let's go 4. 401(k) Fundamentals: Let me ask you a question. Do you want to retire one day? If the answer is yes, then you need to start saving for retirement right away. For most people, the days of defined benefit plans and pensions are long gone. We're living in an age of do it yourself, and for a lot of people that can sound like a daunting task. But here's the good news. You can, in fact do it yourself. I don't care how much money you make. You can achieve your goals if you have a plan, so get excited and pay attention as we learn how to invest for retirement. Here is the best advice that you'll learn in this course. Are you ready? Start investing for your retirement today. Start investing for your retirement to day. You will do yourself a huge favor by doing so. If you're not making money right now, then you should make a plan as to what you will do to save for retirement. There was a time when a person could work for 20 to 30 years for the same company without contributing $1 of their own money towards retirement, and they were still able to retire. You see, their company would provide a benefit to the employee in the form of a pension plan. The company would make contributions to the pension plan, and consequently, upon retirement, the employee would receive money in the form of an annuity or a lump sum payment. Sounds pretty cool, right? Well, it WAAS. But unfortunately, most companies have all but done away with these types of plans. Retirement planning is transitioning or has already transitioned away from benefit plans to contribution plans. In a benefit plan your employer contributes to your retirement. In a contribution plan, you contribute to your retirement. Let's look at how it works. The most common retirement plan today is the 401 k for a one. K is a retirement savings plan sponsored by your employer. It lets you save and invest a portion of your paycheck before taxes are taken out. Taxes are not paid until the money is withdrawn from your 401 K with a 401 k You control how your money is invested. Most plans offer a spread of mutual funds composed of stocks, bonds and money market investments. The most popular option tends to be target date funds, a combination of stocks and bonds that gradually become more conservative as you reach retirement. Now, many people are put off by the idea for a one case because they don't want any of their current pay to be reduced. And while that may seem like a prudent decision, you can actually end up hurting yourself in the long run by not contributing to your retirement plan right away, especially if your employer offers a match. When trying to determine how much to contribute to a 401 K You should, at a minimum, be contributing the full amount to receive your company's match. Assuming that your company has a match and by match, I mean a certain amount of money that your employer will give you when you contribute to your 401 K plan. So let's say your company has a 100% match up to 5%. That means if you make $50,000 a year and elect to contribute 5% of your pay toe a 401 K you will contribute $2500 of your own money to your accounts. Your employer because of the match, will also give $2500 to your account. They are giving you money just because you gave money to yourself. I think that's a pretty good deal. If possible, you should be contributing at least the full amount to get all the free money you can. Otherwise, you are essentially throwing money away. Not only does investing in a 401 K help secure your financial future, but it also reduces your current tax liability as well. So if you made $50,000 contributed $2500 your income has now been reduced by $2500 which means that you would pay less in taxes because your income has been reduced. Then there is compound interest. Compound interest is the main reason that you should begin to invest. Today. Compound interest is essentially earning interest on top of interest. Imagine rolling a snowball down a mountain, and as it goes down the mountain, it gets bigger and bigger. Now imagine that snowball is your money. When you invest early and received compound interest, it's like rolling your snowball at Ah, high starting point on the mountain. Also over the long run. Money that is invested on a pretax basis and mutual fund X Y Z will grow to higher levels than money invested on an after tax basis and mutual fund X Y Z. This is because when you invest in an after tax account, you will be subject to taxes on dividends, capital gains and sales of securities in a pre tax account like a 401 K You typically don't have to worry about those things. Essentially, your taxes will be based off of your normal income tax rate. Now, while it is true that there could be a 10% early withdrawal penalties if you withdraw before age 59 a half, and it is also true that you will eventually have to pay taxes on the money, the hope is that you won't withdraw the money until you are of retirement age and have retired. Taxes are paid when the money is withdrawn and when you are retired, your tax bracket could be considerably lower because you're not bringing in any income, at least not like the income you received when you were working. It is possible your company for a one K plan could offer tax free loans or offer you the ability to withdraw from your plan while still employed. It is also possible that you could avoid the penalty by meeting the hardships standards set by the I. R. S. You'll find the I wrestling to hardship exceptions at the end of this course. 5. 401(k) - Knowledge Check: Okay, now let's answer a few questions on 401 k Fundamentals. When are you taxed in your 401 k A. Every month? Be at the time of deferral. See after 401 k withdrawal. Bone bone bone bone bone bone bone bone bone bone bum bum bum bum abobo bone bone bone bone bone bone bone. The bobo bone bone Boehm bone bo Taxes are not paid until the money is withdrawn from your 401 k When is the best time to start investing a. Next year? Be five years from now. See 30 days from now d today Bone, bone, bone bone bone bone bone bone bone bone bone bone bom bom bobo bobo bone bone bone Boban boom bobo bone bone Boehm bone bo The sooner you start to invest, the sooner you can take advantage of compound interest. It is possible to avoid the 10% early withdrawal penalty if you withdraw from your 401 k prior to age 59 a half. A true be false bone, bone, bone, bone, bone, bone, bone, bone, bone, bone, bone bone bom bom abobo, bone, bone, bone, bone, bone bone, bone, bone, bone, bone, bone boom bone So you can avoid the 10% penalty when you take an early withdrawal from your for a one k by meeting one of the qualified I. R s. Hardship exceptions Use the following assumptions. You make $50,000 a year. Your company for a one K plan will match 100% of your contributions upto 5%. If you contribute 10% of your salary to your 401 k How much of your salary will be contributed and how much company match will you receive? Is it a $5000 salary? $5000 Company Match B $2500 salary. $2500 Company match C $5000 salary. $2500 Company match Bone bone bone bone bone bone bone bone bone bone bone bone bom bom abobo bone bone bone bone, bone, bone, bone, bone, bone, bone bone Boehm bone bow Your contribution is your salary. $50,000 times your contribution percentage 10% which equals $5000. The company match is 100% of your contributions up to 5%. This means only half of your contribution amount is eligible to be matched. In this case, that amount is $2500. Use the following assumptions. You make $50,000 a year. Your company for a one K plan will match 100% of your contributions up to 5% if you contribute 4% of your salary to your 401 k How much of your salary will be contributed and how much company match will you receive? A $2000 salary $5000 company match Be $2500 salary. $2500 Company match See $2000 salary, $2000 company match Bone bone bone bone bone bone bone bone bone bone bone bone bom bom bobo bobo bone bone bone bone bone bone from bobo bone bone boom bone bow Your contribution is your salary. $50,000 times your contribution percentage. 4% which equals $2000. The company matches 100% of your contributions up to 5%. This means 100% of your contribution is eligible to be matched. In this case, that amount is $2000 6. 401(k) Summary: Congratulations. You have just completed the 401 K fundamental section. Here are the takeaways You should begin to invest for retirement, as Souness feasibly possible. If possible, you should contribute at least enough to receive the full company match. Compound interest is the main reason for starting to invest as soon as possible. There is a 10% early withdrawal penalty for withdrawals prior to 59 a half. Unless hardship exceptions, air taken the IRS website detail ing the 401 K tax penalty exemptions is listed below. 7. Stock Market Fundamentals : Let me ask you a question. How would you like to be a business owner? How would you like to research a company? And if you like it, you can buy a piece of it. You don't have to work at that company or even make any daily decisions. When the company increases in value, the value of your stake in the company increases as well. When the company decreases in value, the value of your stake in the company decreases as well. When the company pays out a portion of its earnings to shareholders, you get paid to. Does that sound like something you might be interested in the venue for this casual business? Ownership is the stock market. The stock market allows you to become a business owner without ever having to do any of the dirty work. Now, as with any investment, there is never a guarantee of a positive return. But historically, the stock market has averaged about an 11% return. This is the reason that many investors choose the stock market as their preferred place to invest their hard earned money. Let's look a little deeper into this whole stock market thing and find out how stocks can work for you. A stock is an ownership interest in a company. A business is started by a person or group of people who invest some amount of money into the business. How much of the business each founder owns is a function of how much money each person invested. At this point, the company is considered private. Once the business reaches a certain size, the company may decide to go public and sell a portion of itself to the investing public. The venue in which they're sold is called the Stock Market. Initially, a company will go through an I P o or initial public offering in an I P o the company partners with an underwriting firm, which helps determine the specifics. The best offering price. What type of security will it be and when will the stock be brought to markets? The initial price can be determined by comparing the new company to similar companies or by calculating the NPV of the firm, which is the difference between the present value of cash inflows and present value of cash outflows or some other method altogether could be used to determine the price of the AIPO. In any case, at the end of the valuation process in exchange, like the New York Stock Exchange or NASDAQ will have to determine if the pricing of the AIPO was fair. After the AIPO, the stock is ready to enter into the secondary markets. This is where securities are bought and sold after the initial public offering. Before we look into what moves the stock's price, I think we should first look at how a negotiation and a financial market takes place. Imagine you are selling your house and you put it on the market for $200,000. Let's assume that you won't accept anything less than $200,000. Then one day a buyer comes along and says, I'll buy your house for $195,000. But I, Mr Baier, I am not willing to pay one penny more than $195,000. What would happen? Absolutely nothing would happen. The deal is not going to be made until both of you agree. The same is true for the stock market. Let's take a look. When you look at a stock's price, you have the bid ask in the last traded price. The bid price that is displayed is the highest price. Someone is willing to buy it in the market, and the ask price that is displayed is the lowest price someone is willing to sell at in the market. These prices also have a certain quantity attached to them. These are referred to as passive orders, the last traded price that is displayed as the last price where a deal was made, and F Y I In every deal. In the stock market, there is a buy and sell that occurs. Let's say we see a stock that has a bid of $50 an ask of $51. What is this saying? This is saying that someone is looking to buy a $50 someone is looking to sell at $51 just like the housing example. If no one budges on their price, then no deal is made. It's not until someone says, Just give me the best price that the market moves When someone says, Just give me the best price, they're placing a market order. This is referred to as an aggressive order Now, many people will tell you that the market moves up when people buy and the market moves down when people sell. But this is not completely accurate, since every transaction has a buy and a sell. Aggressive orders move a stock's price behind every displayed bid. You have prices that progressively get lower and behind every displayed ask. You have prices that progressively get higher again these air passive orders that are waiting for someone to come along and agree with their price. You may want to buy at $50 but I may want to buy a $48. You may want to sell at $51 but I want to sell it $53. When an aggressive order depletes the quantity available at a certain price, the stock price will move. For example, let's say we own 300 shares of a stock and are looking to sell at the best price available . The stock currently has a display bid of $50 a quantity of 100 shares, again that saying that someone is looking to buy 100 shares at $50. Let's say the next best bid is $49 it has a quantity of 100 shares, and the next best bid is $48 it has a quantity of 300 shares. When we place our market order to sell 300 shares at the best available price, we will get 100 shares at $50.100 shares at $49 and 100 shares at $48. Our aggressive order to sail is pushing down the price of the stock every time we deplete the quantity available at a certain price. Aggressive buys work the same way to push the price higher. What I just described to you was essentially supply and demand. This isn't necessary to know before trading a stock, but sometimes it is good to know how things work. When you buy a stock, you become a business owner, and over the long term, the value of that ownership stake will rise and fall according to supply and demand, which should be directly related to the success or failure of the business 8. Stock Market Fundamentals - Knowledge Check: Okay, now let's answer a few questions on stock market fundamentals. I p o stands for a initial private offering. Be issue public offering. See initial public offering. Bone bone, bone bone bone bone bone bone bone bone bone bone bom bom abobo bone bone, bone bone, bone bone, bone phone, mobile phone, phone. Boehm bone bone. Oh, yeah, a stock owner has a creditor interest in a company. A true be false own boom boom boom boom boom boom boom boom boom boom boom bom bom bobo bobo bone bone bone bone bone bone from bobo bone bone Boehm Boom Boom. A stock is an ownership interest in a company, not a creditor. Interest in a company. The market where stocks are bought and sold after the initial public offering. A primary markets be secondary markets Bone, bone, bone, bone, bone, bone, bone, bone, bone, bone, bone, bone, bum bum abobo, bone, bone, bone, bone, bone, bone, bone bone, bobo bone bone, Boehm bone bow, An I P. O. Takes place on the primary market. Stocks are bought and sold amongst investors in the secondary market. Use the table to answer the question. But looking at a quote for stock X, Y Z. What bid and ask will be displayed. A bid of $99. Ask of $102 B bid of $100. Ask $101. See bid of $98. Ask of $103 The bid of $97 ask of $104 bone bone bone bone bone bone bone bone bone bone bone bone bum bum abobo bone bone bone bone bone bone, bone bone, bone bone Boehm bone bow. Correct a mondo. Use the table to answer the question. If I place a market order to buy 400 shares of X Y Z, what price or prices will I receive? A. $101 be $101.102 dollars C $101.102 dollars and $103 or d. $101.102 dollars, $103.104 dollars. Bone, bone, bone, bone, bone, bone, bone, bone, bone, bone, bum, bum, bum, bum, abobo, bone, bone, bone, bone, bone bone, bone, bone, bone bone Boehm Bone Bowl. Placing a market order for 400 shares will give me 100 shares at $101.200 shares at $102.100 shares at $103. What causes a stock price to go down? Is it a selling? Be buying, See aggressive orders to sell de aggressive orders to buy bone bone, bone, bone bone bone bone bone bone bone bone bone bom bom abobo bone bone bone bone bone bone bone bone bone bone, bone bone Boehm Blohm Bo Aggressive orders to sail our market orders and what caused the stock price to go down? 9. Stock Market Summary: Congratulations. You have just completed the stock markets. Fundamental section. Here are the takeaways. Ah, stock is an ownership interest in the company. Aggressive orders, also known as market orders, move the market. Every transaction in the stock market consists of a bye into cell. 10. Mutual Fund Fundamentals: listen closely because I am going to tell you how to bake a vanilla cake. First, we gather all of the ingredients you'll need 3/4 a cup of flour, 3/4 a cup of butter, three eggs, one teaspoon of baking powder, a pinch of salt and a teaspoon of some vanilla Extract you and then mix all of the ingredients together and then place all of the ingredients in a cooking pan. Heater oven to 350 degrees and cook for 50 minutes. Once the cake is done, allow the cake to kool than cut a slice of the cake and enjoy. Now Each slice of cake that you cut contains all of the ingredients that were put into the cake. One slice has many components that make up that slice. The same can be said for mutual funds. Mutual funds are like a big cake where the baker uses securities as the ingredients. Each share of the mutual fund is like a slice of cake now, just like there are different ingredients in different cakes. There are also different securities that make up different mutual funds. Let's delve a little deeper into the world of mutual funds. Mutual funds allow a group of investors to combine their cash for shared investment by pooling their money. Together, the investors can invest in a broader range of securities than they could if they bought them on their own. There are several advantages to owning mutual funds. Let's take a look at some of them now. Professional management. One of the main advantages of mutual funds is that a professional investment manager takes care of all of the research and trading for you. In fact, this professional investment manager will have a team of people that will help them manage the fund diversification. With the mutual fund, you can spread your investment risk across many different holdings. Diversification is a big part of financial planning, and mutual funds handle diversification for you. Variety mutual funds exist across many different asset classes and have many different strategies as well. There are many different fund types to help you meet your investment needs and your investment horizons. Let's take a look at some of the disadvantages to owning mutual funds fees. Mutual funds cost money to run. This includes everything from the investment team salary to periodic investment communications when choosing mutual funds. You should be cognisant of the fees associated with your mutual fund and make sure to compare them to the fees of similar mutual funds. Liquidity. This is my least favorite part about mutual funds. Mutual funds will have one price at the end of the day that you can trade at, buy or sell. Mutual funds typically have a deadline in which they can be traded each day. If you request to buy or sell a mutual fund before their trading deadline, you are typically entitled to the end of the day trading price. This means that the market is tanking and you want out right away. Too bad you're stuck until the end of the day. So let's take a look at some of the terms you'll see in your company retirement accounts. When looking at mutual funds, not only will you see the mutual fund company name, you'll typically also see terms like blue chip income growth, cyclical defensive, small, mid large cap. But what does it all mean? Investors have different objectives and different investment horizons to satisfy this knee securities have been categorized according to their investment characteristics. Let's take a look at some of these strategies. Now, keep in mind that mutual funds are comprised of other securities, so we'll take a look at some of the characteristics of the securities that make up the mutual fund. Blue chips. Blue chip stocks are stocks of large, stable companies that have a long history of stable earnings and evidence and are typified by the stocks composing the Dow Jones industrial average, like General Electric, Caterpillar and Microsoft. Because of their large size, there is very little potential for a high growth rate, so most of the return of these stocks is in the form of dividends. Income stocks, income stocks or stocks that generate most of their returns and dividends. And the dividends of common stock will, in many cases, row continuously year after year. As the company's earnings grow. These companies have ah high dividend payout ratio because there are few opportunities to invest the money back into the business that would yield a higher return on stockholders equity. That means that many of these companies are already very large and are also considered blue chip companies. Growth socks Growth stocks are stocks of companies that reinvest most of their earnings into their business because it can yield a higher return to stockholders in the form of capital gains than if the money were paid out as dividends. Now, growth stocks tend to be riskier. Growth stocks tend to decline much more than blue chip or income stocks in a declining market, because investors tend to sell their stocks that don't pay any dividends. One of the main benefits of growth stocks is that capital gains, especially long term capital gains where the stock is held for at least one year, are generally taxed at a lower rate than dividends, which are taxed as ordinary income value stocks. A value stock trades at a price below where it appears it should be based on its financial status and technical trading indicators. Warren Buffett is a value stock trader. If that tells you anything, when you were trading for value, you are saying I see something in this stock that the market doesn't currently see, so I want to buying now before the market sees what I see in this stock. Cyclical stocks. Cyclical stocks move with the economic cycles going up strongly when the economy is growing and declining as the economy declines. A lot of these companies supply capital equipment for businesses or big ticket items such as cars and houses for consumers. Some examples include Home Depot, Caterpillar in General Motors. Usually the best time to buy these stocks is at the bottom of a business cycle, and the best time to sell is when the cycle peaks. Defensive stocks, defensive stocks, air stocks that are resistant to the economic cycles and may even profit from them. When consumers and businesses cut back spending, some businesses may profit either because they offer a way to cut costs or because they have the lowest prices. While most retailers were hurting significantly during the 2000 and eight financial crisis , Walmarts was one of the few that actually thrived, since WalMart has usually recognized as providing lower prices than other retailers. When economic times get tough, people still need the necessities food, clothes, shelter. In addition to the categories I've talked about. There is also this term refer to as a cap small cap, mid cap and large cap cap is referring to market capitalization. Market capitalization is determined by multiplying the share price of a stock by the total shares outstanding. Ah large cap company is one with a market cap greater than $5 billion. A mid cap company is one with a market cap between one billion and $5 billion small cap companies air valued at less than $1 billion. The large cap stocks consist of the blue chip income, defensive and cyclical stocks. Large cap stocks have the best price stability and the least risk. Midcap stocks can contain most, if not all, of the stock categories, since their market caps range from the top of the small cap market to the bottom of the large cap market. A special kind of mid cap stock are the baby blue chip stocks, which are stocks of companies that, like the blue chip companies, have consistent profit growth and stability and low levels of debt but are smaller in size than the large cap blue chips. Small cap stocks are small companies that have the greatest potential for growth, meaning most of these stocks are growth or speculative stocks. Small cap stocks tend to do better than other stocks at the beginning of an economic expansion, unless their growth is constrained by the availability of credit since they tend to rely more on bank financing than larger companies that can issue debt instruments to raise capital. 11. Mutual Fund - Knowledge Check: Okay, now let's answer some questions on mutual fund fundamentals. Which of the following is not an advantage of mutual funds? A professional management Be liquidity See diversification bone bone bone bone bone bone bone bone bone bone bone bone bum bum abobo bone bone bone bone bone bone bone bone bone bone bone, Rome bone bo. This is considered a disadvantage to owning a mutual fund because you can only trade once a day. Typically, that's at the close of business. On the trading day, value stocks reinvest most of their earnings into their business. A true be false bone bone, bone, bone, bone, bone, bone, bone, bone, bone, bum bum bum bum abobo bone, bone, bone, bone, bone, bone, bone, bone, bone, bone Boehm Bone bowl growth stocks reinvest most of their earnings into their business. Which of the following is an advantage of owning mutual funds? A variety Be fees see liquidity boom boom boom boom boom boom boom boom boom boom boom boom Bom bom bobo bobo bone bone bone, Boban boom. Some bobo bone bone Boehm bone bo. This is considered an advantage to owning a mutual fund because of the many options that are afforded to the investor stocks that generate most of their returns and dividends. A growth be value. See income bone bone, bone, bone, bone, bone, bone, bone bone bone bone bone bum bum abobo bone bone, bone bone bone bone, bone bone bobo bone bone Boehm bone Bow Wow! A small cap company is a company with a market capitalization of what size? A less than $1 billion B one billion to $5 billion. See over $5 billion Bone, bone, bone, bone, bone bone boom, boom boom boom boom boom bom bom bobo bobo bone bone bone, bone bone, bone phone, mobile phone foam Boehm Bone bowl Uh huh. 12. Mutual Fund Summary: Congratulations. You have just completed the mutual fund section. Here are the takeaways. Mutual funds allow a group of investors to combine their cash for shared investment. Advantages are professional management diversification and variety. Disadvantages are fees and liquidity. Blue chip growth value income. Cyclical defensive are some stock categories. Market capitalization is determined by multiplying the share price of a stock by the total shares outstanding. 13. Bonds, Booms and Building Portfolios: Now that you know about stocks and mutual funds, what about Bonds and how do we approach booms and mad excitement in the marketplace? And how do we build a portfolio to meet our short and long term goals? Let's say that next year you want to take a vacation. How would you invest your money now? Or how about college education? Let's say that he just had twins and you want to invest for their college education? How do you invest now for something that is to take place about 18 years from now? There are many ways to reach your goals, and we'll discuss some of the techniques. Now let's find out. Maurin bonds booms and building portfolios. A bond is a fixed income investment in which an investor loans money to an entity like a corporation or government for a defined period of time. In exchange for loaning an entity money the borrower pays the investor periodic interest until maturity wants the bond matures. The borrower repays the face value of the loan, said differently. With bonds, you are a lender, and with stocks, you are an owner with bonds, you have three main types. Corporate Eunice Apple and Treasuries. The highest risk and the highest return is with corporate bonds and the lowest risk and lowest return are with Treasuries. Municipal bonds falls somewhere between corporate bonds and Treasuries with risk and return , but the interest from most municipal bonds. Orme Younis, as they're also called, is exempt from federal taxes. Next, let's look at booms and investor excitement in the marketplace. Booms happen. Ah, boom is a period of rapid economic increase for example, the dot com boom in the late nineties, the gold rush of the mid 18 hundreds and possibly the crypto currency market of 2017. What you have to keep in mind when looking at these types of investments is that they are typically going to be considered very risky, which means that while there may be a huge opportunity for gain, there could also be a huge opportunity for loss. So with that in mind, tread lightly because, as history has shown us, all that glitters is not gold. Finally, let's look at building a portfolio. Now. You should know that there are many ways to construct a portfolio, and those ways range from very simple to very complex Let's look at some of the simpler strategies to building a portfolio. Step one. Know your risk. Tolerance. Your risk Tolerance is the level of risk you are willing to take. In general, people tend to be more risk averse than they think they are, which simply means that you don't want to take on that much risk. In general, stocks are riskier than corporate bonds, which are riskier than municipal bonds, which are riskier than Treasury bonds. Mutual funds can be anywhere on the risk spectrum as it depends on what the mutual fund is invested in. Step to know your investment horizon. When do you need the money? One year from now, five years from now, 20 years from now, the short of the time horizon, the more conservative your investments will need to be. The longer your time horizon, the more aggressive your investment can be. Step three. Determine your asset allocation for retirement accounts. Some investors use the rule of 100. This operates under the assumption that you should gradually invest more conservatively. The closer you get to retirement, the rule of 100 states your percentage of stock allocation should be equal to 100 minus your age. So according to this model, ah, 30 year old would have a portfolio that is 70% stocks and 30% bonds in the 60 year old would have a portfolio that is 40% stock and 60% bonds. Your asset allocation should match your risk, tolerance and your investment horizon. Ultimately, your asset allocation needs to earn enough to reach your goals and not have a risk level that will keep you from sleeping at night. I checked my stocks every day. You should get into the habit of checking your investments on a regular basis is well, though it's not necessary to check your account every day. You should always know how it's doing and adjust if necessary. This is your money. This is your life. Take control of your financial decisions and take control of your life. 14. Bonds, Booms and Building Portfolios - Knowledge Check: Okay, now let's answer some questions on bonds, booms and building portfolios. When you invest in bonds, you are an owner. When you invest in stocks, you are lender a true be false bone bone bone bone bone bone boom boom boom boom boom bom bom abobo bone bone bone bone bone bone bone bone bone bone Boehm bone bow. When you invest in bonds, you are lender. When you invest in stocks, you are an owner. Which of the following bond types pay interest that is typically free from federal taxes? A. Treasuries be municipals. See corporate bone, bone, bone, bone, bone, bone, bone, bone, bone, bone, bone, bone, bum bum abobo bone, bone, bone, bone, bone, bone bone The bobo bone bone Boehm bone bo Municipal bond interest is typically free from federal taxes. People tend to be blank risk averse than they think they are. A more be less boom boom boom boom boom boom boom boom boom boom boom boom bomb bomb Bobo bobo bone bone bone, Boban boom phone bobo bone bone, Boehm bone bow People tend not to like risk in the volatility it can bring. If I need to have $5000 in two years for a trip to Europe. What is my investment horizon? A. $5000 Be Europe See two years bone bone bone bone bone bone bone bone bone bone bone bom bom abobo bone bone bone bone bone bone bone bone bone bone bone Boehm bone bow Your investment horizon is the duration of time before the money is needed. The rule of 100 states that your asset allocation should be blank conservative. The blank your age a more older be less older. See more younger bone bone bone bone bone, bone, bone bone bone, bone bone bum bum bum abobo bone bone, bone, bone, bone, bone bone the bobo bone bone Boehm bone bow. In general, the rule of 100 says that you should gradually move your asset allocation to be more conservative. The older you are. Investments in the stock boom presents huge risk and no opportunity. A true be false boom boom boom boom boom boom bone bone bone bone bone bom bom bo bo bo bone, bone, bone, bone, bone, bone, bone, bone, bone, bone, bone, bone Boehm 00 Investments in the stock boom presents huge risk and huge opportunity 15. Bonds, Booms and Building Portfolios Summary: Congratulations. You have just completed the bombs, booms and building portfolio section. Here are the takeaways. Investors of bonds are lenders. Investors of stocks are owners. The common bond types are corporate, municipal and treasury booms present huge risk and huge reward stocks are riskier than corporate bonds, which are riskier than municipal bonds, which are riskier than Treasuries. Know your risk? Tolerance? No, your investment horizon. Make your asset allocation match your risk, tolerance and investment horizon.