Stock Market Investing Mastery

1. Welcome - Course Introduction: Hey there and welcome to the stock market investing course. My name is Griffin and I am super excited to have you on board and get you started with the full curriculum so that you can become a well-versed stock market investor for yourself and reach your financial goals. I created this investing course because I2 is once in a position where I wanted to explore the idea of growing my wealth over time through the stock market, but really had no concrete idea of where to start, which is most likely the position that you're in right now. So even after graduating from my Bachelor of Commerce, I still didn't have a hands-on and practical approach to stock market investing in particular. And so for this reason, over the past four or five years, I have set out to learn as much as I can about stock market investing through reading and dozens of books, taking additional courses, learning from mentors and crafting my very own stock market portfolios. This is allowed me to gain invaluable experience that I honestly felt obligated to share with the world. And that is the reason why I created a YouTube channel speaking about stock market investing in the first place. However, I really wanted to take it one step further with this investing course for individuals who wanted to learn how to properly analyze a company and see whether or not it fits with their overall financial plan and stock market portfolio. Over the past 56 months, I've been creating and refining this course it down to a curriculum that's going to provide any individual aspiring to be an investor, whether an obvious or intermediate, with the proper tools necessary in order to create your very own US stock market portfolio for future success. So if you're watching this right now, I applaud your initiative to better your finances through this investing course. And by the end of the course, I guarantee that you're going to be in a better position to approach stock market investing with an eye of expertise in order to better determine which financial securities are best for your goals as an investor. In this course, we'll be exploring and dozens of relevant concepts divided up into seven individual modules, starting with a basic investing principles to build up your foundation of knowledge about the stock market. And then once you feel comfortable with your level of understanding, we're going to be diving into creating your very own stock market portfolio based on a series of relevant questions about your investor profile and risk tolerance. This way, you'll feel confident that your investment portfolio perfectly suit your specific needs and goals. By the way, it take your time going through all the curriculum of this course and make sure to re-watch any individual lectures that you might feel you lack proper comprehension. After all, there's over 55 individual lectures in this course. So don't rush your learning if you don't have to. Once again, I really can't wait to get you through all the curriculum of this course. So let's get right into the first lecture. 2. Why Invest?: Hey there and welcome to the first official lecture of this course. We're currently still in module one, which is going to cover some basic concepts and ideas around stock market investing, as well as covering some preliminary steps that you're going to want to take as an individual before you actually start investing in the stock market. So even though these might be topics and concepts that you've heard of before, I highly recommend that you watch through all of these lectures in the first module to make you a better rounded investor and really understand why it's so important to invest in the stock market in the first place. And the whole goal here is really just a spark up some critical analysis about your own finances and goals. This first lecture is all about why you should be investing in the stock market over the long term, which after all, is the entire goal of this course. Alright, so the primary reason why people invest in the stock market in the first place or any other form of investment for that matter is in order to allow their money to work for them while they can work on other activities such as growing their income. And two, then it reinvest back into their investments or spend time with family, basically anything else that doesn't require the individual to actively trade their time for income. This is really the primary t as to why investing exists in the first place, which is putting your money to work for you in order to grow your wealth over time without always having to actively trade your time for income or engage in other income generating activities. The main goal of all investors is to place their capital into an investment vehicle and then how that investment worked for them around the clock, thus growing the initial capital into a larger investment. This is why the growth of the capital invested over time, as well as the income generated from the investment is what's known as portfolio income, which you're gonna be learning all about throughout this course and how you can go ahead and generate portfolio income so that over time you're able to grow the value of your investment as well as the amount income coming in from your investments, which is called portfolio income. In order to read multiple streams of income and not strictly rely on one single form of active income, such as, for example, your job. With everything that we learned in this course about technical analysis of companies and funds. Always remember though, that the main primary objective of an investor is to place their capital into an investment vehicle habit worked around the clock for them and then grow the value of the investment over a period of time as well as generating income. This quickly sums up the main reason as to why investing in the stock market is so beneficial and it's going to help you achieve financial success over the long run. The second main reason why many individuals choose to invest in the stock market is typically to save towards retirement at a quicker rate than what can be achieved by simply working your job and then saving a portion of your income each and every month. Ultimately, this comes back to the first that we just spoke about. However, when investing in the stock market, you automatically unlock something called compound interest on the funds that you invest in your portfolio. If you aren't too familiar with a concept known as compound interests and not to worry, we're gonna be learning all about this concept in the second module of this course. But if you're looking to save for retirement or any goal for that matter, investing in the stock market is going to allow you to exponentially grow the value of your investments in your portfolio. If you're able to choose appropriate funds and specific companies that are solid and are going to be able to grow over time. Now obviously in this course we're gonna be learning all about how to properly analyze a company or a fine from a financial standpoint to make sure that it is a winning position that over the long term should be able to provide your portfolio with steady and appreciation and income, which really is the definition of passive portfolio income, where you can just reap the rewards of your investment and not have to actively manage the investments in question. This is also the reason why sticking to a long-term plan of investing in the stock market can create massive levels of wealth over time relative to strictly saving your income. This is because when investing in solid companies and funds that create income for your portfolio as well as appreciate over time because they're great companies that are actually growing their revenues. This is what's known as a productive asset. And with compound interest, the growth of your portfolio is going to follow an exponential pattern instead of a linear pattern, such as width, just saving your income each and every month. Again, though, we're gonna be covering compound interests in its entirety in module two. Moving on to the third reason why investing in the stock market is beneficial to practically everyone is because by doing so, you're not only growing your net worth and wealth over time, but you're also creating multiple streams of income for yourself over time. One of the main goals that all investors should strive for is to really create multiple income streams because this is going to not only exponentially grow your income over time, but it's also going to hedge against the risk of potentially losing one of your income streams down the road. For example, if you're currently in a situation where your job is you're only income stream while the moment where you lose your job or that job is in jeopardy, your unfortunately, you're going to be any tough financial situation. If someone who is looking to invest in the stock market, it's really important that you always remember that there's two primary reasons for investing in the market in the first place. Number one, being a growing the value of your investments and wealth over time. And number two. To create a stream of income for yourself so that you're able to multiply your income streams and a hedge against the risk of losing one at down the road. Now, even though it can take years or even decades to create a substantial income stream from your portfolio. It's still a goal that all investors should really strive for. Now at the topic of creating multiple income streams, really should be a whole course in itself where we speak about various business opportunities and ways that you can go ahead and multiply your income. This course is not about that, however, do keep in mind that that creating a stock market portfolio that creates income for you over time is really one of the easiest ways to create that passive income stream or portfolio income stream, I should say, over a period of time where you're just re-investing your income as well as a contributing on a monthly basis. This is one of the simplest ways that you can do so over time with consistency. In fact, I stock market portfolio that creates monthly income for you as well as appreciates over time, is what's called a money system. And this is hands down the easiest form of portfolio and passive income that you can create in your life. Creating this money system starts the day that you change your mindset and decided to open up an investment account and start contributing to it on a monthly basis. So this is why I am super excited to get you through all the modules of this course so that you can be exposed to all the curriculum and understand how to properly create your own stock market portfolio to build your wealth over time. And finally, the last main reason why investing in the stock market will be beneficial for you over time is so that you can build your wealth while retaining its value by beating inflation levels in an era of extremely low interest rates, such as what we're living through right now, as well as the federal government's printing more money than we've ever seen before as never been more critical to invest your funds into solid assets and investments that are going to appreciate over time and create income for you so that you can achieve a greater rate of return than inflation without going into technical detail about how inflation works just quickly here so that you better understand the concept. We'll ever, since we decided to leave the gold standard as the baseline for measuring wealth, instead of opted for a government backed solution where now central banks are regulating how much money is out in supply in the economy. Well, this is now exposed us to a possibility of more and more and more money being printed and pushed back into the economy in a difficult situation such as during the whole coronavirus pandemic. And at what this really does is each time a new money is printed, this D value is the money that is currently sitting in your bank account. So really what does all this mean? Well, simply put, if you're only saving money in a high-interest savings account, instead of deploying it into productive assets that are appreciating overtime and creating income for you while your money is at a high-risk of devaluation, every single time the government prints more money, which causes inflation. And typically inflation is at around 2% per year in a healthy economy. Now if this seems complicated at all, I really want you to understand from this point is the fact that it's great to save a certain portion of your income and a high-interest savings account in order to have some funds saved up, for example, if something happens and you need to access cache quite rapidly. However, it's really going to be important that if you aspire to grow your wealth over time and create income for yourself, if you're going to want to invest in the stock market, in it, productive assets, alright, right, so that covers the four main reasons as to why investing in the stock market is beneficial for pretty much investors of all causes. In the next lecture, we're gonna be taking this one step further in order to properly demonstrate why saving your money is not going to be nearly as beneficial as investing in the stock market of following a long-term solid investment plan. 3. Long-Term Investing vs Saving: Hey there and welcome to the second lecture of module one at building out your foundation. In this lecture, we're going to be comparing the relative difference between investing in the stock market in order to grow the value of your wealth and investments over time, as opposed to simply saving your money in a high interest savings account each and every month. This lecture is going to be quite quick because I really just wanted to showcase the primary reason as to why over the long-term, the compounding of both capital gains as well as even an income that you're receiving it from your stock market portfolio is going to eclipse any sort of income that you can generate from simply saving your money in a high interest savings account. And once again, if you aren't entirely sure what compound interest is, as well as capital gains and dividend income. And not to worry, we're gonna be covering all of this in detail in modules 23 of this course. Now first off, it's important to mention that first and foremost that the appreciation on an annual basis that you're gonna be able to achieve from your stock market portfolio as well as the interest rate that you're gonna be able to get it from a high interest savings account will vary greatly over the course of time that you maintain your investment or your savings account. So for the sake of this example, we're really just going to be using some average rate of 2% for the high-interest savings account and then 7% appreciation on an annual basis of the stock market portfolio, which are both average and are gonna be able to highlight the point that I'm trying to get across in this example before comparing examples of a high-interest savings account and the stock market portfolio. It's also important to note that interests that you're incurring from a high-interest savings account is going to be taxed at your marginal tax rate. Whereas appreciation from capital gains as well as the income degenerating from dividends are going to be taxed at a favorable rate, which is really going to have an impact on the final value of your investment or your savings over the long term. With that said, if you hold your investments in a tax-free savings account, which we're gonna be learning all about in Module four. Well, this is a registered account that has a tax sheltering benefits. So you're able to grow all your investment over the long term and get this all on a tax-free basis, which has a major impact on the relative value long-term of your investments. All right, so with that said, let's quickly compare two examples of the growth of $2 thousand in both a high-interest savings account at a 2% annual interest rates and then in the other example, another $2 thousand. However, this is going to be growing at a 7% interest rate as well as a 3% annual dividend yield for this comparison. And we're gonna be using a simple growth calculator in order to just demonstrated the concept at hand, starting with the example of the high-interest savings account, Let's start with an initial account balance of $2 thousand and you are going to be contributing a $500 to the savings account each and every month at a yearly interest rate. Let's remember, of 2%, which currently is going to be among the highest rates in Canada due to the current state of the economy. And at the underlying interest rate that the central bank has set well over the course of a 30-year savings period, this statement account would have grown to roughly $250 thousand in value. But let's also remember that this yearly interest income would have been taxable at your marginal tax rate each and every year that it is earned. So in reality, this would actually most likely be closer to the $215 thousand range, which is quite a big difference. And if you were in the highest tax bracket in Canada, this would be even lower as we just looked at in this example. If you're simply saving a portion of your income each and every month in a savings account at a relatively low interest rate year-over-year, it's gonna be really hard to significantly grow the value of your savings as well as your net worth over time. However, it, Let's now look at the second example of a stock market portfolio with the same initial parameters of starting with 2000.500 of monthly contributions. However, with this example, we're gonna have a 7% annual appreciation rate, any 3% annual dividend yield. For this example, we'll be using a different calculator that allows us to add a dividend yield and also reinvest those dividends back into the value of the portfolio that's growing it at a much quicker pace. All right, so we're going to add the $2 thousand to the initial balance and the monthly contribution is $500. It just like with the previous example, what changes, however, in this example is that we'll be inputting an average of 7% annual appreciation, which is relatively standard for equity markets in North America, and the dividend yield is 3%. The dividend is basically a percentage of the share value that accompany redistributes to shareholders as cash on a yearly basis will indicate that the company grows this dividend distribution by 5%, which is just a standard. And let's remember that this is just an example to demonstrate my point. And finally, it will indicate that the drip is on an drip is just an acronym for dividend reinvestment plan, meaning the dividends received automatically go and repurchase more shares of the company in question by taking this box right here, we're just saying that yes, at the dividends will be reinvested. And finally will the portfolio will be taxed. And we're gonna put knowing this example as if this was all in a tax-free savings account that we're gonna be speaking about once again in module four when we execute the calculation and we can see that the portfolio has grown to a value of $845 thousand over the same 30 year period. This is roughly $600 thousand more that you've generated by investing in the stock market, rather than simply saving your money in a high-interest savings account. This is really the power of compound interest as a result of appreciation of the value of the holdings and dividend income combined. Now obviously, let's keep in mind that this is a very cookie cutter example. But nonetheless, I hope this gives you a preliminary understanding of why investing is so critical for the long-term growth of your wealth, as opposed to simply sucking away your money in a savings account. Another thing to consider is that if this portfolio was in fact built any tax-free savings account and none of this income and the appreciation would ever be taxed, which makes a major impact on your returns. So this was really just a quick example of comparing a saving to stock market investing, where it was stock market investing, you're able to benefit from compounding of appreciation and dividend income being a reinvested into the portfolio over time. And hopefully this just really open your eyes as to the opportunity cost that you'd be leaving on the table if you're not investing. Now obviously you've purchased this course or you're interested in stock market investing. But nonetheless, I hope this just really give you a foundation as to understanding at the relative difference here. In the next lecture, we're gonna be covering a handful of preliminary steps that everyone should take before investing in the stock market in order to really set yourself up for success. So I'll see you there. 4. Before Investing - Do This...: Hey there and welcome to the third lecture of module one, building your foundation. In this lecture, we're gonna be covering a couple of preliminary steps that I always recommend that my viewers and students conduct before starting to invest in the stock market or any other form of investment for that matter. I know that, Hey, you're already in this course and it's really tempting to want to go ahead and jump into investing right away. However, I'm someone who's trying to teach you how to take hold of your finances from a global point of view. And before actually jumping into the stock market and purchasing stocks and other securities, It's really important that you first follow a couple of preliminary steps because this is going to lay out your foundation and set you up for long-term success by avoiding as many pitfalls as possible. Remember that even though this is a stock market investing specific course where we're gonna be learning all about how to properly analyze companies and set up your very own portfolio based on your investor profile and asset allocation later on in the course, ultimately, the whole goal here is that I want you to succeed it from a global financial perspective. And so in order to do so before investing, you need to properly set the stage from a personal finance perspective. Otherwise, if you jump the gun too quick, you could be exposing yourself to unnecessary risk. So with that said, there's really only a three preliminary steps to take before starting to invest in the market. And they're really simple. We're gonna be covering them in this lecture and then we're gonna be getting to the investing part of the course shortly. And not to worry, I know we're speaking about a lot of preliminary topics beforehand. However, it's really important that you do follow these three steps. I've seen this many times in the past where viewers have reached out to me wondering what to do because they did go ahead and invest in the market without proper education, such as the curriculum that you're gonna be learning in this course. And then they did this also without following these three preliminary steps, basically putting them in a really difficult financial situation, which is the last thing that I want anyone watching this right now to fall into. The first step to follow before investing in the market is super simple and I guarantee you heard about this before. And that is to have a certain amount of savings put aside in order to hedge against any unfortunate events that might happen in your life where you need to dip into savings in order to cover living expenses. So this is what I call an emergency fund. And at all times I like to recommend keeping at a minimum three months worth of all your expenses in that savings account that you never touch personally, I could even go up to six months or more. However, three months is the bare minimum. So we're talking here living expenses in terms of housing, rent or mortgage, as well as utilities, hydro, water, garbage, and at food, etc. Anything that is going to be considered a living expense have added a minimum of three months in a savings account that he's put aside in case you ever need to dip into that. Now, another concept of an emergency fund and just having savings to cover your living expenses is nothing new and you've most likely heard of this before. However, this is more important than ever before, especially considering what just happened in the global economy with the whole coronavirus pandemic, people were losing their jobs left and right, and unemployment skyrocket up to the 15% range in Canada and the United States. And yes, people were relying on government subsidies, but also relying on the emergency funds that they set up in advance in order to foresee this type of event happening. If you didn't properly set up an emergency fund of your living expenses, this could very rapidly turned into a negative situation where you're forced to take on significant amounts of debt, which is the last thing that you want to do if you're looking to successfully invest in the stock market. Another thing to consider about the emergency fund is that I have people all the time that asked me whether or not they should invest before having this emergency fund. And to me the answer is always no because what happens if you do end up having a certain portfolio of investments that you're really happy with and they're going up in value, you're doing great and something happens in your professional life where let's say you lose a source of income and then you have no money coming in in order to cover your expenses. And your then a forced to go ahead and liquidate your holdings, even if you're in a position where you didn't necessarily want to cash out your holdings. This is something that could very well happen if you didn't properly set yourself up or set up a foundation at before investing. So to summarize the emergency fund, I know it's really exciting to want to jump right into investing as soon as possible, but make sure to always maintain at a minimum at three months worth of living expenses. And if you're able to boost that up to six months, make sure you do that as well because you're really just going to have peace of mind and you gonna be able to focus on a growing your investment portfolio. The second preliminary step to take before investing in the stock market is paying off all high-interest debt. Now, I know this is a concept that you've most likely heard of as well. So we're not going to use spending a ton of time on it. However, this isn't just as important as it setting up your emergency fund and with the paying off of high-interest debt before investing in the market, this really just comes down to plain math and risk mitigation. In my opinion, any form of consumer debt, meaning debt that isn't used in a way to generate more income by leveraging those funds into a deal that's generating a higher percentage than the interest you're paying on that debt. That is also going to be above five to 6% interest rates should be eradicated at all costs before you start investing in the stock market. And this really comes down to two primary reasons. The first reason is more from a psychological standpoint, when you pay off your high-interest consumer debt, you're essentially lifting off this black cloud from your shoulder that's weighing you down. And that can be very stressful, leading you to make a less rational decisions in other aspects of your financial life, such as basically all the investing drops that we're about to speak of in at one of the next lectures. The second reason is from a pure math and risk mitigation standpoint. So whenever a viewer asks me whether or not they should start investing before paying off their high-interest consumer debt on either personal loans or credit cards. I always tell them this, there's a one-hundred percent chance that you're going to have to pay the ten to twenty-five percent interest rate that you're carrying on your credit cards or your personal loans. But in the stock market, even though we're gonna be learning how to invest it properly and analyze companies in order to put more chances on your side to generate nice interests over time as you're investing, there's never a 100% guaranteed, no matter what anyone tells you, that you're going to generate a higher return than, let's say 10% on a yearly basis that you would 100% have to be paying it to your credit card provider in the form of interest. Here's an example to illustrate my point. Let's say you had a credit card or a personal loan that was at a 1% annual interest rate. Well, if you went ahead and purchased a dividend stock that had a 5% dividend yield then, okay, that could make sense because essentially this is a productive asset that's generating you a 5% dividend yield and you're utilizing money at a one-percent interest rates. So therefore you have a 4% spread there. However, if you're jumping into investing in too quickly before paying off your high-interest consumer debt at a 510, 20% interest rate on a credit card, for example, you're setting yourself up for a very, uh, difficult right ahead. And finally, the third preliminary steps that you're going to need to conduct before investing in the market is to properly identify your investor profile, meaning identifying your goals and limitations as an investor. Because this way you're going to be able to properly conduct the analysis of companies that are going to suit your investor profile and your goals. So not to worry if this is the first time that you're hearing about the concept of an investor profile, we're going to be determining your own profile later on in module five of this course, you can go ahead and have a proper asset allocation within your stock market portfolio for future success. Mapping out your investor profile as well as your strategy and goals as an investor in compliment to learning how to properly analyze a company and fund is really what's going to differentiate a proper investor from a gambler or a speculator. This way you're gonna be able to approach the construction of your portfolio from a viewpoint and that is going to suit your needs as an investor. To sum up this lecture, proper financial literacy is the most important element in overall financial success, as well as knowing how to properly analyze a company and really just know what you're looking at when analyzing financial statements. This course is a great start to becoming a well-rounded investor. And I can't wait to get you in the actual concrete technical analysis that we're gonna be starting in module two. In the next lecture of module one, we're gonna be learning about how to properly strengthen your investor mindset. 5. Investor Mindset: Hey there and welcome to the fifth lecture of module one that building your foundation. In this lecture, we're gonna be learning all about at different elements for strengthening and the mindset that's critical for you to adopt as an investor if you're looking for long-term success and to avoid as much as possible being emotional with your investments, which always leads to sub-par performance of a portfolio. If you've watched any of my YouTube videos, then you've most likely heard me speaking about keeping emotions of all kinds out of your investing. That in making decisions based on emotion and impulsive decision-making is the number one way that you can guarantee to lose money in the stock market. The reason for this is because if you're a long-term a buy and hold investors such as myself and you're investing in companies that you've properly analyzed. And for this reason that you believe that it's going to appreciate nicely over the long-term, well, over this investment horizon, it's just inevitable that you will go through periods of economic prosperity and economic slowdown casing point at the time of filming this video and this entire course for that matter, we're living through the coronavirus pandemic. We just had a major impact on business and economic slowdown basically across the globe. And in turn, it has had an impact on the returns of stock market investors. However, it's really important to remember that this is just one period in your overall investment horizon. So during this period of time, let's say 30 years until retirement, it's inevitable that you're going to go through more periods of economic slowdown and economic prosperity. But if you consistently contribute to your account and continue investing over time, the value of your investment will go up on an exponential level as we're going to learn more about later on in this course. For example, when looking at a historical graph of the American S&P 500, which is a broad market index of the 500 largest American companies. This showcases the periods in history when the stock market entered a downturn where as an investor, you're positioned would have most likely gone down in value. However, this is really just part of a healthy market because overtime and the market goes through cycles. And you just need to remember that when you're investing over the long-term and consistently contributing to your account, you will inevitably experienced periods of time when the value of your investment temporarily goes down, but over the long-term and the stock market and basically always goes up in value. The average bear market, which is a downturn where the equity markets fall by 20% or more from the pre flash highest for a prolonged period of time, it typically lasts anywhere from six months to 2.5 years, with a total market declined by 33% over this period of time. This is apparent here on this chart where you can see that before the current corona virus induced crash, there were 11 bear markets since 1956. On the flip side, a bull market is a prolonged period of time or the market in question, and we'll appreciate by 20% or more, typically lasts around three years for the S&P 500. And we'll appreciate by roughly a 151% during that period of bull market territory. Once again, at this chart demonstrates the gains in each of the 11 bull markets between 19562011. So we can really see here that bull market a typically take up a larger percentage of stock market timelines. So over the long term, if you're investing into the market consistently and buying quality companies such as what we're going to learn in this investing course, you can basically guarantee that the value of your investment will grow over time. This chart clearly demonstrates that when you approach your investments with the mindset that you're going to be a long term buy and hold investor. It is inevitable that you're gonna go through both market periods of bear and bull markets. But you really need to train your mind to be an investor here rather than a speculator. Because if you get caught up in emotions and end up selling at, during a bear market, you can basically guarantee that all the games that you accumulated at during your bull market periods is going to be lost due to the fact that you're not sticking to your long-term plan. This course is going to teach you the best strategy to utilize to buy into the market. If you're a long term buy and hold investor as such as myself and why sticking to the financial plan that you're gonna be developing for yourself throughout this course is critical for long-term success and so on that note, let's quickly cover a handful of characteristics that make up the mindset of a successful investor. The first important characteristic of a successful investor mindset and we already just covered and that is to keep all emotions if your investment decisions at all times. What I mean by this is letting a non-rational decisions and thought processes that take over when buying into or off-loading a certain positions. This is a reoccurring theme that applies to all forms of investing, whether stock investing in real estate investing, basically any type of investing that you can think of. Because when it comes to making proper investments, it's really important that emotion and be put to the side and then you take a step back before buying into are offloading certain positions. So that it really just makes sense from an actual rational standpoint in your overall investing strategy. An example of this would be putting a substantial amount of money into a stock that you have not researched because someone on Facebook or a friend of yours has said, this talk is about to blow up without doing proper research. This is a type of situation where the thought of making a huge returns in a short period of time, it can lead it to emotion taking over and not doing a rational decision at that fits in your overall investing strategy. It's pretty simple, but the best way to keep emotion out of all your investing decisions is to, first of all, properly research all the companies that you're looking to invest in and then stick it to your overall investing plan and strategy that you're going to be mapping out in this course. And finally, always make sure to have an exit strategy for each of the positions that you're looking to buy into. Another example of a motion taking over or it could be buying into a specific stock that you've done proper research on and you believe that over time it's going to appreciate nicely and provide your portfolio with a nice appreciation. And quickly after making this purchase, let's say a week later the stock ends up going down at 5, 10% it without actually thinking about why you purchased the stock in the first place and how it's going to benefit your portfolio long-term. You basically decided to cut the loss right there because emotions took over and it was too much to see the value of your portfolio goes down. I know this seems like a pretty basic concept to master. However, I see this time and time again with people who messaged me after watching certain videos on my YouTube channel, we're obviously going to be learning how to properly analyze a company in a fun later on in the course, however, I really just want you to remember that for being a proper investor and developing a proper investor mindset, not only are you going to have to develop a technical skills for analyzing companies, but it's also really important that you develop your mindset as an investor in order to help you whether through periods of economic downturn where the value of your portfolio could go down. And this is a prime period where new investors will typically lose sight of their end goal and decided to cut their positions when in a period of loss. The second most important element to crafting a proper investor mindset. Yet so many people disregard a completely making them a speculators rather than investors. And then wondering why their returns are all over the place is not knowing anything about the companies that they're investing in or doing the proper research and due diligence about the financials of the company. If you want to be a successful investor and gain anything out of this course. And it says one of the number one things that you need to remember at all times when you're looking to buy into new companies and add them to your portfolio. And that is to always conduct proper research on both the financials of the company, as well as just the overall management and qualitative characteristics of the company. It's critical that you always take the time to properly look into accompanies balance sheet financials, historical financials and leadership, which are all elements that will make the difference between a successful and not so successful investment. Something I see so many new investors often forget is that when investing in a stock, you're not just investing in a stock, you're actually investing in a company that has leaders, workers, company culture, clients, and so forth, in which all contribute to the overall success long-term of that company. And then in turn also the success of your investment for day traders who are looking at stocks strictly from an analytical point of view and seeing if short-term price fluctuations can return money for them. This isn't nearly as important as long term buy and hold investors such as myself and most likely you if you're following this course, it's really critical once again, that you just look at the company from a global standpoint, but with a financial as well as leadership and everything in-between. Because these are really the elements that are going to make a long-term successful company and that's going to return you a more money long-term and your investment and what you put into it initially. And finally, for the type of investing that we conduct on my YouTube channel and in this investing course at one of the key elements for long-term success in stock market investing is it really just patient and resilient to outside market forces? As we discovered when looking at the historical S&P 500 graph, it's really just normal and healthy for markets to go through cycles of prosperity and slowdown, a period of economic slowdown where the value of your portfolio temporarily goes down does not necessarily mean that your overall long-term strategy is in jeopardy. It really just means that your portfolio is riding through a period of potential economic slowdown, which is completely healthy and natural over the entirety of your investment horizon. You need to be aware of the fact that from time to time and you are going to encourage short-term losses. But if this is accompany or a fund that you've done your proper research and due diligence on, then there's typically going to be no reasoning to materialize a loss by selling it in the position of when that actual position hasn't lost temporary value. Instead, this is typically going to be an opportune time to buy more of this investment that you believe in long-term awhile it's in a position of being at a lower price point. The goal of this lecture is not to teach you how to do this right now we're gonna be learning all about that later on in this course. But for now, I really just want you to remember that it's completely normal and healthy for the stock market. They go through different cycles of economic slowdown as well as prosperity. This is something that you will experience during your investment horizon when we learn about properly constructing a stock market portfolio in module five based on your investor profile and risk tolerance, we're gonna be taking into account how exposed you're willing to be to these market fluctuations. So that wraps up this quick lecture on some elements that keep in mind that for building a proper investor mindset, if you want to be successful long-term with your stock market portfolio. And I know some of these concepts were actually quite basic, but you'd be surprised at how many people message me on a weekly basis where they're investing in companies that they don't understand have not done proper analysis on and don't really know how it fits in their overall strategy and long-term plan. This wraps up the first module of this investing course, and I really hope that you're able to properly implement all the concepts that we just learned in each one of these lectures before actually starting to invest in the stock market. Now in the next module, we're gonna be learning all about investing fundamentals from a, what a stock is a real estate investment trust, how to properly read a balance sheet, cash flow statement, etc. And put all of this together in order to learn how to properly analyze a given stock or fund. 6. What is a Stock?: Welcome to the first lecture of Module two Investing Fundamentals. In this lecture, we're gonna be covering one of the most important topics in this entire course and debated bleed the most important topic of stock market investing in general, and that is what a stock is, how they work and why stars can be classified differently. The topics that we'll be covering in this lecture include what is a stock and what is their relation to a company? Why do stocks exists in the first place and how are they issued? And then finally, why stocks can be classified differently, including the most traditional types of stocks, which are dividend, growth and value stocks. The first element that we should be covering so that you understand the fundamentals here is what A-star even is. Quite simply the word stock is sort of like a fancy name used to refer to partial ownership in a publicly traded company that issues shares out to the public. Other terms used in the investing world to refer to stalks include shares. So shares in a publicly traded company which represents the amount of stock that you own, as well as equity, which is the amount of shares for that given company that you own, which altogether represent your equity stake in that company. Public corporations or companies that have decided to make themselves available for trade on a stock exchange. And for this reason, these companies issue shares out to the general public which investors such as UNI, as well as large institutions, can buy and sell these partial ownership stakes in the company, also known as stock. So the next time they hear someone say, Hey, I just bought some stocks of Apple computers or I purchased some shares of IBM. Well, what this individual really means is they purchased individual ownership stake in that company. This entitles that shareholder to their relative portion of the company's earnings and assets moving forward, let me give you an example by comparing two scenarios so that it's very clear for you. So let's say you decided to start a company with a friend and you are both equal partners at 50% ownership each. Well, this essentially means that you own a 50% of the company, and therefore you're entitled to half of all these companies earnings as well as assets moving forward with the development of this company. The same is true with publicly traded companies. However, with these types of corporations that because they are much larger ownership stake in the company are referred to as shares or stock in the company. And typically there are millions of shares issued out to the public that investors can buy and trade. For example, though, to make things really simple, let's say accompany had at 10 million shares issued out to the public and you went ahead and purchased 30% of all those shares, representing a 3 million shares. Well, in this particular scenario, you essentially are a third owner of that publicly traded company and are entitled to 30% of the company's earnings and assets moving forward, it's really as simple as that. And being a shareholder in accompany, it gives you the right to vote in shareholder meetings as well as receive dividend payments when the company decides to distribute dividends out to shareholders. However, we're going to be speaking about dividends more specifically in Chapter four. And finally, being a stockholder allows you to trade the shares that you own for that company on an exchange to other investors, which is basically the main goal of owning shares of accompany anyways, with the hopes of buying them at a lower price than what you're going to sell them for later on in the future. Now in the old days when you purchase shares of accompany, you quite literally received a piece of paper representing the amount of shares that you own in that public company. However, these days it's quite a bit simpler as shares of these companies are traded between investors as well as institutions on what is known as a stock exchange, which is basically a marketplace for trading shares of companies in Canada. For example, we have the Toronto Stock Exchange as well as the Canadian Securities Exchange. And in the United States, the two main stock exchanges are the New York Stock Exchange, also known as the NYSE and the nasdaq, which is an online only marketplace in order for investors to trade shares of companies. And nowadays we use what's known as an online brokerage, which is basically the modern equivalent of a physical stock broker that you see on trading floors in movies such as, for example, The Wolf of Wall Street, these online stock brokerages allow investors to have a lot more autonomy, flexibility and reducing costs on the trades at the execute for their stock market portfolio. In module six, we'll be discussing at two of the main discount online stock mortgages that I personally recommend for all retail investors in Canada. And we're going to be speaking about all the details for each one so that you can know exactly which one is suitable for your needs and goals as an investor. Moving on now, I'd like to mention that there are typically two types of stocks that companies will issue out to the public. The first one being what's known as a common stock. And 99% of the time when you're buying and selling shares of companies on an exchange, you're going to be dealing with common stock. However, there's also what's known as a preferred stock and each one has their pros and cons. We're going to be diving into that right now, starting with comments dollar, because this is the form of stock you'll be dealing with most in your own portfolio, the shareholder who owned common stock is entitled to three main elements. The first one being a voting rights. So as we spoke about earlier, someone who owns 10% of all the common stock in a company is going to have a much higher voting power than someone who only owns, for example, a 0.05% of the common stock and accompany. The second main element is dividend distribution. So as a common stockholder, you're entitled to your relative value of dividend distributions when the public company does decide to distribute dividends out to shareholders. And the third main element is the equity of the company. So as the value of the company grows and the shares appreciate over time, if you own, for example, 10% of all the common stock in the company, as those shares would go up in value over time. So it is your equity stake in the company. The second form of thought is called preferred stock, and this very slightly from common stock in that preferred shareholders do not have any voting power. However, they are first in line to receive dividend payments, as well as the fact that they're first in line to receive it their share of the company if and when the company does go bankrupt, it's important to note that preferred shares typically do not appreciate over time nearly as much as common stock. And so for this reason, we're gonna be focusing on common stock or preferred stock in this investing course. I didn't want to provide you with a distinction between both preferred and common stock. However, keep in mind that for most retail investors, including myself and yourself, 99% of the time that we're going to be dealing with common stock because it's the most widely used and will benefit your portfolio most in terms of long-term appreciation. Now that we have a better idea of what is thought even is and how they can be traded between investors. Let's now dive into the question of why a company might decide to go public in the first place. Therefore, issuing shares of their company to the general public were investors such as you and I can go ahead and purchase these individual ownership stakes in the company. The main reason why a company would decide to open themselves up to the public and issue shares of their company for purchase is to raise capital to scale up the operations of their business. So for example, if a company is looking to acquire new assets or expand into a new territory, or if the company, let's say, is looking to further their research and development, well, by issuing shares out to the public, financial institutions will first have the opportunity to purchase those shares, which basically raises additional capital for the company. Going public also has the added advantage of providing shareholders with a much higher level of liquidity in regards to their ownership in the company. So let's say someone owns, for example, 10% of all the common stock in a public company. Well, they could decide to easily liquidates a one-percent or even the entirety of their position in a matter of seconds on a public exchange. Whereas with a private company, this is much harder to achieve because as setting up the sale of your ownership is a much lengthier process. And finally, for this lecture, let's go over a preliminary coverage of the main types of stocks. So even though at its core, a stock remains the same from company to company being a partial ownership stake in that company. Well, investors, it typically tend to categorize stocks into three main categories based on their underlying characteristics being the growth stock, the dividends stock, and the value stock. The first and most popular type of stock is what's known as the growth stock. And this is thought from a company that is characterized by rapid growth of operations. And so for this reason, investors tend to believe that a gross stock is going to allow them to outperform the overall appreciation of the general market during a shorter term period of time. The reason why growth stocks tend to provide a greater opportunity for investors to outperform the market in a shorter period of time then, for example, larger and more established companies is because these companies are in a rapid expansion and are reinvesting all of their earnings back into the operations of the company and are often even taking on higher levels of debt in order to fuel this rapid growth and expansion of revenues. For this reason, companies that are characterized as being a growth stock and do not typically pay out dividends to shareholders because their efforts are concentrated elsewhere and paying out a portion of their earnings to shareholders as a form of dividend would be a gain to the overall goal of the company. Popular and well-known examples of true gross stocks would be, for example, a Shopify, Uber, Lightspeed, and Tesla. One thing to mention, however, with gross stocks is that generally speaking, accompany that still in full-on growth and expansion mode and that still has not yet established themselves in their industry, does come with a higher level of potential appreciation and their share price for investors. However, it also comes with a higher level of risk because the stalk is much more volatile and the actual price of the stock is highly determined on whether or not the company is able to maintain investor expectations of the earnings for their company, as you've most likely heard before, or higher returns typically comes with higher levels of risk. The second type of stock that we'll be covering is what's known as the dividend stock. And this happens to be one of my favorite types of stocks because a dividend stock is a company that pays out a portion of their earnings to shareholders for doing nothing more than simply holding the stock, which is the most passive form of investment and that someone can achieve. Typically speaking, a dividend stocks are going to be blue-chip companies that are well established in their industries and are in a position where they can redistribute a portion of their earnings back to shareholders because they don't need to reinvest all of their earnings back into the growth and expansion of their company. Well-known examples of dividend stocks that you've most likely heard of before include Coca Cola, TD Bank, Royal Bank of Canada for dessert incorporated, or IBM. Having a mixture of both growth and dividend stocks in your portfolio can be a great way to diversify your investments. And we're gonna be speaking about portfolio construction in module six. So don't worry about that right now. Finally, the last type of stock will be covering is what's known as the value stock, which was popularized by famous investors at Charlie Munger and Warren Buffett, if he, you've most likely heard of before. So the value stock is a stock that is considered to be trading at an undervalued price point relative to its true value in relation to the company's balance sheet and financial statements. So the goal here is that you're able to get in on a position at an undervalued price point and you'll be able to benefit from greater appreciation once the stock inevitably goes back up to its true value. Now typically a value stock is going to be a larger and more established company instead of being a growth stock. And the price of the stock can be trading at an undervalued price point for a variety of reasons. Typically, this will be from a short-term negative outlook for a given company or industry. However, if the actual financials of the stock a steel, strong and solid, this can be a great price point and time for a value investor to get in on the position for future growth and appreciation of the stock. So to wrap up this first lecture on stocks, I really hope that you now have a better understanding of what stocks are, why they exist, and why they are categorized differently. In the next lecture, we're gonna be covering the topic of what bonds are and once again, why they exist and how they can be categorized differently. Also keep in mind that in this module we're learning the fundamentals of stock market investing and the different concepts. But later on in the course, we're actually going to be tying everything together and constructing your very own portfolio. 7. What is a Bond?: Hey there and welcome to the second lecture of Module two Investing Fundamentals. In this lecture, we're gonna be speaking about the second most common type of financial security that is typically held in a stock market portfolio for proper asset allocation and that is the bond. The topics we'll be covering in this lecture include what is a bond and why do they exist? Bond yields and coupon rate different types of bond, including corporate government and municipal bonds. And then finally, how bonds are impacted by interest rates. Before speaking about the different types of bonds and how bonds can provide your portfolio with fixed income. It's important that we first understand what a bond even is and what the relationship is between a bond issuer and the purchaser of the bond. Quite simply, a bond is a debt obligation between two parties, the first party being the bond issuer known as the borrower in this case, and then the investor who is picking up the bond in return for predetermined interest payments, which is the reason why you may have heard the term fixed income before. Investors referred to bonds as fixed income securities because they provide your portfolio was steady and predictable interests payments from the issuers of the bonds. Think of a bond as sort of the opposite of when you owe to the bank for a loan because you are in need of money for financing a project. Well, in this particular situation, the issuer of the fund, which is the bank, is going to lend you money and in return, the borrower who is u, in this particular situation, is going to have to pay interest payments with a bond. It's the opposite of the example we just looked at were in this scenario, it's the government or corporate entity that's in need of raising capital for financing projects. So the government or a corporation will issue bonds out to the public. Investors as well as financial institutions can purchase these bonds and in return receive interest payments on their land and money. Inversely, as we saw in the previous lecture on stocks, companies can also issue out shares of the company in order to raise new capital. And they can do so pretty much whenever they so desire. However, by issuing out more shares, there's a dilute current shareholder equity. And so for this reason that many shareholders do not typically like it when accompany will continue issuing out more shares because it dilutes their stake in the company. Issuing the bonds can be a nice alternative for raising capital when financing projects, just like when issuing more stocks into the market, does a variety of reasons why a corporation or government would issue bonds in order to raise capital with a corporation, for example, they might issue bonds in order to raise capital for research and development or expanding into a new market and with a government entity, the reason why they might issue bonds is to pay for hospitals, roads, infrastructures, and the list goes on. Basically anything that accompany or government can want to raise money for. They can do so by issuing bonds. And the reason why bonds come into play here is because the issuing party is not always able to obtain the required amount of financing from traditional lenders such as banks and credit unions. So in this particular case, the government or corporation can look to the general public in order for them to pick up their debt obligations. It's also important to understand that bonds are initially issued out to the public at set price points, which can vary depending on the issuer of the bond. For example, a company could decide to issue 10 thousand bonds out to the public at a face value of $1000 per bond, raising $10 thousand in capital for the company for which they can do whatever they please. However, once these bonds are initially issued out to the public, they then fall into the general market where the price can fluctuate based on what the market thinks is a fair price for them, based on a variety of different factors, including the underlying interest rate of the economy, as well as the credit worthiness of the issuer and a variety of other factors. Because just like stocks bonds trade on exchanges and their price point is in constant flux. Now when bonds are issued, there's certain information that's required to be disclosed in relation to the terms of the bond, including the face value, which is the amount to be paid back at the end of the term, the length of the loan known as the term of the loan, as well as the interest payments to be made to the lenders known as the coupon rate. And finally, the date at which the principal capital fronted to buy the bonds must be paid back in full, which is known as the maturity date of the bonds. Let's actually take a moment here to go over each one of these individual characteristics so that you fully understand all the elements related to how bonds work, starting with the face value of a bond, this is the amount of money that the bond is worth at the end of the bond term. And he's also the amount of money that the bond holder will receive from the issuer at the end of the term for this bond. This is also the value on which the coupon payments are based off of. Let's look at a quick example here. So let's say a bond that had a face value of $100 is circulating in the market and to different individuals picked up this bond at a different price points. The first one at $60 for the bond and the other one at $140 for the bond. Well, once this bond reaches maturity, regardless of what the individuals paid for them, they will receive $100 from the issuer. The maturity date of a bond is the date at which the face value of the bond will be paid back to the bond holder by the bond issuer. And note that a bond can have a variety of different term lengths, ranging from one to three years for a short-term bond, three to five years, or even ten years for a medium-term bond, and then five to even 30 years for a long-term bond. Typically speaking, a bond that has a longer-term is also going to have a higher coupon rate because during this longer period of time, the bond holder is more exposed to fluctuations. Relative to the coupon rate, as well as fluctuations of the price of the bond itself as the underlying interest rate of the economy fluctuate over time, the coupon rate is essentially the dollar value in interest payment that the bond issuer is going to be paying out to the bond holder. So if, for example, a bond has a predetermined coupon rate of $3 on a $100 face value bond. Well, this translates over into a 3% coupon yield on an annual basis. It's important to note, however, that the coupon yield, so the percentage that you're receiving in fixed income varies in relation to the fluctuating price point of the bond and not the actual value that you're receiving. What I mean by this is that the coupon rate is predetermined by the issuer of the bond. In this case, let's say $3. However, the coupon yield will fluctuate over time as the actual price of the bond fluctuates. In the open market, a bond will guarantee a certain coupon rate, which is a dollar figure set by the issuer of the bond. And then the bond yield is determined by a fluctuating price point of the bond in the open market, this is the same thing for a dividend yield for a stalk, which we're gonna be learning about in module four. The coupon dates are the specific dates that a bond holder will receive their interest payments. No one here as the coupon payments from the issuer of the bond. Typically with bonds, this is done on a semi-annual basis in contrast to a quarterly basis typically with stocks. However, ultimately this doesn't really matter because you're receiving the same amount on an annual basis. Now that we understand the foundation of what a bond is and how they work, let's speak about what factors come into play when a bond issuer sets the coupon rate for the bond because not all bonds are equal. And this has a major impact on the coupon rate that investors require in order to take on a certain level of risk associated with the bond. Just like with pretty much all investments, the level of return that a bond can provide your portfolio is in relation to the level of risk associated with the bond. The higher the risk, but generally the higher potential return for an investment. So in the case of a bond, There's primarily two factors that come into play here. The first one being the credit worthiness of the bond issuer, and the second one being the term to maturity of the bond term, starting with the credit worthiness of the issuer of the bonds. This is basically the same thing as if you go to the bank and request a loan. If you have a poor credit rating and the bank will typically require a higher interest rate in order to lend you funds. Well, in the case of bonds and the issuer of bonds, if they have a poor credit rating, as well as carrying a riskier profile. Generally speaking, the coupon rate of these bonds will need to be higher in order for investors to feel comfortable it taking on a higher level of risk in regards to corporate and government bonds, the credit worthiness of the issuer's is predetermined by a credit rating agencies. So you don't need to worry about requesting a higher coupon rate from the issuer of the bonds. The screening of credit worthiness typically categorizes bonds into either investment grade bonds which are issued by reliable government or municipal entities or from large, stable cab companies. For this reason, these types of bonds have a much lower coupon rate because they're more stable and predictable. Now on the other hand, bonds that do not fit this investment grade category are categorized as junk bonds because they're issued by corporations or government entities that have a riskier credit profile and a higher chance of potentially going bankrupt and not paying out the coupon payments or repaying and the face value of the bonds less than speaking about how bonds fluctuate in price during the term of the loan, as well as what outside influences that have an impact on the pricing of bonds. Because let's remember here that bonds are publicly traded, financial securities that are traded every day on exchanges. It just like stocks, the value of bonds are determined by the ebb and flow of the market. The most important factor that comes into play in regards to the price of a bond fluctuating in the open market, is it the actual underlying interest rate of the economy? So let's say for example, a bond has a face value of $100 and the coupon yield at a current moment is 3%, which would mean that the bond holder would receive $3 annually for holding that bond. Now if the interest rate offered on a bond issued by the government, for example, on a short-term one-year $100 face value bond was safe 5% annually. Well, this does not make the corporate bond at a 3% annual yield nearly as attractive as the new government bond. And so for this reason, in the open market and the corporate bond at a 3% yield, which in this example, let's say it was a $100 face value bond at a $3 coupon rate. Well, this would not make it nearly as attractive as that government bond. And so in the open market, typically that corporate bond will fluctuate down to a price where it equalizes the underlying interest rate of the economy, which in this case is 5%. In this particular example, the corporate bond at a $3 coupon for yield would most likely lower in value down to around $60 for that bond. That the coupon yield would then be 5%, which equalizes the government yield. With this in mind, the main factor contributing to the fluctuating price points of bonds in the open market is the interest rate environment. And you can keep in mind here that when interest rates go up, bond prices go down. When interest rates go down bond prices, it will tend to go up. It's really for this reason I strategic to hold both fixed income instruments as well as equity positions in your stock market portfolio so that you have a well-diversified mixture of financial assets in your portfolio in order to avoid being overly exposed to certain asset classes at, during economic cycles, depending on your goals as an investor as well as your investor profile, you might want to hold a higher percentage of equity positions or a higher position of fixed income positions in your stock market portfolio. However, we're going to be determining all of this later on in the course so that you have a portfolio that perfectly suits your needs as an investor. All right, so that pretty well wraps up this lecture on bonds. Hopefully you now have a better understanding of what bonds are and how they work. And then we're also going to be exploring how you can fit bond ETFs into your portfolio later on in the course in module six, the next lecture is going to be on ETFs, also known as exchange traded funds. So I'll see you there. 8. Exchange-Traded Funds (ETFs): Hey everyone, welcome to the third lecture of module two, the Investing Fundamentals. In this lecture, we're gonna be speaking about an increasingly popular type of financial security that is quickly becoming a go-to instrument for well-diversified portfolios. And it is the exchange traded fund, also known as the ETF in the investing community. The topics we'll be covering in this lecture include what is an exchange traded fund and how do they relate to a market index? What are the different types of ETFs available and y are ETFs beneficial assets to hold any stock market portfolio. In the last two lectures, we covered what individual stocks and bonds are, which makes up a grade base fundamental understanding of stock markets securities. However, for many individuals, especially new investors, it can make sense to hold exchange traded funds in your portfolio for multiple added benefits. I've actually spoken about ETFs quite a bit on my YouTube channel before, due to the fact that they offer investors a variety of benefits, all with one single holding. In the last few lectures we covered what individual stocks and bonds are giving you a base understanding of financial securities. However, for many individuals, it can be strategic to also hold a variety of exchange traded funds in their portfolio in order to gain the benefits of diversified exposure, all with one single holding its core. An exchange traded fund is basically a basket of financial securities, which can be either stocks, bonds, commodities, or other financial securities that are all grouped together into one single fund that is then traded on a stock has changed throughout the training day as you would a common stock, typically when presenting the concept of an ETF for the first time to a new investor, it can be beneficial to think of the ETF as a basket of carefully selected financial securities that are all grouped together in order to try and replicate or mimic an underlying market index. So let's actually take a second here to speak about what a market indexes. That you can know the relationship between the market index and the exchange traded fund in the financial world, a market index is a theoretical portfolio of holdings that represents a certain facet of the market and is used by investors in order to get a snapshot in time of the performance of a certain facet of the market. If that sounded complicated and not to worry, let me explain here. In the financial world, there are thousands of financial securities that investors can invest in, and each one has individual characteristics that represented, for example, they could operate in various industries, be of different sizes, have various trading volumes and dividend yields, et cetera, et cetera. There's so many different characteristics that financial securities can have In a market index is used to group together a certain financial securities based on common criteria. For example, the S&P 500 groups together, the 500 largest companies in the United States. Snp stands for Standard and Poor's. And quite simply, this is accompany that creates these market indexes. Now it's really important to remember here that a market index is price will fluctuate throughout the trading day as the price of the underlying assets in the market index fluctuate themselves in the case of the S&P 500 market index. And this allows investors to basically follow the valuation of the 500 largest companies in the United States over a period of time and essentially see the health of the American stock market. Of the most popular market indexes in North America include the S&P 500 or the Russell 10000, the Dow Jones Industrial, the nasdaq Composite, and the TSX 6D in Canada. However, these are all market indexes that track equities and there are market indexes that track other financial securities, such as bonds, oil, precious metals, and other commodities. This now brings us back to the exchange traded fund or ETF for short, which is the topic of this lecture. So the reason why we briefly spoke about market indexes is because a financial management company that creates an exchange traded fund is going to group together certain financial securities in the same ratios as a market index. For example, earlier we were speaking about the S&P 500 Index, which is a market index created by the Standard and Poor's agency. However, a financial institution such as say BlackRock or Vanguard, would it create an exchange traded fund by basically mimicking the exact as securities and weights for each securities of the underlying index. Examples of ETFs that perfectly mimic the S&P 500 market index would be SPY and VOO in the United States and V at V in Canada. The chart that's overlaid right now is comparing the market index of the S&P 500 to the VSV exchange traded fund, which is basically mimicking the exact same securities as the market index. So as we can see, they basically are following the exact same trend and pattern due to the fact that the ETF is based off of the market index. Now the reason why these are called exchange traded funds is quite simple. First of all, they are a fun, so a basket of financial securities that are all grouped together. However, the reason why they are called exchange traded funds is because these trade on a stock market exchange, just like you would a common stock. And for this reason, the value of one share of an ETF fluctuate throughout the trading day, as opposed to say, a mutual fund, which is also a fund. However, they only trade onetime per day at the end of the trading day, so the value does not fluctuate throughout the day. Financial management companies such as Vanguard horizons and black rock, just to name a few, create these exchange traded funds and then issue shares out to the public for trade on exchanges. One of the main reasons why so many investors choose to use exchange traded funds in their stock market portfolio is because ETFs allow you to gain exposure to a variety of different financial securities in a various different industries or markets without having to do the extensive research for each individual position that you hold in your portfolio as such as, for example, reading through financial statements, balance sheets, and basically just sitting on top of all the news irrelevant to the individual positions, which is necessary practice if you want to be a great investor who is well aware of their investments, investing using an ETF can allow you to gain exposure to hundreds, if not thousands of financial securities and therefore diversifying your risk accordingly. For this reason, you can also utilize an ETF in order to minimize the volatility and risk level of your overall portfolio. Now that we properly understand what an ETF even is and why they are created. Let's go ahead and speak about some of the main advantages that ETFs can provide your portfolio. First and foremost, purchasing an ETF provides investors with instant diversification to all the holdings held within that one single fund or one single holding, as we just spoke about, an exchange traded fund is a basket of financial securities oftentimes holding hundreds or even thousands of individual positions by holding one single share of an exchange traded fund, let's say the S&P 500. Well, theoretically you're owning a portion of every single one of the holdings held within that fund in the case of the S&P 500 and individual portion of every single one of those 500 companies. And so for this reason, you don't actually have to go out and individually select every single one of the positions that you want to gain exposure to. And by owning a stake in multiple different positions instead of one single stock or a variety of individual stocks, your therefore able to minimize your overall exposure to a handful of individual stocks and therefore reduce the overall volatility of the portfolio will be discussing diversification and it's important to later on in this module as well as in module five. However, what I want you to remember right now with an exchange traded fund is that by purchasing this ETF, you're able to go ahead and get instant diversification to all the holdings held within that fund. The second main advantage of ETFs is they're relatively low management fee for the added level of diversification and passivity added to your portfolio in contrast to an actively managed fund, such as say, a mutual fund, due to the nature of what an ETF even is, the companies that create them are basically just mimicking a market index and then providing investors and easy way to gain exposure to a given market index of their choice, in contrast to an actively managed funds such as a mutual fund, which is trying to provide their investors with above average returns, trying to beat the market essentially, this also comes with higher management fees, usually in the one to 3% range depending on the mutual funding question. However, with ETFs, due to their passive nature and simply trying to recreate a market index. This typically comes with a much lower management fee, usually in the 0.05 to 0.7 range. By investing in an ETF, not only are you gaining instant diversification to the financial securities within a given industry or market, but you're also getting this at a very low management fee. Let's summarize the advantages of ETFs in a shortlist. So first of all, they trade like a stock on an exchange which provides investors with a much higher level of liquidity than mutual funds that only trade one time per day at the end of the trading day. The second is that they offer lower expense ratios then actively managed funds and offer investors if fewer brokerage commissions, because you only need to purchase ETFs and once in awhile instead of actively trading stocks and bonds, the third element is that they offer investors risk management through proper diversification because as we just covered, when you purchase an ETF, you're gaining exposure to all the individual positions held within the fund. Finally, there's so many ETFs out there that investors can really go ahead and purchase ETFs that focus on targeted industries or markets of their choice, which is a huge advantage. As mentioned earlier, there's a variety of different types of ETFs available to investors because at their core and ETF is a basket of financial securities that are grouped together in order to mimic a certain market index. For this reason, there are so many ETFs available to investors because there are many ETFs that track of various different industries and markets. For example, there's ETFs that track equities, bonds, commodities, futures, as well as precious metals. And there was also a market indexes that will track certain segments of an industry or segment of a geographical area. Let's now cover a handful of the most common types of ETFs that you'll encounter when starting to invest in the stock market. The first type of ETF is known as a market ETF. And this is an ETF that's going to track an underlying market index such as, for example, the S&P 500 or the nasdaq 100, the TSX 60, or the Dow Jones industrial market index. This type of market ETF will usually serve as what I call a core holding in your portfolio. We're an investor can go ahead and purchase and hold ten to 30% of these broad market index funds in their portfolio in order to serve as a foundational layer of steady appreciation for the future. No worries. We're gonna be speaking in detail about market ETFs later on in the course when we're actually crafting your own stock market portfolio. The second most common type of ETF is what's known as an industry ETF. And he says it in the name here. But with this type of ETF, It's actually going to be tracking a specific companies within a given industry, in a given market. So for example, the banking industry, the energy industry, utility industries and so on. And this allows investors to specifically target a certain industry that they're interested in without having to actually go ahead and individually select only one or two positions. Next up on the list we have commodity ETFs. And these types of ETFs will be tracking a certain commodities such as, for example, oil or precious metals. However, we're not going to be focusing on commodity ETFs in this course because as a new investor, it's much more strategic to focus on equity positions as well as fixed income in order to craft a solid portfolio when just starting out, moving on, we have the fixed income or bond ETFs. And I personally really liked bond ETFs in order to gain exposure to fixed income positions for practically all retail investors, whether or not you're a novice intermediary or even advanced investor. Because for many online brokerages, such as what we're gonna be using in order to purchase individual bonds, you need to purchase at a minimum $5 thousand worth. Whereas with a bond ETF, you can go ahead and purchase one or two shares if you so wish, at only a dozen or a couple of $100 here and there. And also with a bond ECF, you're able to gain exposure to a variety of different types of bonds at a lower cost. For example, corporate bonds, short-term bonds, medium bonds, government bonds, and it'll list goes on. And finally, the last main form, an ETF they will typically encounter as an investor is called the currency ETF, which is a fund that invest in foreign currencies. For example, the US dollar, Australian dollar, or British pound. Basically any foreign currency, you can invest in them, uh, through an ETF and gain exposure that way. However, just like with the commodity ETF, we're not going to be focusing on the currency ETF in this course. Because as a new investor or just a retail investor, he's looking to gain a long-term appreciation in the stock market. This is not a necessary ETF to add to your portfolio. All right, so this wraps up the third lecture in the module to investing fundamentals. And I really hope that you now have a better understanding of what ETFs are, how they work, and how there are different types of ETFs available to investors. Now, in the next lecture we're gonna be speaking about real estate investment trusts, also known under the acronym. Read it. I'll see you there. 9. Real Estate Investment Trusts (REITs): Welcome to the fifth lecture of module two Investing Fundamentals. In this lecture, we're going to be discussing a type of financial security that is generally less popular among investors, but that I believe is a great way to further diversify your portfolio while also gaining income and exposure to a rapidly growing industry, which is the real estate industry. And all of this is achieved through real estate investment trusts acronym, read for short, the topics we'll be covering in this lecture include what is a real estate investment trust in the first place and why are reads beneficial assets to hold any stock market portfolio followed by the different types of rates. And then finally, we'll be speaking about how to evaluate a read because this is somewhat different. And then evaluating a typical stalks are real estate investment trust or reach for short, is a publicly traded company that happens to purchase and manage real estate as their primary business model. And they must arrive at a minimum seventy-five percent of their income from either the sale of property or more importantly, rental revenue reads our financial securities that you can trade on stock exchanges it just as you would a common stock or an ETF, for example, where you're purchasing a fractional shares of the company in question, and in this case with a real estate investment trust, their whole business model is to own and operate real estate and generate income from doing so. Instead of a traditional company, it is a selling of products and services. And by including a real estate investment trust into your stock market portfolio, you're able to easily include a real estate into your overall portfolio, benefiting from both appreciation of the actual properties themselves held within the Trust, as well as benefiting from consistent and dividend income while avoiding all the typical hassles that are associated with physically purchasing a rental properties yourself that most people just aren't interested in. This makes RES and extremely easy way for the average retail investors such as you and I to gain exposure to the Canadian real estate market or even international real estate markets depending on the rates you choose to invest in, which have benefited from a massive appreciation over the past decade or so. That said for accompany to first be considered a read and maintain their status as a reader, they must follow certain criteria. First off, the company must invest at least a 75% of total assets in real estate cash or US Treasuries second at the company must earn at a minimum seventy-five percent of their gross income from rents, interests on mortgages, and that financial real property or real estate sales. They must also pay a minimum of 90% of their taxable income in the form of shareholder dividends each year. Following this, it must be an entity that's taxable as a corporation and be managed by a board of directors or trustees. Finally, a real estate investment trust must have at least 100 shareholders after its first year of existence and have no more than 50% of its shares held by five or fewer individuals. Other benefiting factors of race that are attractive to stock market investors are low barrier to entry into real estate Liquidity, lack of accounting, and then also diversification of actual properties that you can invest in, as well as real estate markets. With that said, let's get a bit more context around why real estate investment trusts are generally seen as good assets for reoccurring and dividend income. The thing about reads is that their main business model is just a buy and hold real estate properties and then generate a rental income from these properties. And in Canada, the federal government that offers at these wreath a nice tax exemption if they redistribute a high portion of their taxable income back the shareholders in the form of dividend income, typically in the 85 to 95% range. And the same thing is true in the United States where real estate investment trusts redistribute and 90% of their income back the shareholders in the form of dividends. For this reason it real estate investment trusts will collect rents from their tenants and then pay for all their expenses and what's left over are typically will be redistributed and back to shareholders in the form of dividend payments. So this is the primary reason why Not only real estate investment trusts typically have a very high dividend yield in contrast to other a dividend stocks, but they also tend to redistribute their dividends on a monthly schedule. So they have a monthly dividend distribution schedule. I personally like to hold a handful of real estate investment trust that will invest in various different sectors of the real estate industry in Canada and across various geographic regions. Specifically Ottawa, Toronto, Vancouver, and Montreal. And most of the time I like to invest in a residential real estate because this is a type of real estate that he's not going anywhere. People needed shelter and will always need a place to live. So this is one of the main reasons why this type of real estate investment trusts will often have a very resilient portfolio. And what's best about real estate investment trusts also is that these types of companies will typically pay a dividend yield from around five to even 7%. And it's not going to jeopardize at the company's cash flows. In Canada and the United States, there are typically two types of real estate investment trust causes with the most common one being equity reads where they're going to actually purchase physical properties. And then from there, typically most equity reads are going to go ahead and specialize into one type of real estate in question. For example, that could be residential, it could be industrial, office buildings, retail, et cetera. The other class of read which is far less common is called a mortgage rates, also known as Emirates, where the ray will actually generate loans to other developers or accompanies that secured by real estate, but doesn't actually hold any physical real estate itself, making them more of a financial company than a traditional reads. And for this reason, we're going to be focusing on the equity reads which are significantly more popular and common in Canada when looking at a specific retired to your portfolio, it might be tempting to utilize the same metrics and financial figures that you would use to analyze a common stock as such, as, for example, earnings per share, price to earnings ratio, price to book ratio, and a variety of other metrics that will be learning all about throughout the rest of this module. But in reality, what's most important when evaluating a read is their own set of criteria and financial ratios that we're gonna be looking at right now. The first and most important figure in order to evaluate a real estate investment trust is known as the funds from operations acronym FIFO. The FIFO of a rate is calculated by adding the depreciation and amortization to the funds earnings and then subtracting any gains on sale of property. The reason why we would do this and why the funds from operations, it gives investors a better picture of a reach operations and their financial viability is due to the fact that that a sale of a property, it could generate a massive influx of cash for the company in a given period, and this will have an impact on the revenues and net earnings. However, the sale of property is a onetime event. So even though it's going to have an impact on the net earnings of the company in that given period. It will not have a reoccurring a positive impact on the company's operations and revenue generation moving forward, such as with rental income, basically the FIFO is a better metric to evaluate the reads quality and net income that's being derived from rental income. And this is a metric that should be used instead of net income when looking at a retail financial viability, the same is true for the earnings per share. In the case of a reach, the FIFO per share is a more accurate depiction of the company's performance. And you can find both the FIFO figure as well as the FIFO per share figure in a real estate investment trust quarterly and annual earnings reports. Now what I'd like to see though, is a growing FIFO figure year over year. Because with this tells me as a potential investor is that this fund is focused on acquiring more rental properties and a generating more high-quality rental income. I'll also optimizing the rents in the properties they also have, instead of selling off their property assets, which skews in that income. Now for a real estate investment trusts due to the fact that their funds from operation is sort of their own version of net income. While in regards to their dividend, a more useful metric for assessing the dividend viability is the FIFO pale ratio instead of the dividend payout ratio. This is basically a calculation of the dividends paid out by the fund that divided by their overall funds from operations. I typically like to see an FIFO payout ratio for a reader that is below 80%. If I, II, III, we're going to be revisiting the dividend pale ratio in the next module, which is dedicated entirely to dividend investing. Once you watch that lecture on the dividend payout ratio, you may want to revisit this lecture on race to fully comprehend the FIFO payout ratio. The third important thing that I look at when assessing the viability of a rete is the resilience of their portfolio and the quality of their tenants, depending on the type of real estate that the fund invest in. Specifically, they're going to have a various types of tenants and tenants that operate in a different facets of business altogether, most real estate investment trust that will have a section within their earnings reports and that is dedicated to their tenants and their tenant mixture. And depending on the economic cycle that we're living through, the type of tenants that have Rita's can have a major impact on the rent collection. For example, during this whole corona virus pandemic period at retail real estate has somewhat taking the turn for the worst because it retail tenants are shutting down their doors and are having difficulties at paying their rents, which obviously is going to have an impact on the revenue collection of real estate investment trust that, that focus on retail real estate. In this example, rio can, which is a popular Canadian read that owns and operates retail real estate could be in jeopardy, however, by looking closer into their tenant mixture, they have focused around a 75% or more of their tenants on staple businesses like grocery stores and pharmacies. So regardless of the economic cycle, they are able to maintain their rent collection. This is really just something that I wanted to mention when you're going ahead and looking at real estate investment trust for yourself, keep this in mind that it's an important factor to know what the tenant mixture is at for the real estate investment trust in question. And finally, the last figure that I typically look at to assess the health and growth of a real estate investment trust is called the net operating income, commonly known as the NOI. The net operating income is a figure which subtracts all the operating expenses of a piece of property in question, or in this case, an entire portfolio from the actual income of the property or portfolio as a whole. And operating expenses can be anything from property maintenance, janitorial services, insurance premiums, utilities, legal fees, and the list goes on. This tells investors how profitable the read operations are before taking into account of financing activities such as mortgage payments. Basically, how much is the reeds portfolio generating before taking into account and mortgage payments as well as tax payments. What I like to see is a growing and net operating income figure year-over-year. Because what this tells me is that the real estate investment trust is able The generate more revenue at a lower operating costs. This wraps up the lecture on real estate investment trusts and completes the initial lectures defining a stocks and bonds, ETFs and real estate investment trusts, which are the four main types of financial securities that you'll be investing in in your portfolio. In the next lecture, we're going to be speaking about why the price of stocks and other financial securities fluctuates in the open market during a training day. 10. Why Stocks Move in the Market: Hey there and welcome to the fifth lecture of module two Investing Fundamentals. In this lecture, we're gonna be discussing why stocks and financial securities fluctuate in value over time in the first place. And although this might seem like a basic or odd topic to cover, it is very important that as an investor, you properly understand what factors contribute to the fluctuation of price points for stocks and financial securities. So that you can better assess which financial securities are going to be more viable for your portfolio. The topics we'll be covering in this lecture include what impacts the price of a stock as well as the market price versus the actual value of a stock. If you aren't familiar with the concept of supply and demand, let me quickly explain it so that we're all on the same page here. On one side is supply is the amount of a given product that's available for trade in an open market, this applies to goods that you buy at the store just as much as it applies to stocks and other financial securities. However, in the case of stocks, a company will only issue a certain amount of shares out into the open market that investors and traders are able to buy and sell. On the flip side, demand is how much investors and traders are wanting to purchase a given stock or financial security and given the fact that there's a limited supply, supply and demand is a relatively basic economic concept, but it applies directly to the reason why the price of stocks fluctuate over time. If there's more demand for a given stock with the supply remains the same, the price point will go up and vice versa. So on a preliminary levels, supply and demand is one of the main reasons why the price of stocks and other financial securities fluctuates over time. However, there are some other specific reasons that we're gonna be speaking about right now. Now, even though supply and demand is ultimately behind the price fluctuations of stocks, it can be difficult to sometimes comprehend why investors might show more interest to a given stock at a higher volume than another stalk. And this ultimately usually comes down to two factors which are qualitative and quantitative factors. With that said, even though the market value of a stock can differ greatly from its true value based on underlying financial fundamentals, the price movements as well as market value of a stock is generally going to dictate what investors feel accompanies worth in a given moment, even though this can change rapidly in a matter of minutes or even a couple of hours. From a qualitative standpoint, there are many factors that can influence the short to medium-term price fluctuations of a stalk. Some examples would include positive or a negative news about the company, as well as the competency of board members or even predictions on future expectation of earnings or expansion lines of the company. Basically from a qualitative standpoint, these groups together the way investors feel about a given stock in the short to medium term, because this can have an impact on the revenues or other financial figures for the company, which is a quantitative element that we're gonna be speaking about shortly. This is the reason why generally when negative news comes out about accompany the stock price will plummet in the short to medium term. However, naturally over time, once investors and the general public forget about this negative news and new information comes out about the company. The stock has the opportunity to creep back up to the price point that it was before. For example, with Delta Airlines, this is exactly what happen when a viral video came out of someone being assaulted in one of their planes in the short to medium term. And this had a negative impact on the price fluctuations of the stock. However, this was before basically the crash that we just experienced where all airlines basically crashed over the board. But this is an example of a qualitative factor that can have an impact on the price point of a stalk in the short-term. Another qualitative element to consider here is that typically the current market price of a stock is going to price in future positive or a negative expectations for the earnings of a company in any given moment right now, for this reason that let's say some negative news about one specific industry came out. And for this reason, a given stock in that industry went down in value in the short-term. Because investors think that this will have an impact on the quarterly revenue figures in the upcoming quarters. Well, in the short-term, investors might price in this negative expectation into the, a current market price, however, fast-forward to when the quarterly earnings report actually comes out. Let's say, for example, the revenue figures were not nearly as negative as anticipated well, because the negative news was already priced into the market value, this could then result in not having a negative impact once again, on the market price of the stock because the negative news was already priced in. And for this reason, the price could actually creep back up to a positive level in once again, the short-term, medium-term. Moving on now to the quantitative factors that have an impact on price fluctuations of a stock. Obviously this also has an impact because now we're speaking about the actual numbers of the company. This can include, for example, the actual revenue figures, net income, the amount of debt that accompanies holding, as well as their operating costs. Basically, everything that has to do with the numbers for the company is considered to be a quantitative element, which absolutely will have an impact on the price point of stocks in the short, medium, and long-term. Now there are many factors that come into play from a quantitative standpoint that investors use when they're analyzing the viability of a stock for their portfolio. And we're gonna be speaking about this in more detail later on in this module when speaking about the cash flow, income statement and balance sheet of a company. However, right now for this lecture, we're first going to be speaking about the revenue figures. Generally speaking, the most important quantitative factors that come into play for the stock price is going to be the revenues and net earnings figures of a company. The net earnings figures are basically the profits that a company is generating after paying all the other expenses. And the reason why this is so important over the long term is because a company is simply cannot survive long-term without a generating profits. It's for this reason that many investors who are looking for a long-term position like to invest in companies that have a nice proven track record of increasing earnings year-over-year, as well as increasing revenues and lowering expenses. Because after all over the long term, a company that's going to be viable is going to need to show profits. Public corporations are required to report their earnings of four times per year in their income statement, as well as a variety of other information related to their finances in their balance sheet and cash flow statement that all investors have access to. The reason why public companies are required to report their earnings and figures four times per year is so that financial analysts can create projections on the future value of the company as well as how it's valued right now. And so that basically anyone who's looking to invest in the company can get a clear picture of what's going on behind the scenes in this company from a financial standpoint in mind, however, that the earnings figure is only one quantitative element that comes into play in terms of the market value of a given company. And this can have the impact of raising or diminishing the current market price of a stock. With that said, in the opening stock market, It's not uncommon to see some stock prices surging, even though they have some counter-intuitive quantitative elements, that generally speaking, are important factors for the viability of a company. For example, with the tech company Shopify Incorporated, which is located in Canada. Well, their net earnings deficit grows larger every single calendar year, which technically or theoretically speaking, it would have a negative impact on the stock price. However, year-over-year, the stock price is surging to all-time highs. This example of Shopify stock price surging year over year. Even though the earnings deficit grows larger every single year, it brings us back to the qualitative elements that we spoke about earlier, because in this particular case, investors are very bullish on the future industry and future earnings of this company for this reason, they are pricing in future expectations of very positive earnings into the price of the stock right now, which is reflected in the current market price. This is a clear example of how both qualitative and quantitative elements come into play when the market determines a fair price point for a given stock. And also demonstrates the complexity of this matter where there are so many factors that come into play. And for this reason, investors have developed ratios as well as metrics in order to help determine it more information about the company. So to summarize everything that we just spoke about in this lecture, the qualitative elements are basically everything that has to do with the company. From an investor speculation and emotional standpoint about how they feel about the company. And then on the flip side, the quantitative elements are actual raw financial data related to how the company is doing. Both qualitative and quantitative elements can be just as important in the current market price of a stock and depending on the company in question. All right, So that wraps things up for this lecture. Hopefully now you have a better understanding of how both qualitative and quantitative elements can have an impact on the market price fluctuations of stocks. We're going to be speaking about more quantitative factors in lectures and 91011, when we dive into reading the balance sheet, income statement and cashflow statements of a given companies. 11. Wealth Building Fundamentals of the Stock Market: Hey there and welcome to the sixth lecture of module two Investing Fundamentals. In this lecture, we're gonna be learning all about the two primary wealth building fundamentals of financial securities that you're going to be buying and holding and how they can impact the long-term growth and success of your stock market portfolio. The topics we'll be covering in this lecture include, first of all, what asset appreciation is, followed by what dividend income is. And then following this, we're going to end the lecture by going through an example of how asset appreciation and dividend income, it can work together to really work wonders and grow your portfolio over time when investing for the long term to grow your wealth in the stock market, there are typically two factors that come into play. The first one being the appreciation of the actual market value of the stocks and assets in question. And the second one being a dividend income, which is income that you're receiving simply for holding those positions, which can then be reinvested back into the portfolio that's buying more shares of the companies and funds are invested in asset appreciation through buying hold stock investing is generally going to be the main way that investors create wealth long-term through investing in the stock market and asset depreciation is very simple. It is the overall appreciation in the value of the stocks and other financial securities that you hold in your investment portfolio, which over the period of time and that you hold these investments can greatly appreciate if the companies or funds that you're investing in Excel, thus creating a very nice financial cushion for you in retirement or any other financial goal that you might have. Now, although the appreciation can greatly vary from one stock to another, depending on the company's you choose to invest in. Historically speaking, large and well established american companies that are part of the S&P 500 will typically grow at an annualized rate of around 8% per year. So if you decide to invest in an S&P 500 ETF or examples such as what we spoke about in the ETF lecture. This will typically grow that investment at around 8% per year. If we look at this chart, we can see the S&P 500s historical annual returns where over a substantial period of time, most years that show a positive return. And this is the reason why investing in the stock market can tremendously build your wealth through the appreciation of your holdings. In module one, we covered the typical length of time for a bull and bear market that once again, and we can see on this particular chart where if you stay invested in quality companies and funds for the long-term, asset appreciation can really take effect and your portfolio will start benefiting from compound interest, which we're gonna be speaking about in more detail in lecture 14 of this module. Now I do want to mention that this is the historical annualized returns of companies in the S&P 500. If you were to invest in an S&P 500 ETF. And these companies are larger and more established in their industry, meaning their revenues are more steady and therefore they have more consistent growth rates than smaller cap companies that can have explosive revenue grows and therefore explosive appreciation of their share price. On the flip side, when investing in a smaller size to grow stock, for example, an investor can typically expect a higher level of return in the 8% annually that you can expect with an S&P 500 index. But this inherently comes with a higher level of risk. Now when projecting the long-term growth of a well-balanced portfolio, typically we expect a six to around 11% annualized growth rate depending on your level of risk. And for this reason, the percentage of your portfolio that is allocated to equity positions, we're gonna be learning all about proper asset and makes it as an asset allocations based on your investor profile later on in this course. So if these are new concepts to you and not to worry in comparison to the S&P 500 historical annualized growth rates for the nasdaq Composite Index, which tends to hold a higher concentration of stocks that are in the technology sector. It has been around 25% over the last five years as of 2020, which is quite impressive and demonstrate how different industries can really appreciate at different rates. At the end of this lecture, we're gonna be going over a concrete example of how asset appreciation and dividend income, which is the second and wealth building fundamental of stock market investing can work together with compound interests to really create a, some massive returns over time for your own portfolio. But first, let's quickly cover what dividend income is if this is a new concept for you. By the way, if you had a chance to browse through the different modules of this investing course, you may have noticed that the third module is dedicated entirely to dividend investing, where we're gonna cover everything that has to do in dividends. They're used where they come from and how they work. But quickly in this lecture, I wanted to cover what dividends are so that you can have a better idea of how they work in combination with the appreciation to really grow your portfolio over time, dividend income is quite simply a redistribution of a company's earnings back to shareholders as a way to thank the shareholders for holding shares of the stock. Keeping in mind that companies are never obligated to redistribute a portion of their earnings back to here holders in the form of dividends. But this is just a nice way to entice potential investors to buy and hold it shares of this company. Typically, companies that redistribute dividends out to their shareholders are well established in their industry and are large companies that have a reoccurring revenue. And therefore, they don't necessarily need to reinvest all their earnings back into the growth of their operations. This is the main reason why smaller companies or companies that are really focused on rapid growth and expansion are not going to be redistributed a dividend out to their shareholders because they're really utilizing all of their income. Back into funding their operations and really focusing on exponential growth of their top line. In return for this though, individuals that invest in smaller companies or companies that don't pay out a dividend, it will typically expect a higher level of appreciation, which comes back to the first and wealth building fundamental of investing in the stock market. For example, the company Coca-Cola has been paying out dividends for nearly 60 consecutive years. And I've been raising those dividend distributions of practically every single year since then, this has beneficial for stock investors because it can provide your portfolio with steady and re-occurring income while also helping grow the value of your portfolio over the course of your investing career. If you decide to reinvest those dividends back into purchasing more shares, once again, will be speaking in more detail about why dividends are beneficial in module three. But I really hope this quick explanation of dividends help you better understand what they are and how they work in combination, appreciation and dividend income being reinvested back into the portfolio can create some massive exponential gains over time. Finally, let's look at a concrete example of how asset appreciation and reinvesting of dividend income back into purchasing more shares can impact the long-term growth of your portfolio with accompany at TD Bank. So let's say you had purchased at $550 worth of TD Bank shares in 1989 at which in today's value as of 2020 is equivalent to around at one hundred, ten hundred dollars. Now at this calculator right here allows you to track the value of your investments, any specific stock with the reinvestment of dividends back into purchasing more shares of the company. In this particular case, we're looking at TD Bank on the New York Stock Exchange at an initial value of $550 invested. And for the sake of a long-term investment, let's assume that each month you added $100 of your own money into the portfolio to purchase more td stock exclusively when executing this calculation. And we can see here that the final value of your $550 initial investment, it would be $221,721 at an annual return of 14.26%. Let's also consider that your $100 monthly contribution would equate to a total contributions of only $37,200 over the 372 month period, meaning appreciation and reinvestment of dividend income for this stock over this 30-year period would have grown your capital invested by $184,466. This is quite impressive and really showcase his firsthand the power of these wealth building fundamentals when investing in the stock market for the long-term. So to summarize this lecture, the two main a wealth building fundamentals of investing in the stock market. Our appreciation of the actual market value of your shares over time, as well as dividend income, which if you reinvest it back into the portfolio that's buying more and more shares over time of this specific companies and finds your invested in these together can create an exponential growth effect. And through what's known as compound interest, which we're gonna be learning all about later on in this module. 12. Understanding Stock Quotes: Hey there and welcome to the seventh lecture of module two, Investing Fundamentals. In this lecture, we're gonna be learning about a very important element about stock market investing. And that is how to properly interpret a current market view of a given stock by understanding how to read a stock, quote, the topics we'll be covering in this lecture include, what is a stock quote a followed by all the elements held within a stock quote. And then following that, we're going to be doing a real-time view of reading a stock quote together, starting off with what a stock quote Even is, it's important that we first think back to what we learned in previous lectures about how stocks are priced in the market. Every day of the week, investors and traders will buy and sell millions of shares of publicly traded companies in stock exchanges. And what we need to really understand here is that the stock exchanges are sort of like instant auction houses for stocks. However, unlike in the eighties, when you had to call up your stockbroker in order to gain information about a certain company or stock that you're interested in. We can now learn irrelevant information about the stalk and question related to their financials as well as preliminary context of other stock in what's known as a stock quote. This is exactly what a stock quote is. It's a current display of relevant financial information about each and every stock to give buyers and sellers a timely portrait of relevant data about the company. Now initially when you're a new investor or the idea of reading a stock quote and interpreting all this data can be quite intimidating and confusing. However, I guarantee you that at the end of this lecture, you're going to understand how to properly read everything that has to do with a stock quote and be able to use it to your advantage. Now also something important to note here is that every single different trading platform is going to have a different version of a stock quote. So even though it might look different 99% of the time all the information is going to be relatively the same. And this is all the information that we're about to look at. The following data points are what most A-star quotes contain and what we're gonna be diving into, starting with the market price and currency, the movement of the stalk, the ticker and exchange the bid, the ask, the open previous close days range, 52-week range of volume, average volume, market cap and the line chart. For the sake of this lecture, we're gonna be learning about the stock vote on Yahoo Finance, which is a stock quote that I personally use all the time in order to get preliminary context about companies that I'm interested in and before doing further research on a specific platform like Western aid. Alright, so here we are on Yahoo Finance as mentioned. And for this lecture we're gonna be looking at the stock quote of the Toronto Dominion bank, which is a large Canadian bank. And Canada it happens to be in the top five, and it also has a certain branches in the US and is also listed on American stock exchanges. The reason why I like Yahoo Finance as a preliminary source for information about stocks that I'm interested in is because they have a very simple version of a stock quote with information that is laid out very nicely with all the relevant information that is typically held in a stock quote. Now I do want to mention that certain ratios and metrics we're actually going to be diving into on a much larger scale in specific lectures dedicated to each one. For example, the earnings per share or the price to earnings ratio and the Beta, just to name a few, but we're still going to look at a preliminary view of a stock quote here so that you can get a better, a picture of what you're looking at when first going on a trading platform and seeing a stock quote. So let's start at the top. Obviously we have the actual name of the company in question, which is the Toronto Dominion bank. Now the ticker is going to be right beside the taker, is essentially a three or four digit code associated with each individual company that is publicly traded on a stock exchange so that investors can quickly reference a given company. Now in the case of Yahoo Finance, it just below the name of the company and the ticker we actually have the stock is changed for which this stock is traded on. In this particular case, it is the American version of the TD stock, meaning it is trading on the New York Stock Exchange. Now if we were looking at the Canadian version of TD Bank, This would say TSC for Toronto Stock Exchange to the right of this, we have the currency in which the stock is trading in, and in this case it is American dollars. Once again at the Canadian version of TD Bank trade in Canadian dollars. All right, so moving on below the name as well as the currency, we have the actual market price at the current moment for this specific stock. In the case of Toronto Dominion bank, it is $48.25 at close at four PM. This is the current price at which the equity is trading at in the market. And this value is going to vary every single second as traders are buying and selling shares of the company just to the right of the market price. We have the variant during the single trading days. In this trading day, I'm filming this after the market has closed at 04:00 PM. So during the trading day it has gone up by $0.78, which translates over to 1.64% in this trading day. And that's the reason why it is in green. Now if it had gone down during the training day, this would be in red and it would most likely be, let's say, negative at $0.78 or negative 1.64% to the right of the market price and the variance during the single trading day, we have the after hours price points. So after hours, once the markets actually closed, because let's remember here that stocks only trade at during weekdays. During business hours or trading hours in this case. So after hours, however, there is a certain trading that happens. And this is going to essentially mean that the stock will open at a given price point the next day. So as of right now for TD, we see that it is still at $48.25. So after hours, there has not been any movement. However, we will typically see movement during weekends and it typically in periods of high volume, whereas stock can open the next day at significantly different price than where it has closed in the previous trading day. Moving on now we have the previous closes. The previous close in this case is $47.47. And this is the price point at which this stalk close that in yesterday's trading day. So in this case, I'm filming right now on a Wednesday, meaning that this was the price point that they stock close that on Tuesday evening at 04:00 PM. The next piece of information below the previous close is the open. The open in this case was $48, meaning that after hours there was some price movements for TD Bank, meaning that it closed at $47.47, but it then opened at $48 because after hours there was some bullish trading going on at where essentially the price was driven up after hours and opened at $48. I want to remind you here that the open can be below the previous close, meaning it could have opened, for example, at $47 instead of 48 depending on how the market was reacting after hours. The next piece of data that we have on Yahoo Finance is called the bid. The bid is the highest price that buyers are willing to pay in the moment for a specific stock. So let me explain a bit more here. The market price of a stock being $48.25 that we're seeing here is essentially the market price of that current equity in any given moment. However, like I mentioned earlier, a stock exchange is essentially like an auction house for equities such as stocks or other things such as bonds, etc. But regardless, it's like a little auction house. So we have both bid and ask prices. The bid is the price that buyers are willing to pay and the ask is what a sellers are asking for in terms of price point for this specific stalk. In this particular case, the bid is $48.24 and the OS is $48.25, which is $0.01 above the bid. Now the difference here between the ask and the bid is what's known as the spread of a stock. In this case, $0.01 is a very small spread, meaning that if you initiate a market buy of this particular stock, it will most likely be filled instantly because there is a very high volume of stocks being traded and the bid ask spread is very small. Now on a stock that has a much less volume in a trading day, the bid and ask prices can vary greatly, meaning there's a much higher spread between the bid and ask price. And this is when it can become very difficult. Yet a certain price point that you're after if the bid ask spread is very large, the next piece of information that we have access to is called the days range, which is very self-explanatory, is the range in which this specific stock traded at during the trading day. In this particular case, the lowest price that it went to was $48 and the highest price it went to was $48.60. Moving on, we have the 52-week range, which is essentially the same thing as the days range except on a much larger scale of 52 weeks, which is a year. The 52-week range is going to show you the highest price point that they stock reached during the year and the lowest price point that it reached in the year. In the case of TD Bank, it was $33.74 at the lowest, and the highest being $58.51. Sense the reason why this is such a large difference here is because we just experienced, as I'm filming this, the market downturn in March 2020, which is the reason why it went so low here. Okay. So the next piece of information I have already referenced previously and that is the volume of a stock. In this case, the volume is 1,366,820. But what is the volume of a stock? The volume is quite simply the amount of shares that had been treated during one single trading day being this training day right now. So this basically means that during the training they, there have been 1.3 million shares that have traded hands between different traders that are buying and selling TD Bank during this day, typically speaking, the higher volume of the stock, the more popular it is. And for this reason, there will be a much smaller bid and ask spread. Large cap stocks like most bank stocks, Disney, Coca-Cola, etc, are going to have a very high volume. And for this reason, this puts a lot of liquidity into these companies where you can quickly buy and sell shares whenever you please add a favorable price point, because at the bid and asks red is going to be relatively small. Now the average volume of a stock which is right below the volume, is also quite self-explanatory, where this is the average amount of shares that trade investors hands during a typical trading day. In this case right here we can see that today there was a much lower volume for TD Bank then on an average day, we've already made it through the first a left column here of information contained in the stock quote for TD Bank on Yahoo Finance. I hope you're starting to understand why this isn't necessarily all that complicated. We just needed to understand each data point. So what we're going to move on to the next one here, which is the market cap at $86.757 billion for Toronto Dominion bank. And I do want to say here that the market cap, we're actually going to have a full lecture on specifically coming up in this module. But we'll quickly showcase here what this is. The market cap is basically the current market price of each individual share being $48.25 multiplied by the outstanding number of shares for this publicly traded company. In this particular case, it is millions and millions of shares, which means that this is the actual value or the market value, I should say, of this publicly traded company. That's all I'm gonna say right now for the market cap, because again, we're going to have a full lecture on it where we're going to learn all the different market cap sizes and essentially how you can calculate the market cap for yourself. Moving on to the next piece of information contained in the Yahoo Finance stock quote for TD Bank, we have the beta. Now, I'm actually going to skip over the beta for right now because this is actually a more complex topic that I want to actually really focus on in a full lecture later on in this course, we're going to skip over it for now and then revisit it in much more detail later on in the course so that right now you can understand how to properly analyze the basic information contained in a stock quote. The next one is the PE ratio in parentheses at TTM. What is this? Well, first of all, the PE ratio stands for price to earnings ratio and TTM stands for trailing 12 months in finance. And when you're interpreting stalks, TTM essentially means all the data over the last 12 months for this specific stock. In this particular case, it is the price of the stock divided by the earnings of the stalk. And this is showcased as a ratio over the last trailing 12 months. Now just like the Beta, which is essentially the variant of a stock, we're going to have a specific stand-alone lectures for the price to earnings ratio, the earnings per share and a couple other metrics, the price to book ratio later on in this module. So I'm not gonna spend too much time right now explaining what each one of these are. Because once you actually learn them in their specific lectures, you'll be able to revisit this lecture and then properly understand what we're looking at with the PE and the EPS. We're almost done here. We have a couple more data elements to cover. And then it will be done for the stock quote of TD Bank on Yahoo Finance. So the forward dividend and yield of TD Bank is $2.36 in parentheses, 4.96%. What does this mean? Well, the forward dividend is essentially the cash distributions that a company is going to be paying out shareholders strictly for just holding shares of this company. In this case, $2.36 is the cash distribution that each shareholder is going to receive for each stock that they hold of this company. In order to understand more about dividends and why companies issue dividends and how you can use them to your advantage. I've dedicated an entire module to dividend investing in dividend stocks later on in this course. But just so that you quickly understand right now I'm moving on in the course. The dividend yield is going to be the actual value of the cash dividend divided by the current market price. In this case, $2.36 divided by $48.25 represents a 4.96% dividend yield, meaning the percentage of the market value that you're receiving for every single share that you hold of this company in one given calendar year. And finally, the last piece of information that I want to cover for the stock quote actually is not contained in the stock quote on Yahoo Finance, however, it's in most other stock quotes, and that is the outstanding number of shares of a company. As we learned earlier on in this course, each company is going to issue out, uh, portions of ownership of their company called shares. And this is typically in the millions and millions of units. So I actually like to see the actual outstanding number of shares in the stock quote, but you can find this on other stock quotes such as for example, on it, TMS money, we can see it right here for Toronto Dominion bank, they have 1.8 billion shares outstanding at currently circulating in the market that investors can buy and sell each and every day. And obviously I have saved the best for last, which is the actual chart for the stock price of each individual company that is going to be contained in the stock quote. In this particular case, we can see on Yahoo Finance, you can see various different timeframes. So one day, five days a month, six months, all the way up to the maximum amount, which goes back below 1996. Now Yahoo Finance allows you to see the stock price chart in various different formats. In this case, we have the red green area, wear it when the actual variant in the day is green, the chart will be green and when it is read, the chart will be red. They also have a line graph that you can see right here, as well as other variations like an area graph, which is going to be the same thing as the red and green. However, it's just always at one single color or candlestick chart that we're not going to be speaking about right now. But in all honesty, I like to look at the stock chart of specific companies I'm interested in on Google Finance. So let's look at that right now. All right, so as you can see here, this is another version of a stock quote because Google also has their own variation of the finance section. So in this case, it is the stock quote of Toronto Dominion bank once again, and he's on the New York stock has changed with a ticker TD. I'm not going to run through everything once again because it is very similar, but the information, as you can see is basically the same. We have the open, the high, the low, the market cap, the price to earnings ratio, dividend yield, as well as this information right here. But the reason why I like there were actual chart better is because you can actually click on a specific data point or a data should say, and then drag it over and you can see the variance in a percentage format that appears in real-time. Same thing goes for a downward trend. So we can see that in this particular case, in February all the way down to the peak lows in March, it went down by 40, 40%, 0.97% actually. Then it recovered up 42.62%. This is just something that I personally like more about the stock chart on Google Finance. But again, I use various different stock charts and stock quotes to gain information about accompany this pretty much wraps up the quick lecture on how to properly read and interpret the information in a stock quote, like I said earlier, we're gonna be diving into some of these metrics, such as the price to earnings ratio of the variance, the beta, and the price to book ratio in their very own standalone lectures, I really hope that you enjoyed this one and let's move on to the next lecture. 13. Market Capitalizations: Hey there and welcome to the eighth lecture of Module two Investing Fundamentals. In this lecture, we're gonna be learning all about market capitalization or market cap for short, what it is and how different companies are categorized differently based on the size of their market cap. In this lecture, we're gonna be covering the following topics, starting with what is market cap and how is it calculated, followed by the characteristics of large-cap, mid-cap, small-cap companies. In the previous lecture, we spoke about reading and interpreting a stock quote as well as all the various data elements that are contained within a stock quote so that you can properly understand and what you're looking at it from a quick snapshot point of view when assessing a company for the first time, one of the primary and most important elements that you can find in his thought quote is the company's market capitalization at that investor is called market cap. The market cap quite simply is a total dollar value of all the outstanding shares of this publicly traded company. Quite simply, this equates to the total current market value of this company as a whole. Because earlier on in the course, we learned that stocks are essentially a portion of ownership of a company. So if you add all the value of those individual portions of ownership together, you get the current market value of the company. It's important to note, however, that even though the market capitalization does provide investors with a snapshot in time of the current market value of the company. This doesn't necessarily reflect the true underlying value of the company's worth. This is because as we learned earlier in the course, the shares of accompany can be either overvalued or undervalued relative to economic market environment or the actual financial fundamentals of the company itself. So just keep in mind that a market capitalization, although it's a great snapshot in time of the company's market value. This doesn't necessarily mean that it's truly worth this value. In order to calculate a market capitalization of a company, the equation is very simple. All you need to do is multiply the current market price of one individual share by all the outstanding shares of a given company, typically in the millions of outstanding shares. Keep in mind that the market capitalization of a company is used by investors really only to determine the current market value at any given moment. And due to the fact that a single share can greatly fluctuate in price even throughout one single trading day, the relative market value of a company can greatly fluctuate throughout a short period of time due to the volatile nature of certain stocks. With that said at the market, cap is typically used as a preliminary measure to categorize certain companies into various groups being large cap, medium cap and small cap companies. There are also micro cap companies, but we're gonna be focusing on the 3 first ones with a large cap company being a more of a stable and a well-known company that is established in its industry. So let's actually first dive into the characteristics of a large cap company, followed by medium and small cap, starting off with the large-cap companies, these are generally companies that have a market cap exceeding $10 billion or more and are typically going to be more stable companies that also pay out dividends because their revenues are more constant and expansion of the company is slower. These are also going to be typically well established companies in their industry that are well-recognized that by the overall population, large-cap companies will also typically provide a slow and steady returns for investors. But over the long run, these companies reward investors with consistent increases in share value and dividend payments. Examples of large-cap companies, for example, would be the Royal Bank of Canada, IBM, Disney, and so forth. Moving onto mid-cap companies, these are going to be companies that typically range between two billion and ten billion dollars in market capitalization. These are companies that are generally going to be in the process of expanding, even though they're still not at the beginning of their whole expansion projects and aren't really going to be a start-up status anymore and they can provide a quicker returns then a larger cap stocks, generally speaking, now some mid-cap companies, it might pay out a dividend depending on their overall expansion strategy. Because let's remember here that even though accompany might be between 2 $10 billion in market cap, It doesn't necessarily mean that it's a younger company that is still focused on a rapid expansion because accompany could at plateau at, let's say five to $10 billion in market cap and still be an older company that's well established and is in a position to redistribute a portion of their earnings back to shareholders. Now, for many portfolios and mid-cap companies can be a happy medium between a small cap growth stocks that we're going to provide a higher returns but higher-risk and a larger, well established companies that are going to provide more stability and dividend income. And finally, the last category of market cap companies that we're gonna be speaking about here is small cap companies which typically range between three hundred million and two billion dollars in outstanding market cap. So quite a bit smaller than a medium and even large cap company. And these are companies that are focused primarily on reinvesting as much of their income as possible into expansion of their operations in order to grow the overall size and reach of the company at a more rapid pace. So this is one of the reasons why small cap companies are typically seen as being gross stocks depending on the company in question. These smaller cap companies can provide investors with higher levels of return, but also inherently come with higher risk because they aren't as well established in their industry and they don't necessarily have as much of a solid foothold in their overall client-based as, let's say, a large cap company. Small-cap companies are also more sensitive to economic slowdowns due to the smaller balance sheet and a smaller revenue figures it generally speaking, I really hope this gives you a clearer picture of what the market capitalization of a company is and how it can be used as a preliminary way to assess a company's size as well as risk level. There are however, many different metrics that are much more important than you need to take into account when analyzing a company that we're gonna be learning later on in this video. These include income statements and balance sheets, cashflow statement, as well as a variety of other metrics and ratios that are used by investors who are looking to invest in companies which you're gonna be learning all about throughout this course. So let's move on to the next lecture in this module. 14. How to read an income statement: Hey there and welcome to the ninth lecture of Module two Investing Fundamentals. In this lecture, we're actually going to get into the nitty-gritty of how I go about analyzing a stalk from a technical standpoint as starting with how to properly read and interpret an income statement. An income statement is one of three main financial documents that publicly traded companies are required to create and release out to the public on both a quarterly and annual basis that investors can get a behind the scenes look at how the company is fairing from a financial standpoint during that period of time and whether or not the company is in a position of positive income or in a position of loss. The income statement also allows investors to determine a variety of other metrics and ratios such as the gross profit margin, operating expenses, earnings per share, and a variety of others that we're gonna be looking at in this lecture as an investor following this course, it's extremely important that you understand how to properly read and analyze a balance sheet and then interpret what you're looking at that you can get a really good picture of how the company is fairing and doing. From a financial standpoint, we've personally like investing in companies that are financially healthy because this is going to allow your portfolio to grow over time at a nice, steady pace and also receive some nice dividend income while doing so, when I first become interested in a potential stock that I might want to invest in. The first thing I always look at is the stock quote that we learned about previously in this module. But then following the stock quote, the first thing I always look at is the income statement for the most recent quarter, as well as the annual income statements for the past five to even ten years to see how the company is growing from a revenue and net income standpoint and determine whether or not this is accompany that I'm personally interested in investing in relating to my current portfolio. So in this lecture, we're gonna be learning about all the different elements held within an income statement. And while we're doing this, we're gonna go through the income statement of a real-life company called Fordist incorporated so that you can get some hands-on experience on how I go and read through an income statement and what my thought processes are throughout this document. Now, just like with iStockphoto, different platforms are going to showcase the information, maybe in a different format or a different structure. But 99% at a time, all the information held within an income statement for a given company, regardless of the platform you're consuming it on, is going to be the exact same information because ultimately this financial information is released by the company in question. So I typically like to look at the income statement on one of two sources. The first one being Yahoo Finance, because it's really easy, simple to use and you can easily jump through the income statement, balance sheet and cash flow statements for various different periods of time. The second source of information where I retrieve all these financial documents is actually from the company itself. So we're gonna be looking at how you can go about getting these financial documents from the companies in question that you're interested in it right on their website they accompany, we're going to be using for analysis throughout this lecture as well as the balance sheet and cash flow statement lecture is Fordist Incorporated, which is a defensive Canadian at utilities company that is a great stock for both appreciation overtime, and dividend income. Let's start off by first looking at how you can get this financial information from any company you're interested in on their website. And then following that, we're gonna be doing the analysis on Yahoo Finance. Alright, so if you want to access the income statement from basically any publicly traded company, it's very simple. All you have to do is type in the name of the company in Google and follow that with investor relations. All public Israeli companies have an Investor Relations section to their website that contains relevant information for investors, such as conference date and the earnings reports in regards to Fordist incorporated, their Investor Relations section is very nice. It has some preliminary context about the financials of their company and their growth initiatives. But down here we have all of the financial statements that you can access in PDF format. So let's look at four indices at Q2 2020 earnings report, I typically dive into the extended earnings report from the company itself after doing a quick overview of the financials on Yahoo Finance, if I'm interested in wanting, gain additional details about what I'm looking at with that said, any company that I do currently hold and invest in, I take the time each quarter to read through the earnings document because it's here that you really learn what the company has been up to and whether or not I want to buy, hold, or sell shares. The main difference is that on Yahoo Finance, you really just get the raw data from an actual quantitative standpoint versus in the extended earnings documented but released by the company. You typically get added contexts by management for each company here so that you can really understand the rationale and logic of the company behind it. They're quantitative and qualitative moves. Now that we understand how to retrieve this information from the website, which is definitely the most thorough source of information. Let's move to Yahoo Finance and go through the income statement for Fordist incorporated, that last quarterly report, as well as a trailing 12 month annual View. Let's type in Fordist Incorporated and then select EDI Canadian option. When you click on the company, you are then brought to the stock quote automatically. And then following that, you're going to want to click on the financials tab at which brings you directly to the income statement on an annual View for your information, all the numbers showcased in this income statement are actually in thousands of dollars, meaning everything you see here, you're going to want to add on an extra three zeros for the true number generated by the company. And this can differ based on the company in question, depending on the size of the company and their revenues by companies do this in order to shave down the numbers and make things just more condensed and easily readable for viewers. Another thing to mention is that as you can see here, the first column is titled at TTM, which stands for trailing 12 months. And in regards to financial reporting, this figure represent the total figures for the four last quarters. Instead of a full calendar year, this gives a more accurate depiction of the company's financials over the last four quarters. For example, I'm filming this in August right now, and Fordist has released their Q2 earnings for 2020. So the trailing 12 months would equal to the figures for Q3 and Q4 of 2019, as well as Q1 and Q2 of 2020. Basically, this is the four last quarters as of the time that you're looking at the information. I hope this makes sense to you. All right. So with that out of the way, let's now dive into the income statement. So the first line is called the total revenues, and this is the first line that we're presented with that investors will call the top line because they quite literally is the top line of the income statement. This is money that the company has generated from selling goods and services before paying for any expenses are taking into account the cost of producing these revenues. In the case of Ford is incorporated. The product that they're selling and therefore generating revenue from is their utilities. But for other companies, it could be software selling tickets, flights, whatever the company is selling, this is the gross amount of revenues. The next line below being the cost of revenue is the total cost associated with manufacturing the goods and services that were sold during the designated period at which contributed to the total revenue figures that we see above. This also takes into account transportation and any other form of costs that are associated with creating and selling the products of the company. It's important to realize that all businesses will have completely different costs associated with generating revenue. And some industries have a significantly higher or lower relative costs to others. Generally speaking, as revenues for accompany increase the cost of revenues will also increase because the company is scaling up the size of their operation. Now the following line is called the gross profit, which is quite simply the cost of revenues being subtracted from the total revenue figures. This figure is called gross profit because it doesn't take into account other expenses such as income taxes, rent, employee benefits, and the list goes on it. So it's basically a bare-bones profit figure of if the company is strictly had cost of revenues as their total expenses, the gross profit can also be seen as a percentage called the gross profit margin that you've most likely heard of, where the gross profit figure is divided by the total revenues. Overtime, It's nice to see the gross profit margin of accompany increase because this means that they are able to produce more revenue at a lower relative cost. Sales are going up at a quicker pace than the cost of the sales, meaning the company is becoming increasingly profitable. In the case of Ford is incorporated that we're looking at right now, we can calculate the gross profit margin of the company over the trailing 12 months by taking 6.39 billion and dividing that by 8.845 billion for a gross profit margin of 72.3%, which is actually very nice. In contrast to this, let's calculate the gross profit margin of the 2016 calendar year where gross profit was 4.497 billion and revenues were 6.838 billion for a gross profit margin of 65.7%. As we can now see, the gross profit margin has increased over this period of time, meaning they are streamlining their business operations. Let's get back to the income statement with the next line, it being operating expenses. In the case of Fordist ink, the operating expenses are all grouped into one single category, but depending on the company in question, this is sometimes broken down into subcategories, such as selling general and administration expenses, as well as research and development expenses, which all will roll up to the total operating expenses though now operating expenses as a whole or all the other expenses that accompany encouraged to run and grow the business, but that aren't directly related to the production of the goods and services sold, which remember, are known as the cost of revenues. For example, research and development is very typical in pharmaceutical and tech companies because they are constantly trying to innovate and create new product lines. In general, though operating expenses will include things such as marketing, advertising, branding, employee salaries and benefits, rent payment and so forth. In the case of Fordist ink, their operating expenses in the trailing 12 months totaled $3.859 billion. Again, if you want more detailed information about the breakdown of each of the operating expenses that accompany is spending their money on. This will be held in the company released earnings report found on their website. But for a quick overview, Yahoo Finance does the trick in my opinion, where they just add them altogether as one operating expense. Moving on down the income statement, the next figure is the operating income or operating loss of the company during the given period. If you haven't noticed at this point, the income statement is very much an accounting document where values are added and subtracted from each other. And for the operating income or loss, this is derived from subtracting the total operating expenses from the gross profit. In this case, when subtracting 3.859 billion from 6.390 billion, we're left with an operating income of $2.531 billion. This basically takes it one step further than he gross profit because it now takes into account all the other expenses associated with operating the business. If, for example, the operating expenses happen to be greater than the gross profit, this would then be an operating loss and there would be a negative sign in front of it. Now finally, for the operating income or loss rho, this figure is also what investors use in order to determine the operating margin of the company in question, where the operating income divided by the total amount of revenue. In the case of Ford is for the trailing 12 months, it is 28.6%. And this is another margin that we want to see growing each year because it's a sign of a company that is able to become more and more profitable. The operating income of 40 is incorporated in 2016 was 21.7%. So once again, we're seeing accompany, that is showing it growing margins when analyzing an income statement for yourself, you should always be looking at the gross profit margin and operating margin growth for the past five to ten years of the company to see what type of trend it's in. Now keep in mind that just like with the gross profit margin, all industries have average operating margins. But in general, an operating margin that is considered to be healthy and average across the board is around 15%. So anything higher than that is very good, along with a nice trend in growing operating expenses. The reason for this is because as an investor in a company, you want the company to be as profitable and growingly profitable as possible as this means the company is able to continue growing and creating a nice return on your investment if a company is expanding and growing the top and bottom line, this is generally accompanied with growing share prices. To summarize, always make sure to look at the growth of the operating margin over time and try to invest in companies that have growing operating margins. If you're analyzing a company that's showing increasing net losses or net operating losses at each calendar year. This is a red flag showcasing that the company is spending a lot more on their overall operating expenses and their cost of goods than what they're able to generate in total revenues. Moving down the income statement, the next line is the interest expenses. And quite simply, this is the amount of interests that the company has paid over the given period. This could be interest paid on short and long-term loans and credit lines, the ventures or even mortgages. If the company invest in real estate as such as with real estate investment trusts. As a side note, it's normal for a read to pay much higher interest expenses because its main business is owning and operating real estate, which by nature carries much higher levels of mortgage debt. But let's get back to the lesson. In the case of Fordist, their interests paid in the trailing 12 months was 1 to $2 billion, which in contrast to their operating income, is actually relatively quite high. This could be used though for the financing of their equipment or the construction of new infrastructure, all of which contribute to total revenue growth. Again, if you want to get more detailed information about these specific breakdown of all the interest expenses. You can find this information in the earnings statement if found on the company website. If I personally find that the interest expenses are a bit too high, I'll dive into the earnings documented to get more context about the situation and see how the company is justifying it. With that said, it's quite normal to see companies pay interest expenses because most companies take on debt in order to finance projects and the growth of their operations by leveraging their money. So don't inherently be wary of if you see a company pay interests. Just make sure to gain more context if you get the sense that it's a bit too high. The next line in the income statement is the total other income slash expenses net, which in the case of Fordist over the last 12 months is positive and $97 million had this being an expense, this figure would have shown it with a negative symbol in front of it. What the total other income and expenses represents is all income or expenses that the company has generated are lost from other sources that are not directly related to either operating expenses or cost of revenues. This could include things as the company's selling off some of their assets or some of their marketable securities, or in the case of expenses, it could be incurring fees of any sort. Following this row, we're met with the income before taxes row, which is placed here in the income statement because it following this particular row, we have income tax expenses and for corporations, they pay taxes on there after expense dollars. Unlike individuals such as you and I that pay taxes on gross income, accompany will generate revenue, then pay for all of their expenses and pay taxes on West leftover. So in this case, the income before taxes is 1.408 billion for, for this, because we're subtracting 1 to 2 billion and adding 97 million from the operating expenses of $2.531 billion, resulting in 1.6 to 2 billion in income before taxes. Now if you're doing the math at home, this doesn't 100% equate up. However, this is due to the fact that in the truncated view on Yahoo finance, there's a couple of things that are left out and you'd be able to get all the detailed information in the actual earnings report provided by the company on their website following this is when the company reports how much income tax it had to pay over the period, which is completely different from company to company, depending on the country and province or state that it operates in four days, Incorporated, paid $214 million in taxes. And then what is leftover from this is the income from continuing operations. The difference between this and the net income is that the income from continuing operations only takes into account the revenues generated from regular and ongoing business activities while the net income includes income from continuing operations as well as the unusual and irregular income and that could also be derived from discontinued operations. So the net income figure is typically what you want to look at for the global view of the bottom line of the company for the given period. It's also from the net income figure that we can calculate the net income margin of the company by dividing the net income by the total revenues. In the case of Fordist, we'd divide a 1.276 billion by 8.84, or 5 billion for a net profit margin of 14.5%, which is very nice in contrast to their net income margin of 9.6% in 2016. This is once again a green flag for the company, demonstrating that across the board they're growing and streamlining their operations. And finally, the last figures that you'll see on an income statement are the EPS, meaning the earnings per share, which is a concept that we're actually going to be unpacking and its very own stand-alone lecture later on in this module. However, the earnings per share is basically the net income divided by the amount of outstanding shares of the company, which you can see below being the basic average shares of the company. The basic average shares are once again at the amount of outstanding shares that are available from the company in the open markets, if you see the number of shares increasing each year or each quarter, this means that the company is issuing out more shares, thus raising more capital. And if you see this number decreasing each year or period, it means that the company is buying back shares, thus reducing the overall amount of shares that are available out in the public market for investors to trade. Now that we've had the chance to look over each element of the income statement for Fordist, which applies to 99% income statements for public companies. Let's now go back and speak about some of the key elements and growth trends to look for any healthy company that I would personally invest in from a quantitative standpoint, the first thing that I always look for is total revenue and total operating income growing at a nice pace because this means that as the company is generating more income, their expenses are also growing at a relative pace, meaning the company is essentially making more money. What's even better is a situation like with Ford is here when the operating margin is increasingly growing, meaning the company is generating revenue at a quicker pace and they need growth of their expenses. The same thing applies for the net income, which is the bottom line of the company. For most healthy companies, investors want to see it generating increasing net income figures because this means the company is increasing the money left over after paying all the expenses. Keep in mind that for a larger company that is stable, these are things that you want to look for it, but you'll see very quickly once you start taking this knowledge and analyzing companies for yourself, that for smaller cap growth companies, it's not uncommon to see their stock prices soaring, even if they are unprofitable companies year-over-year, if their revenues are exploding and investors are very bullish on the future of the company. A prime example of this is with Shopify, where the stock has grown up by hundreds of percent over the last year, but their net income and operating loss figures are growing. This is simply because investors are bullish on the future of this company and the industry at operates in as a whole. We'll be speaking more about this logic later on in the course with all that said, if you're looking to invest in solid, stable companies that will provide consistent growth and dividend income. It's critical that the company is growing their revenue operating margin and net income margin year-over-year. What I personally like to do in order to see historical performance and growth figures is to look at the five-years available on Yahoo Finance first, because numbers only go back to 2016 on this platform. But then it for further research, I looked at the 10-year historical information of the company that is provided by Morningstar, available with all clustered accounts. Quest rate is one of the discount stock brokerages that I recommend all Canadians use n will be creating your own portfolio. Inquest, read it later on in this course, you will have access to all of this detailed information for doing your very own stock research. 15. How To Read A Balance Sheet: Welcome to the tenth lecture of Module two Investing Fundamentals. In this lecture, we're going to be learning about one of the most important skills that you need to possess as an investor if you want to learn how to properly analyze a stalk and assess the underlying financial health of the company that you're looking to invest in. I'm speaking about how to properly read and interpret a balance sheet, which once again is one of three main financial documents that publicly traded companies are required to create and submit on both a quarterly and annual basis so that investors can get a behind the scenes look at what's going on from a financial standpoint within the company for this reason that as a potential investor in any given stock, it is absolutely critical that you properly understand how to read through and interpret an income statement, a balance sheet, and a cash flow statement. Because otherwise you're basically just taking a shot in the dark with this company, which is absolutely not what we're about in this course. Let's first cover what a balance sheet even is in the first place. A balance sheet is a financial document that gives investors information about the financial strength and health of a company in relation to their assets, liabilities, and the shareholder equity. And it's very important that all three of these elements held within the balance sheet and balance out. Thus the reason that why it is called a balance sheet, and this follows the equation of assets equals liabilities plus shareholder equity assets or with a company uses in order to operate its business, including cash, inventory, receivables, property, equipment, etc. While liabilities are financial obligations that the company owes, it's important to note that when we go ahead and analyze a balance sheet shortly, you're going to notice that there are both short-term and long-term assets and liabilities. The main difference here is that short-term assets and liabilities also known as current assets and current liabilities have a lifespan of 12 months or less from the point in time that the balance sheet in question was issued versus long-term assets and liabilities, also known as non-current asset and liabilities, have a lifespan of more than 12 months from the point in time that the balance sheet was issued or that cannot be easily liquidated back into cash. As we spoke about in the last lecture covering how to properly read and interpret an income statement. Well, when I first become interested in a potential stock after going over the stock quote and the income statement, the next thing I always look at is the balance sheet of the company, because this is a tell-tale sign of the financial health and strength of the company that I'm looking at. Numbers definitely don't lie. And in regards to a balance sheet, you can clearly see whether or not the company has significant assets or liabilities on their books. And when you utilize a balance sheet in compliments to the analysis of an income statement, you can really see whether or not a company is in trouble or not. So in this lecture, we're going to be learning all about every single row, any balance sheets so that you properly understand exactly what you're looking at. And we're going to be applying this to a real-life example of a company so that you can really properly understand what my thought processes are when reading a balance sheet and how I go through things. For this example, we're going to be reading through and analyzing the balance sheet, google because first of all, this is accompany that everyone recognizes and they also happen to have a fantastic balance sheet, just like with the income statement. I personally like to look at the balance sheet from two main sources. The first one being Yahoo Finance, because it's simple, easy to use and you can quickly jump in-between the income statement and balance sheet and cash flow statement. The second and most thorough source is once again at directly from the company in their earnings statement where there's going to be significant information about each element, the balance sheet in question, so that you can get some more detail about what you're looking at. And again, you can find each one of these three main financial document within the earnings statement and that is released by all publicly traded companies on a quarterly and annual basis directly on their website in the Investor Relations tab. All right, so let's actually dive into the balance sheet of Google on Yahoo Finance to first go through each element and learn what we're looking at as we go. Just like with Fordist and their income statement that we looked at in the last lecture. All the numbers here are in thousands and there is the TTM column, which stands for trailing 12 months. You can also select an annual and a quarterly view where things are broken down even further by quarter. But we'll start with the annual review for our learning lesson. So let's start at the top, which is the assets section, and there's a little arrow beside at the title so that you can collapse everything and roll up all the sub-asset categories into the total assets. But obviously we'll be digging into each element as so we'll leave it expanded quickly to recap what assets are in case this is a new concept to you. Assets are things that the company owns, possesses, or has equity in that actually has market value and that can be liquidated in order to fund operations or pay creditors. For example, the most common assets are cash buildings, machinery, marketable securities, other investments, inventory, and receivables. In the case of Google, we can see that as of the latest reported quarter, which is Q2 2020, at the time of filming this lecture, their cash and cash equivalent position is 17, is seven for $2 billion. Because remember that everything here is in thousands. Now this goes without saying that $17 billion in cash is quite impressive. And I chose Google because their balance sheet is top notch. Moving on, the next row is called the other short-term investments. And this group together all marketable securities. That the company could relatively easily liquidate and turn back to cash. Examples of short-term investment would be stocks, bonds, and treasury bills. In Google's case, they currently have $103.338 billion in short-term assets, which is absolutely staggering and has increased since their last quarter. The short-term assets and cash and cash equivalents rows are always combined together to give us the total cash row right here that is at 121.080 billion for Google, this is a tremendous amount of cash and explain to why Google is such a powerhouse in the tech industry. If you haven't noticed the cash position is held within the current asset section, which can also be collapsed for a rolled-up amount, in this case, 149.069 billion. But we'll get back to the short-term assets after unpacking each additional subcategory, the next element is called net receivables. Net receivables are money that is owed to the company in question from other companies or entities. For example, if Google has already performed a service in advance for another company and has yet to be paid. This would count towards the net receivables, just like everything else, Google has a lot of net receivables at $21.201 billion. Just imagine being owed that amount of money. It's quite crazy even for a large public company. Moving on, we have the inventory row, and this can differ quite a bit depending on the company that you're looking at. But generally speaking, this is product that the company owns and has for sale, which can include raw materials, work-in-process goods, and completely finished goods of a company. For example, a car company that has, let's say 10 thousand cars in their inventory ready for sale would all count towards the inventory amount. In Google's case, they currently have $815 million of products in inventory. Finally, for the current asset section, some companies will have a row titled other current assets, which is anything else at the company owns. And that is a value which doesn't fall into any of the previous categories for current assets, and that can be quickly turned into cash within one business cycle, this pretty much means turned into cash over the next 12 months. And as we can see from Google's balance sheet, they had $5.579 billion tied up in other current assets. Now, the following row is a summary row titled total current assets, which groups together a cash receivables, inventory, and other current assets. This is why the title is bolded. And if we sum up all these values, we would see that Google had a $149.069 billion in total current assets, which is a lot. Let's remember that current assets are assets of the company owns which are expected to be used or can be used to convert into cash within a short timeframe, typically within one year. And these are very important to maintain because they can be used to fund day-to-day business operations aimed to cover ongoing operating expenses in the short-term, this covers the entire total current asset section of the balance sheet. And while we're going to continue on in the asset section, we're now venturing on into the non-current assets, which are once again, assets the company owns or has equity in and used within the next 12 months, such as, for example, property equity and businesses and so forth. This is the reason why they are called non-current assets. And as you may have guessed, the current assets and non-current assets are later combined together to form the total assets. But we'll get back to that shortly after covering each sub non-current asset. The first row in this section is the gross property, plant and equipment category, which is quite self-explanatory, but essentially combined to the value of the company's owned property and manufacturing facilities along with the value of their equipment. Some companies, like say, a manufacturing company might have significantly more in this asset category than say a tech company. With that said at Google has $125.859 billion in gross property and equipment, which is once again at quite a lot. The next row being accumulated depreciation is also included in this subsection because depreciation is subtracted from the total value of the company's gross property value. If you aren't entirely sure what depreciation is, let me explain when a property or piece of equipment is used, the asset in question depreciates in value due to the fact that there isn't a value of the asset over time as a result of just wear and tear. This is the exact same thing as when you buy a brand new car over the next couple of years, the value significantly depreciates because it is being used. With that said, though companies can apply the same principle to their equipment and property from an accounting standpoint on their balance sheet. In Google's case, there were accumulated depreciation being reported for the quarter is 30 F5.6, 1 billion. When we subtract this value from the gross property, we're left with a net property, plant and equipment. Of $90.315 billion that Google owns. Let's now continue on down the list where we have equity and other investments. This row differs from short-term investments that we looked at in the current asset section in that equity and other investments that are non-current or equity positions the company owns in private companies, infrastructure and other types of investments that cannot be easily liquidated on a public market, such as say with stocks and bonds, as we learned earlier on in the course, equity is a position in another company or asset that has marketable value. So non-current equity is simply not convertible into cash within a year. I hope this difference makes sense to you. And if you want to get more profound detail about the specifics of this for each individual company, you can find this in their official earnings statement. Google has at $12.961 billion in equity and other investments. The next row that appears on this balance sheet is a concept that many investors don't fully understand and comprehend what role it plays on a balance sheet. And that is goodwill. So what exactly is this? Goodwill is what's known in the investing community as an intangible asset that accompany acquires when purchasing another company. And it's an asset that can't be liquidated into cash because it has no real-world marketable value. Goodwill represents the access between the purchase price of the company and what it is actually worth in the market. Meaning it's basically a theoretical premium value above the fair value of the company that is added to the balance sheet for things such as say, brand name and loyalty, fantastic customer relations and other qualitative elements that do have value, but that can't be liquidated to cash. Let me give you an example to make this very clear. If Google buys a company, which it does a lot of, and the company has an actual market value of say, $1 billion, but they are growing very fast and Google thinks that the acquisition would be a solid win for them. Well, they may go ahead and pay, let's say $2 billion for the company, which would then mean that $1 billion would be added to the goodwill section on their balance sheet. But the fact that this goodwill figure is a premium paid by the company to buy another company out and that it can't be converted into cash is the reason why it's considered to be an intangible asset. In Google's case, they have a lot of goodwill at $20.8204 billion because they buy up a considerable amount of companies in order to expand further. Now for Google, since this is a huge company and they have great income and balance sheet figures, 20 billion in goodwill isn't the end of the world. But when analyzing other companies, The mindful of the fact that goodwill isn't really an asset per se. So if a company has a goodwill to total assets ratio of say, above 20%, meaning goodwill represents more than 20% of the company's actual assets. I would be skeptical of the company's actual asset size and try to look further into the company's justification for this. Otherwise, it just tells me that the company is recklessly spending and overpaying for other companies because let's remember, goodwill is basically useless and can't be used by the company in any way. The next row is called intangible assets, which we just touched upon when speaking about what goodwill is. The main difference here is that even though goodwill is an intangible asset, It's divided up in the balance sheet for more detail about the company's total intangible assets. With that said, intangible assets remain assets that are not physical, property, stocks, etc, that can be converted into cash in the market. These include things like brand recognition, patents, trademarks, copyrights, trade names, and the list goes on, but you can see the pattern of y. These are not physical assets. Google, for example, has a tremendous amount of trademarks, patents, and amazing brand recognition, including within all of its subsidiary companies such as say YouTube. This brings their intangible assets to $1.697 billion. And just like with goodwill, keep a close eye on intangible assets because they are essentially not really worth anything in the real-world if the company, let's say, went bankrupt and was liquidating all of their assets. Finally, for the non-current asset section, before rolling them up into total assets, we have the last row, which is other long-held state short-term that hasn't already been accounted for in any of the other rows. So with that said, all of these non-current assets get rolled up into this row right here, for a total of non-current assets of $129.423 billion in Google's total assets, meaning a current and non-current assets being added together are $278.492 billion. This is absolutely staggering and honestly there aren't many other companies that you'll ever be analyzing that have this many assets on their balance sheet. But I thought it would be pertinent to use Google as the example here because their balance sheet is very strong. All right, so we've now covered the entire assets section on this balance sheet, and I hope that you now understand each and every row so that you can properly interpret what you're looking at when analyzing companies for yourself. With that said, what would a balance sheet be without a liability section? Because remember, a balance sheet gives us information about the assets and debts of the company. And liabilities are essentially Det, keep in mind that while debt is typically seen as being bad for consumers, such as width consumer credit card debt, like we spoke about in module one. Well, in the case of company's debt is used all the time in order to maintain rapid growth and expansion. So it's completely normal for accompany to use and carried debt. The difference here is that debt to help advance the growth of a businesses operation is called productive debt. With that said, it's still important that you monitor how much debt a company is taking on and where it's being used to see if the company remains it financially responsible and sound. So let's now speak about Google's liabilities as we're learning what each row represents, just like with the assets section, the liabilities section has both current and non-current liabilities, which follows the same reasoning of falling in the current section if the financial obligations are due within the next 12 months and following in the non-current section, if they are due in a longer time-frame than the NextGen, it can be collapsed if you want to view the balance sheet this way. But the first row is called accounts payable. This is money that the company you're analyzing owes to creditors, suppliers and other companies for goods or services already received. For example, if a restaurant already bought fish from a supplier and still needs to pay the supplier within the next six months, that amount owed would fall into accounts payable. In Google's case, they have 4 is 06, $4 billion in accounts payable to their creditors, meaning they 0.0644 billion within the next 12 months. Now, the next row being taxes payable is quite straightforward. This is an amount that the company is required to pay in taxes over the next 12 months that haven't already been paid. Following this, we have accrued liabilities and what this is is an expense at the business has incurred but hasn't yet paid off, meaning it's being carried over and the company will need to deal with it within the year. This, for example, could include employee wages that haven't been paid, interests that hasn't been paid, certain taxes or even fees. This is absolutely considered another form of debt and therefore falls in the liability section. Google has $18.505 billion in accrued liabilities. Moving on, we're met with deferred revenues. And interestingly, deferred revenues aren't really a true liability in my opinion, the reason for this is because deferred revenues are money the company has already received from customers before the company has actually delivered on the products and services. I say that this isn't the same type of liability in my opinion, even though it is considered to be one on the balance sheet, because it's cash that the company has received for their products just before actually delivering on it. For example, let's say Tesla Motors, they take on a lot of money from customers who have already ordered their vehicles, months and months, even years in advance before delivery. So all this cash being received that hasn't been delivered on yet is considered to be deferred revenues. The reason why this falls into the liabilities section is because if issues were to arise and the company becomes unable to then deliver on their promises, it must then repay back this money collected to the actual customers. This is what happened to the cruise lines and airlines during the coronavirus pandemic. In Google's case, they only have a 2.061 billion in deferred revenues, which is only a very small amount of their current liabilities. That's something that I like to see because they aren't that liable to customers. And finally, the next section is other current liabilities which Yahoo Finance rolls up into one category, grouping all liabilities needing to be paid over the next 12 months that don't fall into another section. If you really want to see the details of what these other liabilities are, you'll need to dig into the company's earnings document, which will break this down further. So Google has 9.8510 billion in other current liabilities, making the total of 43.658 billion In total current liabilities. Remember that these are liabilities that need to be paid over the next 12 months, just like the current assets are assets that need to be converted to cash over the next 12 months, we're going to be revisiting the relationships between current assets and current liabilities later on in this lecture. But for now, let's cover the next section which is a non-current liabilities. These are liabilities that the company has taken on for an extended period of time that needs to be paid back over a longer time-frame than only 12 months. For example, the first row is called long-term debt, which can take on different meanings depending on the company in question. A real estate company typically will have a significant long-term debt in the form of mortgages. But any company can take on credit lines or issue bonds to be paid back to bondholders at a later date than in the coming 12 months. These would both fall into the long-term debt category. And generally, longer-term debt is used by companies to finance activities at a relatively low interest rate. You can once again get all the information about the interest rates in question for accompanies specific long-term debt in their earnings report. Next up is deferred taxes, liabilities, and essentially this is when accompany owes taxes for the current period, but decides to defer the payment to the next calendar year or a later date, which can be for a variety of different reasons, but this is an amount that the company owes in taxes. In this case, Google has 1.797 billion in deferred taxes. The following line being deferred revenues is the exact same thing as deferred revenues in the short-term liabilities that we spoke about earlier, except this is for products that are to be delivered at a later date than in the following 12 months. And finally, other long-term liabilities are all other debts that company is carrying that don't fall into any of the previous categories. The reason why these four rows do not add up to the total non-current liabilities value of 27.512 billion during this period is because Yahoo Finance is leaving out certain information that you would need to capture from the actual balance sheet that the company has released in their earnings statement. In some, Google currently carries 71.170 billion in liabilities, which might seem high, but again, companies use debt to leverage their capital and expand at a quicker pace will also be revisiting these values at the end of the lecture when speaking about things I look out for when analyzing a balance sheet. But first, let's speak about the final section that you will find in a balance sheet, which is the stockholder equity section. You might be wondering what stockholder equity is if this is the first time that you're really digging into a balance sheet. So let me explain. Stockholder equity is the remaining amount of assets available to shareholders or stockholders after all the company's liabilities are accounted for. The reason for this is because if a company goes bankrupt, uh, stockholders are last to be paid after all creditors and bondholders. The first line is common stock, which is the value in common shares held by stockholders. And this value is 55.552 billion in Google's case, next up is retained earnings. And this is a value that's related to the income statement because retained earnings represents what is leftover from accompanies net earnings after paying out dividends to shareholders. In Google's case, it's pretty simple because they don't pay out a dividend. So this is a value that continued growing each quarter and as of last quarter, their retained earnings were a $151.8681 billion. And finally, the last row of the balance sheet is called accumulated other comprehensive income, which sounds quite complicated, but this is simply the unrealized gains or losses that the company in question is reporting for the period that have not yet been realized. For example, the fluctuations in market value of accompanies held bonds or other investments that have not yet been redeemed. That would therefore mean that there have been unrealized gains or losses. Just like with the assets and liabilities section, the stockholder equity section also rolls up into an aggregate amount which is at 207.3 to 2 billion for Google. This value is extremely important to a balance sheet because it's what allows it to do its job, which is balancing the assets to liabilities. In fact, the equation to balance a balance sheet is assets minus liabilities equals shareholder equity. Let's look at this example with Google here, they have 278.2492 billion in assets, 71.170 billion in liabilities, and at 20.3 to 2 billion in shareholder equity. If we subtract the liabilities from the assets, we're left with the value represented besides shareholder equity. This is essentially the difference leftover between assets accompany owns and their liabilities. Alright, so now that we've had a chance to go through each one of the elements held within a balance sheet, you should now be in a position to properly understand what you're looking at as well as understand and assess and whether or not a company is in a good financial position, are not. Reading through Google's balance sheet was absolutely critical in order for you to understand what each row represented. However, it's now going to be really important to speak about specific elements and ratios that I personally look for an imbalance sheet to tell me whether or not the company is in a good financial strength. The first thing that I always look at it when assessing a balance sheet is a ratio called the current ratio. And this is essentially a ratio that divides the current assets of a company by their current liabilities. This ratio essentially tells us how much liquid cash the company currently has, as well as will be receiving in the coming 12 months in relation to their liabilities that will be owing during that coming 12 month period. Let's go back into Google's balance sheet to calculate their current ratio with a total current assets at a 149.069 billion and total current liabilities at 43.658 billion, there were total current ratio is 3.4 x, meaning they have a 3-point four times more current assets then at current liabilities. And as you may have guessed, this is very positive because it means the company has lots of free liquidity in the coming 12 months. Now, for companies across the board, a current ratio above one is typically always recommended it to ensure that company will be able to attend to their current liabilities without running into issues or having to sell other assets. But I typically look for companies that have a current ratio above two for an added safety net. What this means is that let's say the company runs into significant revenue issues out of the blue in the short-term, such as when all business thoughts for airlines and cruise lines in Q2, 2020 due to the coronavirus pandemic. Having a current ratio above two ensures that even with terrible revenues and the short-term, the company would have enough cash reserves to cover all the expenses twice. It's basically just a safety measure that I like to see in companies I invest in it because it also shows me that management is prudent and forward-looking. In Google's case, a current ratio of 3.4 is absolutely excellent and the higher the better for this number. Another element that I'd like to bring up regarding the balance sheet that I should've brought up when we're analyzing Google's balance sheet, is that unlike an income statement where every single quarter of the numbers are essentially brand new. And what I mean by this is, for example, the revenues of one-quarter. I'm not going to be tied to the revenues of a previous quarter. However, with the balance sheet, all of these figures build off of each other each quarter and each year in terms of when the company is buying more assets, are selling more assets, taking on more liability, etc, they build off of each other. So let me explain what I mean here. As you can see on Google's balance sheet right now we're looking at an annual view, meaning each one-year period is reported here and the values are all reflected for that one year. But notice how the total current assets section is growing each quarter. This is because Google is focusing on bolstering this section of their balance sheet. What I like to see in a financially stable company that will be growing and remaining financially solid for years to come is the assets section and growing each year because this indicates that the company is acquiring more and more assets that have a marketable value that can be used later on in order to generate more revenue or be sold off if they need to regain some liquidity. Now with that said, the growth of assets typically comes with the growth of liabilities, which is normal. But what I look for is companies that are growing their assets at a favorable ratio to their total liabilities, it's always great to have growing assets, but if the liabilities are growing at a quicker pace, this means the debt to assets ratio is increasing. One way that you can make sure the company is growing assets at a quicker pace. And liabilities is by looking at the growth of the stockholder equity. Remember that the equation for stockholder equity is assets minus liabilities equals stockholder's equity. This by default means that if the stockholder equity is growing, the company is growing their relative assets to debt levels. Basically look for growth in both current and non-current assets. And then in relation to this, be mindful of how quickly their liabilities are building up moving forward as an investor, you're going to be reading through dozens of income statements, balance sheets, cashflow statements, and analyzing a hundreds of companies before taking positions in them. So it's going to be really important that you started building up your own judgment and interpreting for yourself what seems reasonable for you as an investor and as an investment. But as a rule of thumb here, if you're able to stick with companies that have a total and current ratio of minimum one and typically above two, you should be fine here. Now, this might sound complicated and intimidating right now however, once you really started reading through and analyzing the balance sheets and financials of hundreds of companies, you're going to become an expert in no time. In conclusion, the overall information that you're trying to get out of reading a balance sheet is determining whether or not the company is risky and over leveraged. It's also really important that you always analyze a balance sheet in compliments to the analysis of an income statement, which is the main financial statement of a company. Because let's say, for example, accompany is slowing down the growth of their assets. And then you're also seeing on the income statement that they're kind of stagnating and the growth of their revenues or revenues or even going down. This could indicate that the company in question is a less financially stable than it was a year or two ago. With that said, obviously there's an unlimited amount of combinations that come into play for the analysis of an income statement and a balance sheet because every single company is going to be different. But I really hope that this lecture on balance sheets allow you to properly understand every single element held within a balance sheet. And what I personally look for when I'm reading through one in the next lecture, we're going to be speaking about the third and last of the main financial document, which is the cashflow statement. 16. How To Read A Cash Flow Statement: Welcome to the 11th lecture of Module two Investing Fundamentals. In this lecture, we're going to be speaking about the third and last and main financial document that publicly traded companies are required to submit on a quarterly and annual basis, which is the cashflow statement, just like with the two last financial documents that we spoke about, which were the income statement and the balance sheet. It is extremely important as an investor that you properly understand how to read through and analyze a cashflow statement. Because this particular document is going to give you some further insight and do how a company is managing their inflows and outflows of cash within the company. The cashflow statement, it gives investors some additional insight into how the company's operations are running, where they're spending their money and where they're generating their money from. The main purpose of a cashflow statement is to provide investors with additional details about how a company is managing their money in regards to funding their operating expenses and the paying off their debts. Unlike with the income statement where all the revenues for accompany are lumped together into the top line of the income statement being total revenues will any cashflow statement, it is divided into three sub categories being the net cash flows from operating activities, the cash flows from financing activities, and the cash flows from investing activities will be further breaking down each one of these subcategories of cashflows throughout this lecture so that you can understand how to properly analyze the cash flow statement and compliment with the income statement and at the balance sheet so that you can have a well-rounded analysis of the financials of accompany before we dive into the walk-through and analysis of Google's cashflow statement. And let's first speak about the three main subcategories of cashflows that we're going to encounter the first subsection. And now you'll see on a cash flow statement is called the cashflows from operating activities. This includes all the sources of cash that are derived from the ongoing business activities of the company in question, in which essentially means it's the cash that's being derived from selling the products and services. The second main subcategory is called the cash flows from investing activities. And this is all the cash that is coming in or out of the company as a result of their investing activities. The same thing would be true if the company were to sell a portion of their marketable securities on the open market at a profit, well, this incoming cash would appear in the cash flows from investing activities. And finally, the third sub category is called the cash flows from financing activities. This includes all cash services that are derived from investors or banks, as well as all the cash coming in and out of the company used for repurchasing stock, paying out dividends or buying back stock. So with that said it just like with the last lecture, we're gonna be going through every single element of the cashless statement and applying that to the cashflow statement of Google. So just like in the previous lecture, we are going to be analyzing the cashflow statement of Google on Yahoo Finance because it's simple and free to use. If you do want more detail about the elements held within this cashflow statement, I'd suggest using Morningstar's data that's available for free with all quest trade accounts, which again will be setting up for you later on in this course. Once you've entered the name of the company you're looking for, in our case, Google for this example, you'll find the cashflow statement is the third option under the financials tab. And once again, you can see both an annual and quarterly view of this document because it public companies are required to submit these each quarter as well as each year. All these numbers are also once again in thousands. So for example, this row is actually 31.5 billion and not 31.5 million. You'll also notice right away that the rows are categorized into the three sub categories that we spoke about earlier being the cash from operating activities, the cash from investing activities, and the cash from financing activities. Now, there is also another section at the bottom that I hadn't previously mentioned, and that is the free cashflow section that we'll be unpacking and defining once we get to this section in our explanations, just like with the balance sheet on Yahoo Finance, you can collapse each of these subcategories to make things more concise and legible if you aren't interested in the detailed breakdown each. Alright, so what we're going through this cashflow statement from top to bottom in order to have a clear understanding of each element, starting with the cash flows from operating activities. Keep in mind throughout this cash flow statement and that positive numbers mean a positive cashflow element for the company, meaning that money is coming in while a negative number, it means that cash is flowing out of the company. This is really important to always remember as we go through each one of these rows. So the first thing that you're presented with when reading a cashflow statement is actually a value that's derived from the income statement being the net income. This is why we covered the income statement first, and this also further explains why these documents work in parallel with one another. We've already learned what net income is from the lecture on how to read an income statement. But just to summarize once again, this is the income that accompany has left over after paying for their cost of goods, operating expenses, and tax liabilities. The next row that we're presented with is called depreciation and amortization, which we already somewhat touched upon in the last lecture on balance sheets. The reason why it appears once again on the cashflow statement as a positive value in this example is because depreciation is not actually a true cash liability for the company that is coming out of their pockets. Even though from an accounting standpoint, it depreciation is subtracted from the value of their assets. That cash isn't physically exiting the company. This is why companies reapply the value of their depreciation to their operating at cashflows on the cashflow statement, I really hope this makes sense. In this case, Google reapplied at 12.8 to 7 billion in depreciation back into their cash flows over the trailing 12 months, which would be the same value as what they depreciated on the balance sheet over the same period. The same thing is true with the next line, which is the deferred income taxes. In this case, Google has a negative value for their deferred income taxes, meaning that they actually paid out $863 million of owed income taxes during the trailing 12 months if this value would have been positive, however, it would've been because of Google continued deferring their income taxes, meaning that the amount did not come out of their pockets yet and would therefore be added back to their cash position. Next up in this category is a role called a stock-based compensation. And this happens to be a very common way for companies to pay some of their employees and executives, other than simply with cash. Stock-based compensation is when a company will reward or pay their employees with shares of the company, which can be very motivating if you're working for a successful company that you actually believe in. As a bonus, for example, the company might pay an employee a couple of shares of their stock as compensation. And all of this combined rolls up into stock-based compensation that we see right here. By the way, this dollar value is calculated by multiplying the number of shares issued by the current market price at the date of issuing out those shares. In this particular case, we can see that Google has paid out $11.842 billion out in stock-based compensation over the past 12 months, which is definitely a lot moving on. And we're met with what's called a change in working capital. In Google's case, they reported at negative $168 million in change in working capital. First and foremost, working capital is the difference between a current assets and current liabilities. So change in working capital is going to represent the fact that the company has either acquired more assets or acquired more debts in order to generate more money. We've already learned in the last lecture on balance sheets that companies take on debt and by assets in order to continue generating more income. The next row is also familiar being accounts receivable. And we already learned in the last lecture that receivables represents money that the company is owed from other companies or debtors. In Google's case, they posted accounts receivable of negative 1.844 billion. When you see a negative value for accounts receivable on the cashflow statement, this actually means that the company is increasing the amount of money that is owed to them, but that has not yet being collected in cash. If you think of this, since the company is owed money, well, this money has not yet touched their bank accounts in the form of cash. This is the reason why an increase in accounts receivable is reported on the cashflow statement as a decrease in cash flows, which is negative. On the flip side, if you see a positive value for the accounts receivable on accompanies cashflow statement, such as in Q1 2020 for Google. Well, this means that the accounts receivable are actually being paid off at a quicker pace, then they are growing. Always remember that on a cashflow statement, a positive value means cashflow to into the company's account during that period. The next row being accounts payable is money that the company owes to suppliers and creditors. In this case, it's essentially the exact opposite of accounts receivable. Let's now move on to the next row, which is called the other working capital. And Google reported at 31.157 billion in other working capital over the trailing 12 months. Working capital is the difference between a company's current assets such as cash marketable securities and accounts receivable and then their current liabilities. With this in mind, a positive working capital means the company has increased their current assets to current liabilities. And we saw from Google's balance sheet in the last lecture that they have significantly more current assets and current liabilities. I personally like to see an increase in positive other working capital because this means the company is once again and growing the amount of current capital to work with. If you want to gain more information about the details surrounding everything that falls into other for working capital and non-cash items, I would recommend that you consult the company released earnings statement that you can find on their website. This happens to be the exact same document that I've spoken about for the detailed balance sheet and income statements. Finally, for this subcategory, all the above mentioned rose roll up into this row right here called the net cash provided by operating activities. By adding them altogether, Google has reported 55.337 billion in net cash provided by operating activities. What this means is that Google's business operations generated positive cashflow, which is always essential for a financially viable company. Because if the company isn't generating cash from their operations, This would mean that whatever they're selling isn't making them positive income accompany can generate cash from financing and investing activities as we're about to see right now. But if they aren't able to generate positive cash flows from their actual business operations. Unfortunately, they won't be able to last all that long as accompany and won't be a good investment for an investor, a negative value here would quite literally mean that the company is losing money from the sale of their products and services. All right, so we've made it through the first section of the cash flow statement and let's now dive into the cash flows from investing activities. We learned earlier on that this section for teens to cashflows that the company is generating from their various investments. The first row is called investments in property, plant, and equipment, which is pretty straightforward. This row is reserved for cash that the company is spending on buying new properties or equipment for themselves which appear on the balance sheet. A negative value means that they have indeed spend money on these assets. So cashflow two out of the company's reserves in order to buy them. Over the trailing 12 months at Google has spent at $24.18 billion is buying a more property, plants, and equipment. This also happens to be visible on the balance sheet where 12 months ago they had roughly a $101.1 billion in property and now as of the latest reported quarter, they have a 125.8 billion in property. This is where you can see how the amount reported on the cashflow statement is visible on the balance sheet. The next line is called acquisitions, and this is also money that is flowing out of the company's reserves. But in order to buy up other companies, as you start reading through many cashflow statements of various different companies, you'll quickly see that most large tech firms do quite a bit of this. And in the case of Google, they have spent 2.6 to 3 billion on buying other businesses over the past year. Generally speaking, money spent on buying other businesses is seen as a positive thing because it means that the company is expanding and looking to further increase the revenue after analysis of the company that they're buying out. With. That said, you'll definitely want to keep an eye on the amount of money that a company is spending on acquisitions in relation to their own size. And all this info can be found in the earnings document. Next up is a row called a purchase of investments. And again, this is quite straightforward in that it represents money flowing out of the company's cash reserves in order to buy investments such as stocks in the open market, bonds, notes, etc. Keep in mind that a public company is an entity that can buy property, cars, and investments. And just like you and I am, IT companies invest in the stock market and bond market themselves also in order to create more income, just like we do in Google's case, we can see that they have purchased a $121.85 billion worth of investments in the last 12 months, which is pretty insane. Keep in mind that most of these investments over the past year were made during the Corona virus crash, where the price of stocks were down significantly and Google purchased $121 billion worth at this discounted price point, which is going to be unbelievably rewarding for them in the future. With that said, if a company is spending significantly more money on purchasing other investments rather than say, property or just re-investing back into the company itself. This can often raise a red flag for me because the company is investing outside of their business more than on their internal growth. Google though, has a so much cash and assets are ready that this doesn't worry me. But for say, a smaller growth company, if they aren't reinvesting most of their cash back into the company, but rather into other investments. This is something that I don't really like to see because it means the company is more bullish on essentially other companies rather than themselves on the next line, and we're faced with sales, maturities of investments at which is the exact opposite of the above line. This value is positive because it's money that company generated from selling their stocks, bonds, etc. Instead, I'm buying them. In this case, they had a $123.679 billion coming in from the sale of their investments. And finally, the last row is other investing activities that groups together everything else that doesn't fall into one of the other categories of investing. I know I've mentioned this many times already, but more information relating to what these other investing activities are for each individual company based on the current period you're looking at can be found on the company's earnings statement and that they're releasing every quarter and every year. The above five rows all roll up to the net cash used for investing activities. In this case, negative at 23.943 billion for Google over the trailing 12 months, It's completely normal for this value to be negative because this means that the company is indeed buying investments, acquiring other companies and buying property. So don't necessarily be alarmed at that this value is negative. If the cash used for investing activities was either very small or let's say just under 0. This would mean that the company is not out buying investments or is actually cashing in a large chunk of their investments. For the most part, though a company that is growing and looking to invest in themselves will post a negative cash flows from investing activities. With the 2 first category is out of the way. We're now about to dive into the third category of cash flows, which is the net cash provided by financing activities. As we spoke about at the beginning of this lecture, this category of cashflows at groups together, inflows and outflows of cash that the company is generating from financing through either equity or debt. Companies will use equity and debt in order to finance their operations. The first line is called a debt repayment, and this accounts for all the money that the company has spent during the period to repay their debts. This can be either short-term debt or long-term debt, mortgage debt, and basically any other type of debt. Obviously it is a negative value because cash is flowing away from the company. In this case, Google has spent at 2.174 billion over the past 12 months repaying their debts, which is completely normal to see, especially for a company of this size, the next row is common stock issued, and this is the first row that accounts for money the company would be generating through issuing out new shares of the company to the open market. Remember in the first lecture on stocks, we spoke about how companies can choose to issue out additional shares in order to raise more capital to fund their activities? Well, this is exactly where this would be accounted for, where companies can issue a Chairs and raise capital. In Google's case, they have not issued out any common stock to raise capital in the last 12 months, but they have been repurchasing common stock, which we can see on the following row. Let's first just remember that when a company issues out additional stock, they're diluting shareholder value because there are more stocks out in circulation, meaning more supply. If you see a company that is constantly issuing out shares to raise capital, just keep in mind that this is not advantageous at all as a shareholder because the relative value of your shares will decrease. With that said, you'll often see small cap companies that are in need of lots of financing issue oh, chairs quite often because this is an easy way for the company to raise more capital. However, accompany that constantly issues out significant common stock to finance their operations is what's called an OPM company, meaning other people's money. This is because they are not generating enough cash flows to grow and sustain their business through the selling of their products and services. So they are relying on equity capital to survive. This ends up becoming a problem long-term if they aren't able to generate more cashflows from their operations, which is the most important form of cashflows for accompany to accomplish because it means that they're successfully selling their products and services. On the flip side, the next row is the exact opposite being common stock repurchased. This is when a company buys back shares of their own company to lower the amount of shares that are out in circulation. Companies will do this all the time. But the only real benefit is to lower supply of shares out in the market, and therefore the market price typically goes up. This is really the only benefit of buying back shares for accompany because it has no real major impact on actually growing and expanding the business. So here's the thing accompanies buy-back shares all the time to have an impact on the market value of their shares. But it's important that they only do this if they are financially able to support it and aren't being foolish with his spending on buying back shares. Always remember that buying back shares doesn't have any productive use for the company. If a company is cashflow isn't able to support this buying back of shares or if the company's financial position is already somewhat rocky, but they're focused on buying back shares. This is when it becomes an issue. For example, during the corona virus pandemic, there were huge controversies around the federal government bailing out airlines. And one of the main reasons for this is because the airlines were buying back of billions of dollars worth of shares in the year preceding the actual coronavirus crash. But they didn't even have enough cash in reserves to maintain that their operations for more than two quarters once the coronavirus hit and their revenues were halted and they didn't have enough cash in reserves in order to maintain their operations for an extended period. And this is why the general public was outraged under the pretext that these companies were mismanaging their money and shouldn't be able to be bailed out by the government. Anyways, I've digressed a bit, but this row is where the cash spent on buying back shares appears on the cashflow statement. Google has spent at $27.142 billion in the last 12 months buying back shares of the company. However, even though this is a massive figure and the capital might've been able to be used in a more constructive way. Google is a massive and well-established company that already has a bulletproof balance sheet and ample amounts of revenues and cash flow to cover buying back the shares. Basically, what I'm saying here is that you'll need to take a global view and perspective of the company's entire financials to determine for yourself if they're buying back of shares is reasonable. In Google's case, I don't have an issue here. Okay. So moving on at typically right here, there would be a row called at dividends paid. And this is a row that I look at all the time when analyzing a stock because it shows us how much the company is paying out in dividends to shareholders. As a total amount, Google happens to not pay out a dividend. So this is why the row is non-existent in this cashflow statement. But for any company that has a dividend, there would be an extra row right here. The reason why I look at this value of dividends paid out to shareholders is because from this value we can calculate what's known as the dividend payout ratio, which divides the dividends paid over a calendar year by the net income of the company. We're going to be learning all about the dividend payout ratio in module three, which is dedicated to dividends and dividend investing. But for now, just remember that for dividend stocks, there would be an added row right here. Finally, for this section, we have the other financing activities row, which accounts for all of the other cash that the company has raised through debt financing. In this case, Google raised at $2.5 billion in other financing sources. As with the other sections, these values roll up to the net cash provided by financing activities as subtotal right here. Over the trailing 12 months, Google span at 29.964 billion in financing activities, most of which are being for repurchasing common stock, the value is obviously negative because once again, the cash flow is flowing out of the company to purchase back these stocks. How did they not repurchased any stalk and instead issued out stock and debt. This value could have been positive grades. So we've now made it through the three main sections of the cash flow statement. And I really hope that you have a better understanding of each one of these sections as well as what each element is n represents. If we now move on to the next row, we have the net change in cash, which will represent the value of additional or decreased cash reserves the company experienced during the period. This value is a calculation of the three subcategories of cashflows that we just covered. In this case, Google added $1.155 billion of cash to their balance sheet, which remember, would fall under the current asset section. This is because at Google had a higher net cash from operating activities, then they're investing and financing activities, which is a good thing because considering that the repurchase so much stalk, it would not have made sense for them to spend more than what they're generating from their operations. It's also good to see companies increasing their cash position because cash is always good to have on hand if this value happens to be negative, I always like to go and look at where the source is and try to determine for myself if I'm comfortable with why the company spent more cash, then it produced, for example, they may have made a significant property acquisitions, reinvested cash back into their growth, or bought out other companies with the goal of a further expanding and increasing revenues. However, if they are constantly losing cash in order to buy back shares, this isn't something that I like to see. The next two rows are quite straightforward. The first one is cash at beginning of period representing how much cash the company had at the start of the period you're currently looking at. And then the second one is the change in cash added to this row for the cash at the end of period. Finally, we have made it to the last set of rows on the cashflow statement, which is the free cashflow section. This section starts off with the operating cash flow and that we've defined above in the cashflow statement at 55.3307 billion. And then the row below that is the capital expenditure, also known as CapEx. The capital expenditures of accompany are all the cash-flows used to purchase property, plant, and equipment, meaning it has already appeared on the cashflow statement right here. In Google's case, it is 24.18 billion used to buy capital expenditures over the trailing 12 months. This leaves us with the free cashflow figure of 31.157 billion, which subtracts the CapEx from the operating cashflows. What free cash flow is? Cash that the company in question can use at their own discretion for basically whatever they please. In this case, mostly buying back stock, but they could have decided to buy more investments or purchased more companies. It's really up to their own decision. Now, the free cashflow figure is important to consider when looking at the cashflow statement of accompany because it tells investors how much money the company is generating from their operations. Specifically, after spending money on property and equipment, which ultimately has the goal of increasing their revenue long-term anyways. So with that in mind, free cashflow gives us a good picture of whether or not the company has enough cash to fund what they have decided to spend money on. For example, if Google had a free cashflow of say, $15 billion, but they spend 27.142 billion buying back stock. This would be a red flag for me because the cash from their operations wouldn't be covering their stock buybacks. All right, so that covers the last elements of a cash flow statement and I know this was a lot of information to take in. So make sure to re-watch this lecture a couple of times so that you properly understand everything that we just covered before finishing off the lecture though, let's quickly cover a couple of things that I personally look for when I'm reading through a cashflow statement in order to tell me whether or not this is accompany that I'm comfortable investing in After quickly browsing through the entire cashflow statement, the first thing that I look for is the net income value increasing each and every year. Now? Yes. This is something that can be determined from the income statement also. But I like looking at this on the cashflow statement because it's the top line figure for the company's cash. Increasing that income each year. It tells me that the company is focusing on their bottom line, which is beneficial for the company and its investors. Because remember that the cash flows from operations are the most important factor contributing to a company's free cash flow. Basically, more net income means the company is more profitable, which is always a good thing. As a side note, you may see tech companies or smaller cap stocks with increasing net losses each year at the beginning of their life. This is relatively common as the company isn't looking to post profits just yet. Rather they are in growth and expansion mode for the time being. But when you see accompany like this, it's critical that you dig further into the company's earnings statement to get a sense of their game plan and reason for such aggressive expansion because at the end of the day, accompany that isn't generating profits for years on end will need financing from other sources, which can also be a red flag for investors. The next thing that I look for is similar to increasing net income and that is increasing net cash from operating activities year-over-year. The reason why this is important is because the cash from operations is the cash that the company is generating from selling their goods and services. Any long-term successful company will be generating cash from their operations rather than their investments and financing activities because that's the whole goal of accompany in the first place. Essentially this means the company is increasingly selling their products and that's the best form of cash. If a company is consistently posting negative cash flows from operations, well, this means that they're surviving from other sources such as issuing out more debt or more shares of the company. This is what's called an OPM company, which stands for other people's money company because they aren't surviving off of their own operations. Rather they're simply surviving off of cash from investors after continentally issuing out more shares, you can determine whether a company is an OPM company by looking at the cashflow statement and determining whether or not the common stock issued is much higher than their actual operating income. The next thing I look for is the amount of common stock that the company is repurchasing in relation to their free cashflow. Repurchasing stock doesn't necessarily bother me if the company is established and in a good financial position to do so after cash is allocated to irrelevant growth practices. Just remember that stock buybacks don't really have any real productive value for the company in question. Finally, the last thing that I look for is how much debt the company is taking on. Because remember that even though companies leverage debt all the time to fund operations and grow their top line, that is still debt that has interest and will need to be paid back. So I just like to quickly see if the debt that they're taking on seems ordinarily high. And if it is, I dig into this deeper in their earnings document. So this wraps up at the main elements that I look for in a cash flow statement. And remember that as an investor, it is absolutely critical that you properly understand how to read through and analyze the income statement and balance sheet and cash flow statements and to utilize your analysis all in one nice whole package. Because this is really what's going to tell you whether or not accompany, is it worth your investment? I know the information held in these last three lectures was dry. However, investing isn't always glamorous. It's really important that you properly understand how to read through these numbers and financials. Because ultimately the success in investing long-term is going to come from investing in companies that are financially solid and that are growing it. Learning how to read all these three documents is absolutely critical. In the next lectures of module two, we are going to be covering a couple of t ratio is that all investors absolutely need to understand and master. 17. The Price to Earnings Ratio (PE Ratio): Welcome to the 12th lecture of Module two, Investing Fundamentals. In this lecture, we're going to be covering and learning about the price to earnings ratio, commonly known as the PE ratio in the investing community. And this is one of the most commonly used financial indicators are ratios, I should say, that is used by investors in order to quickly assess the overall value of a stock in the market in relation to other companies and stocks that are trading in that same industry to see whether or not this is a stock that is being overvalued or undervalued. The topics we'll be covering in this lecture include, first of all, what is the price to earnings ratio followed by the price to earnings ratio formula and the calculation. Then we'll be speaking about both the forward and a trailing price to earnings. And finally, we'll be ending this lecture in speaking about why the price to earnings ratio is important and what it tells us as investors before we actually jump into some calculations of the price to earnings ratio for some real-world stocks. Let's first speak about what the PE even is in the first place before we go about calculating anything, simply put, the price to earnings ratio is a current relative value between the market price that a stock is trading for and its underlying earnings per share. So essentially what this financial ratio is telling us as investors is how expensive is this stalking question that trading at in the open market in relation to the actual earnings that this company is generating a for each outstanding share of the company. Let's actually take a step back here and a first define what the earnings per share or EPS even is because this is going to allow us to better understand and what the price to earnings ratio is and how it's calculated. The EPS, which is an acronym for earnings per share, is once again a financial metric used for a company where the actual net earnings or profit of the company, which we learned all about in the lecture on reading an income statement or a divided by the current outstanding number of shares of that company. Now remember in the lecture on stocks, we learned that public companies can issue shares to the market in order to raise more capital to fund their operations. And they can also buy back shares. So every time they either issued shares or buy them back, this actually has an impact on the amount of common shares that is circulating out in public. And for this reason, and this will also have an impact on the earnings per share because at the amount of shares is fluctuating, this gives investors a nice indication of how valuable each share of the company is with a higher earnings per share of being more desirable. Because at this means that the company is generating more money for each outstanding share of the company. For example, if you were wanting to purchase, let's say 25% of a restaurant. And let's say for the sake of this example, this company or restaurant, I should say, had it for outstanding shares and you were going to buy one share for a total of 25% of this restaurant. Now in this example, let's say the first restaurant was earning a $200 thousand in net earnings per year and the other was earning a $400 thousand in net earnings per year. While a generally speaking, the second restaurant would be much more desirable. And for this reason that twenty-five percent stake would probably cost quite a bit more. So bottom line here, a higher earnings per share indicates to investors that each one of the outstanding shares of a given company is more valuable in the open market, bringing this now back to the PE ratio, while the earnings per share is extremely important because it happens to be the denominator in the equation for calculating the PE ratio. The equation for calculating the price to earnings ratio is very simple. So you're going to be dividing the market value per share of the company, which you can find on their stock quote by the earnings per share of that company, which once again, you can also find on the stock quote, if we divide it, the current market price of a stock by the underlying earnings of each one of the outstanding shares of that company were essentially calculating a ratio that's going to tell us how relatively expensive or cheap the market is pricing a given stock in relation to the underlying earnings of the company, which essentially is its profitability. For this reason, a higher price to earnings ratio indicates to investors that the market is willing to pay a premium for each underlying, earn a dollar that this company is generating. Example, let's say we compare to, to technology companies that each had the exact same earnings per share, but one of them had a PE ratio that was doubled the other, well, this would mean that in the case of the company that has doubled the price to earnings ratio, investors are willing to pay double for each dollar earned by the company. This can be as a result of a variety of different factors, both internal and external related to the company. For example, excitement and anticipation of earnings growth, or for example, a leadership and the actual industry that the company operates in, among other things, with that said, at the price to earnings ratio can be used by investors to quickly determine whether or not a given stock is trading at a premium or at a discount relative to other companies that operate in that same industry. Comparing the price to earnings ratios of companies that operate in different industries. It really isn't all that relevant to an investor because each industry is going to have its own set of acceptable expenses and other metrics. What you'd essentially be comparing apples to oranges, for example, it's absolutely normal and common to see a company that operates in, say, the text-based to have a price to earnings ratio that is very high, even reaching 30 or 40 times earnings, in contrast, is a accompany that operates in the utilities. Or energy sector that will have a much lower price to earnings ratio because these are industries that are established with steady and recurring revenues versus the text-based investors are often a very bullish on a future growth of the earnings and then revenues. Another important element to mention here is that you might notice that for some stocks, especially technology and a growth stocks, there might not be any PII or earnings per share at all. This simply means that the company hasn't actually posted any net earnings. So you wouldn't be able to calculate the price earnings ratio because remember that the equation for price to earnings is dividing the market price by the earnings per share. If there is no earnings at all, you wouldn't be able to divide something by 0. Now that we understand what the price to earnings ratio is and what it's used for. Let's speak about the two different forms of price to earnings ratios that you will encounter as an investor when assessing and analyzing stocks. The first and most commonly seen form of price to earnings ratio is called the trailing 12 months price to earnings, also known as the TTM, price to earnings. And this is essentially calculating the price of the human stalk in relation to the earnings over the trailing 12 months of that company's operations, meaning the last four quarters. Now the trailing 12 months for us to earnings ratio is an indicator of the company's most recent performance regarding earnings relating to the current market price is the most commonly used PE ratio for assessing a company because it is rooted in actual concrete data, unlike the forward price to earnings and that will be speaking about shortly. Keep in mind that since the market price of stocks is fluctuating every single second and while the markets are open and traders are buying and selling shares of these companies. Well, this will have an impact on the earnings per share of the company because while the market price is fluctuating every single second, the denominator being the earnings of the company, the net earnings is going to remain the same. And due to the fact that it's based on a concrete data, it is reported for the last 12 months. In the case of the trailing 12 months price to earnings ratio, this is the reason why every time you go back to a stock quote for the same company during a training day, the price to earnings ratio will be different. If you're wondering what a typical and healthy trailing 12 months price to earnings ratio is for a company. Well, this is going to vary greatly depending on the industry that you're looking at. As mentioned earlier, companies that operate in the text-based tend to have price to earnings ratios that are significantly higher than companies that operate in say the industrials, energy or utility spaces. It simply based on the nature of the products that these companies offer and how bullish investors are on future earnings potential. However, historically the price to earnings ratio of the S&P 500 has been right around 15 x, which means that historically, stocks that have been in the S&P 500 will trade at evaluation of 12 times their earnings. The second form of price earnings ratio is what's known as the forward looking price to earnings. And this differs from the last one in that instead of using the past 12 months of earnings to calculate the PE, in this case, we're going to be using the forward-looking estimates of earnings, which is known as the future earnings guidance of the company for the upcoming 12 months. The forward-looking price to earnings ratio can be used in parallel to the trailing 12 months price to earnings ratio in order to give us investors some additional insight into how the market is evaluating the company based on the last 12 months of earnings and based on what the earnings are going to be in the coming 12 months. For example, if the forward-looking price to earnings ratio is higher than the trailing 12 months price to earnings. Well, this means that based on the current earnings estimates in the coming 12 months, the price point over the coming 12 months will be relatively higher than the price point right now based on the earnings of the previous 12 months. Now, both forms of price to earnings ratios are extremely useful in order to quickly assess the overall relative value of a stock. But I typically tend to use the trailing 12 months price to earnings ratio first because this is based off of concrete real data that the company has posted. Then to bolster my research, I'll look at the forward-looking price to earnings ratio. So in conclusion, in both price to earnings ratios are extremely useful to investors in order to indicate whether or not a given stock or company is overvalued or undervalued in relation to other companies that operate in that same industry. In addition to this, I think is the price to earnings ratio as an earnings multiple of what an investor is willing to buy a share at. Always remember that when you're buying stock, you're essentially buying shares of that company and you're entitled as an investor to your portion of that company's earnings. From a theoretical standpoint, if you buy a company that has a price to earnings ratio of 20 x, you're essentially willing to pay $20 to receive a $1 back in that company's earnings. It's not that simple, but that's basically what it means. Always remember that in general, a higher price to earnings ratio for a stock means that investors are expecting a higher earnings growth for that company in relation to a company that has a lower price to earnings ratio. On the flip side, a company that has a low price to earnings ratio could indicate that the stock is undervalued or the h doing it very well in contrast to its past trends. In conclusion, a price earnings ratios can be very useful tools in order to quickly assess the overall value of a stock in relation to other companies that operate in that industry. However, just like everything else that we're learning here, it's important that you properly understand what this is, is that you can apply this knowledge to your own stock analysis and determine for yourself whether or not you're comfortable paying for a stock at a given price to earnings ratio. In the next lecture, we're going to be learning about another financial metric at that appears on the stock quote, which is the price to book ratio, also known as the PB ratio. 18. The Price to Book Ratio (PB Ratio): Welcome to the 14th lecture of Module two Investing Fundamentals. In this lecture, we're going to be learning about the price to book ratio, also known as the PB ratio. And this is one of the most commonly used financial ratios you used by value investors in order to quickly assess how expensive accompany is in relation to its book value. The PB ratio also happens to be one of the most commonly found at ratios on a stock quote, this is why we're dedicating an entire lecture to it. Generally speaking, a value investors will tend to lean towards dogs that have a price to book ratio anywhere from in-between one up to around three. With price-to-book ratio is below one being most favorable because at this indicates that this dog is currently undervalued in relation to the company's underlying book value. With that said, it just like with the price to earnings ratio, it's quite difficult to pinpoint what a good price to book ratio is because this can vary greatly depending on the actual company in question and the industry that operates in, and a variety of other factors. So it would just like with the price to earnings ratio using the PB ratio should be one element in a global overall assessment of a stock. The topics we'll be covering in this lecture include what is the price to book ratio in the first place followed by the PB ratio formula and calculation. And then finally, we'll be ending with why the price-to-book ratio is important and what it tells us as investors, let's first speak about what the price to book ratio even is in the first place, followed by how it's calculated. Simply put the price to book ratio takes the market capitalization of a company, which we learned all about in a previous lecture. So you should know what a market capitalisation is, but we take the market cap of accompany and divide it by its book value. The book value, however, is calculated by taking the company's assets and then subtracting from them the intangible assets as well as the liabilities, and we're left with the book value. All of these figures can be found in the balance sheet as we spoke about in the previous lecture. It, so we now know what the price to book ratio even is and how it's calculated. But what does this ratio really telling us as investors? Because it's great to understand that the PB of a certain company is either high or low. But in practice, what is this telling us as investors and how should we interpret this? First off, the book value which we just learned takes the assets of accompany and subtracts from that. The liabilities as well as the intangible assets, essentially gives us a value representing what the company would have leftover if it were to liquidate all of its assets and pay off its debts. So in a way, the price-to-book ratio is telling us as investors whether or not we're overpaying, underpaying for what the company would have leftover in terms of assets if it were to go bankrupt, liquidate everything, pay off their debts. This is the value that we would have leftover. For example, let's say a company that had a price to book ratio of 30. This basically means that you'd be willing to pay 30 times the actual value of the company's underlying net assets, which is the book value. For this reason though, the price to book ratio is a very useful tool for an investor to quickly assess how expensive a company is trading at in relation to its underlying net assets. Keep in mind that generally speaking, a financially healthy company is looking to increase the amount of assets year-over-year that they have on their balance sheet. And in contrast to this, are looking to either limit or even decrease the amount of liabilities that they have on their balance sheet. For this reason, a financially healthy company would have a price to book ratio that is either staying stagnant or even decreasing over time. As mentioned previously, it's very difficult to provide a specific price to book ratio that is favorable for all companies because an overvalued or undervalued price to book ratio can vary by industry and specific company, just like with the price to earnings ratio. For this reason, what I like to do is set a specific price to book ratio range that I personally feel comfortable with in making an entry point for a specific company or a given industry, depending on the company in question and the industry that it operates in, I typically try to invest in companies that will have a price-to-book ratio below three and even more favorably below to, especially for more traditional companies like banking and hydro, utilities, industrials, etc. Indicating that it has a healthy price to book ratio for a stock that has a price to book ratio below one. This indicates that this dog is actually trading at an undervalued level in relation to the company's actual net assets. With that said, it's important to keep in mind that for specific companies and industries, for example, the tech industry, it's not uncommon to see price-to-book ratios that are significantly higher, going from five-sixths, ten even up to 15 or more. And personally, I might even invest in a company that has a relatively high price to book ratio if after my full assessment of the income statement balance sheet as well as cashflow statement and other qualitative factors. I believe that there's significant growth ahead for the company wouldn't really bother me as much. However, for more traditional companies, I really like to see price-to-book ratios that are below three and under this can actually also even be a quick way to assess accompany that doesn't have earnings yet. And for this reason it wouldn't have a price to earnings ratio in some of the price-to-book ratio is a very commonly used tool by value investors in order to quickly assess whether or not they are under. I'm overpaying for a company's assets in relation to the current market price of that security, I pretty much always look at the trailing 12 months price-to-book ratio of a company and then compare it to its historical price to book ratio in order to see how the market is currently evaluating it in relation to its underlying assets. However, this really is just one single data point that'll take in an overall global assessment of a stock after looking through all of the financial documents and statements also, if you really want to become a well-versed on how to properly analyze the financial health and worthiness of a company that I highly recommend. And you re-watch the lectures speaking about the stock quote, that price to earnings ratio and this one being the price to book ratio, as well as the three main financial documents, which are the income statement, balance sheet and cash flow statement. All of those lectures combined if you're able to re-watch them and really master all of the information held within them. You'll be able to properly analyze a company for what it is at a financial fundamental level, and this is really the basis of successful investing. In the next lecture, we're going to be covering the topic of compound interests and seeing how this ties into your investment horizon as an investor. 19. Compound Interest & Investment Horizons: Welcome to the 14th lecture of Module two Investing Fundamentals. In this lecture, we're going to be learning about compound interests, what it is, how it works, and why it's one of the most important tools in building your wealth that through the stock market, you may already be familiar with compound interests, but this lecture is going to refresh your mind on its power and why it's so important. The topics we'll be covering in this lecture include what is compound interest followed by how is compound interests calculated? And then following this, we'll be looking at the frequency of compounding the time value of money and why starting to invest young is so important. And then finally, we'll be ending this lecture with speaking about where compound interest works best. If you're even the slightest bit interested in investing, then chances are you've heard of the term at compound interests before, which is arguably the most powerful concept that an investor can utilize in order to grow the value of their portfolio over time. It consistently contributing to your stock market portfolio and staying invested during your investment horizon in case you may have forgotten exactly what compound interest is and how it works. And let's quickly do a refresher on it at its most basic definition, compound interest is essentially interests that you're incurring on top of your initial principal invested it combined with interests that you've already incurred in a previous periods. You can think of it as interests gained on top of interest. And the reason why compound interest is such a powerful tool in order to grow the value of your portfolio over time is because compound interests grows the value of your investment at an exponential rate instead of at a linear rate is such as if you were just contributing consistently into a savings account. Now things do get a little bit more complicated when calculating compound interests as we're about to see. But let's quickly look at an example in order to showcase how compound interest works at a fundamental level. For example, if you started with an investment of $1000 and this investment generated you a 10% annual interest rate in your first year. Well, at the end of the year, you would have a $1100. Now say this same capital, which is now $1100, made you another 10% interests in the second calendar year. You would then have $1210 at the end of the year. So the 10% you made it this year was more than the 10% that you made last year, since the 10% from year one, which was $100, was added to your $1000 initial capital. This is the basic concept of compound interest and when combined with continuous contributions on your part to the investment account. And this has a tremendous effect on the speed of growth of your investments. Now that we have a better understanding of what compound interests even is, Let's take a look at an example of an investment portfolio growing over time with recurring contributions to it, taking advantage of compound interests. So for this quick example, we're going to be using a free online compound interest calculator. You can find one very easy on Google just by typing at compound interest calculator. All right, so let's say you're starting off with $10 thousand in initial capital and this investment is growing at a 7% annual interest rate. And for the sake of this example, we're going to put a ten year compounding period. The reason we chose annually is because it generally speaking, in the stock market, you can expect to see an average annual return of anywhere from four to around 15% on the high-end, depending on these thoughts and funds that you're invested in, this particular calculation would result in a $9,671.51 in a compounded interest over that 10-year period without any additional contributions, that interest would then be added back to the initial principle of $10 thousand for a total end value of $19,671 without even adding any additional funds to the portfolio over a long enough period of reinvestment contributions and compounding. This results in an exponential growth pattern as such as what we're seeing right here on this graph. If you notice from this example of compound interests also takes into account the number of compounding periods during the period of time that you're invested. This can actually have a significant impact on the end balance of your investments with more compounding periods, this actually has the impact of growing your investments at a quicker pace, even though in the stock market, interest is typically spoken about on an annual basis, such as, for example, a 7% annual interest rate in the S&P 500. Well, let's actually look at an example of more frequent compounding periods to see how this impacts the growth of your investment portfolio, just so that you're aware of this reality. If we take the exact same previous example but only changed the amount of compounding periods from annually to say monthly. This would represent 120 compounding periods instead of only ten compounding periods. If we only compounded on an annual basis during that ten-year period when calculating this example of compound interests, we're left with $10,096 in compound interest over that same period, which is roughly $450 more than compounded on a yearly basis. Now, obviously, this is not that significant with a relatively small amount like only $10 thousand to start out with. And this is also without actually continuously contributing to the account, but I wanted to provide you with as much information as possible. Unrelated to compound interests and what factors come into play that will have an impact on the compounding of your portfolio. With that said, with your own portfolio and during your investment horizon, you're typically only going to take into account the annual compound interests. However, I really just wanted to speak about the different possibilities that are out there for compound interest and what factors come into play. All right, so at this point we understand why compound interest is how it works for the overall growth of your portfolio and why the number of compounding periods will have a positive long-term impact on the growth of your investments. However, from that, we can therefore understand that that's starting to invest the younger is more beneficial because you can take advantage of more compounding periods during your investment horizon. Let's actually take a look at two examples of one portfolio where the individual started to invest at a younger age compared to the exact same portfolio and contributions where the individuals started to invest at a later age. However, I do want you to keep in mind that even if you are a little bit older, say in your 30s, 40s, or 50s. Well, at least you're starting to invest right now where you'll be able to take advantage of compound interest at for the rest of your investment horizon. So it's definitely better to start now than ever. In the first scenario, the individual will start investing at 20 years old. And in the second scenario, the individual will start investing at 30 years old and both will be investing up to the age of 65 when they're looking to retire. In both cases, each we'll start with an initial investment of $10 thousand annual, contribute one hundred, ten hundred dollars to their investment account on a monthly basis at an annual interest rate of 7% over the course of their investment period, the individual having started to invest at 20 years old, will have grown their investment portfolio to roughly $3,197,658 by the time they retire at 65 years old, if the market's yielded an average 7% return each year. On the flip side, at the individual who started to invest at the age of 30 with the exact same parameters would have grown to their portfolio to only $1,388,179 by the time they were 65. This is a difference of roughly $1.8 million, even though the years of compounding we're only diminished by ten years. The reason for this is because by the nature of compound interests being on an exponential growth curve as years progress, the chunks of compound interest earned become larger and larger each and every year. This becomes very clear when we take a look at the table version of the compounded growth of our previous scenario. One example, as we can see, the interests gained from year ten to 11 was $13,730. However, the interest gained from year 40 to 41 was 183,870. This is why you may have heard of the concept known as the time value of money, which is going to be very important when you assess your own investor profile later on in this course in Module six, the goal of this lecture was really just to quickly recap of what compound interest is and how it's going to positively impact the overall long-term growth of the value investments held within your portfolio. Now, as we just learned at compound interest is the most powerful when you can stay invested for a long period of time and take advantage of that annual compounded interest rate, anywhere from five to around 15% annually depending on the investment that you select, that based on your investor profile. With that said, it consistently achieving a certain baseline of annual interest in your portfolio for an extended period of time. It can prove to be quite difficult if you're looking to actively manage in your portfolio. And what I mean by this is picking and choosing your own stocks and trying to beat the market. What I recommend most retail investors do, including myself, is to construct the portfolio that is called a hybrid at core satellite portfolio where essentially you're going to have a passively managed exchange traded funds acting as a baseline for your portfolio. And then from there you can reserve a portion of your portfolio to actively pick into stocks. The reason why I recommend this strategy is because ETFs that track is solid abroad market indexes such as, for example, the S&P 500 and the nasdaq 100, the TSX 60, are going to have the highest chances of producing a consistent annualized returns that you can count on more than picking and choosing individual stocks, which inherently comes with quite a bit more volatility and risk associated with trying to actively beat the market. It's for this reason that I typically consider ETFs to be more advantageous for taking advantage of consistent compound interests. However, obviously I love to pick and choose my own stalks. And obviously you want to learn how to do this as well since you're taking this course with that said, a hybrid course Adelaide portfolio is perfect for the best of both worlds. And we're gonna be learning about this later on in module six. 20. Understanding Diversification: Welcome to the 15th lecture of Module two Investing Fundamentals. In this lecture, we're going to be learning all about diversification and why diversifying your holdings held within your portfolio is critical for maximum long-term success. This lecture is going to focus more on the actual theoretical is behind efforts of vacation so that you can understand the ins and outs of it. And then later on in the course, we're going to be applying what we're about to learn in this lecture to actually constructing your very own portfolio based on your own investor profile and a diversification mix. The topic we'll be covering in this lecture is very straightforward, which is, what is diversification and why is it important in a stock market portfolio, starting with what diversification even is, it's actually a relatively simple concept to understand it. So diversification is a strategy where you're going to be spreading out your investments across multiple different assets and asset classes in order to minimize your risk by limiting your exposure to one single asset or asset costs. There are multiple different reasons as to why an investor would look to diversify their holdings with the most common reason being that by limiting your exposure to one or just a handful of individual positions over the long term. And on average, you're able to produce consistently higher returns and limit your risk. We spoke about this briefly when covering ETFs and by nature, one of the attractive elements of exchange traded funds is that they hold a variety of different investments all within one single holding. And therefore, this automatically diversifies your portfolio through that one single holding. In a nutshell, that's what diversification is and it can be accomplished a variety of different ways by buying multiple stocks, ETFs, bonds, real estate, and the list goes on. It's really just the idea of spreading out your investments into multiple different investments and investment categories. This creates the effect of smoothing out portfolio returns where negative results for one position will be counterbalanced by positive results another. And the overall goal here is to achieve a higher upside over the long-term. Now what diversification is a bit more complex though, than just buying a variety of stocks and calling it a day, because there are other elements that you're going to want to keep in the overall equation here. One of the main point being that for proper diversification and you want to pick a variety of stocks, ETFs, or other financial securities that are uncorrelated. What I mean by this is selecting stocks that aren't all in, for example, the same industry or that have the same market calves because it typically speaking, similar stocks will be influenced by the same micro and macro economic events. For example, if all the stocks held within your portfolio or let's say utility stocks. And for some reason the utility sector took a turn for the worse, while your portfolio would be highly exposed to that one, a single industry. And for this reason that your portfolio would be negatively impacted. On the other hand, if your portfolio is constructed of stocks in various industries such as utilities, energy, consumer staples, and let's say the tech industry. And that not all your eggs are in one single basket. Well, in this case, if the utilities industry did take a turn for the worst, this would only impact a portion of your portfolio instead of the entire thing. I really hold that this makes diversification quite clear for you because honestly it's not a very difficult concept to understand. Just keep in mind that later on in the course when we're going to be constructing your own portfolio. Whether or not you choose to focus on ETFs or individual stocks or even a combination of both, you're going to be diversifying your holdings for now though, just remember what diversification is as a concept and later on in this course, we're actually going to be applying this knowledge to the construction of your own portfolio based on your investor profile that you're going to be defining. All right, So that pretty well wraps up the quick lecture on diversification. And once again, that later on in module six, we're actually going to be applying this information into constructing your very own stock market portfolio based on your investor profile and proper asset allocation. 21. What is Stock Volatility & Beta: Welcome to the 16th lecture of Module two Investing Fundamentals. In this lecture, we're going to be learning about what volatility is in regards to stock investing and how you can assess at the volatility of your individual positions using the beta coefficient. In addition to this, we'll be learning about some strategies that you can utilize in your own stock market portfolio to lower the overall volatility and risk of your portfolio. The topics that we'll be covering in this lecture include a, what is volatility followed with how to measure volatility with the beta coefficient. And then finally, we'll be ending this lecture with how to reduce volatility in your portfolio, some tips and strategies to utilize. All right, so starting off this lecture, Have you ever heard of the saying, a higher risk, higher reward in regards to investing chances are you have heard about this before. And in regards to the stock market investing in generally speaking, a higher-risk position means that it has a higher volatility level. The volatility of a stock is basically a measure of the expected size of the price swings from that stocks and mean and price. Think of it as sort of like a level of uncertainty or risk related to the size of the price fluctuations for a given stock. With this in mind, as stock that has a higher level of volatility by nature, comes with more uncertainty and risk than a stock with a lower level of volatility if a stock's volatility level is high, well, this tells investors that the future value of this security in question could fluctuate more intensely over a shorter period of time in a larger range of values. On the flip side, a stock that has a lower level of volatility tells investors at the future expected market value for this given security is expected to range in a much smaller range of price fluctuations, essentially meaning that it's steadier and less risky. Honestly get a lot more technical and in-depth about how volatility is actually calculated from a mathematical standpoint. But for the likes of your investing here, this would be more confusing and then valuable. So we'll just stick to this. What we will be speaking about though, is how you can get a quick snapshot of a stock or ETFs volatility with what's known as the beta coefficient that you can find it directly on the stock quote before speaking about how to use the beta coefficient to assess a stock's volatility. Let's first speak about what it even is in the first place and how it works. The Beta coefficient is one of the most commonly used measures to assess a stock's volatility in relation to the entire market. Essentially, the beta value of a given position is going to tell you how relatively volatile this position is in relation to the entire stock market as a whole in a given moment by looking at the beta value when you're assessing a stalk and determining whether or not you want to include it into your portfolio. This value can give you some insight on how much additional level of risk are you bringing into your portfolio. For example, if your average beta value within your portfolio is say one, and we're going to be speaking about what all that means later on in this lecture. But let's say it's one and you bring a new stock in your portfolio that has a beta value of 1.5. Well, you're bringing additional risk into the portfolio, however, you're also raising the chances of higher returns due to the fact that there is more risk associated with that one position. Always keep this in mind that a higher level of volatility means that there's higher chances for dramatic price fluctuations, both high and low. Let's now actually speak about what the different values for the beta coefficient mean in regards to assessing the volatility of a specific stock. First off, the baseline value for Beta is one, and this is essentially the baseline volatility level of the overall market as a whole in the current moment, this means that if you see a stock that has a beta value of one, well, it essentially has the same level of risk and volatility than the overall general stock market. And what this means from a practical standpoint is that this particular position is expected to return a roughly the same amount of returns as the overall general market. And he's not going to necessarily provide you with excess returns above what the market it could generate you following the 1 beta value, we have the beta value that is below 1, meaning that this particular financial position is going to provide it less risk than the overall market. Adding a stock or other financial security that has a Beta below one is essentially going to bring a less risk to your portfolio, but also reduces the chance of providing excess returns above what the market to provide. You. Typically speaking, a stock that has a beta value below 1 is going to move quite slowly and it's not going to have any dramatic price wings. For example, a generally speaking, in Canada, utility and bank stocks tend to have a low Beta coefficient values because their price movements are very slow and significantly less dramatic than other sectors as say, the tech and cannabis industry. Finally, we have the beta values that are above 1. And you can probably guess at this point and what this means. It means that the actual position itself is going to be more volatile than the overall market as a whole. And for this reason, has a higher chance of producing excess returns above what the market could provide you. But this is also a position that is more volatile. And at risky in nature, generally speaking, companies that operate in the pharmaceuticals cannabis, or let's say tech industries will have a Beta values above 1 because it by nature, they are much more volatile than the overall market. If, for example, we were to compare this to the overall S&P 500. Let's take a look at an example of a stalk in the real-world in order to better understand and what this beta value is telling us. For example, if we look at the beta value of a free a cannabis and their five-year monthly beta value is 2 to, essentially meaning that the stalk is theoretically 102% more volatile than the current market. In contrast to this at TD Bank has a current beta value of right around a zero-point seventy, meaning it is theoretically 30% less volatile than the total market. How do we tie this all together though? Because at this point of volatility can seem relatively confusing in the big picture. The issue is that when you're looking at the beta value of a given stock or ETF, add your only data point. Well, this doesn't give us enough information as an investor in order to make a clear decision and thesis around the position, as we've spoken about tremendously throughout this entire module, assessing a stock requires a lot of digging and research, including looking through the balance sheet, income statement, cash flow statement, stock chart, as well as other ratios such as the historic P, the beta value, and the price to book ratio. For this reason, even if you're looking to include a specific stock that let's say high as a higher or lower level of volatility, it's still critical that you conduct a full proper analysis of the position in question to see how it fits in your overall investment strategy. For example, if a stock has a relatively low beta value, well, this doesn't necessarily mean that it's going to provide a lower level of volatility brought to your portfolio because, for example, the beta value does not take into account other factors such as slowing down of revenues and increasingly lowered stock price over time. So a proper analysis is required for any position you are looking to invest in. The point I'm really trying to get across here is that once again, at the beta value is only one single data point that you need to include in your overall proper assessment of what constitutes a good financial position for your overall investment strategy and how it fits in your overall portfolio. Personally, I only look at the beta value extremely briefly when doing my first overall analysis of a stalk and going through the stock quote because overall, if you're looking to invest long-term into a position, the beta value isn't really going to come into effect and have a long-term impact on your overall position. Because depending on internal and external factors related to the company, the beta value can change quite rapidly from one year to the next. So once again, I really just looked at this quite briefly when first assessing a stalk and looking at the stock quotes. And depending on your own investor profile and risk tolerance, which we're going to be determining and speaking about in Module six, and accepted level of volatility for your portfolio can vary greatly from someone else's portfolio based on all the factors related to their investor profile. So the goal of this lecture was really just to give you some preliminary context around what volatility is and how you can quickly assess it using the Beta coefficient. For example, due to my own investor profile, age, and time horizon, I'm personally okay with having a portfolio that has a little bit higher level of volatility due to the fact that I'm looking to invest in long-term in the positions that I choose to include in my portfolio. However, it's someone who is saved 40 or 50 years old who's looking to retire in the next ten to 20 years, having a high level of volatility and risk, it might not be the best option for them because this could lead to higher price fluctuations and swings, which could be detrimental depending on how quickly they want to utilize the funds in their portfolio. So basically everything here is a full global assessment of your own situation. And then you need to determine at what you're comfortable with. But once again, and we're going to be speaking about this later on in module six. And with that said, a relatively easy way to regulate the overall volatility and beta of your portfolio in order to avoid having an extremely high or extremely low Beta is two, once again, a purchase exchange traded funds, which is going to expose you to hundreds of different positions, all with one single holding. For this reason it, since your investments are more spread out, the overall volatility of those positions is going to be relatively lower than one single position in, let's say, a high-growth, high volatility market like the tech industry, that pretty well wraps up this lecture on the volatility and beta coefficient. I really hope that you better understand these concepts. 22. What Is A Dividend Stock And Why Do They Exist?: You've now made it through the entire second module of this investing course and welcome to the first lecture of Module three, dividend investing. In this first lecture of the module, we're going to be learning about what dividends are in the first place and why they exist, and why certain companies might choose to pay out dividends while others do not pay out dividends. These are questions that we're going to be answering in this lecture. The topics we'll be covering are what is a dividend and why do they exist a followed by a why do some companies pay dividends and others don't? I'm assuming you've enrolled in this investing course after following my content on YouTube. So most likely you're aware of what dividends are. However, what would an investor in course B without first speaking about the fundamentals, including dividends and their relationship with stocks. In fact, as we covered in the sixth lecture of module two, we spoke about the wealth building fundamentals of stock market investing with dividends being one of the two main attractive factors in investing in stocks in the first place. And dividend is quite simply a distribution to shareholders of a portion of the company's earnings as a way to thank these individuals for buying and holding the stock. Dividend distributions, meaning the actual dollar amount that is paid out to shareholders can vary drastically from stock to stalk or even from quarter to quarter phrase same company. Because it's important to understand that that accompany doesn't actually have an obligation to pay out dividends at all. And the company can decide to distribute to any amount that they see fit in relation to the company's occur in financial position. Dividends are really just a way to encourage investors to actually hold shares of the company and inmates the stalking question, more attractive as the price it goes up over time. With that said, uh, paying out dividends to shareholders is typically a practice that a company will take on a, once they're well-established and have a reoccurring revenues that are steady and they don't need to re-invest older income back into the growth and expansion of the company. This is because accompanies use their earnings in order to pay for the growth of their operations by new assets, perform research and development, etc. And all of these count towards the retained earnings of a company. The balance of accompanies net earnings minus the retained earnings, meaning the money that they're utilizing for growth and expansion can then be utilized in order to distribute dividends out to shareholders if the management of the company chooses to do so. It's also important to note that dividend distributions can fluctuate over time for a given company. If, for example, they are looking to shift their focus towards new ventures, or if they find themselves in a difficult financial situation. At this point, the Board of Directors can choose to either maintain the dividend distribution, raised the dividend distribution, and lower the distribution or even cut the distribution entirely. Just keep this in mind. And when you're looking to invest in certain dividend stocks, that it's very important to understand the overall financials of the company to see if there were any good position to maintain and continue raising the dividend over time. For example, during the whole coronavirus pandemic, multiple companies that had a significant and dividend distributions decided to cut their dividend distributions entirely in order to retain those earnings and just reinvest them back into the overall operations and expenses and that they were incurring The most common form of dividends. And typically what a dividend investor is going to be after it's called a cash dividend, where a company will pay out a certain amount of cash for each share of the company. If, for example, a specific company were to pay out a $4 in cash distributions for each share of the company on an annual basis and you held at 20 shares of this company. Well, during this period, you would receive $80 in cash dividend distributions for doing absolutely nothing more than holding the shares of the company. Now in some rare cases, if there is the possibility that a company might choose to pay out a dividend and not in cash, but rather in more shares of the company by cash dividends are by far the most common and what we're personally interested in as dividend investors. I just wanted to mention this so that you are aware of this reality. However, for the rest of this course, whenever we're speaking about dividends, we're talking about cash dividends, as mentioned earlier, accompanies that are well-established and have a proven track record of positive earnings tend to be dividend distributing companies For this reason, a certain industries are more commonly associated with a dividend distributions in Canada, the banking industry is well-known for their consistent and increasing dividend payments over time, as well as the utilities, oil and gas, energy and industrials industries. These industries typically contain companies that consistently pay out dividends and that also have a dividend yields in the three to around 5% a dividend yield range. And we're going to be learning the difference between a dividend distribution and the dividend yield in the upcoming lecture. In contrast to this, industry is like technology, marijuana and other high-growth industries tend to not pay out a dividend distribution because they are focused on rapid expansion and growth. And for this reason that they're not in a position to pay dividends to shareholders. Rather, they are really utilizing all the earnings back into the growth of their operations. With that in mind that what are some of the primary reasons that companies would pay out dividends? The first reason that we touched upon a bit earlier is that for some stocks known as dividend stocks, in this particular case, investors have come to expect that they will receive a dividend compensation for holding this stalk. And due to the fact that the company has maintained and raise their dividend distributions for a certain period of time. Some companies have an extremely long track record of paying out and raising their dividend distributions over time for several years, such as, for example, four days Incorporated, which is a utilities company here in Canada that has a dividend distribution streak of over 40 plus years. So investors in Ford is incorporated, have come to expect that they're going to receive a dividend distribution for holding this stalk. And certain investors known as dividend investors will look to invest in specific companies that have that proven track record of paying out and raising those dividends over time because this creates an additional source of income for them known as dividend income, which also happens to be taxed at a more favorable rate, and then personal income here in Canada. So if the company in question decides to either cut or eliminate their dividend altogether, this can have a major impact on the investor outlook towards that specific stalk. And for this reason, the stock price could be negatively impacted. So it can very well be in the company's best interests who at a minimum and maintain the dividend distributions over time and keeping investors happy. The point being here that dividend distributions are a way for companies to offload a certain portion of their unused earnings and at the same time reward shareholders for holding the stock. But many factors will come into play when management decides to either cut or raise a dividend distribution, we'll be diving into a concept known as dividend aristocrats in a lecture four of this module, which is basically accompany that is consistently maintained, raised and distributed their dividend over a period of five years minimum here in Canada and at 25 years at down in the United States. Now that we understand and what dividends are and why certain companies choose to pay out dividends in the first place. How do you actually receive your dividend payments as an investor, first-off, companies typically choose to pay with their dividend distributions on a quarterly schedule, meaning four times per year. However, note that accompany can choose to do so on any schedule that they like, either annually, semi-annually, or even on a monthly basis. In the next lecture, we're going to be learning all about important dates related to a dividend investing. With that said, as a shareholder of a company that pays o dividend distributions, you really don't need to worry about collecting these dividends yourself because in this course we're going to be walking you through is setting up your very own online brokerage account where if you do invest in dividend stocks, you're going to be receiving these dividends as cash payments automatically directly into your cash balance of your investment account, where you can then utilize these funds in order to buy more stocks or simply take them out as cash. So this wraps up the quick lecture on what dividends are. Hopefully you have a better understanding now of how they work and why companies choose to pay them out. In the upcoming lectures, we're going to be learning about other relevant concepts related to a dividend investing. 23. Dividend Distribution vs Dividend Yield: Welcome to the second lecture of module three, dividends stock investing. In this lecture we're going to be speaking about the difference between a dividend distribution and a dividend yield of both of which are elements held within a stock quote, which we spoke about in the ninth lecture In module two. The topics we'll be covering in this video include what is a dividend distribution followed by how is a dividend distribution translated over into a dividend yield? And then finally, why do dividend yields fluctuate throughout the trading day, the dividend distribution, it doesn't need all that much explanation. It is literally the portion of a company's profits that is paid out to shareholders. This dividend distribution is a cash amount that's expressed in the native currency for which the stock in question trades in and is referred to on a per share annual basis, depending on the actual dividend distribution schedule of the company you are looking to invest in, the shareholder will receive a fraction of the total annual dividend distribution for each one of the payment date of this company. For example, let's say a company that has a quarterly dividend distribution schedule and they pay out an annual $1 dividend per share. Well, this means that for every share that you hold of this company on a quarterly basis, you're going to receive at twenty-five cents for a total annual twenty-five cents times for meaning $1 annually as the total dividend distribution. Just a quick additional example here. Let's say a real estate investment trust that has a total annual dividend distribution of a $1.20 and they pay out their dividend each and every month. Well, this means that a shareholder for each month that they hold the stock will receive 1 12th of this overall annual $1.20 dividend distribution, meaning it $0.10 per share held of the company for this reason though, and based on this logic and the dividend distribution frequency ultimately does not matter whether or not it's on a monthly, quarterly, biannual, or annual basis because the total dividend distribution per share remains the same, whether or not you're getting your portion of it on a monthly or annual basis, For example, the reason why I'm mentioning this is because I have had multiple individuals reach out to me wondering which stocks paid out or their dividend on a monthly schedule. And I could understand the appeal to this, getting your monthly dividend. However, ultimately, it does not matter because you're just getting a relatively smaller fraction of the overall annual dividend distribution with all this in mind, how does the dividend distribution actually translate over though, to a dividend yield? As you know by now, the market price of a given stock will fluctuate every second that the markets are open because investors and traders are buying and selling shares, which has an impact on the market value of the given stock. Now I accompany will typically announced modifications to their dividend distributions within their quarterly earnings reports, whether or not they're going to cut to maintain or raise the dividend distribution in question, the current dividend distribution per share, meaning the actual dollar amount that he shareholder is receiving for holding the stock on an annual basis is then going to be projected over the upcoming 12 months. And this value in relation to the current market price per share of stock is what ultimately dictate the dividend yield of that stock. So for example, if a stock has a dividend distribution of $4 per share, well that $4 annually is what the dividend yield is based off of. If the dividend distribution is then raised up to, let's say $6 per share. Well then that's $6 value is what's utilized to calculate the dividend yield. For this reason, a dividend yield of accompany is a percentage between the current market price per share of stock in relation to the annual dividend at distribution per share of the stock. In order to calculate the dividend yield of a stock, it's extremely simple. All you have to do is take the current annual dividend distribution per share of a stock and divide that by the current market price per share. For example, a company that's currently trading in the market at $40 per share and that has an annual dividend per share of $4 would have a dividend yield Of 10% because we're taking that $4 annual dividend per share and dividing it by $40 market price per share. And that is the reason why the dividend yield of a stock will fluctuate every single trading day because the market value is fluctuating every second as traders are buying and selling shares of the stock. On the flip side, at generally speaking, it changes to the dividend distribution per share only happen on a quarterly basis and often even on an annual basis. In the same example as earlier, where the dividend distribution went up to $6 per share. Let's look at three separate scenarios. So in scenario one, if the share price remain the same at $40 per share, the dividend yield would then be 15% based on it, that $6 per share dividend distribution. In the second scenario, if the share price went up to say $60 and the dividend remained at $6 per share, the yield would remain the same at 10%. Finally, in the last scenario, if the dividend distribution remain the same at $4 per share, but the stock price went up to, let's say, $60 per share. The yield would then drop down to 6.67%. In a real life example here at the time of filming this video, the share price of TD Bank and Candida is trading at $62.90 per share and their annual dividend distribution per share is at $3.60, I think, which translates over into 4.98% dividend yield. As you can see, this is an equation here. So we can determine either the market price or the dividend distribution or even the dividend yield of a stock based on two of the elements of these three elements equation. It's basic algebra, but honestly not to worry, you're not ever really going to have to calculate this for yourself. I really just wanted to show you how dividend yield is calculated based on the market price and the dividend distribution. And now you understand how it works as an equation. The dividend yield is a tool that you can use to quickly compare a different a dividend stocks and then the dividend distribution. And you can utilize in order to determine how much you can expect in dividend distributions on a yearly basis from a given stock, both of which are available on the stock quote on Yahoo Finance. One thing to be mindful of, however, is that for a healthy dividend yield, it's typically going to range anywhere from around 2.5% annually to maybe six or even 7% on the high side, this is going to be a typical healthy dividend. Yield it. With that said, if you come across a stock that has, let's say, a 1015, 20% dividend yield, which will happen when you're going and analyzing different stocks, just make sure to conduct proper analysis to determine why the dividend yield is so high and whether or not this is going to be sustainable over the long term. So in an upcoming lecture within this module, we're going to be speaking about different things to consider when investing in a viable dividends stock. All right, So that wraps up this lecture on a dividend distributions versus a dividend yields and how they play off of each other. In the next lecture, we're going to be speaking about very important dates related it to dividend investing. 24. Important Dividend Dates To Understand: Welcome to the third lecture of the third module, dividend investing. In this lecture, we're going to be speaking about a variety of important dates and timelines related to dividend investing so that you can better understand when dividends are paid out to investors and how you can secure a dividend payment. The topics we'll be covering in this lecture started with why are there different dates associated with dividends, stocks in the first place, followed with the declaration date, the ex-dividend date, the record date, and finally the payment date before actually covering the specific dates associated with dividend investing. Let's first speak about why there were specific dates associated with the lifecycle of a dividend in the first place, a company that distributes a dividend, it needs to have a systematic approach to declaring, recording, and paying out the proper amount of dividend out to the shareholders in question due to the fact that in modern stock market investing, investors trade stocks online all day, every day on these online stock brokerages, meaning stocks will trade hands a thousands of times per day. So for this reason, companies that pay out a dividend, it needs to have specific dates associated with the life of a dividend in order to determine at which shareholders receive a dividend compensation and in what amount as a dividend investor, it's really important that you probably understand all of these dates associated with a dividends in the first place so that you're well aware of when you'll be receiving a dividend and if you're going to receive one at all, Let's jump into the first date, which is the declaration date. The declaration date is when the board of directors of a company is going to announce that they had the intention of distributing out a dividend in the upcoming quarter or on whatever timeline they will choose. The declaration date is also the date on which the company is going to announce the terms of this dividend distribution in regards to when the dividend will be paid out specifically and the amount of dividend per share. Just think of the declaration date as an announcement of the upcoming dividend and as an investor, how much you can expect to receive. And note that the declaration date has no impact whatsoever on whether or not you will be receiving a dividend or not as an investor in the company or if you're looking to buy into this company in a specific timeline and before the dividend is actually paid out, other dates relate to that. So you can actually buy a dividend stock before, on or after the declaration date. And this will have no impact on whether or not you receive the dividend. The next important date related to dividend investing is arguably the most important of them all, and this is the one that you will see it most commonly when you're researching and dividend stocks to invest in. And this is what's known as the ex, dividend date. The x they've been indeed is essentially the date by which you must be a shareholder in a company in order to receive the upcoming dividend distribution. The reason why the ex-dividend date exists in the first place is because when you purchase a stock in a given company, it'll usually take around one to two business days in order for your name as a shareholder to settle in the company in questions books, as a valid shareholder that's eligible to receive a dividend. Now, depending on the stock exchange that this dog is going to be trading on it. Typically speaking, the ex-dividend date is going to be anywhere from one to two to three days before the actual record date of the dividend. That will be speaking of shortly. All this to say though, that if you purchase a dividend stock after the ex-dividend date, you will not appear in the company's books. And for this reason, you will not be receiving the upcoming announced that dividend distribution. All you really need to remember here is that if you want to be eligible for accompanies upcoming dividend distribution and you need to have purchased the stock priority, the ex-dividend date in order to receive your dividend. The next important date related to dividend investing is called the date of record. And technically we actually spoken about the date of record before the ex-dividend date because the ex-dividend date is based off of the date of record. The date of record is the official date on which you must be a valid shareholder in the company's books in order to qualify for their upcoming dividend payment. When a company declares a dividend, they also set a date of record. And then from this date of record at the ex-dividend date is determinant depending on the stock exchange and that the stock trades on. And as a shareholder, you must purchase stocks and before the ex-dividend date and not on or after. With that said, if you've already been a shareholder of this dog and question that you're looking to receive a dividend from all you need to do is hold that stock until after the activity end date and you will still receive the dividend payment even if you go ahead and sell your shares after the ex-dividend date. Finally, the last important date related to dividend investing is called the date of payment. And this is pretty straightforward, just based on the name. This is going to be the date on which the company issues out the dividend distributions to shareholders. And if you are indeed a valid shareholder who purchased the shares of the company prior to the ex-dividend date, you will receive your dividend distributions a couple of business days after the payment date. So this wraps up the lecture on important dates associated to dividend investing. This was not really a complex or long lecture, however, it's really just important that you understand each one of these days properly so that you know what's going on with your dividend payments. If you so choose to purchase a dividend stocks in your portfolio. In the next lecture, we'll be speaking about what criteria makes a good dividend stock and what you should be looking out for for a good a dividend stock investment. 25. Assessing A Dividend Stock's Worthiness: Welcome to the fourth lecture of module three, dividend stock investing. In this lecture, we're going to be speaking about what you should be looking for in order to properly assess the worthiness of a dividend stock to add it or not to your portfolio. Because not all dividends stocks, I shouldn't be treated the same. And it, depending on your dividend investing strategy, there are various at different data elements that you'll want to consider in your overall assessment and analysis of the stock in question. The reality is that selecting a good dividend paying companies to add to your portfolio can be somewhat confusing and even a challenge. But this lecture is going to give you the tools to properly identify the key elements that you need to be looking out for when you're selecting and dividend stocks to add to your portfolio. The topics we'll be covering in this lecture include the following. Dividend yield, dividend payout ratio with consistent profitability to maintain the dividend strong at cashflow dividend distributions over time. And then finally, we'll be speaking about dividend aristocrats. First and foremost, we've already spoken about the dividend yield and the second lecture of this module. And the reason why we spoke about the yield is so early in this module is due to the fact that the dividend yield. Is it typically the first thing that dividend investors look at when assessing whether or not they're interested in the dividend stock in question. And the reason why the yield is often the first of data that investors look at when assessing a dividend stock is because it's easily and readily available on the stock quote. It's also a quick and easy way for investors to estimate what type of return on investment they can expect from this dividend stock in question, excluding the actual appreciation of the sock. At this point, you should know all about what the dividend yield is because we had a full separate lecture on it. However, just to recap, let's say a stock that's trading at $100 per share with a 5% dividend yield. Well, this would yield the investor of $5 in dividend distributions per year for a stock that they hold of that company. Now a mistake that new investors often make when just getting into dividend investing is looking for companies that have the highest possible dividend yield and only using this one piece of information to make their overall investment decision on the company. While the dividend yield is definitely something that you are going to want to take into consideration for the assessment of a dividend stock makes sure to only use the dividend yield as a preliminary data point for surface level assessment of the dividend stock in question. Before going ahead and looking at other elements that we're about to speak of. The absolute last thing that you would want to do as a dividend investor is go out and buy shares of a company that has a dividend yield of say, 10%, which AT service level looks at very attractive. However, upon a further research into the company, you would see that it has, let's say, a struggling revenues and net income, poor management. And ultimately in the short-term, a dividend is most likely going to be caught anyways, as a result of poor financial performance. And that's not to say that all dividends thoughts with a high yield of say, 10% are in fact going to be financially unstable and we'll be cutting their dividend in the short-term. It's just that if you want to be a proper dividend investor who does the adequate research before making a position and accompany utilizing the dividend yield exclusively as your only data point does not give us enough contexts around the reasoning of why the dividend yield is so high. So you're just going to want to look at more data elements in your overall assessment. With this in mind though, what is a healthy dividend yield that you should be targeting anyways, although this indefinitely vary from company to company and even industry to industry, typically a healthy dividend yield that I personally look out for is between three and at 6%. And the reason for this is because between 3, 6%, this is usually healthy and manageable for a company that has a good cash flows and net income figures. Now obviously a dividend yield can venture out of this three to 6% a dividend yield range and still be healthy and sustainable for the company in question, based on their own financial fundamentals. This is just kind of a rule of thumb that I set out for myself for first assessment of a dividend yield. And with that said accompany that does in fact have a dividend yield between this three to 6% range could actually not be healthy for their own financial fundamentals as well. So I once again, it's just really important that you do an overall assessment of the company's income statement and balance sheet and cash flow figures in relation to their yield to see whether or not this is going to be sustainable for this company. In summary, it's completely normal that the dividend yield is going to be the first thing that you look at on a company's stock quote, when assessing it as a dividend position. And you might be wanting to add to your portfolio. This is definitely the first thing that I looked at, but you're going to want to utilize the dividend yield in combination. The other elements that we're about to speak of at, such as the dividend payout ratio, as discussed earlier on in this course, companies will typically start paying out a dividend once they are well established in their industry and are profitable enough to actually justify a redistributing a portion of their earnings, uh, back to shareholders as a way of rewarding them for simply a holding the stalk and also potentially attracting new investors. Now it's important to understand that I said at profitable companies, because dividends are paid out to shareholders after the company utilizes its retained earnings for growth and expansion of their operations. For this reason that accompany that is in a full growth mode, it typically will not be paying out a dividend distribution to their shareholders because they're retaining all of their earnings. In order to reinvest it back into the growth and expansion of their operations. This is really important to keep in mind because for a company to consistently maintain and continue raising their dividend distributions over time, it also needs to be increasingly profitable because otherwise it just does not make physical sense for the company, at least companies that we want to be investing in to actually let us say you borrow money in order to maintain their high dividend yield for the distributions to actually may fiscal sense from the company standpoint, you want these dividends to be from an organic source of earnings with enough buffer for the company to actually utilize at some of these earnings for research and development and just further expansion of the company's operations. This is where the dividend payout ratio comes into play. And this is quite simply a quick calculation. It taking the dividend distributions paid out Bay Company over a calendar year and then dividing that by the net earnings of the company. The reason why the dividend payout ratio is important in determining the sustainability and health of a dividend distribution for accompany is because this is essentially telling us how much of the net earnings accompany is retaining for growth and expansion and how much of the net earnings it is paying out to shareholders in at dividend distributions. For example, if a company has a dividend payout ratio of 50%, well this means that from its net earnings it is paying out 50% of them, it to shareholders in the form of dividend distributions and then keeping 50% in retained earnings for whatever they so choose. On the flip side, accompany that would have say, a dividend payout ratio of 150%, which does actually happen, would mean that the company is paying out dividend distributions in the realm of a 150% of their net earnings for that period. For a company to actually do this and maintain this very high dividend payout ratio, they would have to do one of many things such as, for example, utilizing their cash position, selling off some of their assets, borrowing money from other institutions, or even issuing out more shares or bonds in order to raise capital. All of which are not ideal and sustainable practices over the long-term. And ultimately, this typically leads to cut dividend distributions in the short to medium term, which is not advantageous for a dividend investors. I do want to mention that depending on the nature of the company that you're looking at or even in the industry that it operates in a healthy dividend pale ratio range can vary somewhat, but as a general rule of thumb, a healthy dividend payout ratio is usually between 35 and it 50%, maybe 60% if we're pushing it, depending on the actual industry that the company operates in. And as we spoke about in the previous module with real estate investment trust, this thing typically go up to about 80% and it's still remain healthy. Irregular companies though anything above 60% pale ratio and going up to 95%, means that the company is paying out a very high percentage of their net earnings back to shareholders and doesn't really leave them with much capital for re-investing back into growth. I really hope that you now have a better understanding of what the dividend payout ratio is, how it is calculated, and then how it is utilized for assessing the worthiness of a dividend stock. I now want to look at two quick real-world examples of stocks that have a differing and dividend payout ratios. The first company is Canadian Tire, and as we can see here on market beat.com, which is a website that allows you to see a company's dividend payout ratio, while, uh, based on their trailing 12 months of earnings. This is a company that has a dividend payout ratio of 49.45%, which is healthy. And it's a preliminary indicator that this is a company that can financially sustained this dividend distribution. Now, do keep in mind that the dividend payout ratio is also one of many factors to consider in your overall assessment of a dividend stock worthiness. In contrast that Canadian Tire, the second company will be comparing is the Laurentian Bank of Canada, which is one of Canada's mid-sized banks. And their dividend payout ratio based on the trailing 12 months of earnings is 107.74%, which obviously is too high and is unsustainable. In fact, in this bank and did even cut their dividend by 40% during the coronavirus crash because their net earnings were unable to sustain the dividend. So with all that said, I definitely always look at a dividend stocks pale ratio as one of the many data elements that comes into play for the overall assessment. Moving on to the next factor to consider with a dividend stock selection, you want to make sure that the company you're looking to invest in for their dividend has been increasingly profitable for at least the past five years. The reason for this is because as we just covered in the last point for accompany to maintain their dividend distributions and maintain a healthy dividend payout ratio, it needs to be increasingly profitable if it's looking at to increase their dividend distributions over time. So that on a relative basis, the dividend payout ratio is not increasing each year as they're raising their dividend distributions. If a company is increasing their dividend distributions each and every year, however, they're not also increasing their profitability. Well, this will have the result of a dividend payout ratio increasing each and every year to a point where it could potentially become unsustainable. For this reason, investors who are looking to benefit from long-term, consistent and increasing a dividend payouts from a specific companies. It's important that the company in question. Is increasingly profitable each calendar year at a rate of what I personally like to be five to around 15% annually in increases to their net income figures. This gives the company enough leeway to increase their dividend distribution to each year by 5, 215% and while maintaining a steady and healthy dividend payout ratio. Now in addition to accompanies increasing profitability, it should go without saying that when assessing the worthiness of a dividend stock, you should also be taken into consideration everything related to the income statement, balance sheet, and cash flow statements that we learned about in module two. Always remember here that you're investing in a company that needs to be financially viable and somewhat stable depending on the investing style that you're going for in order for the company to yield positive results for the investor. Always remember that or it's another, we've covered some ratios and percentages to keep in mind and when assessing the viability of a dividend stock, the next thing that you're going to want to look at is the track record of dividend distributions over time of this company to see whether or not over the past five to ten years, this is accompany that has at a minimum maintain their dividend distributions. And more importantly, whether or not they've been raising their dividend distributions each calendar year. This is going to be very important when you're investing in a dividend stock for the long-term, if you're looking to increase the value of your portfolio at an exponential rate and at the very minimum beat inflation levels. For example, if a company is only paid out a dividend and increased over the past few years. Well, this doesn't really instill confidence that this is a company that will maintain their dividend and he continue increasing it over time for the long-term. Personally, when I'm looking to add a new dividend stocks in my portfolio in combination with everything we just spoke about. I also like to invest in companies that have been at paying out and increasing their dividend at year over year for a minimum of five years specifically, and even more if possible, to check this data, it's very simple. You can typically actually find it on the company and questions website, or you can also visit a TM X money for Canadian stocks in this section right here, where you'll have access to information related to the dividend, the dividend growth, and dividend history. With that said, there's also a variety of other websites online where you can find a historic information about accompanies dividend. This now leads me into the next topic, which is something that I've spoken about quite extensively actually on my YouTube channel regarding companies that have a proven track record of consistently maintaining and raising their dividend distributions over a certain period of time, which are considered to be a dividend aristocrats. A dividend aristocrat is a company that has maintained their dividend and continuously raised it year-over-year for a minimum of five years in Canada and 25 years in the United States. The reason for this is because in the United States there are significantly more companies that have actually been paying out and maintaining their dividend, raising it over time, but for significantly longer than in Canada. Now the companies also need to have a market capitalization of a minimum of 300 million in order to be considered a dividend aristocrat by the time that Standard and Poor's conducts the year and review of which companies are going to be included in the dividend aristocrat indice. Now even though we're looking at companies that are considered to be dividend aristocrats can be a really great starting point for finding a new dividend opportunities. It's also really important to keep in mind that for accompany to actually maintain, they said dividend aristocrats status and maintaining the increases of their dividend at year over year, they can technically just increase it by a penny per share per year. So with that said, it's important to look further into the actual historic information related to the company's dividends. I personally like to see companies at raising their dividend distributions by a minimum of 5% annually or 15% on the high end, with around 10% of being most favorable here. In order to make it this company actually be worthwhile to include in my dividend portfolio in relation to all the other elements that we just spoke about. This pretty well wraps up the lecture on the most critical elements that you need to keep in mind that when assessing the worthiness of a dividend stock to add it to your portfolio. And I want to stress the fact that once again, that it's really important that you take a global holistic view of everything that we just spoke about in order to assess whether or not a dividend stock is going to be a right fit for your portfolio. And make sure that you look into accompanies income statement, balance sheet and cash flow statement at all times before making an investment in that company. I'm going to mention it a couple more times throughout this course because I cannot stress enough how important this is if you really want to be an investor rather than a speculator. In the next lecture, we're going to be speaking about what the best use for your dividend income is in order to grow the value of your portfolio over time. 26. The Best Use For Your Dividend Income: Welcome to the fifth lecture of module three, dividend investing. In this lecture, we're going to be speaking about the most advantageous strategy that a dividend investor can use with their dividend income in order to grow the value of their portfolio at an exponential pace over time. And for pretty much everyone watching this and this is going to be the best course of action. The topics we'll be covering in this lecture include the following. The best way to use a dividend income And then finally, a comparison between a reinvesting dividends versus not reinvesting dividends. All right, so at this point it should be quite evident that dividend income can play a critical role in the overall returns of your investments over the long-term. Because it dividend income, It creates additional liquidity within your portfolio that you can rely on in order to purchase more stocks, ETFs, or other financial securities, other than only relying on it, the actual appreciation of the value of your investments over time. However, even though dividend income is typically received in cash within your portfolio when you receive a dividend distribution from a company, the way that an investor utilizes this dividend income, complete a major role on the long-term exponential growth of the value of their portfolio. Now chances are that if you're following this investing course, you're interested in growing the value of your stock market portfolio and subsequently your wealth over the next decade or two. Because this is a course where we're learning about how to analyze a company from a fundamental standpoint and invest in them over the long-term to benefit from dividend income and appreciation of the value of these investments. Instead of looking to say day trade or other forms of risky investments with this in mind, and following a long-term investing strategy, you're going to be receiving and dividend income from at least a portion of your stock market portfolio, whether it be from ETFs, specific dividend stocks or real estate investment trusts. But what is the best way to utilize this Stephen and income for increasing a compound interests over time? The answer to this question is actually very simple, and that is just to reinvest as dividend income back into purchasing more of the securities at that you're holding in your portfolio, which in turn increases the compound interests of your portfolio over the length of your investing career. And the reason for this is that you now have more shares of the companies or ETFs that you're holding. The shares are themselves and generating more dividend income. So all of this combine creates an exponential effect over time in combination with reoccurring contributions by you into your stock market portfolio, the best use for your dividend income is quite simply just to reinvest it back into purchasing more shares instead of taking that dividend income out and using it for other purposes, which in the beginning isn't going to be that much anyways. So it's much more beneficial to just reinvest it back into the portfolio and have that grow over time. So I really don't want to make this lecture longer than it has to be. So just remember here I've already mentioned it multiple times, but reinvestment of your dividend income back into the portfolio is the best use over the next 101520 years for exponential growth of the value of your portfolio. But let's actually now compare side-by-side two portfolios that have the exact same initial balance, monthly contributions, dividend yields, as well as annual returns from the stalks. One of them are reinvesting the dividends and the other not reinvesting the dividends. Just to see how dramatic of an impact this actually has on the future value of the portfolios. In both scenarios, we're starting off with an initial balance of $5 thousand in the portfolio, which for most individuals is realistic. But even if you're starting with less or more, it doesn't really matter because at this example here is simply to showcase the difference that dividend reinvesting makes on the growth of your portfolio. In the first scenario, we're starting with $5 thousand of which we will then add $500 per month that to our investment account. And it just for the sake of this example, we will say that the current price of the shares you're investing in our $50 per piece. Now from there we'll put a realistic expected increase of stock price at 7% annually, which for most established dividend stocks, easy, realistic based on historic information. Next, we're investing for a 30 year time horizon. However, this calculator will show us a table of each year leading up to the 30 years. So we can see how the account would grow. The current dividend yield we will input is 5%. And finally, the expected dividend growth rate, meaning the increases of the dividend distribution at per year will be at 7%. For this first a baseline scenario, we will be turning off the drip, which is the dividend reinvestment. And so this would mean that you are not reinvesting the dividends back into purchasing more shares. Rather, you would just be utilizing the dividend income to do something else rather than growing the account, as we can see here when calculating this first scenario, while after 30 years, the account will have grown to $604,825, which isn't bad considering that throughout our entire investment period, we were only contributing as $6 thousand per year and never reinvesting any of the dividends. Let's now look at scenario two with the exact same information, but this time it will be reinvesting the dividends back into purchasing more shares of the company to see what type of difference this makes in the long run when changing the drip option to yes, this is telling the calculator to take all the dividends received and then reinvesting them back into purchasing more shares. That's not only growing the actual number of shares, but also increasing the dividends received, which again are reinvested. Now we can see that this has made a huge difference in both the dividend column as well as the end balance column. Instead of ending with only 600 thousand, this portfolio ends with just shy of $1.5 million. This is really the power of re-investing those dividends back into the portfolio and then benefiting even more from compound interest over it. There was years. Another factor to consider is that as we can see from the bottom rows at compound interests, it takes the largest effect with larger values. So if you're reinvesting your dividends over the course of your investment horizon? Well, this is creating a larger gaps of appreciation In the years 15 to 30 because there is more capital to work with and compounding is more beneficial. What did you make out of all the information that we just covered? Well, I think it's pretty evident what I'm about to say. If you're actually serious about growing the value of your portfolio and your wealth over time in the stock market, then it's going to be very important that you prioritize what you're looking for with your investments. I would obviously recommend that you contribute as much as you possibly can per month into the portfolio. Because overtime this is going to have a major impact and the compounding of your portfolio, especially in the later years of your investing. And then also reinvesting as much of the dividend income as possible back into the portfolio instead of utilizing it for your living expenses. In the next lecture, we'll be speaking about a dividend focus ETFs and how those can be utilized to a passive investors advantage. 27. Dividend ETFs: Welcome to the sixth lecture of module three, dividends stock investing. In this lecture, we're going to be speaking about how you can incorporate the passivity and diversification of exchange traded funds with a dividend investing. If you're the type of investor who's looking to utilize ETFs as your main investment vehicle. The topics we'll be covering in this lecture include the following. What is a dividend ETF? A couple of dividend ETF options. And then finally, advantages of using a dividend ETFs over picking and dividend stocks. The first thing we'll need to make clear is what a dividend focused ETF even is. And then m is actually quite straightforward in that this is an exchange traded fund that is focused on including companies that provide a higher level of dividend income, as opposed to other exchange traded funds that, for example, track broad market indices or just have other investment goals in general, when we covered the lecture on ETFs, we spoke about how there can be various exchange traded funds that mimic certain market indices based on a variety of different criteria, such as, for example, the transaction volume of the stalks, the actual industry these companies operate in, the market capitalization or whether or not the actually distribute a dividend distribution in the first place. Now obviously we're not going to recap everything there is to know about what an ETF is. However, just keep in mind that some exchange traded funds are going to be focused, including companies that either have a higher than average dividend yield or a consistency in dividend distributions over a certain period of time. Now, there are a variety of dividend focus ETF to choose from and ultimately which ones could potentially be most beneficial for your portfolio are going to depend on a variety of different factors that you need to choose from arranging from the actual size of the fund itself, how many companies are in the fund, the actual size of the company, the dividend yield and a variety of different factors. That said a couple of dividend focus ETFs here in Canada include xy, I, VTY, and CDC, which are going to include various different companies, but are all focused on higher than average and dividend income for this fund. Let's now quickly cover why some investors may choose to utilize a dividend focused ETFs instead of hand selecting specific and dividend stocks as with most ETFs. And the advantage here really comes down to diversification of your holdings and the passivity of your investments. Now obviously in this course we've spoken extensively about how to actually analyze a specific company's financial is going through all their financial documents, as well as specific ratios and things to take into consideration when analyzing a stock. However, it also spoken quite extensively about the use of exchange traded funds in a stock market portfolio, acting as a foundation for your stock market portfolio for consistent and steady returns over time. And this is no different for potentially including a dividend focus exchange traded fund, as you already know by now, I personally have a foundational layer of certain core ETFs that I like to add to my portfolio for that consistency and appreciation over time. And then I cherry-pick is select the stocks that I think are going to appreciate at a nice pace or provide a certain upside to my portfolio. In the case of a dividend focus ETF. And not only does is provide you with diversification of the stocks held within it, this one fund. It also gives you a hedged exposure to the dividend at distributions of each one of these companies. When we spoke about why certain companies will pay out a dividend distribution in the first place, we mentioned that companies are not inherently obligated to maintain their dividend payment moving forward, this is at the discretion of the actual board of management of the company that you're invested in. If you invest in a dividend focused ETF, Well, if one or two of these companies, for example, cut their dividend, you still have exposure to high dividend distributions from these other companies. For example, during the whole corona virus outbreak, and many companies cut their dividend from a nice, safe five-six percent and down to one or 2% or even 0 overnight. So unfortunately, if you held any of these companies, you'd be out a dividend for that specific position. If you invest in a dividend ETF that holds a variety of different stocks. Well, if one of the dozens of companies ends up cutting their dividend, you're not as exposed to that one single position cutting their dividend because all the other ones are either going to be maintaining or continue raising them over time. Essentially, it's just a question of hedging your exposure to one single position, which is the same rationale as to why ETFs are great investments in the first place to diversify your holdings. Alright, so this was a very shortened to be lecture for you and actually wraps up Module three, which was all about dividend stock investing. I think by this point, you will have noticed that even though each module covers completely different topics, they all build off of each other with module two being really the main module where we learned about how to actually properly analyze a company from a fundamental level. In the next module, which is module four, we're going to be learning all about taxation on your investments, as well as the different fees that you're going to incur while you're investing in the stock market. And as a student of mine, it is absolutely critical that you properly understand everything there is to know about these two topics. I'll see you in the next lecture. 28. Trading Fees To Be Aware Of: Welcome to the first lecture of module four, investing fees and at taxation and this entire module we're going to be going over the various fees associated with stock market investing that you're almost undoubtedly going to experience at 1 or another, because honestly it's just part of the game and you have to be aware of these various fees from there, we'll be learning about how taxation works in regards to your investment and different strategies to utilize in order to keep them more money in your pocket. In this specific lecture, we're going to be taking things off with speaking about all the various different types of fees associated with stock market investing in a self-directed account so that you aren't hit with any unknowns are surprises went to actually do open up your own brokerage account and it started trading. The reason why I'm saying a self-directed investing here is because if, for example, you were to go ahead and invest with a financial advisor at, let's say investors group or any other type of wealth management company, will typically speaking, they're going to charge you a 12 or even 3% premium for what they call active management of your portfolio. And over the years, this can represent a thousands upon thousands of dollars that you're paying out to these institutions for their active management. However, with a self-directed account and after taking this course, you're going to be taking matters into your own hands and building your own stock market portfolio with ETFs stocks and other financial securities in order to lower your overall fees associated with investing and keeping more money in your pocket, which over the long run with compound interest is going to equate to thousands of dollars added to the value of your portfolio. Now I do want to mention here that while most discount brokerages are going to have a standard fees associated with their account. Each brokerage is going to be the same. So for this reason, each one is going to have a various fees associated with different actions within their talents. But as you're going to see in this lecture as well as in this module, we're going to try to reduce as much as possible the fees as well as taxes that you're going to have to pay on your investments afterward, unlearning about self-managing our investments in order to avoid spending thousands and a management fees. And we're going to be specifically focusing on to discount brokerages that I personally use it later on in the course. With that said, let's take a look at the various topics that we're gonna be covering in this lecture. We'll first start off the lecture speaking about trading account fees, including annual and inactivity fees as well as research is subscriptions are followed with a conversion rate fees. And then finally, we'll be covering a stock of commissions if you're new to investing and haven't yet opened your very own brokerage account, then you're probably not aware of all the different fees that can be associated with a stock market investing. The most common fee that traditionally comes with a brokerage account is what's known as an annual fee is simply for maintaining an active a brokerage account with the institution. And generally this ranges from 25 to around $50 per quarter. Nowadays, this is more typical with a brokerage account from a one of the large banks. So if you decide to open a brokerage account with either TD Bank, Scotia Bank, basically any of the large banks, and generally speaking, and there will be an annual fee associated with your account. Now usually there are ways to avoid it. These annual fees by either setting up, for example, auto deposited directly into your account for a certain amount each month. Or you can also maintain a certain balance in your account. And generally this will wave at the annual fee. However, with the introduction of online discount brokerages, you can typically avoided these altogether without any hassle. So this is why I typically recommend quest trade as well as well simple trade which we're going to be speaking about in detail later on in the course. But these are two discount online brokerages had offer a very low fee structures in addition to an actual annual fee charged by the brokerage is some brokerages are going to also charge what's called an inactivity fee. This is generally going to be a quarterly fee that's charged to your account if you do not meet the minimum requirements for activity in the account. Generally, this is a number of trades. Once again, inactivity fees can be easily avoided by simply executing the minimum amount of trades at during the quarter is setting up an auto deposit or just avoiding it altogether by utilizing either well, symbol trade, which does not charge any fees whatsoever in terms of annual or quarterly inactivity fees and quests rate is only going to charge you an inactivity fee per quarter of $25 if you don't execute at a minimum at one trade, or just maintain a balance of $1000. So again, this is very easily avoidable. The next fee that some investors might want to take on is what's called a research and data information package where with some brokerages and you can subscribe to an additional package of a live information related to the stock market, which is going to give you a real-time quotes and a data down to the split-second. And typically these are going to range anywhere from 50 to around $150 per month. Now I am mentioning these data packages in today's lecture because I just want you to be aware of this as a possibility. However, with long term buy and hold investing, such as what we're learning in this course. You're not going to need information down to the split second. And that is typically something that a day trader is going to take on for the likes of this type of investing of long-term buy-and-hold in quality companies that have solid financials, this is not something that's going to be necessary, but I really just wanted you to be aware of it. Next up is by far the most common fee associated with stock market trading that you will absolutely be faced with when you actually start opening up your brokerage account and then a buying and selling various financial securities. And that is an actual Trading Commission where you're charged either a flat or a variable fee associated with the actual trade itself. And generally this is going to range anywhere from free to about a $10 portrayed. Depending on the brokerage that you use and the size of the transaction. So anytime that you actually buy or sell shares of a company, you're going to be charged an additional fee on top of the actual total amount of what you're buying or selling in regards to the actual financial asset. And note that I did say that this can range anywhere from free to around at $10. Portrayed it depending on the brokerage that you use. And this is the main reason why I personally recommend either request rate or well symbol trade because they offer either a free commissions or a very low commissions in contrast to the commissions charged by these big bank brokerages, which typically is around $10 portrayed. And that's absolutely unacceptable in my opinion. While symbol trade is completely free for all buying and selling orders of all financial securities on it, their platform, however, it does come with significantly less functionality. And then on the flip side, quests rate, which is the second and discount brokerage that I personally use and recommend to everyone watching this video, they charge a variable commission structure. However, typically it's going to be $4.95 for all buying and selling orders of a stalks. And then they also have a free buying orders for ETS, making it very attractive due to the fact that it has significantly more functionality, as well as research tools to research at the stocks that you're interested in. So typically, I recommend that you open a both accounts to get the best of both worlds and then as split up your investments in the well simple trade as well as a questionnaire to account for your different investments. Basically, what I'm saying here is that if you are going to be a self-directing your investments and at trying to minimize as much as possible the fees associated with your trading, which I absolutely recommend you should do. You should just stay away from the brokerage account offered by the large banks such as TD, VMO, RBC, etc. Because these typically will charge you up to $10 per transaction, which over years of investing can equate up to thousands and thousands of dollars in actual fees and then even tens of thousands of dollars in a missed opportunity costs due to the actual appreciation and compound interests that you would gain on those reinvested funds. In previous lectures where we spoke about the power of compound interests, we showcase the difference that only a couple of $100 extra added to your account per month can really make in the long run. So imagine paying $10 every single time you're looking to buy or sell stocks. This really just does not make any sense in any environment. And finally, the last common fee that you're most likely going to encounter a drink and your investing career is what's known as a conversion fee. And quite simply what this is is a fee associated with converting your Canadian dollars into US dollars or vice versa. If you're looking to invest in American companies, this is the exact same thing as when you go on vacation and get your Canadian dollars converted into US dollars will on top of the actual baseline conversion rate. Typically there's going to be a fee associated with doing this. In regards to stock market investing, however, you're going to incur a conversion fee if for example, you have Canadian funds in your Canadian EFSA, but you want to purchase, let's say, an American companies such as Apple computers, which trades in US dollars. Well, when you go to buy this stock, you're going to incur a conversion fee on top of what you're buying power in Canadian dollars is to purchase those US dollars. So with that said, generally the conversion fees are going to be anywhere from 0.5 to around 1.5% on the total value of the transaction. And this is added it to the total value of the transaction and you'll be well aware of it before you execute the trade. Because typically it's going to show you and you can choose whether or not you want to go through with the order. There are a couple of ways that you can avoid a currency conversion fees. The first one being the simplest, which is just that maintain a US dollar Training account and then a purchase at your US stocks through that account. However, this doesn't tell that you would need to already have The US funds at your disposal. Otherwise we could do is purchase Canadian exchange traded funds or ETFs that hold American position such as for example, an S&P 500 ETF, like if VIV from Vanguard, this is a Canadian position that trades in Canadian dollars. However, you're going to benefit from these American positions without having to actually maintain a US dollars in your account. Now if you're absolutely dead set on buying and selling American positions, but you don't want to pay that 1.5 to roughly 3% at currency conversion fee that your brokerage is going to charge you. What you can do is called a Norbert gambit maneuver. And I've reserved an entire lecture for this in this module. So make sure to check that out in the last lecture of this module, this pretty well wraps up the preliminary lecture on the training fees and maintenance fees that you're going to incur in a various different online and brokerages. And in the upcoming lectures of the next module, we're actually going to be diving into both Quest, raid, annual symbol trade to go through all the features and functionalities so that you can choose which one is right for you. In the next lecture, we're going to be speaking about the difference between the management expense ratios of an exchange traded fund and the expenses associated with a mutual fund. 29. ETF Fees vs Mutual Fund Fees: Welcome to the second lecture of module four, training thes and taxation. In this lecture, we're going to be conducting a comparison between the management expense ratios of ETFs versus the fees associated with mutual funds to see what type of difference only a couple of percent per year can have over the long-term of the growth of your portfolio. The topics we'll be covering in this lecture include what is a management expense ratio MER per short for ETFs? And then finally, comparing the management expense ratios of ETFs versus the fees associated with mutual funds overtime on the value of your portfolio with an example. All right, so before we actually jump into a comparison between the management expense ratios in ETFs and the fees associated with mutual funds, which generally speaking, is where most individuals are going to end up investing their money in the first place. Because if they're going to be sold in mutual funds and by their advisor at their bank. Well, let's actually speak about what management expense ratios are in the first place for ETFs so that you're up to speed, as we discussed in the second module, a passive exchange traded fund is generally going to be a basket of financial securities that is created in order to replicate or mimic a certain market index. So for this reason, there is not nearly as much active management of the fund by the company that has created this exchange traded fund. In contrast to say, a mutual fund, where there's actually Account Managers that are trying to actively beat the market by buying and selling stocks and other forms of financial securities in order to create excess returns above the market. Since the management of a passive exchange traded fund that is mimicking a certain market index requires significantly less work from the actual company that has created the fund. The management expense ratio being all the costs associated with actually managing and operating in the fund are typically going to be significantly lower than the fees associated with an active funds such as a mutual fund. The management expense ratio takes into account all the costs associated with running and maintaining the fund, including the fees to the investment managers and advisors, the legal expenses, the accounting expenses and bookkeeping, and all other fees that the fund will incur. Now, you might also encounter what's known as the management fee on certain ETF description pages, which will be lower than the MER, but the MER takes into account the management fee and then adds on top of that the other costs associated with managing the fund. So the management expense ratio figure is really what you want to look at in terms of the total fees associated with this fund. All you really need to remember here as an investor is that to the management expense ratio of a passive ETF is going to typically be significantly lower than the fees associated with a mutual fund. For example, the MER of the ETF, FV, FV, which is an S&P 500 ETF here in Canada is only 0, is 0 8%. And for ETFs that are more hands-on, the MER can sometimes hover up to say, 0.8%, but this is nonetheless a significantly lower than the fees associated with most mutual funds, which are around a two to 3% annually on your invested funds. As mentioned before in the course, I personally use ETFs that track a broad market indexes in order to create a foundational layer within my portfolio to expose me to a variety of different securities at a very low management costs. And then I'll go ahead and hand select certain stocks that are of interest to me. And this is pretty much what you are going to be doing as well within your own self-constructed portfolio. At this point, you should now have a better idea of the difference between the fees associated with ETFs and actively managed mutual funds. But even at that, I've had many people ask me, well, one to 2% difference, really watch that going to do over the long run. And my answer to that is a massive difference, even though it might not seem like a law at one to 2% difference in management fee over the long run. And this makes a massive difference in the end value of your portfolio. So what I now want to do is compare two portfolio examples, one utilizing ETS and one utilizing mutual funds at a 2% difference management fee to really showcase what a difference this can make over in the long run. All right, so this right here is an easy to use calculator that I found online it with a quick Google search. And essentially it's going to showcase the difference that fees can have over the long-term growth of your investment portfolio. So the way that this calculator works is that you input your initial investment and the annual investment average years for growth and average rate of return in following this. And you can put a two different investment fees. So in this case we're going to have the lower one, it'd be the ETF fees. And then below here we're going to have the fees associated with mutual funds which are a percent or two higher than the MER, fees of our ETF. We're going to start off this investment with a reasonable $5 thousand initial investment, as well as an annual investment of $6 thousand because this would equate to a $500 invested per month on a 25-year growth period. And the rate of return is going to be a conservative, let's just say 6% at the end of the day. This is just an example to showcase the difference that a couple of percent can have on the long-term investment and growth of your portfolio. With the MER fees of the ETFs, we're going to put a 0.08% as a standard because this is the management expense ratio of V FV, which is a passively managed S&P 500 ETF offered by Vanguard is 0.08. And then the average fees associated with an actively managed mutual fund are typically going to hover anywhere from a two to around 3% of so let's just put an average of 2.5%. So if we scroll down here, we can see two columns, the left column being the lower fee at 0.08 and the right column being the higher fee at 2.5%, the rate of return annually is the same at 6%. However, the net rate of return, which is essentially the difference between a rate of return and our investment fee, is going to be vastly different. The investment value at the end of 25 years is 346,560 on average for the 0.08% management fee with the ETFs and then 245,515 with the actively managed mutual fund. This is also represented in a bar graph where we have the ETFs as well as the mutual funds and then the difference is just over a 100 thousand. Now obviously this is just an example with rounded numbers, average annual returns and so forth, and a mutual fund that can potentially yield higher results. However, the historic performance of the S&P 500, it typically is going to beat an actively managed mutual fund on the average year. So this example was really just to give you a clear picture of the difference that only a couple percent can have on the overall returns of your investment in order for you to better understand that, that even if it looks minute at only a percent or two different over a 25-year period of growth. This makes a massive difference. I really hope this example now gives you a clear picture as to why I personally opt to utilize ETFs instead of mutual funds in my portfolio. In the next lecture, we're going to be learning all about the various different investment account types that are available to investors in Canada. 30. Investment Accounts & Benefits Of Each: Welcome to the third lecture of module four, trading fees and taxation. In this lecture, we're going to be speaking about the most popular and common Canadian investment accounts that are available for those who want to start investing in the stock market. And I'm going to be going through the pros and cons of each, how they work and which account I would recommend and new investors start with, the topics we'll be covering in this lecture include the following. We'll start off with what the tax-free savings account acronym at TFS followed with the registered retirement savings plan, that acronym or RSP. And then finally, we'll be speaking about the cash and margin accounts, starting with the tax-free savings account. And this is a newer registered account and that was introduced in 2009 to o Canadians to invest pre-tax dollars into the account up to a yearly maximum contribution limit and then have those funds and grow over time and completely tax-free in order to be able to withdraw those funds later on, including the interests completely tax-free. The trade-off here is that you're contributed funds are not going to count as a tax deduction on your tax return in the year that you actually contribute it to the EFSA. However, it is all going to grow completely tax-free, which is a huge advantage if, for example, if you were to make $50 thousand during this calendar year and then contribute $5 thousand TO EFSA? Well, you're still going to need to pay income tax on your entire $50 thousand including that $5 thousand contribution. However, if in 20 years, let's say that $5 thousand contribution grew to around, and let's say $25 thousand or whatever it ends up being, and you withdraw that entire amount, you're not going to have to pay any tax whatsoever on it, the entirety of your withdraws. And although this account is called the tax-free savings account, it isn't a really a savings account. It is a real investment account where you can buy and hold all the financial securities at that we've spoken about in this course, including stocks, bonds, ETFs reads N and the list goes on. So hey, does this mean you can go ahead and buy, let's say, a $100 thousand worth of Tesla stock and then reap the rewards over the next couple of years with all the funds tax-free and call it a day. Well, actually there are some contribution limits that you need to respect each and every calendar year that are set by the government. With that said, the good news is that the FSA contributions are commutative for each calendar year that you are 18 after the year that they account was introduced in 2009. So if for example, right now you are 30 years old, well, you would have a large contribution room available for you to start investing with This right here is a table with one row showcasing each yearly contribution limits set by the government. And then to the right of that we have all the cumulative amounts from 2009 to 2012. The yearly contribution limit was $5 thousand from 2013 to 2018 and the annual limit was $5,500 in contribution per year except in 2011 where the limit was $10 thousand. And then finally in 20192020, we have a limit of $6 thousand per year, meaning that if you had turned 18 before 2009 and have never contributed to your EFSA, you would have a total cumulative contribution limit of $69,500, which is a very decent to start investing with the T FSA is an absolutely phenomenal investment account available for Canadians that I would typically recommend most investors start with, especially if they're new to investing and have not yet maxed out their entire contribution room. However, there are a couple of elements that we need to cover regarding the EFSA. First of all, I get this question asked all the time and that is whether or not you're allowed to open multiple T FSAs with a different institutions. And at the answer to that is yes, you're allowed to open multiple TFS. A is let's say one with quests, raid, one width, well simple trade TD, etc. And the reason why you would want to do this is so that you can spread out your investments. I get asked this question all the time and I actually have multiple TFS days myself because I like to split up my investment strategies in at different accounts. However, all you need to keep in mind with that is that your cumulative contribution room, let's say $69,500 if you've never contributed and you turn 18 before 2009, we'll just take that as an example here. Well, if you've never contributed, you'll have that entire contribution room. But you need to keep in mind that across all your accounts, your contributions cannot exceed. You're allowed to cumulative contribution. So you wouldn't be able to go and contribute 69 thousand to each one of these FSAs. You'd have to break it up and it makes sure that all of them combine the contributions in each account. It do not exceed you're allowed at contribution room. This is something that not too many Canadian investors are actually aware of. However, it can play a large role in the overall decisions of which financial securities you decide to hold in Iraq EFSA because yes, if you go ahead and purchase some higher-risk, higher return positions and you do end up hitting a home run. You're going to benefit from huge capital gains, pretty much tax-free. But on the flip side, if your investment don't really go as planned and you end up losing a significant amount of during your year, you're not able to go ahead and claim a capital loss on your tax return for your loss in the EFSA. Again, though, this isn't really something that you should worry about if you're going to construct a solid portfolio with positions that you've researched. Let's now move on to the registered at retirement savings program acronym, our RSP, which was introduced in 1957 by the Canadian government in order to incentivize Canadians to save for their retirement. Now remember that the RR SP is also a registered accounts such as width, the tax-free savings account, meaning that it is going to come up with some tax sheltering benefits offered by the Canadian government. And it's also going to be tracked more accurately by the CRA. The main difference between the RSP and the T FSA is when your attack. So in the case of an RSP, your contributions in a calendar year are going to be tax deductible from your total taxable income. Whereas on the flip side of the T FSA, as we learned earlier, your contributions still count towards your total taxable income for that year. However, later on down the road, once your investment to grow, you can withdraw the entirety of your investment tax-free. Let's illustrate this with an example to make things clearer. If Mark lives in Ontario and earns $50 thousand from one source of income in say, 2018. And just to make things simple, well, that means that at the end of the year he owed the government $11 thousand in income tax. If Mark contributes to his TFS, he'll still be paying the same amount in income tax. However, if market attributed $5 thousand to his RSP in his taxable income would be reduced by $5 thousand down to $45 thousand and he would only have to pay roughly $9,300 in income tax with that said, however, in contrast to the EFSA, when Mark withdraws funds from his RSP later on during his life, all the withdrawals will count towards his taxable income for the year that he makes those withdraws. The goal with the RSP is that you'll most likely be making more income during your twenties, thirties, and forties and then at, during your years of retirement. So this could become advantageous from a tax perspective. Now just like with its EFSA, there are annual contribution limit that you must respect for the RR SP. However, the way this is calculated is entirely different. Instead of a predefined limits set by the federal government each year that all Canadians are allowed to contribute to say, the EFSA. Well, with the RSP, this contribution limit accounts for 18% of your entire taxable income for the prior year. So if, for example, Mark made at that $50 thousand in the 2019 calendar year, which was last year in 2020, he would be able to contribute to his RSP 18% of that $50 thousand representing a $900 thousand. And just like with NTT FSA, these amounts are commutative for each year that you did not contribute. So if, for example, you're already 30 years old and you've been earning income for the past ten years or so, you will have a somewhat substantial amount of RSP room that's available for you if you're interested in discovering your cumulative at EFSA and our RSP contribution rooms that you can simply log into your My CRA account and this will all be available for you. And finally, we're moving on to what's known as the cash account. And this is the most basic and bare-bones investment account and that you can open and unfortunately does not come with any tax benefits. This means that all earnings in your cash account, whether dividends or capital gains and interests, are going to be fully taxable at their respective tax rate, which we're going to be learning all about in the fifth lecture of this module. The advantage with a cash account though, is that there were no contribution limits per year that you have to respect. So if you want to invest a $100,000 million, whatever, you can do so in a cash account without any hiccups. There's also no restrictions within a cash account related to how many trades you're allowed to make in a given day or a week, for example, whereas with its EFSA, you're not allowed to do day trading in a cash account. You can trade as much as you want, buy and sell a 100 stocks within a day if you want it. There were no restriction with that said, the downside to the cash account is that you're fully taxable on all your gains, whether they are capital gains, dividend income, or even interest, you're going to be taxed fully on those amounts at the respected tax rates over 95% of all the students following this course, the cash account is not really going to be the first account that you're going to want to invest in. You're going to want to start investing in the EFSA followed with the RSP and attach account. And that's personally how I would do it and what I would recommend all the students do as well quickly to go over what a margin account is. This is basically the exact same thing as a cash account in that it is non-registered and there are no contribution limit that you have to respect in a given calendar year. It's pretty much a free reign. The difference between the margin and the cash account, however, is that with a margin account, you can borrow funds from the brokerage and essentially leverage your invested funds in order to hopefully reap higher rewards. With that said, investing board funds as a beginner is absolutely not something that I would recommend you partake in because it keep in mind and then you do need to pay interest on these board funds and this needs to come into play when you're calculating your overall return on investment. If you're a new beginner who doesn't 100% know your overall strategy with your investing. Utilizing a board funds to invest with inherently puts a lot more risk in your overall positions. The way I would recommend you approach a margin account and board funds to invest with if you're a beginner or even an intermediary is first of all, max out your EFSA account and your RSP in order to gain knowledge of how stock market investing works. And then once you feel comfortable, if you so choose, then adventure on into cash accounts and utilize margin in order to try to read a higher rewards. Now, as mentioned earlier, when we're speaking about the T FSA with the cash account and you can claim what's called a capital loss on your tax return if you do happen to lose money on your investments, this is sort of an advantage with the non-registered account. However, at the end of the day, losing money is never going to be beneficial anyways, this is just something to keep in mind though with the cash account over the tax-free savings account. Even with this in mind though, losing money and then claiming your capital loss is never going to be more beneficial than just making money in your tax-free savings accounts. Or what I would always recommend is start with the T FSA. Learn how to invest properly, it reap the rewards of long-term. This pretty much wraps up the lecture on the three main investment account available to Canadians. Obviously everyone's situation is going to be different. However, for around 95%, I'd say, of the people watching this right now, I would say that starting with its EFSA is going to be the most tax efficient as the overall value of your portfolio grows. Because this is going to severely outweigh any tax savings that you can incur from a tax deductions with an RSP and even capital loss potentially if you do lose money on your investment account with a cash accounts. So start with the EFSA, move on to the RSP after. And then once you've maxed out all of your registered accounts, moving on to a cash or margin account can then make a strategic sense. In the next lecture, we're going to be speaking about something called the Foreign withholding taxes on foreign dividends. 31. Foreign Withholding Tax: Welcome to the fourth lecture of module four, trading fees and taxation. In this lecture, we're going to be speaking about what foreign withholding taxes are and how they can affect the overall returns of your investments in various different investment accounts of being the three that we covered in the last lecture will also be speaking about various different strategies that you can deploy it within each one of your investment accounts in order to minimize the overall impact of foreign withholding taxes on in your portfolio. The topics we'll be covering in this lecture include the following. What are foreign withholding taxes? Foreign withholding taxes in the EFSA, foreign withholding taxes in the RR SP, and then finally, foreign withholding taxes in the cash account when you invest into stocks are funds that hold American positions. As a Canadian investor, you are subject to what's known as foreign withholding taxes on the dividend income that you're going to be generating from those American positioned because the IRS, which is the Internal Revenue Service, basically the exact same thing as the CRA here in Canada. They want to get their cut of the dividend earnings before it has a chance to hit your account. With that said as an investor, you don't need to worry about paying these foreign withholding taxes yourself on your dividend income because this is already done automatically and withheld by the IRS and before those dividends actually are deposited into your investment account. Foreign withholding taxes is essentially just a tax that is applied it to the dividend income only derived from American positions in 99% of the cases of investments that are going to be held in your account as a Canadian investor, I wanted to first make things clear as to what foreign withholding taxes is in the first place before we actually speak about how foreign withholding taxes varies depending on the type of investment account and that you utilize either the TFS a, the RSP, or the cash account because the foreign withholding taxes are different depending on the account that you're investing with for these American positions. So with that said, unless first jump into the foreign withholding taxes of EFSA. Because for most individuals watching this right now, the T FSA is going to be the first account that you start investing with, as mentioned in the previous lecture, the tax-free savings account is a Canadian investment account where individuals are able to contribute up to a yearly limit each calendar year and then have their investments and grow over time on a tax-free basis where when they go to with a draw their contributions as well as the appreciation and dividend income down the road. This is completely tax-free. This is an awesome investment account, especially for younger investors who can fully take advantage of the time value of money. However, in terms of American positions, there are some technicalities that you need to keep in mind that regarding a foreign withholding taxes on dividend income within the EFSA in regards to dividend income and Canadian securities held within HTFS or unfortunately treated differently from a taxation standpoint than American positions. To simplify the concept, but just remember here that in terms of Canadian positions held within your tax-free savings accounts. So let's say, for example, the company for this, that is a Canadian company, will all the appreciation on the actual share value as well as dividend income from the Canadian position in your investment account is going to be entirely tax-free where things get a little bit more complicated, is it with dividends incurred from non Canadian sources? For example, an American position that is paying out a dividend into your Canadian at tax-free savings account. This 15% at foreign withholding taxes is applied at two dividend income only on US stocks as well as the US stocks held within even Canadian ETFs or mutual funds that happened to hold American positions. Any dividend income incurred from the Canadian funds that hold American position is still going to be subject to the 15% withholding taxes on any of this dividend income. So for example, if you own shares of v FV, which is a Canadian ETF that seeks to track the S&P 500. And then for this reason it obviously hold American companies, there's 15% withholding tax would be applied on the dividend income incurred from this V. Fv IETF. Keep in mind that the withholding tax only applies to dividend income and is not applied at two capital gains in the EFSA even if the stocks are Americans. So if your investments triple in value during the time that they're in the T FSA. You still do not need to worry about paying any capital gains on them as expected with its EFSA. I hope this is somewhat unclear, but I do realize that it could be confusing. So let me try to illustrate this further with an example. All right, so let's just say in this hypothetical example here that you own a share of Apple computers in your tax-free savings account, which is an American company. And let's say theoretically they had a dividend yield of 1%. However, due to the fact that it's an American position, you would be subject to the 15% withholding tax on their dividend if you held the share of Apple in your EFSA. So you wouldn't be leaving a 15% of their dividend with the IRS and your actual yield would be 0.85% in this hypothetical example. If all this information taken into account though, is it even worth it to hold American positions in your tax-free savings account at all. This is obviously something that you'll need to consider for yourself. But in my opinion, paying 15% withholding taxes on dividend income only honestly just isn't really a big deal in the larger picture of your investment returns over the long-term. Because remember this 15% foreign withholding taxes only applies to the actual dividend income and not the overall appreciation of the position itself in terms of capital gains. And historically speaking, the American markets tend to outperform the Canadian markets by anywhere from one to around 3% annually in a 3%, again, on the overall position of your investment versus at 15% foreign withholding taxes on dividends only. I think he got the idea here that in the big picture of your overall investment return, this is a minimal amount. With that said, I really just wanted you to be aware as a new investor that American positions held within a EFSA are going to be subject to this withholding taxes. But in the big picture, and in my opinion, it's not really something that you should be worrying about. And if you're really interested in an American physician, the hold in your TF essay for long-term appreciation, which remember, would be tax-free, I would say go for it. Alright, so now that you fully understand the implications of foreign withholding taxes on dividends for positions within your EFSA. How is this applied at two candidates as second most popular are registered account, which is the RR SPE. Unlike for the FSA with the RSP, investors can benefit from a tax deduction in the full amount of their contributions to the RSP In order to reduce their overall taxable income and pay less taxes. Now, however, later on down the road, once their investments grow over time, upon withdrawal, this amount will be added to their taxable income in that year in the future, as mentioned, withdrawals from the RSP are going to be considered at taxable income down the line. But what about dividend income as well as capital appreciation from American positions held within the RSP. This is actually somewhat interesting for the RSP. So unlike with the cash account, which we're going to be speaking about, a write-off through the RSP here. Any appreciation in the overall share value or value of your ETFs or other financial security is held within your RSP is going to actually count as taxable income if your marginal tax rate later on down the line, when you decide to withdraw those funds, even if it is in fact a capital gain, such as what you would incur in a cash account with a capital gain. We're gonna be learning all about this in detail in the next lecture. But essentially for a capital gain, you're only taxed on 50% of the overall gain at your marginal tax rate. This would not apply for the RSP. It's going to count 100% as taxable income at your personal tax margin. With that said though, one advantage for the RSP, I guess we could say here is that there are no foreign withholding taxes applied to dividends earned in the RSP on American physicians before jumping into foreign withholding taxes within a cash account. Let's just quickly summarize what we've learned up-to-date for both of these registered accounts. First of all, with a tax-free savings account, you are going to be paying that 15% withholding taxes on dividends earned from American physicians. However, as these dividends grow as well as share appreciation in the account over time, when you go to withdraw these funds, it is going to be completely tax-free. On the flip side, with the RSP, there are no foreign withholding taxes on american dividends earned it within your RSP. However, any form of appreciation of the value of your investments as well as the dividend income compounding over time later on down the line, when you go to withdraw any of those funds, it is going to count 100% as a taxable income at your marginal tax bracket. Alright, so now that we have both of the most common registered investment accounts, out of the way it Let's move on to the non-registered account, which are the cache and a margin account is so that you understand how formed withholding taxes work with these non-registered accounts within a cash account, dividends are taxed completely differently than a regular income or capital gains. I don't want to get into full detail about how dividends are taxed within a non-registered cash or margin account because these can get quite complicated. What I would recommend doing once you are at the stage of investing in a cash account and you're receiving dividends is that you utilize a CPA to do your taxes at the end of the year, this is really going to be your best bet for maximizing your tax strategies with your overall investments including dividends. Otherwise, an alternative that you can utilize if you really want to follow your own taxes yourself is utilizing something such as a simple tax or quick tax, which are online applications where you can input all of your taxable income as well as dividend income. And this is going to estimate how much tax you owe at the end of the year. Now in terms of capital gains, meaning the overall appreciation of the value of the investment within a cash account. This is going to be subject to what's called a capital gains taxes, where you're only going to be taxed on 50% of the overall capital gain at your marginal tax rate. Now in the next lecture, we're actually going to be diving into the technicalities of dividend income, capital gains and personal income. And finally, to cover dividends earned from American positions held within a Canadian at cash and non-registered account. Obviously, these positions are going to be subject to 15% foreign withholding taxes on those American foreign dividends that are being earned in your Canadian account. So I hope this lecture has helped you better understand what foreign withholding taxes is and how it is applied it to the dividends earned in at various different Canadian investment accounts. And the bottom line here, in my opinion is that in the big picture, taking this into consideration, it should only be a small portion of your overall investment decision. And if you truly believe that an American position is going to perform well from your overall assessment of the company and its future potential, I wouldn't really give the foreign withholding tax all that much attention because in the big picture, it's not really going to impact the long-term appreciation and growth of your portfolio. Now in the next lecture, we're actually going to be digging deeper into dividend income and capital gains as well as business income, how each one of these are taxed. 32. Capital Gains vs Business Income vs Tax-Free Gains: Welcome to the fifth lecture of module five at trading fees and taxation. In this lecture, we're going to be speaking about the various different types of income that you can derive it from a stock market investing. The topics we'll be covering in this lecture include the following. What are capital gains? What is business income? And then finally, how to benefit from a tax-free gains. All right, so the first form of income that we're going to be speaking about in this lecture is something called the capital gains. And this is a type of income that you may have heard of before. If, for example, you are a homeowner who has purchased a house and then sold it at a subsequent date for a higher premium than what you paid for it. Or another scenario could be if you're a stock market investor who's purchased a certain position in a company stock and sold it a couple years down the line for what's called a capital gain, essentially meaning a price point higher than what you paid for it. Now, the reason why there's a specific name associated with this type of income being a capital gains is because in the tax code, capital gains are going to be taxed differently than other forms of income, such as, for example, the income that you generate from your job or other forms of income altogether, if you're somewhat new to taxation in regards to your investments, which chances are you are? Well, this course is not about going into depth about how the Canadian tax code works. That's absolutely something you're going to want to consult a CPA or just your accountant for in regards to fully understanding the scope of how taxation works for your specific investments. What I want you to remember though in this lecture, is that a personal income and being income derived from your job in Canada is going to be the highest attached form of income, well above a dividend as well as capital gains income, which are both investment and forms of income. This is why when you hear the saying, the rich get richer, well, yes it is because they have more money. You are working for them in the market at generating more compound interest over time. But it's also because most of this income is taxed favorably because it's derived from either investment income or shelled it through a corporation of both of which are going to be taxed favorably in contrast to income that the general public is deriving from their job. Anyways, we're not going to be diving into how corporate income taxes work. But as an investor is just important that you understand that different forms of income are taxed differently. Back to capital gains. This is a form of income that's generated from the sale of an asset such as stocks, ETFs, bonds, property, basically any type of asset that you own or the value has risen during the time that you own this asset. Now keep in mind that a capital gain is only going to be realized when you decided to sell the asset in question. So if for example, you bought a share of a specific stock at a $100 a share, and you've kept it for 30 years. You're never going to be paying taxes on it. The appreciation of that asset over time, even if right now the value of that one share is worth $500, you're only going to pay capital gains taxes when you decided to sell the asset in question, capital gains are advantageous from a taxation standpoint, overstay personal or business income, because only 50% of the capital gain is going to be added it to your personal income tax on which you need to pay your marginal tax rate. For example, if you generate $5 thousand worth of a capital gain from the sale of some stock in your non-registered a cash account, meaning it not ATF essay or an RSP. And you are currently in say, the highest tax bracket, just to make things simpler, while only $2500 of that gain will be added into your taxable income. And then you'd pay your marginal tax rate on that of say, 50%, meaning that you would pay the CRA $2550 in capital gains taxes and you would get to keep $3,750. Obviously, the amount that you would get the heap in your pocket would vary based on your own marginal tax rates. So this is going to differ greatly depending on the province that you live in, In your marginal tax rate. So if you were making say, $30 thousand in a year, full calendar year, but you made that same $5 thousand capital gain and what you would pay significantly less capital gains taxes than someone who was making, say, above a $100 thousand per year. And so for this reason that their marginal tax rate is significantly above what you would have at 30 thousand a year. To wrap up this section on capital gains. All you really need to understand as an investor here that's looking to invest in the stock market is that if you're investing in stocks, ETFs, or any other financial asset and that we've spoken about in this course, outside of a registered account, you're going to be paying a capital gains taxes on the gain one, you sell those securities later on down the road for a profit. One last thing to mention about capital gains is you're not going to be subject to this type of tax. If you're investing Within a registered at tax shelter, they count such as, for example, a t FSA or an RSP. But we're going to be speaking about that in more detail later on in this lecture following capital gains. And we need to speak about what business income is so that you have a better picture of how the CRA views different forms of investing in the stock market. Now, for most individuals who are following this course and who are going to be utilizing a long-term, a buy-and-hold investing strategy in quality companies. You don't really need to worry about ever paying a business income on your investments, especially if you're investing in a T FSA or an RR SP. However, the reason why I'm mentioning this is because the CRA does treated day trading as a business income in a cash account or even in a tax-free savings account if you're conducting a day training activities, what is business income and why are we covering it in this course That's about investing. Well, business income is basically just that. It's income that you're generating from a business system with the intention of pulling a profit and business income can take a variety of different forms, from selling t-shirts to selling things on Amazon. Basically, any form of business income that is not generated from either investing or from your job is going to, in the eyes of the CRA, be considered a business income. And you have to be mindful of this because in the eyes of the CRA, day, trading in an investment account is going to be considered business income instead of capital gains. Now I say business income. And for some of you, you might be thinking of this as being income that you're generating from a large business, but essentially any form of income that you're making outside of your investment or your primary job is going to be considered a business income. That's just a terminology I'm using here, but you're going to have to add this to your overall taxable income for that year and it's going to have an impact on your marginal tax rate, even though you'll probably never have to worry about business income in relation to your own stock market investing because you're following in this course and learning how to properly invest in the stock market to grow your wealth over time by investing into solid companies and funds. I really just want you to be aware as an investor that if you do invest in a cash account and you're looking to day trade with the intention of pulling a profit, they CRA, could deem this activity as being business income. So just make sure you're aware of this. If we look at the example from earlier where there was a capital gain of $5 thousand. Well, if this was treated as business income because you were a day trading, while this $5 thousand would not be considered a capital gain, rather, it would be considered business income that you would have to add to your personal tax return, which would grow your overall taxable income for that year and it potentially increase your marginal tax rate. So again, I really just wanted to make the differences it clear here between a capital gains and a business income potentially if you're looking to day trade, but I really hope that you're just looking to invest in the long-term in order to grow your wealth over time in a solid companies and funds that you've conducted at proper research in. Let's now dive into the next form of investment income, which is what I call a tax-free gains. If you're investing in a tax-free savings account. Following what we spoke about in the third lecture of this module, the EFSA is a way for Canadians to grow the value of their investments over time, benefiting from tax-free gains on their dividend income and the appreciations of the securities held within the account. When you investigate the FSA, you don't need to worry about paying a capital gains tax or taxes on your dividend income because again, everything held within the EFSA is going to be tax-free other than a foreign withholding taxes on dividends earned from American companies. This pretty well wraps up the lecture on the various types of income that you can generate from your investments here in Canada. So just to recap, these are the different forms of income. So we have a capital gains as well as dividend income that you're going to be paying taxes on if you're investing in a cash account and not in ATF essay, then we also have a tax-free income and gains within a EFSA. And finally, potentially business income on your investments if your day trading in a cash account or even in EFSA, this is not permitted and the CRA could edema you're trading activities as being a business income. In the next lecture, we'll be speaking about how the foreign currency exchange rates can have an impact on your investments. As a Canadian investor, investing in stocks or ETFs that are located in the United States. And more specifically. 33. How Foreign Currency Exchange Rates Affect Your Returns: Welcome to the sixth lecture of module four, trading fees and taxation. In this lecture, we'll be speaking about how foreign currency conversion rates affect your investment returns. Has a Canadian investor in various different scenarios to see how the fluctuation of the Canadian dollar in relation to foreign currency, specifically American dollars affects your portfolio over time. The topics we'll be covering in this lecture include the following. What is currency exposure for dual listed stocks? How do currency exchange fees affect my returns in four separate scenarios, followed with what is the best option for Canadians. And then finally, what our currency hedge to ETFs. The first thing we need to cover when speaking about currency exchange rates in relation to your investments is something called the currency exposure. Because without properly understanding this concept first, everything else we're going to be covering in this lecture isn't really going to make sense when you invest in foreign equities. It's really important to understand that your exposure to currency fluctuations does not come from the currency in which the stock is trading on a given exchange, but rather the underlying currency for which that company is actually treating in on its native exchange. This is primarily important for stocks that are dual listed on both a Canadian and an American has changed. Or even for ETFs that track the same underlying index. For example, the ETF of VOO in the United States and if the FV and Canada, both of which track the S&P 500 market index, even though dual listed stocks, it seemed to be trading at a different price points, this surface level price difference is going to be reflected in the currency exchange rate. In addition to this, it's only the relative success of the underlying currency in which the stock primarily trades in on its native exchange and currency that's going to have an impact on the currency fluctuation part of your returns for a foreign investment. For example, if we look at the Royal Bank of Canada, which trades on both the New York Stock Exchange and the Toronto Stock Exchange. Well, on the TSC, which is the companies in native currency at the time of filming this lecture, this company is trading at $94.32 per share. And on the New York Stock Exchange version of this company, it's trading at $70.86 per share, which perfectly matches up to the current currency conversion. And the same would be true here for any other, a duel listed stock or whether or not it's a Canadian or an American physician. And primarily due to this concept known as currency exposure, if you're a Canadian investor, which most likely you are if you're watching this video lecture and you're looking to invest in a foreign security that is both dual listed in Canada and the United States? Well, I would always recommend that you invest in the Canadian version of that stock because he returns will always be the same on a relative, a one-to-one basis and based on the currency exchange rate between the American and Canadian dollar, the only risk you are exposing yourself to is paying a higher currency conversion fee. If you're a Canadian and looking to buy a dualist it stalk on the American exchange instead of the Canadian exchange. With this in mind, it's important to understand as a Canadian investor that probably 90% of the time you're most likely going to be calculating your investment returns in Canadian dollars, whether or not you do decide to include some American stocks or ETFs in your portfolio for the rest of the lecture, just remember that the currency impact on your investment returns is only going to be related to the actual currency fluctuations of the underlying currency for which the stock primarily trades in, in its native country. So the only time a currency will have an impact on your investment in returns is if you're a Canadian investor and you're looking to invest in American companies, in US dollars on an American exchange. This specific scenario of being a Canadian investor actually buying American positions in American dollars now opens up another can of worms were currency fluctuation. It does actually have an impact on it. Your returns as a Canadian investor, it was looking at calculate your returns in Canadian dollars, which is most likely the case. It's certainly is for me now that we'd better understand the fact that the currency exchange rate only has an impact on your investment returns based on it, the underlying currency of the stalking question, Let's now look at four separate scenarios where a Canadian investor would be buying the shares of Coca-Cola, which is an American company that only trades in US dollars on an American Exchange or the actual currency exchange rate between Canadian and American dollar is going to be fluctuating, as well as the overall share price of Coca-Cola will be fluctuating in order to shed some light on various different scenarios that you'll most likely encounter During your investment career as a baseline for these four scenarios. Let's just say that right now. And you were able to purchase ten shares of Coca-Cola at $100 a piece for the sake of this example, this would say you back 1000 US dollars, which currently equates to 1334 Canadian dollars at the current currency exchange rate in scenario one that you first purchased attend shares of Coca-Cola for a total out-of-pocket cost of one hundred, ten hundred dollars in this example, or 1334 Canadian dollars, which remember is the current conversion rate if the share price were to rise to a $150 USD per share of Coca-Cola. This would mean that your total value in USD. Would rise to 1500 USD for a $500 gain at which you might think is equal to 2001 Canadian dollar, which is a $667 gain in Canadian dollars. However, in this scenario, if the Canadian dollar continues to lose value relative to the American dollar, to the point where one USD is worth $1.50 Canadian will add this new conversion rates since the time that you purchase the shares, if you were to sell your position and go back into Canadian dollars, instead of a gain of 667 Canadian dollars at the conversion rate on which you purchased it at, if you're Coca-Cola stock at a value of 1500 USD would actually be worth 2250 Canadian dollars for a total gain of 916 Canadian dollars. So this is a first prime example of how both the currency fluctuation can impact your returns as well as just the fluctuation in share value. Because the underlying currency of Coca-Cola is USD. Well, as a Canadian, your investment would actually benefit when they Canadian dollar falls in value. Even though that's somewhat counter-intuitive. And you would suffer though when it appreciates in value relative to the US dollar in scenario two. Now, once again, your baseline costs for the ten shares of Coca-Cola would be one hundred, ten hundred USD or 1334 Canadian. If the share price remains the same for each share in this example, your total cost and investment values would remain the same, meaning that you would make no returns on the equity pricing. However, if the value of the Canadian dollar were to continue to fall down to a level of a $1.50 Canadian for each one US dollar will at this new conversion rates, if you were to sell your position and go back into Canadian funds due to the fact that the US dollar is worth more, then when you made the purchase your unchanged at one hundred, ten hundred dollars USD shares would be worth 1500 and Canadian dollars for a total gain of $166 exclusively based on the fluctuation of the currencies. Moving on now to scenario number three, this is where the value of Coca-Cola would rise to $150 US per share. But the Canadian dollar gradually gets stronger where it reaches a level of a $1.20 Canadian for each one USD. Once again, your baseline costs for the ten shares of Coca-Cola was one hundred, ten hundred USD, or 1334 Canadian. But with the rise in value per share of Coca-Cola, your position would now be worth 1500 USD or 2001 Canadian dollar at the initial conversion rate. However, due to the fact that the Canadian dollar went up in value, this is actually detrimental to your gains on the position because the relative value is worth less than at the time of purchase. Even though the USD value is now 1500 USD in canadian, this would now only be equal to 1800 Canadian dollar, meaning your total overall gain would only be 466 Canadian, instead of nearly $700, had the Canadian value not changed. Finally, in scenario for the value of Coca-Cola goes down to $90 per share and the Canadian dollar rises in value to a $1.20 Canadian per each one USD. This would pretty much be the worst possible combination of events and would translate into a huge loss on both currency conversion and value of equities. Once again, your baseline costs for the ten shares of Coca-Cola was 1000 USD or 1334 Canadian. But what the value of each share dropping down to $90 a piece, this would mean your total market value would now be worth 900 USD. When taking into consideration the new conversion rate at a $1.20 per each USD. This would equal one hundred, ten hundred and eighty dollars for a total loss of 254 Canadian dollars total. Alright, so what should you do then as a Canadian investor if you do want to gain exposure to the American market and what are some factors that you should consider here? Well, this really comes down to three main elements which are the future value of the shares that you are looking to purchase for this specific company, as well as the future currency exchange rate between Canadian and US dollar or whatever other currency you're looking to invest in. And then finally, the potential currency conversion fees at that most brokers are going to charge on your currency conversion. Then from there, all you can really do is some basic math and a little bit of speculation. With the first element here being the future value of the shares for the companies you're looking to invest in? Well, if you're looking to invest in solid American companies, based on everything that you're learning in this course on how to analyze a company from both a technical as well as qualitative standpoint for future growth in value of these positions. Well, most likely these are going to be companies that are going to be appreciating over the next 51015 years, even by roughly five to around 15% annually, depending on the companies in question. The next element to consider is whether or not the Canadian dollar is going to gain or lose relative value in relation to the American dollar over the period of time that you're holding these American positions. And this is definitely the most difficult one to predict here because macro-economic events that have an impact on currency fluctuation can really come out of nowhere, such as what we just experienced in 2020, for example. Finally, the last element that you need to consider here as a Canadian buying American positions trading in USD is the currency conversion fees that most brokerages are going to charge on this type of transaction, typically anywhere between 1.52% a currency conversion fee when you're going to be purchasing and positions in a foreign currency with your Canadian dollars depending on the size of your transactions and this can potentially lead to hundreds or even thousands of dollars in fees over your investment career. So definitely keep that in mind as a result of the above-mentioned factors I typically recommend to my students that they stick with Canadian and listed stocks and or purchase a variety of Canadian listed exchange traded funds that happened to buy and hold American physician. Because this allows you to have exposure to the American market with a significantly less fees as well as more diversification and no currency conversion fees whatsoever. I personally believe that there are tremendous opportunities at this side of the border with Canadian positions. But that's not to say that I won't steal invest in American companies, which I do all the time. So after you conduct the analysis of a specific American company, it really just comes down to a balance of, okay, how much do I think this stock is going to appreciate over time? And what relative impact do I think the currency fluctuation is going to have with either chipping away at my returns or having a positive effect on the returns of this American physician. Every single company is going to be different, but basically just learned to analyze companies properly and then look at the overall impact of based on where the currency conversion rate is right now and the overall economy. How do I think that is going to impact my position over time? And at the end of the day, investing in American positions is always going to be beneficial because at the bottom line is that the American stock market is the best stock market in the world. If you are really adamant on wanting to buy a specific American companies, however, you only have Canadian dollars to start investing with. I would recommend that you do something called the Norbert gambit, which we're going to be speaking about in the next lecture. And this is a maneuver where you're able to avoid a high conversion fees associated with converting your Canadian to US dollars and vice versa. This can all be done with Quest trade, which is one of the discount brokerages at that I recommend. And then we're going to be speaking about in the next module. And last but not least, and other type of financial security that you could take advantage of is something called a currency hedged exchange traded funds. So we already learned about what an ETF is it previously in this course, but in currency hedge, ETF is essentially a type of ETF where you're able to gain advantage of the actual price movements of the equities themselves. If, for example, you're investing, let's say in a currency hedged S&P 500 ETF. But the returns are not going to be impacted by the price fluctuations between the Canadian and American dollar. So essentially a currency has an ETF is going to eliminate altogether both positive and negative currency price fluctuations on the value of your investments. For example, the Vanguard ETF, VSP is exactly this for an S&P 500 ETF. Now, do keep in mind though that with hedged ETFs, you're essentially making a bet that the US dollar will weaken in relation to the Canadian dollar. Because remember, if the American dollar does it gain a relative value right now, this is going to have a positive impact on your investments in American positions. And with that said, the exact opposite has been the case for most of our history. So unhedged is usually the way to go with an ETF such as say via V for the S&P 500. This wraps up the lecture on currency conversion and how this has an impact on your investment returns if you're investing in foreign securities. In the next lecture, we'll be speaking about something called the Norbert gambit, which is a maneuver where you can essentially convert your Canadian and funds into US dollars and vice versa, without any conversion fees associated with the transaction within a question that account, if you're really serious about wanting to buy American thoughts without paying excess conversion fees. 34. Norbert's Gambit: Welcome to the seventh lecture of module four, trading fees and taxation. In this lecture, we're going to be speaking about a specific maneuver that you can use as an investor in order to convert a Canadian listed ETF in Canadian dollars into a Canadian listed ETF in US dollars in order to save yourself from paying a currency conversion fees at when you're looking to invest in a US positions as a Canadian investor who only has Canadian dollars. And this is a strategy called Norbert gambit that will be executing in a separate account. The topics that we'll be covering in this lecture include the following. How to do a Norbert Gambia to save on currency exchange fees followed with in which account, uh, should you perform a Norbert gambit? Alright, so first of all, why would someone want to execute a no-risk gambit anyways, in order to trade on conversion fees. Well, quite simply, most awkward packages are going to charge anywhere from 1.5 to around 3% conversion fee on top of the baseline conversion rate just to convert to your funds from canadian to US dollars or vice versa. For example, if you're looking to convert a 5 thousand Canadian dollars into American dollars, well, at a 3% conversion fee, this would represent $150 simply for converting your money. And this is something that most investors typically wanted to try to avoid because it can severely impact your overall returns on investment. This strategy called a Norbert gambit. You're essentially looking to convert a Canadian listed ETF in Canadian dollars into a Canadian listed American ETF that happens to be trading in US dollars at the exact conversion rate, which is going to allow you to save on it that conversion fee. I personally use quests rate to execute this strategy because with quests rate and buying ETFs is free, there is no actual commission associated with buying ETFs. So the only fee you are going to be paying here is a fee on selling your American ETFs after the conversion is actually completed and this is going to be $4.95 USD. It well-worth it in order to save hundreds of dollars on conversion Vz. Now, before we actually get into the meat of how to execute this trade, I do want to mention that in orbit gambit can be executed in a TFS, a and RSP, or even a cash margin account because all of these accounts can be held in US dollars. Alright, so with that said, once you've opened up your account in which we are going to be doing together in the sixth module. And you funded your account with Canadian dollar and go ahead and purchase shares of the horizons ETF, DLR dot TO in Canadian dollars for the amount that you're looking to convert. For example, if you're looking to convert, say, 5 thousand Canadian dollars into American dollars. Well, at the current time that I'm filming this lecture, One share of DLR Dato is trading at a rate around $13.49. So at 5 thousand Canadian dollars that you would purchase right around 370 shares of this ETF once your order for DLR dot TO has actually settled in your account, which should take anywhere from a couple of seconds to a couple of minutes depending on the order type that you executed. Then the next step is actually calling up quests, read and requesting that the convert your shares of DLR dot TO into shares of DLR.edu.TO, which is the American dollar equivalent of the DLR dot TO stock. By doing this, you're essentially converting your DSLR dot TO shares in Canadian dollars into DLR dot u dot TO shares in American dollars for no added v. By the way, if you don't feel comfortable calling up quester AD, you can also do this through e-mail or through chat within your client portal. Once you're done asking question eight to do this, which is actually called it the journaling process. It'll usually take anywhere from around three to four business days in order for the transaction to settle. At which point you will then have shares of DLR.edu.TO which trades in American dollars and you can sell the shares for American dollars in your account. Again, the only feeling Curie here is an ETF sell order for $4.95, which is extremely minimal compared to the hundreds, if not thousands of dollars that you're saving in a currency conversion fees from this point on, you will now have a liquid at USD within your account and that you can go ahead and purchase US listed stocks. Etfs reads whatever financial securities that you want and you're not going to incur any additional fees other than the typical commission fees for trade orders. And by the way, if you ever want to reconvert your American dollars back into Canadian dollars, you can do so following the exact same steps in reverse order of going ahead and purchasing DLR.edu.TO shares and then asking questions related to journal them over to DLR dot TO shares in Canadian dollars. Now, just for your added information here, the reason why we wouldn't be using the DLR and a DLR dot you ETFs in order to execute a Norbert gambit is because of both of these ETFs are what's known as currency ETFs. And in this case, these two perfectly matched the currency conversion rate between a Canadian and American dollars casing point. If we look at both prices of these ETFs and look at the current conversion rate between American and Canadian dollars, it perfectly matches up. Now theoretically you could use this maneuver with any dual listed position, but you do run the risk of the actual equity of the stalk fluctuating in addition to the currency rate fluctuation. So it's not as risk averse. And this is why we will be using the DLR ETFs for the Norbert gambit because this only takes into account currency fluctuation and not any fluctuation of the actual equity price. We know understand and what this strategy is, why it's beneficial and how we can do this in your own investment account. But let's now speak about why you should first do this in a registered account. Before doing so in a cash margin account, as we learned in the previous lectures, a registered accounts such as the EFSA and the RSP here in Canada come with tax sheltering benefits. And the same is true here in regards to the gambit. The reason for this is because during that three to four business days settling period after you've called up your brokerage in order for them to actually execute the journaling process. Theoretically speaking, there could be a fluctuation between USD and Canadian and thus triggering a capital gain or capital loss on the investment. So if this maneuver was done in a cash account, theoretically speaking, you would have a capital gain that was triggered. And for this reason you would have to pay taxes on this difference, even though it's a very small capital gain. And the same thing would be true for a capital loss. However, you can avoid this altogether by doing the gambit in a registered accounts such as the EFSA or the RSP, you wouldn't have to worry about this whatsoever for this reason, I would first recommend that once again, and you do this in your registered accounts before venturing on into cash accounts in any ways based on everything we just spoke about in a previous lectures and modules, you're going to want to start investing in your EFSA anyways, because this always makes more fiscal sense from a tax perspective. All right, so this wraps up the seventh lecture of this module and actually wraps up the entire module as a whole. In the next module, we're actually going to be diving into identifying your very own investor profile, which is going to be important for the seventh module where you're going to be constructing your own portfolio with ETFs and stalks. And based on this investor profile and subsequently a proper asset allocation. 35. Dollar Cost Averaging: Welcome to the second lecture of the fifth module. In this lecture, we're going to be speaking about what dollar cost averaging is and how combined with patients over time, these factors are going to have a tremendous impact on the growth of your portfolio. Dollar cost averaging in combination with compound interests from recurring deposit into your stock market portfolio is one of the main critical factors contributing to the overall long-term appreciation year-over-year of your portfolio while reducing risk and volatility levels. So let's speak about what dollar cost averaging even is in the first place. The topics we'll be covering in this lecture include the following. What is dollar cost averaging followed with how to benefit from dollar cost averaging in order to build wealth over time. First of all, dollar cost averaging is a strategy utilized by investors who are looking to grow the value of their investments over time by deploying chunks of capital into a certain assets such as a stalk of fund and ETF, and basically any type of financial asset within your portfolio in order to spread out the cost basis of that given security and therefore reducing the overall volatility of this position. This strategy allows investors to deploy capital at various different price points for a given security. Instead of trying to accurately time the market at the best possible moment in order to deploy a larger amount of capital, which has proven to be nearly impossible to accomplish consistently anyways, dollar cost averaging is quite simple and the strategy revolves around the idea that by purchasing a given security at various different price points, you're able to reduce the overall average cost basis of that position, meaning the average cost for which you purchased that given security. So you're going to be bringing it back to an average level instead of having just one single price point with it, the entirety of your capital deployed for that one position. For example, if you purchased a sixth shares of the S&P 500 ETF, Vf v2 shares at $9 a piece or two shares at $10.2, shares at $11 a piece, or your average cost basis would be $10. Now, the most common and beneficial use for a dollar cost averaging is through the purchasing of exchange traded funds in a hands-off passive ETF portfolio where regardless of the price per each month, when you contribute to your portfolio, your purchasing a position within that same ETF in order to average out the overall cost basis of your purchase price, as spoken about earlier on in this course when speaking about ETFs. And we're going to be digging into what core ETFs are further in this course in the sixth module, however, the idea here is that spreading out the overall cost basis of purchasing multiple ETFs at various price points through dollar cost averaging on a monthly basis when you contribute to your portfolio. Or it could be on a bi-weekly basis, whatever contribution of frequency works for you. Well, this is lowering the cost basis as well as lowering the volatility and avoiding massive price movements, both positive and negative of your overall returns. So this is going to smooth out your returns to a nice steady appreciation year over year dollar cost averaging your investment purchases is one of the simplest ways to maintain steady growth and appreciation of the value of your holdings and subsequently your portfolio for the long term, which for everyone watching this right now, is what you're going to try to achieve long-term growth of your wealth and your stock market portfolio. With that said, the general idea here behind this strategy of dollar cost averaging is that you're going to increase the overall appreciation of your portfolio and the positions within your portfolio, rather than if you were trying to accurately timed the market and get in at the most opportune price point, which again has been proven to almost be impossible to do on a consistent basis time and time again, this is the main reason why earlier I mentioned that dollar cost averaging can be utilized with purchasing individual stocks, individual rates, etc. But it's most beneficial in my opinion, with broad market ETFs that are going to really diversify your holdings by purchasing one single security that holds multiple, if not hundreds, of positions of quality companies. If you're actually buying a quality broad market ETFs like a nasdaq 100, S&P 500, it total US market, TSX, 60, etc. You get the point here at these types of quality broad market index ETFs are consistently going to provide your portfolio with that steady increase in appreciation year-over-year. Don't get me wrong. Adult learner cost averaging on individual stocks or other individual financial securities can also be highly beneficial. It requires significantly more research in order to be successful and yield a nice results for you. Because in contrast to deploying this strategy on broad market index funds, that generally speaking, you're going to be buying and holding for anywhere from 152030, maybe even 40 years and dollar cost averaging over that period of time. Well, with individual stocks and generally speaking, you're not going to be holding onto positions as long as a broad market ETF that serves as the foundation layer. Of the growth and appreciation of your portfolio. Let's take a look at an example of how dollar cost averaging words with a theoretical position. Say you started depositing $1000 into your investment portfolio each and every month and you are purchasing one hundred, ten hundred dollars worth of an S&P 500 ETF, which naturally will go up and down in value each month that you're investing. Well, let's assume that over the four month period, the price of this ETF varies from $10 in month, $150 in month 2, $13 in month three, and then finally $17 in month four. If you still invested $1000 into the fund each month while you're buying power would fluctuate as the price of the stock fluctuates. Also, in month one, you would be able to buy 100 shares. In month two, you'd be able to buy roughly 66 shares in month 376.9 shares, that will round up to 77. And in month 458.8 shares for a total of 302.36 shares purchased with the $4 thousand of contributed capital invested, $4 thousand would have also turned into $5,140.12 based on the latest price of $17 per share and the average price of the shares purchased, it would be $13.23. Now if you would've invested all of your $4 thousand in either of the individual months, this would have resulted in a higher or lower return, but the volatility and risk level would have been much higher. So this is the reason why dollar cost averaging is a great way to reduce risk and create a safer strategy for obtaining a more favorable average price point, especially if you're investing for the long term. Alright, so with everything that we've just covered it, keep in mind moving forward that dollar cost averaging is best utilized as an investment strategy for long-term investing with passively managed exchange traded funds. Luckily, these are two elements that we focused on tremendously in this investing course that you should be utilizing also when constructing your portfolio for long-term investing, a dollar cost averaging works perfectly with this overall strategy, regardless of which individual ETFs you choose to include in your portfolio. In order to fully benefit from dollar cost averaging, you're going to need to develop a solid investment strategy and continuously contribute to your portfolio on a continuous basis and purchase these investments regardless of the short-term price fluctuations in the market in order to fully benefit from getting in on these positions at various price points, lowering your overall cost basis and volatility level with enough consistency and at time on your side to allow your investments to mature with your portfolio, the dollar cost averaging strategy is going to reflect the higher-end, a lower price points that you paid for each one of your investments. 36. How To Approach Market Corrections: Welcome to the third lecture of the fifth module. In this lecture, we're going to be speaking about how different market cycles can impact your returns as an investor who's looking to stay invested for a given period of time. And what the most opportune moment to get in on a position is when you're looking to invest in long-term for increased at return on investments. The topics we'll be covering in this lecture include the following. What is a market cycle including bear markets versus boom markets are followed with winning investor psychology and behavior. And then we'll end this lecture with how this ties back to your investing. First and foremost, we need to properly understand what a market cycle even is because over your investing career, you are going to be experiencing multiple different market cycles. And so knowing how to properly approach each one is critical for long-term success. A market cycle, which in regards to the stock market specifically can also be called a stock market cycle is going to be an overall trend in asset prices relating to what's going on in the market, relating to macro-economic events as well as a business environments. Now keep in mind that there are market cycles in various different asset classes altogether. For example, a stocks, real estate, etc, or even specific industries or sub facets, the assets within larger groups. For example, the tech industry can go through various different market cycles. And this is one single industry within stocks as a whole, depending on the stage of the market cycle in question, a certain asset classes or industries will react differently to the current market realities is for this reason that, for example, the stock market will typically go through an app or a downmarket at a staggered timeframe than those same market trends for real estate. Now, what I want to focus on specifically here is what's called a bull and a bear market. And these are terms that you're going to be hearing it quite often when interacting in the investing community. These terms are actually quite simple to understand and relate directly to stock market cycle. So let's define each one of them right now, a bull market is a term used to refer to a market that is training green in a positive economic environment, meaning that this market in question is gaining value. For example, the periods ranging from around a 2009 at the bottom of the 2008 market crash all the way up to around 2019 was referred to as a boom market, where the stock market was trending green for an extended period of time. You can also deem individuals thought patterns as being bullish in that the stock in question is positively trending or is set to gain some value. For example, you might hear an investor say, I'm very bullish on this thought. This means that they're expecting that stalking question to gain value over the upcoming period. Now, typically speaking, and during a bull market, there's going to be a higher level of investors who are looking to purchase equities or other securities. And so for this reason, due to the higher demand and lowered or stabilized supply, this has an impact on raising the market value of these equities in question. So with that said, keep in mind that an extended period of market appreciation is referred to as a bull market and as a long-term investor. And this is really where you're going to make the bulk of your returns. On the flip side, a bear market is a market environment where investor optimism is very low and there's an extended period of a market decline in meaning that assets are losing value. Typically a bear market environment is created when the stock market loses 20% or more of its value from the peak evaluations during a market high. With this in mind, during a bear market, there's a higher level of supply for securities or other financial assets and then there is demand. And for this reason, it says the impact of a lowered asset prices. The most recent bear market was as a result of the coronavirus pandemic, where the S&P 500 a shaved off more than 30% of its value in only around a one-month time, a bear market can create a more volatile investing environment though, because investor emotions are all over the place and so trading has less rational thinking behind it. With this in mind that during a bear market there's a higher level of supply for securities and other financial assets because investors are offloading their positions, which has the impact of Lord asset prices. Now, just because a market is trending downwards though, does not inherently mean that we're entering a bear market territory. In fact, it's completely normal for the market to fluctuate up and down depending on so many factors relating to economic trends in general or more tailored information about specific accompanies in industries, like we learned earlier on in the course relating to qualitative and quantitative factors for individual companies and positions. When a market as a whole, an industry or even an individual position and goes down but less than 20%. And this is referred to in the investing community as a correction. And it's during these periods of market corrections or days when the market is trending downwards, that you should be looking to take a position on a given stocks or ETFs that you're interested in for a long-term appreciation because you're effectively going to be lowering your overall cost basis on those positions. I hope you know better understand what both bull and bear markets even are and how this applies to everyday investing. Chances are, you've heard the expression and buy low, sell high, and in relation to making money with investments, this seems pretty evident, however, in reality, this is rarely achieved with a new retail investors because emotions are running high and usually what ends up happening is it relatively new retail investors are going to be buying high and selling low. The reason for this is that it's very easy to get caught up in emotions in regards to short-term fluctuations of the overall value of your portfolio and your positions as it inevitably rights through a market cycles, it's completely normal as an investor to be on a higher when your investments are rallying and wanting to hold onto those investments in order to squeeze out every last little drop of return. And then on the flip side, would be scared or worried when your portfolio is riding through a correction or even more severely, a bear market leading you to maybe considering a cutting your losses. And this is exactly how novice investors react to various different market cycles, especially when you haven't been investing all that long. So it's something I want you to avoid at all costs, especially if you're going to be investing long-term as you're learning in this course. Because the reality is that for most of these positions that you're going to be investing in, you've already done your due diligence and you know that the reason why you invested in it is because you see potential in the company long-term for steady growth and appreciation, It's absolutely inevitable that you will experience both bear and bull markets as well as short-term rallies and short-term corrections. And I want you to be ready for both scenarios and know how to properly react. Because you've taken the time to actually go through this course and realize that market corrections, both large and small, are actually opportunities to lower your cost basis on your investments and create significantly more wealth over the course of your investing career. And always remember that the true potential upside for a given stock ETF or whatever other asset you purchase is really going to be determined on the buy-in price that you have for that specific assets. What I mean by this is even though, let's say Tesla will most likely become a $3 thousand stalk in the coming five to ten years or so, an investor who bought shares at $500 is going to generate a return far greater than investor who gets in as say, $1500 per share. And I know this seems pretty obvious now that I'm saying it, I know, but it's actually not as obvious as you might think when you're presented with the situation in front of you, of the position and going down in value, maybe 1015, 20% In the short-term and holding on because you have a long-term strategy with a given stock. Over and over again, I see new investors buying when a specific stock or the market in general is really hot out of fear of missing out on nice returns. And then on the flip side, they sell at a loss when the position or the market is experiencing a small correction because it's normal human psychology to be risk averse, however, in regards to investments, you have to approach it in the opposite manner. And as a side note, everything I just mentioned here in regards to buying in at an optimal price point for long-term appreciation and gains on an asset is going to apply to all different types of assets as well, including, for example, your house. If you buy your house in an op market when the prices are extremely high, we'll long-term the appreciation you're able to squeeze out of that investment is typically going to be significantly lower than someone who bought their house at 20 to 30% under market value. Now, to tie this back to the stock market, let's look at a 50-year historical chart of the S&P 500 to see what type of price movements we've seen in relation to market cycles during this period of time, we've obviously seen both bull and bear markets, which again is completely normal and healthy to experience on a shorter 30 year timeframe though, we can see that regardless of the bear markets experienced both in two thousand and two thousand eight staying invested for the long-term in a broad market ETF, such as this one, which is the S&P 500, would have produced a significantly higher returns. And keep in mind that this chart is just the actual price point of the market and moving over time. And this does not showcase compound interests. If you held your investment over this entire 30-year period due to compound interests, your returns would be exponentially higher. In addition to this, a bear markets typically do not last nearly as long as bull markets do as depicted from this graph right here. The general point that I'm trying to get you to understand is that when investing for the long term, you're going to be experiencing both bear and bull markets. We've actually just experienced the longest boom market in history from 2009 to around 2019, with the quickest bear market in history resulting from the coronavirus. And this is actually what I want to focus in on to give you an example of how powerful the concept of investing and during down markets truly is, even though it can be difficult to actually put in practice when faced with the situation. So with that said in the big picture, keep in mind that in market corrections are in fact opportunities to lower the overall cost basis on your positions in your overall portfolio don't fall victim of thinking that markets are not going to eventually recover because they will overtime. Let's now move down this philosophy to our everyday investing though, because chances are that after taking this course, you're going to be more active in the market and are looking to invest at more actively and looking to buy in on positions at different price points and on different time frames. Just like in the larger picture here, where a market corrections are in fact, opportunities to lower your overall cost basis on a more daily basis. I never purchase stocks on days when the market is trend in green, I only purchase thoughts, ETS, and other investments when the market is trending. Read for that given training day. This is because if I'm interested in purchasing a given stock or ETF, Well, I've already done my due diligence in the first place, so I know that over the period of time that I'm looking to hold this stalk or other position is going to be a winning position that most likely. So why not try to shave off a couple of percent on the buying price by purchasing the stock or ETF on a day at when it's actually lost some value. This is something that I've personally been doing for years now and should also be something yet you're doing of buying stocks only on days when the market is red. All right, so this wraps up the lecture on market cycles. And in this quick module as a whole, in the upcoming module, we're actually going to be diving into setting up your brokerage account, as well as the creation of your portfolio. 37. Registered vs Non-Registered Accounts: Welcome to the second lecture of the sixth module. In this lecture, we're going to actually be selecting the specific account type for your needs as an investor. And now that you properly understand what each account type it does and what they're used for. As we learned in a previous modules, the topics we'll be covering in this lecture include the following. Registered versus non-registered account. Followed with which account is specifically should you open when you're a new investor? Alright, so we've already learned all about the different investment accounts that are available to you as a Canadian investor, including a registered versus non-registered account. And the difference between each. But now that we're at the stage where you're actually going to be opening up your own a brokerage account and starting to invest. Let's actually recap. Uh, which account would be best for you to start investing with as a new investor? First of all, I always recommend that pretty much all in new investors as start investing in the tax-free savings account and mostly attributed to taxation purposes as well as piece of mine at for the growth of your investments. First of all, depending on your current age and the year that you turn 18 years old, it chances are that you already have a contribution room that's waiting for you, ready to start investing with this contribution room, as we learned early on in the course, is cumulative. So whatever contribution room that you have available right now is yours to start investing with. This is a huge first advantage of starting to invest in the tax-free savings account because all your dividend income, as well as the appreciation in value of your investments is going to grow at a tax-free basis over the course of your investing in the EFSA. For this reason, I always recommend that new investors as start investing in ATF essay. And then once you've kept out your total contribution room, you can then transition over into the other registered account, which is going to be a registered or retirement savings program, our RSP for short, if this fits within your overall taxation and investment strategy. And then from there, once you've kept out your contribution room for both registered accounts, you can then transition over into a cash margin account for your overall general investing. Now the reason why I recommend starting to invest in the EFSA over the RSP, even though these are both registered accounts that have a tax advantage to them, is because the RSP, even though it's going to allow you to reduce your overall taxable income and therefore your marginal tax rate could be lower, thus, saving you from paying higher income taxes in a given year will keep in mind that, that you can't actually withdraw from your RSP until retirement. And if you choose to do so, you will incur a penalty for doing so. So that's the reason why even though in a long-term strategy, investing in an RSP is very important, I recommend doing so after capping out your contribution room in your TFS, personally, what I always do here is first and foremost, I can attribute it that extra 6 thousand or so dollars in contribution room to my TFS H here. And then following that, I'll usually contribute an amount to my RSP, which will lower me from a one marginal tax bracket in order to pay significantly last tax. What I meant earlier when referring to peace of mind when investing in its EFSA is that when investing in each cash margin account, as we learned earlier on in this course, we'll all your dividend income as willing to, your capital gains are obviously going to be taxed at their respective tax rate. So this is also something that you need to actively keep track of and submit at the end of the year that's paying the proper amount of taxes. Otherwise, this CRA could come after you if we're not declaring your dividend income and your capital gains income. So basically you went investing in the tax-free savings account. You can pretty much just invest over time, contribute each and every month, and not worry about having to pay tax on any of your investments. With that said though, you're most likely going to quickly max out your TFS a contribution room so it makes sure that you properly understand all the taxation that we spoke about earlier on in this course in regards to a cash margin account so that you can make sure to properly pay all the taxes that are due on your investment income. This, it was a really quick lecture, but bottom line here is start with maxing out your TFS, a contribution room. And then once this is accomplished, you can venture on into investing in a cash margin account or even an RR SP, if this fits within your overall taxation strategy. And if you're confused with all of this, I would recommend speaking with your CPA about contributing to your RSP and lowering your overall taxable income to maybe lower your income into a lower tax bracket. 38. Determining Your Investor Profile: Welcome to the first lecture of the fifth module, where in this module we're going to be constructing your overall investing plan and strategy based on your answers to a variety of screening questions related to your personal finances as well as your personal situation. And then we're also going to be learning about a variety of investing concepts in order to keep you on track with achieving your investment goals. This module, along with the next one, are definitely my favorite because these modules actually focus on you as the investor where we're going to be constructing your very own portfolio based on your investor profile. Now that you have a strong understanding and knowledge of how the stock market works, in this first lecture of the module, you're going to be running through a variety of screening questions in a questionnaire that I've attached it down below to this lecture in order to determine your overall goals as an investor and then define your proper asset allocation. The first thing you'll need to determine it when looking to craft your own stock market portfolio is going to be your investor profile, which I've mentioned throughout this course. Now what I mean by investor profile is that each individual is going to need to approach the construction of their portfolio in differently based on their overall goals and needs as an investor, as well as a variety of other criteria that you're going to be identifying in the overall questionnaire. This is because your investor profile is going to greatly influence which stalks and funds you actually end up putting into your investment portfolio, as well as the weights associated with each one of your positions. Generally speaking, what I recommend my students and viewers focus on when first getting into stock market investing. Is it creating a portfolio that will serve as a growing investment nest egg for the long-term before venturing out and exploring a higher-risk stocks and positions. Once you actually have a more experienced and you feel more comfortable with investing into higher risk assets. This is a strategy that I've personally used over the years and will allow you to build a foundation for the growth of your wealth over time before you actually venture out and explore higher-risk opportunities without the proper experience. Thus a jeopardizing the money that you had to start investing with in the first place. With that said, depending on your age, investment horizon at risk tolerance and a variety of other factors. This is going to determine which stocks and funds you choose to include in your portfolio and severely impact the weight associated with each one. The question do we answering in the questionnaire are meant to highlight your current personal and financial situation, your investment objectives and risk tolerance, as well as your level of investment experience and knowledge. This exercise might seem somewhat basic and the questions aren't anything very demanding, but these questions are going to allow you to reflect on various different aspects in your life, your finances, and what type of securities you're most interested in. The document we're looking at right now is attached to this lecture that you can download and answer for yourself in either Word or whatever other platform you use. And I'd recommend that you actually keep this filled out document to refer back to it later, because investing is evergreen and you may want to change your answers as time goes on. Once this is done, each question will have a value associated to it that you will have to add up altogether in order to determine the investor profile that best suits your answers. So make sure to try and respond as accurately as possible based on the answers that you provided in the short questionnaire. And you're now able to more accurately determine which investor profile best suits your needs. And then subsequently attached to the investor profiles, which asset allocation is best going to suit your needs as an investor. I do also want to mention that the results of this quiz are super evergreen and in no way should the results be interpreted as being set in stone. Rather, it's just a way to get your juices flowing and understand how different criteria and scenarios can impact how you're going to allocate your funds within your portfolio. For this introductory course to stock market investing, I've split up the different investor profiles into four main categories with each one representing a different asset allocation, meaning the percentage of your portfolio that you'll be investing into fixed income positions and the percentage that you'll be investing into equity positions. The first investor profile is the aggressive portfolio, which comes with higher risk and a longer time horizon, Generally speaking, which comes with a 15% of fixed income position and eighty-five percent equity position for an average annual appreciation of around eight to 12% per year. The second investor profile is what I would call it the moderately aggressive portfolio, which is best for high to medium risk as well as long or medium-term investment horizons. This portfolio allocation is twenty-five percent fixed income and then 75% equity positions for a typically an average of seven to 10% appreciation per year. Moving on, we have the third investor profile, which is called the moderately conservative portfolio, which is best for medium-risk and then medium to short-term investment horizons, which is going to be comprised of 40% fixed income and then 60% equities with an average of around five to 7% appreciation per year. And finally, the last investor profile that I've identified at for this stock market investing course is the conservative portfolio, which is best for lower to medium risk as well as medium to short-term investment horizons. And I've put this at 50% fixed income and then 50% equities with a higher focus on a blue chip dividend stocks. Generally speaking, I tend to recommend that younger investor as being more risk tolerant width at their investment portfolios at due to a couple of factors. First of all, if you're a younger investors, say Under Thirty-five years old. While the reality is that you have a much longer investment horizon ahead of you to stay invested. Therefore, a grow your nest egg and portfolio value over time while allowing you to have enough time to write through inevitable market corrections and even market crashes. Now that really only applies though if you do end up staying invested for ID minimum at ten years, preferably more because for a portfolio that's more heavily weighted towards equity positions, the reality is that it will be more volatile in a shorter timeframe. So just remember here that a higher risk tolerance in your portfolio, meaning a larger percentage being allocated to equity positions typically will come with higher appreciation levels. However, higher risk tolerance should also be accompanied with a longer investment horizon. Based on this logic, if you're someone who's saved 45 years old and you're looking to invest for retirement that's in at ten to 15 years, let's say, Well, even if you have a higher risk tolerance, you might want to adjust your portfolio to be a bit less weighted towards equities than at someone who's 25 years old. And he's really going to look for a 9010 split on equities to fixed income due to the fact that your investment horizon is only like ten to 15 years. Now I want to wrap up this lecture by explaining that it's completely normal and expected for your goals and investor profile to evolve and change over time as your circumstances change. For example, you might be 30 years old right now. And for this reason your investment horizon is longer and you have a higher tolerance to risk and volatility within your portfolio. But 1015 years down the line, this reality might change where you're looking to allocate a higher percentage of your portfolio to fixed income or other more secure asset causes. The final point I'm trying to make here is that you should construct your stock market portfolio throughout this course to fit your needs and realities right now, however, you should re-evaluate these needs and goals every say, five to ten years in order to make the appropriate shifts. This type of investment behavior is ultimately what's going to allow you to adapt your financial plan over time to best suit your needs. 39. Selecting right broker: Welcome to the sixth module of the investing course. This module is by far the most exciting because now that you have the proper knowledge about how the stock market works and what your investor profile is. We're actually going to be constructing your very own portfolio. In this first lecture of the module, we're going to be going over the features and functionalities of the two discount brokerages that I personally recommend. And we're going to be determining a which one is best for your needs as an investor. And then following that in the two next lectures, we'll actually be doing a full walk-throughs of each of these two discount brokerages. Once you're all set up with your brand new brokerage account, we're actually going to be tapping back into all the knowledge and information that we learned previously in the course. Specifically your investor profile and the asset allocation that you're going to be using in order to create your portfolio with stocks and ETFs mainly, I'm really excited to get through this module with you where at the annual actually have your very own portfolio. So in this lecture, once again, we're going to be determining the right stock brokerage for your needs. So let's get right into it. The topics we'll be covering in this lecture include the following. Why choose a discount brokerage in the first place over say, a large bank brokerage followed with features and functionality. And then finally, we'll be going over well, simple trades, features and functionalities before diving into the features and functionalities of each of the two discount brokerages that we're featuring in this course, unless actually first speak about why utilizing a discount brokerage is beneficial in my opinion, over utilizing a brokerage account from your bank. If you remember in the fourth lecture, we spoke about all the fees associated with maintaining an account as well as a commission fees on a trade orders. So over time, these fees can really add up over the 5102030 years that you're investing on each one of your buy and sell orders. So minimizing fees as much as possible is going to be one of the main reasons why using a discount brokerage is beneficial. Overusing a brokerage from one of the big banks, for example, a TD web broker charges a twenty-five dollar quarterly fee for maintenance of your account if the account value is below $15 thousand and they also charge a flat and $9.99 fee for all buy and sell orders. So this is something that I want you to minimize as much as possible, avoiding paying access fees on your investments. Now keep in mind that every brokers is going to have a various features, functionalities, and fee structures. However, in my personal experience, having used over five different brokerages online, in my opinion, quests read and well, simple trade are really just the best options all around for low fees as well as features and functionalities, which once again, we'll be getting into in this lecture. The first discount brokerage that I personally use and would recommend is most likely one than you've heard of before, and it is called the quest raid. This is one of Canada's most popular discount online brokerages because it's simple to use, offers a great pricing and has good stock research functionality built right into the platform free of charge. So let's run through the features of fees, pros and cons and other relevant information. First off, a question that is a Canadian at discount online brokerage. So you will be able to open all the account types that we've already mentioned in this course, as well as a variety of others. They offer the T FSA or RSP cash margin accounts are ESPs and even corporate accounts for our needs though the TFS or RSP and margin accounts are perfect. And just for your information within a sequestrated, they call atypical cash account a margin account less than that. Take a look at what you can expect from Quest read in regards to their fee structure, stock trades work on a per share fee of $0.01 per share at a minimum of $4.95 and go up to a maximum of $9.95. So you're essentially always paying a commission in between $4.95 and at $9.95, which is decent pricing for online brokerages that offer the level of tools that question does, as we'll be diving into shortly, the next most popular asset class which will be utilizing in the construction of our portfolios are ETFs exchange traded funds, which you can actually buy for free, unquestioned. So there's no commission of the purchasing of ETS. But be aware that when going to sell ETFs, you will incur this same $0.01 per share fee, once again, between 4.959.95, which really isn't all that bad in my opinion, considering that other comparable brokerages charge up to $10 flat fee on all trades regardless of the size and the asset in question with the basic investor plan that most of you will be opening when first starting out. You'll also gain access to the novice traders market data package where you can see all the real-time level one market data coming through for an accurate pricing of securities in real-time, having extremely accurate and market data and price points is obviously something that's extremely nice to have, but is more important for day trading, which for us in this course isn't necessarily something we're all about. However, the fact that it's built into history for free is a very nice feature. What I personally like about Quest trade is that their platform is quite complete and offers a good level of detail about your holdings and the breakdown of your holdings per account. It also has a very detailed research functionalities offered by Morningstar that we'll be discussing in the full platform walk-through in the next lecture. If you think a question it is right for you, you can either click the link down below to get $50 in free trades when you first open up your account, or you can wait to see the full walk-through before making your decision in a couple of lectures. Well now we're diving into the second discount brokerage that I personally use and recommend at which is it Well, simple traded. This is a completely different type of brokerage platform, but might be of interest to you depending on your preferences. Unlike Western, which is a desktop first, uh, well, simple trade is currently a mobile only discount brokerage platform, even though they do have plans of extending their service into a desktop application, the best feature of well, simple trade is the fact that they allow you to trade stocks and ETFs completely commissioned free, unlike other platforms such as TD web broker, for example, which charge you a $9.99 commission fee on buy and sell orders at this app will not charge you a penny for doing so. It is extremely similar to the popular American platforms such as Weibull, Robin Hood, as well as M1 finance. In terms of fees associated with wealth symbol trade, there were absolutely no fees associated with opening and maintaining your account and trades on Canadian securities, both stocks and ETFs is also completely commissioned free. That said, when you do purchase American stocks, you will be charged a conversion fee of 1.5% above the actual conversion rate. And that is where they make their money because you can't currently hold a USD in your wealth simple treat account. Another thing to mention is that unlike with Quest trade, you can't do a Norbert gambit to save on exchange fees because you can't hold USD in the account as of right now. You can buy and sell common stocks exchange traded funds and a real estate investment trusts that are listed on the New York Stock Exchange, nasdaq, TSX and TSX v. Hopefully in the future they will include other stocks that trade on exchanges such as the Canadian Securities Exchange. In addition to this, only stocks that have an average volume of above 50 thousand shares daily with a 52-week high of at least $0.50 will be eligible to be treated on the platform. So pretty much any stocks that you could possibly want to purchase in Canada or the United States will be available to find on Wilson book trade. But if you're looking to buy penny stocks, which I wouldn't recommend at this stage of your investment in any ways, but that wouldn't be an option. Now the best thing that is going for, well, symbol trade is that they offer completely commissioned free trading, which I will concede is a great advantage. But here are a couple of things that do make well simple trade, less functional than quest read that you'll want to keep in mind. There is no research functionality at all. So you'll need to use other platforms to do your research. And for this reason, I actually recommend that my viewers and a student's open, both a quest trade and a well simple treat account in order to get the best of both worlds, your portfolio is also not well displayed in regards to say, a pie chart and account breakdown, you cannot hold USD in the account. It currently it is mobile only. And finally, another disadvantage of Wilson will trade is that you don't have that truly up-to-date market data. So prices are all 15 minutes delayed. This pretty well wraps up the lectures on the features and fees associated with both sequestrated and well symbol trade accounts. Now, I don't expect you to make your decision and just yet on which one you're leaning towards, it makes sure to wait for the full walk-throughs that we're going to be doing in the two next lectures before making your decision. But once again, I'll reiterate here that I personally recommend that most of my viewers and students both a well simple trade and sequestered account in order to really get the best of both the research functionality of quests rate and the commission free trading of weld symbol trade. 40. Asset Allocation Based On Investor Profile: Welcome to the fifth lecture of module six. In this lecture, we're going to be speaking about what the asset allocation of your portfolio could look like based on the investor profile that you are now able to determine in the fifth module. At this point, you should have a crystal clear picture of what your time horizon is it your goals as an investor, as well as how risk tolerant you are and at the answers to all the other questions that you use in order to determine that your investor profile, which ultimately is going to dictate what the portfolio construction could potentially look like. The reason why this is so important is because before we actually go about choosing which ETFs and stocks to either your portfolio if you want to set things up correctly, which is critical for long-term success, you need to understand which percentage of your funds are going to be allocated to each individual asset class, which is critical for proper diversification of your investment based on your investment profile and risk tolerance. This lecture is going to revisit the investor profile that you determined in the previous module to give you a rough blueprint of how your portfolio could be constructed from an asset allocation standpoint. And in the following three lectures, we're going to be speaking about how you could go about constructing a portfolio with a stocks, ETFs or a mix of both, which I personally recommend. However, this is all going to be extremely relevant to your asset allocation, which we're going to be speaking about ray now, the topics that we'll be covering in this lecture include the following. Asset allocation for an aggressive portfolio, asset allocation for a moderately aggressive portfolio, asset allocation for a moderately conservative portfolio. Then finally, the asset allocation for a conservative portfolio. So before we actually jump into the asset allocation for each portfolio type, I do want to mention here that everything we're about to speak of in this lecture is evergreen, meaning it, nothing is really set in stone. And at this point in the course, you should have enough knowledge to consume over both to speak of and then tailor it to your own specific needs. As an investor, these asset allocations that we're about to cover are really just a blueprint as so, you should just identify which one and you relate to most and then take it and tailor it to your own needs and specifications. With that said, if you feel uncomfortable replicating one of these asset allocation splits, then that's totally okay as well. I really just wanted to put it out there that you should really mold these to your own liking because there's just so many factors to take into account here that it's difficult to actually standardize things for every individual investor jumping into the asset allocation split for the first portfolio type. And this is going to be what's known as the aggressive portfolio. Now, depending on how you answered the screening questions in order to determine your own investor profile. Generally speaking, someone who ofs for an aggressive portfolio asset allocation split is going to be an investor who has a longer time horizon ahead of them. So for this reason, this tends to be a portfolio that's popular with younger individuals, say under 3035, because it by nature of being younger, you have a longer time horizon for your investment career ahead of you. In addition to this, a more aggressive portfolio means that there's going to be a heavier weight towards equities such as stocks and ETFs that hold stocks for this reason. And this is going to be a portfolio type that will be more exposed to the fluctuations of equity markets. So if you're able to hold onto these stocks over a longer time horizon, this is going to allow you to ride through all these market cycles and not have to unload some of your positions if you're short on cash, for example. The reason why this is so important is because if you are looking to utilize most of your invested funds in the next five to even a ten years, for example, this really doesn't give you enough time in order to potentially write through market cycles where we could potentially be in a market downturn or even worse, a recession. And by the time you're looking to utilize it, these invested funds. And as we learned in the previous module, a downturn should not be a period where you're looking to sell your position. Rather, it should be a period where you're loading up on more of your best stocks as well as ETFs in order to dollar cost average and lower your average cost basis. Typically speaking, when you're looking to construct a solid portfolio for long-term growth of your wealth and the value of your portfolio while the shorter the investment horizon and that you have for a specific account or for a specific stock, the lower the equity position in your portfolio. But once again, this is really going to be something that you're going to have to assess for yourself based on your own goals as an investor and everything else related to your investor profile. For example, as a side note here, I'm still in my twenties and my time horizon for my portfolio is 2030 years even at so I'm definitely a lot more weighted towards equity positions. Oftentimes in the 90% range, depending on at the moment in time. Back to the aggressive portfolio asset allocation is since this is a portfolio that's going to be significantly more heavy towards equity positions. I tend to recommend usually 85 to even 90% in equity positions and then tend to 15% in a fixed income. This will allow your portfolio to benefit significantly from the growth of equity positions, which is going to be significantly higher than fixed income on the average year while still benefiting from the stability it is from a much smaller fixed income position. Again, personally, this is how my portfolio is constructed based on my own investor profile. So I'm a lot more risk tolerant and I'm looking to invest for 2030 years. So it was since my time horizon is much longer, I'm uncomfortable having a much higher concentration of equities than fixed income. In order to read the reward of the significantly higher average annualized returns. The equity positions. Just to summarize here, if the aggressive portfolio asset allocation is something that you're looking to implement in your own portfolio, then I would typically recommend an 85, 15% split. By the way, in the next three lectures, we're going to actually be learning about how to apply these asset allocations to the construction of your portfolio based on stocks, ETFs, any mixture of both. Moving on now to the second portfolio allocation. And we have the moderately aggressive portfolio, which sort of said it in the name. What this is going to be all about, where we're still trying to maintain a higher level of equity positions, but ease off a little bit more than with the aggressive portfolio. This means I will reserve a higher percentage of the portfolio to fixed income positions in order to be a little bit less exposed to the typically more volatile equity positions. This type of portfolio construction is beneficial for individuals who have a slightly less at risk tolerance to high fluctuations of their portfolio of value, yet still want to benefit from a higher than average annual return of equity position to over fixed income. This can be ideal for pretty much all age brackets as well as investment horizons because in my opinion, this still allows your portfolio to have a nice split between both fixed income and equity positions while still maintaining a nice long-term investment in vision for your portfolio, this asset allocation breakdown is more in line with around 75% equities and then around 25% of fixed income to still have more exposure to stocks and equity ETFs while maintaining a little bit less volatility with a higher fixed income position. The third portfolio asset allocation is what I call the moderately conservative portfolio. This type of portfolio construction is convenient for medium risk investors and a short to medium term time horizon. So if this is a type of investor that you think you are based on your investor profile. And this could be the type of asset allocation that you would want to base your portfolio on, Building off of the portfolio constructions that we just looked at. The moderately conservative portfolio is going to have a significantly higher level of fixed income in order to stabilize the overall fluctuations of a portfolio that would have a higher percentage of equity positions. However, this is still a portfolio that's going to expose you to some nice appreciation over time. By the way, I typically recommend that for this type of portfolio construction, you utilize a higher level of blue-chip and dividend stocks. Because in the stock world, these are stocks that are typically seen as more of the fixed income variations of stocks because they have a higher level of stability and generate the portfolio some income. The asset allocation breakdown for this portfolio is around 60 to 65% equities and then around 30 to thirty-five percent in fixed income. And finally, the last portfolio construction here is that the conservative portfolio, which is going to have a significantly higher level of fixed income and blue chip dividend stocks. Then in the last three portfolios that we just looked at with around a 5050 split of fixed income and equity positions. Or if you want to be even more conservative and you could opt for a 60% fixed income in 40% equity position at portfolio. Now personally, I'm more bullish on equities as a whole and we just pick a safer funds for the more conservative portfolio of the equity section. If this is the portfolio type that you're leading towards a more conservative portfolio, rather than going ahead and doing say, 30% equities and then a 70% fixed income slip because the way the markets are moving over the past decade, higher exposure to equities is in my opinion, more favorable to still take advantage of a moderate appreciation and that will beat inflation rates. In my opinion, if your portfolio is just to expose to fixed income positions such as a 70 or even 80% fixed income position in your asset allocation split? Well, in the current bond environment, you could run the risk of having at par returns with inflation or even in a worst-case scenario, having an inflation rate that is higher than at the appreciation of your portfolio, which is absolutely something that we want to avoid with our portfolio is here. This type of portfolio is going to be more convenient for older investors who are looking to utilize the funds invested in their portfolio, say in the next decade or so. And don't want to run the risk of higher exposure to equity fluctuations in a period of time when they would actually be looking to utilize the funds. All right, so in this lecture we just covered, uh, for different asset allocations, for different types of portfolios that are all going to be related in your own investor profile. I really hope that this lecture made the concept of asset allocation clear to you and that now you understand the significance of why it's so important to have a proper asset allocation and based on your goals as an investor. Because ultimately this is going to have the largest impact on the returns that you can expect from your portfolio. In the next three lectures, we are going to be speaking about how to apply the information that we just learned in this lecture to construct the new portfolio of stocks, ETFs, or in my opinion, the best option here, a hybrid course satellite portfolio, which is a mix of both ETFs and stocks. 42. Building Your ETF Portfolio: Welcome to the seventh lecture of the seventh module where we're going to be speaking about how we can construct your very own portfolio using exchange traded funds exclusively, ETFs for short, based on your investor profile and asset allocation makes if you're truly looking for a passive and hands-off approach to investing. This is a portfolio construction strategy that I would recommend for an investor who really wants a passive approach to investing and isn't necessarily interested in hand selecting each stock they invest in, which inherently comes with a lot of research and due diligence, which can take a lot of time utilizing ETFs exclusively for the construction of your portfolio has actually become a somewhat popular way of approaching portfolio construction over the past couple of years because it'll US investors and easy approach to diversifying their holdings at a relatively low management expense ratio or cost. That is, as we learned earlier on in the course, while also requiring extremely minimal efforts and rebalancing of the portfolio. Now once again, just like in the lecture on constructing a portfolio using a stalks as the primary vehicle, it's really difficult for me to give you concrete examples of ETFs and that would be suitable for your portfolio in question, however, we will, in this lecture, we'll be diving in to some model ETF portfolios that have created. Then you can then utilize as a model for constructing your own portfolio. And by the way, these model portfolio is really are a starting point that you should tweak to your own investor profile, utilizing and including the funds that you are most interested in based on everything else that you learn about yourself as an investor in this course, this lecture does also come with a downloadable PDF that you can find below this video in order to have a better visual representation of the model portfolios that we're speaking about. The topics that we'll be covering in this lecture include the following. We'll start off with speaking about a handful of the best core ETFs for Canadians that also happened to be some of my favorite exchange traded funds. And then following that, we'll be speaking about model portfolios with examples of ETFs for each investor profile and asset allocation split. So before we actually dive into these model portfolios in the downloadable PDF, I'd first like to speak about a handful of what I call a core ETFs for different asset vehicles and then also for different types of equities that you might want to include in your portfolio. So let's speak about those right now. By the way, these are really just examples of core ETFs that I personally like. And some of them I hold in my portfolio and I just wanted to offer you some possible options as a starting point for your research. First, starting off with the S&P 500 and my favorite a low cost Canadian options are VFB from Vanguard or x us from iShares. They will track the S&P 500 for a very low cost, expose you to the best and largest companies in the United States. Now if you're looking to steal, invest in the American market, but you'd also like to include a wider spectrum of companies, from micro cap all the way up to large cap stocks, you can choose to invest in what's known as a US total market ETF, which includes thousands of positions. You really can't get more diversified than this in the US market. And a great Canadian options include a BUN from Vanguard and x UU from iShares. Moving on to some of my favorite Canadian ETF options that track in the Nasdaq 100's, which contain at the 100 largest companies that are traded on the nasdaq exchange, we have hx q offered by horizon investments, which is my favorite. And then we also have x Q, Q, which also tracks the nasdaq 100 index, but his hedge to the Canadian dollar. If you need a refresher on what a currency hedged ETF is, then made sure to go back and learn about how currency affects returns in module two. Now venturing onto ETFs that invest into Canadian positions if you so choose to include in this type of investment in your portfolio, I would recommend an ETF that tracks the TSX 60 because this is going to give you exposure to the 60 largest and most influential companies in Canada, including large banks, energy companies, and Shopify. The best ESX 60 ETF option is x IU offered by iShares. Now if you're more interested in a total Canadian market ETF, then x IC would be a great option. This is a TSX kept Composite Index that holds over 250 Canadian equities representing over 95% of the Canadian equity market. We've spoken quite a bit throughout this course about diversification and exposure to various different assets and asset classes within your portfolio. Diversification can take many different forms from diversification in terms of the equities that you're holding in different industries that the companies operate in asset classes or even geographic regions for this reason that since we're now living in a global economy, it can be a good idea to also invest in other foreign markets like emerging markets, are basically just any other market that isn't located in North America. And it's pretty much easier than ever to do so through exchange traded funds that are offered on the Toronto Stock Exchange. When speaking about foreign stocks, uh, typically this will be divided into two categories. The first one being foreign developed countries like Australia and European countries. And then the second category will be known as emerging markets such as India and China, for example. Emerging markets have been experiencing tremendous growth over the past decade and are now showing some of the highest returns for investors in terms of emerging market ETFs. Two of my favorites are VBE from Vanguard and x EC from iShares for foreign developed market ETFs, I would recommend xy f from iShares and VA from Vanguard and make sure to check those out further if you're interested in investing into foreign markets. Now let's remember here though, that I wouldn't necessarily expect you to include each one of these ETFs in your portfolio. This is simply a collection of some of my favorite exchange traded funds that target different facets of the market. Let's now take a look at some more industry-specific ETFs that are popular among Canadian investors for various different reasons. First off, the Canadian market is heavily weighted towards bank stocks, since we have one of the best banking industries in the entire world, Canadian bank stocks are relatively stable and offer a great dividend distributions being one of the main reasons why including a Canadian bank stock ETF could be beneficial for your portfolio if you're looking for dividend income. Popular Canadian bank ETFs include XFN from iShares, an hx f from horizons. And you may also be interested in real estate investment trusts for which there are ETFs focused specifically on these types of companies. Typically read ETFs will provide a high dividend distributions and exposure to all of the Canadian reads, or at least a high percentage of them. Examples include X-RAY from iShares and VRE from Vanguard investments. These are typically going to be the most irrelevant Core style equity ETFs that most investors will choose to include in their portfolios. With that said, we can't forget a fixed income positions. And for this, there were also some great ETF auctions regarding a bond ETFs. My favorites include a VAB and VB EU from Vanguard. The reason why I like these is because they're just really easy to include ETFs that will expose you to various different types of bonds without having to worry too much about the fixed income portion of your portfolio. Finally, if you're interested in including some gold in your portfolio, which we haven't really spoken about throughout this course. But Gould can also serve as a hedge against inflation and equities will great ETF options would be X gd by iShares for gold mining companies across the world. Or see EGL, which literally holds a physical gold on your behalf and tracks the market value of gold Boolean array. So that was a rundown of some great Canadian exchange traded fund options for various different facets of the market that I would highly recommend. You look further into for the ones that you are personally interested in based on your investor profile and how you want to construct your portfolio, uh, moving forward at this point in the lecture, I'd recommend that you download the PDF sheet containing some examples of portfolios and use these religious as a guide for your own construction based on your investor profile. Now you could also choose to model these perfectly, but I'd recommend that you use your own experience and now and knowledge to craft your own width these as a guide. Now in the next lecture we're going to be speaking about constructing a core satellite portfolio with both ETFs as well as hand selecting your own stocks, which is actually the type of portfolio that I personally use. And we'd recommend for someone who wants the best of both worlds really. 43. Building An ETF & Stock Portfolio: Welcome to the eighth lecture of the sixth module where we'll be speaking about strategically combining both stocks and ETFs into one single portfolio with what's known as a hybrid course satellite portfolio, giving you the best of both worlds for wolves, stocks and ETFs. This is the approach that I personally use in my own stock market portfolio because this allows an investor to first and foremost create a foundational layer of exchange traded funds for instant diversification of the portfolio and steady appreciation of the portfolio's value over time, all of which at a very low expense ratio. And then from there, the investor can go ahead and hand select and choose certain individuals thoughts that may be of interest to them after having a well-identified or investor profile and strategy. And these individual positions are going to act as the satellites through the core portion of the portfolio. The whole goal of implementing a hybrid course satellite portfolio over is a strictly using stocks or ETFs to build out a portfolio is that well, it is designed to lower costs associated with investing and it also minimizes volatility. It can also provide investors who had the proper knowledge to analyze their own positions. If you go ahead and explore the idea of investing into individual stocks or other funds and attempt to somewhat a beat the returns of the broad market as a whole if they so choose. So really we can think of this hybrid course satellite portfolio as a planet with a multiple different satellites orbiting it, where we're first going to utilize a variety of these core ETFs such as say an S&P 500 or a nasdaq 100 ETF, which are going to track broad markets and contain quality companies within them for that higher level of stability and appreciation at a lower fee structure. And then from there we can implement multiple different satellite of accompanies that we think are going to perform well over time and that compliment our overall strategy, investor profile and portfolio. Once again, this is a strategy that I personally use in my own portfolio because while I'm out actively searching for new companies to invest in that I think will perform well, uh, based on variety of different criteria. Well, that core portion of my portfolio that's comprised of those highly diversified at core, ETFs are providing my portfolio with that stability, Lord, volatility and overall appreciation overtime. The topics that we'll be covering in this video lecture include the following. First, we are going to be speaking about how you can construct your core satellite portfolio of followed with the breakdown of each element. And then finally, we'll end this lecture with speaking about how this fits into your asset allocation and investor profile. Alright, so just like with the stock only or ETF only portfolios that we spoke about earlier. There's basically an unlimited amount of ways that you could choose to build out and construct your hybrid course satellite portfolio. But among the countless specific ways that you could build this hybrid core satellite portfolio, there's pretty much two blueprint that you're going to want to lean towards. The first one being using ETFs only for both the core positions as well as the satellite positions. And then the second blueprint using ETS and stocks as the satellite positions will be speaking about both of these strategies at later on in this lecture. But let's first get a stronger comprehension of what this portfolio strategy entails. What you need to remember with this type of portfolio construction is that you'll have your core positions comprised of low fi, broad market ETFs, acting as the foundation of the portfolio as we covered in the previous lecture going over exchange traded funds, I would recommend that this core portion of the portfolio will be constructed of an S&P 500 ETF, a nasdaq 100 ETF, and then even potentially a total US market ETF for the equity portion of your asset allocation. And then also keeping this to under or around four, but most likely three ETS is what I would recommend because that's really all you need for the core portion of the portfolio. With that said, a core satellite portfolio can be constructed in pretty much any way that the investor chooses with the core portion having the possibility to track, uh, basically any indexes desired to fit a certain investment styles. For example, one could decide to focus the core portion of their portfolio into a higher growth exchange traded funds, or even say, dividend exchange traded funds, depending on what the goal of that portfolio is. The same is true for these satellites. Being up to the investor in question will be speaking about how these factor into your investor profile and asset allocation shortly. But keep in mind that for the core equity portion of the portfolio, you're most likely going to want to include ETFs such as an S&P 500 and nasdaq 100 and total US market ETFs. But those are just some examples. You can refer back to the ETF portfolio lecture that we looked at previously to get some more examples of ETFs that are a value. Now for that more actively managed portion of the portfolio at your goal as an investor is to find stocks as well as other exchange traded funds that have the opportunity to provide a higher returns to your portfolio that not more passively managed. Core portion of the portfolio, old branch off with specific growth and dividends, the ox, as well as industry specific ETFs as my satellites that may be of interest based on a global assessment and proper analysis of each one and how they fit into my strategy and portfolio. And let's now dive into how you can actually implement this within your own investor profile and asset allocation within your portfolio. As mentioned previously, the core satellite portfolio can be approached several different ways and with unlimited combinations. But whether or not you choose to go with stocks or ETFs as the satellites, the positions and weights associated with each one still need to fit within your overall investor profile and asset allocation. We're now going to look at an example of how you need to approach the breakdown of your core positions and the satellite positions. The example we're going to be using is for the moderately aggressive asset allocation breakdown. But this same strategic rationale can be applied to your own situation and asset allocation breakdown with the moderately aggressive asset allocation. And we have a desired at 75% equity and at twenty-five percent of fixed income split. Let's start with the equity side of the portfolio. So if you're looking to implement a core satellite approach, your core position is generally going to want to be in the 50% range at a minimum to allow for all the positive benefits that we've spoken about in this example. If you're starting out with say, $10 thousand and then seventy-five percent of this is for equities. These would represent a 7,500 from which 50% of that amount would be for your core ETFs being say, an S&P 500 ETF or a total US market ETF. Again, I can't really give you a specific a cookie cutter breakdown of the exact percentages that are best for you. But based on what you've identified for your own investor profile, you should have a good idea at this point of what makes the best sense for you. Make sure to maintain your core ETF positioned to lower costs. Broad market indexes such as the S&P 500 at total US market, TSX 60 or nasdaq 100. Instead of going ahead and using this portion of your portfolio for higher fee ETFs, You can also choose to use a combination of these indices to make up your core portion of the portfolio, but makes sure they amount to roughly 50%, I would say, of the asset allocation of that equity portion. Now in regards to the fixed income portion of the portfolio, I tend to recommend that you use a fixed-income ETF basically at all times instead of hand selecting bonds because this really simplifies the process and investing in fixed income securities from a diversification and passivity perspective. Once again, refer back to the previous lecture on E-test for some specific examples of fixed income exchange traded funds. So let's now put this altogether for the moderately aggressive portfolio. In this case, twenty-five percent of the portfolio would be comprised of a fixed income low cost ETF for the core portion and then 50% of the 75% portion for equities would be comprised of low-cost broad market ETFs. From there, 50% of that 75, which is roughly 37.5% of the portfolio, would be kept for actively managed and selected equity positions such as stocks and ETFs of your choice. This is a strategy that I would most likely recommend that you take if you're an investor looking to get the benefits of ETFs and want to have a portion of your portfolio reserved for active management on your end from which you can mold it to your own investor profile and asset allocation. With the goal of this entire course was to allow you to achieve a better grasp on your investment and then be able to look at your portfolio and investments from a more analytical standpoint for the future success of your investment plan. In the next lecture, we're going to be speaking about a concept known as a rebalancing of the portfolio, where you're essentially going to realign at the asset allocation once your portfolio and inevitably grows and shifts out from your own undesired asset allocation. 44. Rebalancing lecture: Welcome to the ninth lecture of the sixth module. In this lecture, we're going to be speaking about how you can go about rebalancing your portfolio when and if it varies from your desired asset allocation and what this entails as a retail investor. This actually happens to be the last main lecture of this investing course where you're now going to be in maintenance mode of the portfolio, keeping an eye on the asset allocation of each one of your holdings and asset classes in order to be able to rebalance your portfolio to the proper and desired asset allocation. And based on your investor profile, which is a definitely going to be a reality as the value of your holdings shifts with the ebb and flow of the market. The topics we'll be covering in this lecture include the following. The first thing we'll be speaking about is what is rebalancing your portfolio in the first place. And then we'll be finishing this lecture off with how you can go about rebalancing the portfolio back to your desired asset allocation. The bottom line for the construction of your stock portfolio is that throughout the process of actually doing so and maintaining the portfolio moving forward after you're actually done in this course and you're in the process of a growing your overall investment and portfolio over time, is that you always maintain the proper asset allocation based on your investor profile that you've defined in this course, by going ahead and purchasing the proper stocks as well as exchange traded funds that are going to really fit and compliment your portfolio now over time and during your investment horizon, the market value of your stocks as well as your exchange traded funds, is going to vary either lose or gain value over time, which is completely normal in a normal market and environment. In this case, the actual weight associated with each one of your positions is going to vary and therefore have an impact on at the asset allocation split within your portfolio. During this portfolio maintenance phase and growth phase, it'll be necessary for you to actually rebalance the portfolio, meaning bringing those weights back to your desired asset allocation split based on your investor profile, if you so choose rebalancing a stock portfolio or basically just means it's strategically buying or selling one or more of your positions once it's deviated from your sought after assets split in order to bring it back to your sought after and desired asset allocation mix. This process of rebalancing your stock portfolio can be achieved by one of two ways. Either you can buy yourself positions that are already held within your portfolio, and then a reallocate some of those funds in various different asset classes and positions. Or you can actually input and more outside cash into your portfolio and purchase and new positions, bringing back that asset allocation split back to the norm, Let's actually take a look at an example here in order to better understand what rebalancing is and why it's important to do so in a stock portfolio. So let's say that you've opted for a moderately aggressive portfolio and for this reason you want to maintain a 7525 is split between equities and fixed income positions while overtime, your equity positions may gain more weight in the portfolio as the position grows relative to the fixed income position to the point where it's now say an 8515 split. If over time your equity position and it grew in value to eighty-five percent, then the rebalancing process would bring the portfolio back to the original desired asset allocation split of 7525. With this in mind, then the process of rebalancing portfolio is really just to maintain your equity to fixed income level within your portfolio. The theoretical case of say, a portfolio where you hold a five individuals thoughts. Well, if one of these thoughts ends up going up in value by say, 500% in a couple of years. Well, at this point in time, the actual weight of your portfolio is most likely going to be heavily weighted towards that one position that went up so substantially. So for this reason, the future fluctuations of your portfolio and the risk level associated with each one of the positions is going to be severely dependent on this one single position, which isn't necessarily ideal. I said it time and time again throughout this course. But maintaining proper asset allocation is really important if you want to maintain a nice risk to reward level in your portfolio that's based on your investor profile. The issue with a portfolio that's asset allocation has deviated from your actual desired asset allocation based on your needs as an investor, is that the overall long-term returns are probably going to be quite different. And what you're comfortable with as an investor. For example, if you're looking for a more conservative portfolio because you're in your fifties and sixties and you're looking to utilize your portfolio to find your retirement. Well, you might not be comfortable with a portfolio that's crept up to 85% equity over time because one of your equity positions has done very well over the past couple of years. This could put ear portfolio in a position of a much higher risk than what you're comfortable with with that said, keep in mind that it's completely normal for your asset allocation split and investor profile to shift over your investment career. So make sure to just reassess your overall needs as an investor and what you're looking to have as an asset allocation split. Every couple of years or so, let's say every four or five years. And then from here, a re-evaluating and rebalancing your portfolio will be much easier because you then know what your goals are as an investor. Finally, I generally like to rebalance and reassess my portfolio and the weight associated with each position in pretty much every couple of quarters or whenever I feel comfortable doing so based on these stocks and ETFs that I'm holding at the time. But generally speaking here for the average investor rebalancing your portfolio every year or so is most likely going to be optimal. The last thing you want to do is rebalance your portfolio every couple of days or weeks and incur significant at trading fees in doing so because ultimately this is not going to be necessary anyways, if you're continuously adding to your portfolio in terms of contributions from your pocket into your portfolio, which I highly recommend that you do so every couple of weeks to every month because with new funds flowing into your portfolio, you can do this rebalancing process by just buying a new positions in order to bring back your asset allocation and back to your desired split. All right, so another, we understand what rebalancing a portfolio is and why it's important to do so as an investor, let's actually speak about how you can go about this process in your portfolio. The basic idea behind a rebalancing and portfolio is actually quite simple and that you would sell off some of your higher performing assets that have shot past their desired allocation. Typically, these are going to be equity positions in order to purchase some of the lower performing assets. Generally speaking, these will be fixed income. Now this might sound counter-intuitive that you would sell off some of your better performing assets or add more funds to purchase some of the least performing assets. However, let's remember our example of earlier, where you would want to maintain a seventy-five percent split towards equity positions and at twenty-five percent split towards fixed income positions. If you started with $10 thousand, this would represent a 7500 of equities and 2500 of fixed income. But let's say that over a one-year period at the portfolio grew to $11 thousand in equities and $3 thousand in fixed income. Well, this would now represent a 79% equity and 21% of fixed income split. If you wanted to rebalance the portfolio to that original 7525 split, you would need to bring the equity position back down to 10,500 and bring up the fixed income position to 3,500. What I would recommend doing if you're just starting out with your portfolio and the balance is still relatively low, say under $100 thousand than simply adding funds to your portfolio each month and purchasing new positions should be enough to maintain proper asset allocation and you won't be forced to rebalance your portfolio in such a drastic manner by selling off hundreds or even thousands of dollars worth of securities in the rebalancing process. If some of your positions that do end up doing quite well with that said, don't be afraid to actually offload some properties that have done it quite well and materialize some of those gains. This strategy of rebalancing the portfolio through purchasing new positions only also allows you to save on commission fees because instead of incurring a fee on both a cell and buy order, technically speaking, here, you would only be incurring a fee on a new buy orders. Another element dimension and consider is that if you're at the point where you're using a cash account for your investments, which once again, I would not recommend. And when just starting out, you should be using a tax-free savings account. But if you are using a cash account only here and you're selling some of your positions at a nice gain. Well, you would be creating a capital gain of where you would need to pay taxes on that gain. So this is definitely something to keep in mind and you should always start with the tax-free savings account when you're just starting to invest and when rebalancing, purchasing more positions is definitely going to be the way to go here. And finally, this strategy of buying a more positions for your rebalancing process also allows you to somewhat leave your winning positions alone if you don't want to actually incur that capital gain Jessie yet, and it materialized your gains if you do think that there is still more potential upside, however, I really do want to stress here that if you're in a position of a very nice gain on a position, taking profits is always a good idea in a long-term strategy. However, I would like to reiterate here that based on a multitude of factors that you're going to be utilizing during your analysis process of your current positions and at new future positions. There's nothing wrong with materializing gains. If you're in a position where you believe the stalk is somewhat kept though, let's say it's rallied significantly over the past couple of months. You're in a nice dean position. There's nothing wrong with materializing gained because this will allow you to reinvest at some of those funds and gained back into new positions for long-term growth. This wraps up the lecture on rebalancing your portfolio and you now have all the proper tools to both create your portfolio and maintain the proper asset allocation over time with everything you need to know about each individual position and how investing in the stock market works. I really hope that this course has given you the proper tools and knowledge to create a long-term successful stock market portfolio.