Market Timing vs. Dollar Cost Averaging

I was recently watching one of my favorite Youtuber’s, Graham Stephan and in his video he mentions what comes up quite often in investing and that is should we time the market or dollar cost average. What is the right choice for you? or for most?

This is also an important question for individual investors. Especially when you have a decent chunk of cash to invest. How you decide to invest can have serious consequences…go all in at the wrong time and you risk losing it all. But if you sit on your cash too long, you risk missing out on gains during bull markets. Let’s take a look at the basics of dollar-cost averaging versus market timing.

Dollar-Cost Averaging Basics

What is dollar-cost averaging? Dollar-cost averaging means buying into the markets over time at set intervals. It usually involves moving cash or cash equivalents into productive investments like stocks or bonds.  So, you buy more shares when prices are low and few shares when prices are high. Generally, it helps to set up a schedule beforehand. Then you can usually automate the process, or at least remove the guesswork. So what are the pros and cons of dollar-cost averaging?

Pros: DCA is generally a safer. Using this method can help preserve capital in down markets. Automating the process of dollar cost averaging is also an advantage. If you have a 401(k) you are probably already using a DCA strategy…buying into your investments every two weeks or every time you get paid.

Cons: Some think it’s too passive. If you DCA during bull markets, you might forgo capital gains while you sit on excess cash. It can also be difficult to maintain the discipline necessary to buy your investments on a regular basis. Automation helps.

Market Timing 101

What is market timing? Just what it sounds like. You try to get in and out of the market at the right time, predicting tops and bottoms and taking profits when you can. Here are the pros and cons:

Pros: Bigger gains. Market timing is a more aggressive technique. So, there is greater potential for capital gains. For example, it would have been a great idea to go all in to stocks right around March of 2009.

Cons: Bigger losses. More difficult and advanced strategy. Most people can’t call market tops and bottoms accurately forever. It can be dangerous if you go all in at the wrong time, specifically near market tops. Going all in on stocks in late 2007 would have been a bad decision.

Which is best, which one should you use? Some people like to market time, and some are successful at it. But market timing is better for investors that are more sophisticated. Dollar-cost averaging is good for newer investors since it’s a more passive approach, although it does take discipline to do correctly.

Hypotheticals

For example, let’s say you have $50,000 that you want to invest. You don’t feel comfortable investing all that money into the markets at once. So, you might set up a DCA plan to invest $5,000 into your existing investment portfolio every three months. On that schedule, you’d be fully invested after two and a half years. That way you might preserve your capital while slowly investing into the markets. If you wanted to be more aggressive, you could invest larger amounts over a shorter period. If you wanted to be more conservative you could invest smaller amounts over a longer period.

Or you could use market timing strategies. If markets looks dangerously high, you could sit on the cash for a while instead. Wait for the markets to pull back and then buy in when you think it’s bottomed out. But again…if you invest in a false bottom and commit all your capital at once you run the risk of large losses. You can adjust these strategies however you want. You can also combine the two…

Hybrid Investing Strategies

Maybe you think the markets are almost done with a bear phase and due for rebound. But you’re not exactly sure when that will happen. Instead of going all in, you could start easing into the markets on a normal DCA schedule. Then once you see markets get better you might commit a bigger chunk of cash….in addition to your regular DCA schedule. Or maybe start with accelerated DCA purchases for half a year, every month until you’ve invested what you want. Then after that you could revert back to your normal schedule once you’ve got your excess cash committed.

The point is, you can combine the best aspects of both strategies to your advantage. So…you can keep a regular DCA schedule and engage in market timing as well.

It’s hard to say which approach is best. DCA and market timing both have pluses and minuses. A lot of it has to do with your temperament. Are you an active investor who enjoys paying close attention to the markets? Then market timing might work for you. But if you’re a more passive investor, dollar-cost averaging might be the way to go, and of course there is the hybrid strategy.

I personally lean towards a sort of hybrid, depending upon what I am investing in. If there are no specifics deals at the time I have now problem holding onto some cash until stocks I am tracking reach my price point, or simply putting all or a portion of it into a diversified ETF.

Investing During Uncertain Times

Every day it feels like the world is a little more interconnected. If you stay up to date via a financial television channel or read the news online, you are most likely aware of how events in one country seem to have an continually increasing effect on other countries around the world. 

Certain aspects of globalization can have positive benefits, but threats of a financial crisis, war, global recession, trade imbalances, etc. do occur, and it often leads to the talk of moving money to safer investments and increasing government deficits. This increase of uncertainty can confuse even the brightest and weathered investor.

The Impact of Uncertainty on Investing

Any time you invest your money you put it at risk in an attempt to profit, there is a certain level of uncertainty. When new threats such as war, recession, or the current virus arise, the level of uncertainty increases significantly as companies can no longer accurately predict their future earnings.

As a result, institutional investors will reduce their holdings in stocks considered unsafe and move the funds to other asset classes such as precious metals, government bonds, and money-market instruments. This sell-off, which occurs as large portfolios reposition themselves, can cause the stock market to go down.

Uncertainty is the inability to forecast future events. People can’t predict the extent of a possible recession, when it’s going to start/end, how much it will cost, or what companies will be able to make it through unscathed.

Most companies normally predict sales and production trends for the investing public to follow assuming normal market conditions, but increasing uncertainty levels can make these numbers significantly inaccurate.

Micro Level Risks

From a micro-level, company-specific viewpoint, uncertainty provides a major concern for those that produce consumer goods every day. For example, consumption may fall on the threat of a recession as individuals refrain from purchasing new cars, gadgets, and other non-essentials.

This uncertainty may force companies in certain sectors to lay off some of their employees to combat the impacts of lower sales. The level of uncertainty that surrounds a company’s sales also extends into the stock market. Consequently, stock prices of companies that produce non-essential goods sometimes experience a sell-off when levels of uncertainty rise.

Macro Risks

On a macro-level, uncertainty is magnified if the countries at war are major suppliers or consumers of goods. A good example is a country that supplies a large portion of the world’s oil. Should this country go to war, uncertainty regarding the level of the world’s oil reserves would grow. Because the demand for oil would be high and the supply uncertain, a country unable to produce enough oil within its own borders would be required to ensure that enough oil was stored to cover operations. As a result, the price of oil would increase.

Another macro-level event that affects companies and investors is the flight of capital and devaluation of exchange rates. When a country faces the threat of war or recession, its economy is considered uncertain.

Investors attempt to move their currency away from unstable sources to stable ones; the currency of a country under a threat of war may be sold and the currencies from countries without the threat are bought instead. The average investor probably would not do this, but the large institutional investors and currency futures traders would. These actions translate into a devaluation of exchange rates.

Investing Strategies for Uncertain Times

When situations of heightened uncertainty arise, the best defense is to be as well-informed as possible. Keep updated by following news that impacts markets and researching individual companies. Analyze which sectors have more to gain and lose in a crisis, and decide on a long-term plan.

Investing in gold has been a popular strategy during hard economic times, primarily because gold has an intrinsic value.

Times of heightened uncertainty can lead to great opportunities for investors who position themselves to take advantage of it. Some investors might decide to go on the offensive and search for companies that provide goods or services that will lead to great returns when things turn around. It is difficult to commit capital during uncertain times, but it can often reap huge rewards in the long run. Those who want to mitigate uncertainty and risk might be content leaving their money where it is or perhaps moving it to safer securities.

Diversification is always a key investing tactic and not only in times of uncertainty. Having your investments spread across a variety of assets, such as stocks, bonds, and precious metals, helps soften the blow if one area depreciates quickly.

Furthermore, investing in different regions and different sectors and industries also increases diversification. For example, if you had all of your investments in oil companies and oil prices took a dive because of an outbreak of war in the Middle East, you are at a significant risk of loss. Now, if you also had investments in the technology sector and renewable energy, your portfolio would not be impacted as much.

The Bottom Line

Regardless of which strategy you choose, you can’t go wrong over the long term by keeping yourself well-informed in a position to take advantage of prices when things reverse. Being able to keep on top of news and adjust your portfolio accordingly will help you to invest wisely during uncertain times.

When to Hire a Financial Advisor.

Planning for your financial future all the way to retirement can be challenging. There is a near infinite amount of information to sift through, different savings accounts, investment vehicles and retirement options to consider, and so much more. It can feel almost impossible to navigate this by yourself.

What is a Financial Advisor?

A financial advisor is a qualified professional who will help you understand and reach your retirement, college savings or other personal financial goals. A good pro speaks in terms you understand and is committed to educating and empowering you to make decisions about your financial future.

A financial advisor will assist you in planning your financial future. Whether you’re saving for retirement, a home, creating an emergency fund or want to simplify your month-to-month finances to reduce expenses. Better management can help you reach goals earlier and create a plan for reducing spending and maximizing your portfolio’s efficiency.

Is is Worth it?

One of the most common questions financial advisors hear is, “Why should I hire you when all I have is a 401k and some savings?”

Vanguard, one of the world’s largest investment companies, has been examining this question for 15 years. Based on research, analysis, and testing, Vanguard has concluded that, yes, there is a quantifiable increase in return from working with a financial advisor. Vanguard calls this advantage the Advisor’s Alpha. When certain best practices are followed, the result can be an Alpha in the 3 percent per year range.

Not everyone wants or needs a financial advisor. About one-quarter of private investors are truly “self-directed,” according to Vanguard. These people enjoy investing. They obsessively follow the markets and enjoy creating and doing financial projections. Perhaps most importantly, these investors have an incredible level of discipline that prevents their emotions from intervening with their long-term investment strategy.

Finding the right financial advisor near you may seem overwhelming, but it’s not that difficult. You just need to remember a few things.

What Value can a Financial Advisor Offer?

There are several ways in which a financial advisor can add value to your investment efforts, including guidance on developing an overall investment strategy, asset allocation, minimizing taxes, re-balancing, and how to structure/time withdrawals from your retirement accounts.

But the single biggest way a financial advisor can add value—up to 1.5 percent per year of increased annual returns—is through something called behavioral coaching.

The best financial advisors are able to keep their clients’ fears and emotions in check by providing steady, fact-based advice and reassurance when the markets go crazy.

I can’t emphasize enough the importance of this function. A Vanguard study of more than 58,000 self-directed IRAs showed that investors who made material changes to their strategy EVEN ONCE in the five-year period from 2008 through 2012 suffered an 8 percent-plus hit to performance!

A Morningstar study shows that investors often receive far lower returns than the very funds they invest in. The reason: they run to funds after they have done well and ditch other funds right before they take off. In other words, they sell low and buy high. An advisor can prevent such counter-productive behaviors.

How to Choose a Financial Advisor

When evaluating a potential financial expert, you need to be prepared to ask some questions that will help you make an informed decision and choose the right advisor.

Here are 10 questions that can help you choose the best financial advisor for you:

1. Are you a fiduciary?

The answer to this question should be “yes.” Fiduciaries legally must put clients’ financial interests above their own. Not all financial advisors are fiduciaries.

2. What are your credentials?

When it comes to a financial advisor, credentials matter. Those fancy letters after the advisor’s name prove that they have dedicated a lot of time to mastering their profession.

Ideally, your financial advisor would be a CFA (Chartered Financial Analyst), CFP® (Certified Financial Planner), or PFS (Personal Financial Specialist).

3. How much experience do you have?

Your advisor should have adequate experience to wisely guide you through various life decisions and changing market conditions.

4. How are you compensated for your services?

There’s a variety of ways advisors can charge clients. Decide which payment methods you prefer, then find an advisor who uses that strategy. Will you pay an advisor a flat fee or an hourly rate? Are they fee-only or fee-based? There are several options.

5. Do you get paid by anyone other than your clients?

Fee-only advisors make money exclusively from their clients. Fee-based earn a fee based on the assets they manage for their clients, but could also sell products for a commission. There are pros and cons to each approach. But when interviewing an advisor, you should be positive they’re going to place your needs first.

6. What services do you provide?

A financial advisor may provide tax planning, college planning, life insurance, education, investment management, getting out of debt and more. Remember your potential future needs as well as your current ones.

7. Do you have any minimums?

Many advising firms require a minimum investment or minimum fee to establish a partnership. Find an advisor whose minimum is realistic for you. Many of the bigger firms go as low as 50,000. But getting in contact with them will usually result in a referral to a smaller firm is you desire

8. What is the average portfolio size that you handle?

Often the minimum portfolio size will give you a great idea, but the answer to this could tell you how much attention you will get compared to the bigger portfolios. This may not always be true but if it’s a big difference it can be possible red light.

9. How often will I hear from you? And How?

Will the firm email you weekly? Set up a phone conversation monthly? Request an annual face-to-face meeting? Ask how often you financial advisor will be in touch and how. If you know what to expect upfront, you’ll be on the same page.

10. Will you coordinate your advice with my tax situation?

Just as all financial advisors are not created equal, neither are all clients. Your advisor should take your specific needs into consideration when handling your money, especially your tax situation. Give the advisor an opportunity to talk about how they will tailor their advice to your circumstances.

Understand Their Investing Philosophy

You want a financial advisor who can clearly explain their investing philosophy. Make sure they have a long-term investing strategy that is right for you and is willing to take your opinion into account.

Another great question to ask when an advisor recommends a particular fund is: Do you personally invest in this fund yourself? If an advisor is confident enough in a fund to invest his or her own money, that can give you some confidence.

Well.. Should I Hire An Advisor?

While not everyone can afford or even benefit from the services of a financial advisor, many situations certainly warrant the help of one of these excellent providers. Investments, retirement plans, and money management, in general, can be challenging to navigate on one’s own. With the help of an experienced advisor, you can successfully make the right decisions regarding your money, therefore reducing the risk of error and ensuring that your payment is being managed responsibly and  professionally.

The Only 3 Books You Need To Retire Rich

It’s essential to start investing as soon as you can. The earlier you begin, the higher total returns you can earn. But you also have to invest wisely, which is where investing books and knowledge come into play.

Whether you’re a complete beginner, a seasoned professional, or somewhere in between, reading investing books can sharpen your knowledge and deepen your understanding of how the market works. If you’re able to learn one new thing to apply the rest of your life from each book you read on finance and investing, you will reap those rewards throughout your life and you will be sure glad you did when it comes time to retire.

These books were written with the absolute beginner in mind, covering the fundamentals of personal investing. You don’t need any prior investing knowledge or experience to understand these books, only a willingness to learn.

These will provide you the foundation required to place you far ahead of the average investor. The three combined offer actionable steps, that are simple and well laid out. Starting with building a spending plan getting rid of bad debt and investing in dependable albeit conservative investments, likely to match the broad market over the long term allowing you to retire rich. 

This website contains affiliate links and I will receive a commission at no additional cost to you. Thank you for your support!

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#1. I Will Teach You To Be Rich

Ramit Sethi, the mind behind I Will Teach You to be Rich  which is also the name of his blog — is an entrepreneur with deep understandings of psychology and personal finance. He’s released several online courses covering sales, psychology, business, personal finance and career development.

I Will Teach You to be Rich operates on the premise of you being in charge of your own life to include your finances. It’s written in a humorous and brash style that is aimed at younger investors looking to optimize their finances.

You’ll learn a lot about what drives spending, saving and investing. The book emphasizes the importance of overcoming “analysis paralysis” — the phenomenon where overthinking a situation can lead to a lack of action. He emphasizes how it is more important that you automatically invest in a good fund with low fees rather that stress out and spend all your time hunting and moving money around for that extra 0.2% when that difference isn’t going to make a significant difference.

While he recommends targets date funds that is a choice for you to decide, but index funds or target date will both get the job done with low fees and minimal effort on your part.

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#2. A Random Walk Down Wallstreet

Most proponents of the random walk theory apply it to short- and mid-term trading. They don’t argue that long-term values move unpredictably. they follow trends. However daily, weekly and even monthly stock prices have no consistent basis for prediction. We can see this in practice by looking at the graph on nearly any individual stock as of late, and look at how crazy some of the swings have been in 2020.

Random walk theory says it’s impossible to predict how a stock will move at any given time. In the short- and mid-term, a stock’s price doesn’t have any known relationship with either its historic value or the value of any other assets on the market. The lack of any known pattern means that standard investing tools like market timing and technical or fundamental analysis don’t work.

Most of the book focuses on the many ways used of analyzing the market to find an edge – and goes on to show us how they are largely junk.

This book is very easy to read with a sense a humor within all the great information, and the information itself is presented in a way that’s easily digestible.

If you have any interest in how the stock market works, you should definitely read A Random Walk Down Wall Street. It gives a very critical look at what people are always saying about the stock market – and why a most of it is rubbish. 

Of course, there are many other perspectives on the market, and the truth is that the stock market can be exploited by individuals, but that exploitation requires a lot of work, work that is simply not feasible for most people, and in many cases even professionals.  

The Bogleheads' Guide to Investing ebook by Taylor Larimore,Mel Lindauer,Michael LeBoeuf

#3. The Bogleheads Guide To Investing

The Bogleheads Guide to Investing contains investing advice based on the philosophy of the founder of Vanguard, John C. Bogle — who is also credited with creating the first index fund, a type of investment fund that tracks a particular market index.

This book was written by Taylor Larimore, a prolific reader of investing books and a big believer in Bogle’s long-term, conservative investment philosophy. 

The book starts by instructing you to get your finances in order as well as teaching you the right mindset, (which you already did if you read the first two books) From there, you cover all the basics of investing — from knowing what you’re buying, to allocating your assets, to retirement planning. 

It is a fantastic guide for investing for the long term, minimizing the costs and taxes associated with investing, and most of the basic principles of conservative investment (diversifying your portfolio widely, not betting the whole farm on stocks, and so on).

The book basically moves deliberately from the basics behind investing and what you need to get started, then moves from investment to investment, explaining the ins and outs of each and explaining the fundamentals of an overall investment philosophy.

This book offers a clear beginning to end describing an overall philosophy about what to do with your money. Many other books of this type simply provide a bunch of rules to follow; this one is rooted in the basic idea that you should be an investment conservative: low risk with growth targeting the long haul. It’s an interesting approach – and it makes for a very interesting book.

Summary

These books read and applied in this order can be extremely powerful in building real wealth in the long term. They will help you save more, smash debt,  automate where your money goes, maximize tax advantaged retirement accounts while still doing the things you love. In the end you too can retire rich!

7 Passive Income Ideas For Increased Cash Flow

How Passive Income Works

Passive income is any money you earn on a regular basis that doesn’t come from a job. In some cases, passive income is money you get from a project or investment that you put money or time into at the start. For example, if you own part of a business but are not actively involved in running that business, your cut of the profits is passive income.

You can also earn passive income from a project that you’ve invested your time in, rather than your money. For instance, if you spend a year writing a book the royalty payments you get from that book’s sales are a form of passive income.

Having a source of income that doesn’t require the day to day grind can offer some unique benefits including :

  • Extra Cash. When you’re short of money, financial experts usually advise you to respond by tightening your belt. Little luxuries, such as a daily latte or cable TV, are usually the first expenses to be slashed from the budget in an effort to make ends meet. But if you can find a way to supplement your regular paycheck with a passive income stream, the extra income can allow you to enjoy these simple pleasures again without going into debt.
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  • A Cushion for Emergencies. Many Americans live paycheck to paycheck, with no savings to fall back on in an emergency. The Federal Reserve’s annual report on the economic health of households  found that 47% of Americans couldn’t easily come up with an extra $400 to cover an unexpected expense, such as a car repair or a trip to the emergency room. A passive income stream could give you the extra cash needed to build up an emergency fund without having to cut back on your current spending.
  • More Job Flexibility. When your job is your only source of income, you’re dependent on it. You’ll put up with unpleasant working conditions or unreasonable demands from a boss, because giving up your job would leave you with nothing to live on. But if you have some passive income to fall back on, you can afford to be a little picky in your selection. If you don’t like your current job, you can afford to ditch it for a new one that pays less, eking out your lower paycheck with passive income. And if you lose your job altogether, you’ll still have at least a little income to hold you over until you find a new one.
  • Extra Money in Retirement. The vast majority of Americans aren’t putting aside enough money to support themselves comfortably in retirement. If you’re in this position, you could one day find yourself with no income except for Social Security, which was never designed to be a family’s sole source of support – and which might have to cut its benefit levels still further before you reach retirement age. But if you do the work now to create a passive income stream, you’ll have some additional money coming in (in addition to Social Security checks) after you retire.
  • An Earlier Retirement. If you can earn enough passive income – from one stream or, better yet, from several – it can replace your paycheck altogether, making you financially independent. This would give you the option of retiring early, or perhaps quitting your current job and taking up a new career that interests you. Making this much money solely from passive income doesn’t happen overnight – but it is possible.

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Ways to Earn Passive Income

When you see the phrase “passive income” in an article, it’s often referring to money earned from passive income investments, such as dividend-yielding stocks or real estate. However, investing is one of many ways to earn income when you’re not working. There are a variety of other ways to set up a passive income stream by putting in an initial investment of time, money, or both – and there are even a few that don’t take very much of either.

1. Real Estate 

One of the best-known ways to earn passive income is through real estate. Renting out a building can bring in a tidy sum of money each month, with little work in some cases – but it can also require a big chunk of cash up front to buy the property. There are also low and no money down options but these can bring on more risk, and many people recommend the traditional route when first getting started.

Though it can take a while to build up enough cash to put a 20% down payment on an investment property (the typical lender minimum), they can snowball fairly quickly. The key here is to correctly project income and expenses in order to calculate cash flow. However you have to be sure to include the cost of a property manager in your calculations unless you want to manage the property yourself. Even with a property manager, you may be required to make large repair decisions every now and then – so while this is not a 100% passive activity there are completely passive options with real estate investing.

Many buy and hold investors (ie rental property investors) take that excess cash flow and put it toward their next down payment. This allows them to slowly amass portfolios of dozens and sometimes hundreds of rental properties.

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Investing in real estate can be very profitable and mostly passive. However, a lot of people don’t want to deal with owning a physical property where they need to deal with tenants and property mangers.

Another option for passively investing in real estate is through a real estate investment trust (REIT). REIT’s own multiple real estate properties and allow investors to invest in the portfolio. The great thing about an REIT is that there is a 90% distribution rule. Each REIT is required to pay out 90% of their net income as a dividend to investors.

One of my favorite places to invest in REIT’s is through Fundrise. They have a historical return of 8.7 – 12.4%. Plus, you can invest with as little as $500.

Related: Best Real Estate Crowdfunding Platforms for Passive Income

Investing in REIT stocks can also be a great way to make passive income. It requires an upfront investment, but once you’ve done your research and found solid companies with high dividend yields, you can sit back and collect the dividend checks (or reinvest the dividend earnings).

Related: How to Passively Invest in Real Estate

2. Residual Sales Income

Typically, when you work in sales, you earn your money in the form of commissions. Every time you sell a product or a service, you are paid a percentage of the money paid by the customer. With some types of sales jobs, however, you don’t just earn a single commission when you make a sale – you also receive ongoing residual payments from sales you’ve made in the past. This type of residual income that can last for years after the original purchase.

Products and services that sometimes pay their salespeople this way include:

  • Insurance. Say you’re an insurance salesperson who has just sold a 10-year term life insurance policy. You earn a one-time commission for making the sale, but you also earn a percentage of the monthly premium every time the buyer pays it. So long as the insured keeps making those monthly payments, you can keep collecting residuals off that one sale for up to 10 years.
  • Financial Products. Certain types of financial products, such as annuities, also pay ongoing commissions to the professionals who sell them. Financial advisor Ethan Braid of High Pass Asset Management writes that when he sells a $500,000 annuity, he not only earns a 7% commission, or $35,000, immediately – but on top of that, he gets a 1% “trailer commission,” or $5,000, every year the buyer owns the annuity. So a financial advisor who has sold 10 annuities that are still active could bring in an income of $50,000 a year just from these trailer commissions.
  • Service Contracts. It is sometimes possible to earn residuals for products or services with pay-as-you-go contracts, such as home security services. If a client signs a contract to have his or her home monitored for a monthly fee, the salesperson can receive a residual payment each month the client pays for this service. Furthermore, agreements often pay monthly residuals to sales employees. For example, alarm companies selling ongoing home or business monitoring for a monthly fee may offer residual income to those who sell this service.

No type of sales job can be considered truly passive. In fact, sales can be more active than most jobs, since your pay often depends on how much you sell, and it takes plenty of hustle to bring new customers on board. However, if you’re already working in sales, or considering it as a career, it could be useful to focus on products that can bring in residual income in addition to the usual commission. That way, you can continue earning money on work you’ve already done.

40 Investing Terms You Need to Know

If you are a new investor, you are likely to encounter terms that you don’t understand. As you consider the various ways in which to invest your money, continue to use these terms and definitions as a resource. With a greater understanding of these terms, you can feel more confident researching potential investments.

You don’t have to know everything to start investing. In fact, if you wait until you know everything before you get started, you’ll probably never start investing at all! But there are some basic terms you might want to have in your investing arsenal.

  • Arbitrage: Arbitrage is basically buying a security in one market and simultaneously selling it in another market at a higher price, thereby profiting from the temporary difference in prices.
  • Ask: This is the lowest price an owner is willing to accept for an asset.
  • Asset: Something that has the potential to earn money for you. It is something you own that can reasonably be expected to produce something for you. Assets include stocks, bonds, commodities, real estate, and other investments.
  • Asset allocation: One of the ways to divide up the holdings in your portfolio is to do so by asset class. The idea is that different assets perform opposite to each other, and you can limit some of your risks by allocating your portfolio according to the type of asset you have.
  • Balance sheet: A statement showing what a company owns, as well as the liabilities the company has and stating the outstanding shareholder equity.
  • Bear market: A bear market is when a market experiences prolonged price declines. It typically describes a condition in which securities prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment. Bear markets also may accompany general economic downturns such as a recession.
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  • Bid: This is the highest price a buyer is willing to pay when buying an investment. Today, electronic trading makes it possible to ask and bid to be matched up automatically and almost instantly.
  • Blue chip: You might hear reporters and others refer to “blue-chip stocks.” Blue chips are industry leading companies that have a long history of good earnings, good balance sheets, and even regularly increasing dividends. These are solid companies that may not be exciting, but they are likely to provide reasonable returns over time.
  • Bond: This is an investment that represents what an entity owes you. Essentially, you lend money to a government or a company, and you are promised that the principal will be returned plus interest.
  • Book value: If you take all the liabilities a company has and subtract them from the assets and common stock equity of the company, what you would have left over is the book value. Most of the time, the book value is used as part of an evaluative measure, rather than being truly related to a company’s market value.
  • Broker: This is the entity that buys and sells investments on your behalf. Usually, you pay a fee for this service. In the case of an online discount broker, you often pay a flat commission per trade. Other brokers, especially if they also manage your assets as a whole, just charge a percentage of your assets each year. I use Robinhood but M1 and Webull and many others are excellent choices as well.
  • Bull market: This is a market that is trending higher, likely to gain. If you think that the market is going to go up, you are considered a “bull.” Additionally, the term, like bear, can be applied to how you feel about an individual investment. If you are “bullish” on a specific company, it means you think the stock price will rise.
Statue, Bull, Animal, Wealth, Ancient
  • Capital gain (or loss): This is the difference between what you bought an investment for and what you sell if for. If you buy 100 shares of a stock at $10 a share (spending $1,000) and sell your shares later for $25 a share ($2,500), you have a capital gain of $1,500. A loss occurs when you sell for less than you paid. So, if you sell this stock for $5 instead ($500), you have a capital loss of $500).
  • Diversification Diversification of a portfolio is a risk management technique. You spread your investments over different asset classes (stocks, bonds, commodities, real estate) such as to reduce the exposure you have to any one type of security, area and domain. Diversification may help to prevent a higher loss if the market experiences an upheaval.
  • Dividend: A portion of a company’s earnings that is paid to shareholders, or people that own that company’s stock, on a quarterly or annual basis. Not all companies pay dividends. For a getting started in long term dividend investing consider my book: Beginners Guide to Dividend Investing.
  • Dollar Cost Averaging The Dollar Cost Averaging strategies call for investing a fixed amount of money at regular intervals over a period of time regardless of the share price. This is considered a smart investment strategy because the investor does not need to try to pick tops and bottoms.
  • Dow Jones Industrial Average: This average includes a price-weighted list of 30 blue-chip stocks. While there are only 30 companies included on the list, many people think of the Dow when they hear that “the stock market” gained or lost. The Dow is often used as a gauge of the health of the stock market as a whole, even though it is only a very small portion.
  • Exchange: This is a place where investments, including stocks, bonds, commodities, and other assets are bought and sold. It’s a place where brokers (buyers and sellers) and others can connect. While many exchanges of “trading floors” most orders these days are executed electronically.
  • ETF: Exchange-traded funds, a type of investment fund that trades like a stock. Investors buy and sell ETFs on the same exchanges as shares of stock. They are very similar to mutual funds, except that they trade throughout the day on stock
  • Index: A benchmark that is used as a reference marker for traders and portfolio managers. A 10 percent return may sound good, but if the market index returned 12 percent, then you didn’t do very well since you could have just invested in an index fund and saved time by not trading frequently. Examples are the Dow Jones Industrial Average and Standard & Poor’s 500.

5 Dividend Stocks to Consider During 2020 Market Crash

Since late March, the S&P 500 index has partially climbed back from the coronavirus-driven market sell-off that began in February. However, as of Monday, April 13, the index is still down more than 18% from its all-time high, set on Feb. 19.

During times like these, many investors are looking for rock-solid dividend stocks to help them weather the turbulence, and myself and many others take advantage of lower stock prices to lock in a high long term yield on cost.

When you invest during a bear market in a solid company with a history of increasing its dividend payments, you obtain a degree of comfort that you’ll receive cash flow while you own that stock. Even if the shares lose value during a bear market, you’ll receive income from your dividends.

During uncertain economic times like today, it’s wise to invest thoughtfully. Dividend stock investing during a bear market may reward patient shareholders with long-term profits. Below are stocks I have focused in on for my long term investments, primarily for dividends for the very long term (forever being ideal).

Some links are affiliate links and I will receive a commission at no additional cost to you, thank you for the support!

Coca-Cola (KO) 

When it comes to a tried-and-true dividend stock, it’s hard to beat Coca-Cola (NYSE:KO). And investors can use the argument, if it’s a good enough for Warren Buffett, it’s good enough for you. The potential anchor to the stock has been that soft drinks, particularly of the sugary kind that Coca-Cola is known for, have sort of fallen out of favor. Part of it is due to concerns over childhood obesity and some is because of the changing tastes of consumers who are demanding various options in every aspect of their life. But Coca-Cola is navigating this pivot well. First, they’ve invested in other brands. This strategy is providing an effective hedge against potential revenue losses to the flagship brands.

And the company just released its own energy drink, Coke Energy, in January and the company is looking to get into the caffeinated seltzer and flavored water arena. Analysts are becoming bullish on the company in advance of its earnings which the company reports on January 30.

Sector: Consumer Staples   Industry:Soft Drinks
Recession Return: S&P 500 lost 55% from 2007 – 2009; KO shares lost 31%

Dividend Growth Streak: 55 years

Coca-Cola is the world’s largest beverage seller, marketing over 3,900 products under 500 brands in more than 200 countries and territories via 24 million retail markets. The company owns 21 brands that generate over $1 billion in sales including: Coke, Powerade, Dasani water, Simply and Minute Maid juices. 

Coke’s wide moat is courtesy of the world’s largest distribution network which has taken over 130 years to build up at a cost of tens of billions of dollars in marketing spending. Smaller rivals simply can’t replicate the company’s reach or brand awareness. As a result, Coke enjoys premium shelf space in almost every retail outlet in the world.
Coca-Cola’s plans for the future include continuing to diversify into healthier options where it has less share today, such as teas, juices, and water. These markets continue to grow strongly in both developed and emerging economies. 

Recently this focus on healthier beverages has helped drive mid-single-digit organic sales growth, which is among the best in the industry. Meanwhile, the beverage maker plans to re-franchise its capital-intensive bottling operations (over 900 plants worldwide) which will drastically reduce its annual costs. 

The company has had annual dividend increases for 55 consecutive years (since 1963). Management targets a reasonable 75% payout ratio over time and expects to continue to grow the dividend as a function of free cash flow. 

While the firm does need to invest somewhat aggressively in beverage categories of the future, Coca-Cola should have flexibility to keep its dividend moving higher along the way. From the company’s excellent credit rating to its recession-resistant portfolio (sales declined just under 5% during the financial crisis), support for the payout is solid. 

Meanwhile, investors enjoying Coke’s dividend can also expect below average volatility. During periods of maximum market fear, Coke shares tend to do even better. For example, during the financial crisis shares lost just 31%, outperforming the S&P 500’s slump by about 24%. The bottom line is that Coca-Cola remains one of the safest consumer staple stocks you can own if the economy hits a downturn and brings on a bear market.

10 Profitable Real Estate Side Hustles

Every day, you’re hustling. Maybe your hustle just isn’t enough to pay off those student loans fast enough. Or could use a few extra bucks to worry less about credit card bills. Or maybe you’re ready to buy an investment property but just need to scrape together a down payment and have cash reserves. 

It’s time for you to get a real estate side hustle. 

Many Americans have some kind of side hustle. A lot of these side hustlers have full-time jobs. Or they are looking to leave that full-time job and start earning passive income while they live the life they want on their own terms. If you’re looking to invest in real estate, side hustles can help you get there without making a drastic change to your lifestyle as well as get your feet wet in the industry.

Some of these side hustles require a little bit of cash to start, while others don’t. Some require a license and some training. Others require that you have great selling skills or killer connections in the industry.

But no matter where you are in your real estate journey, you can start making some extra money with at least one of these side hustle ideas.

Links to products are affiliate links and I will receive a commission at no additional cost to you. Thank you for your support!

Real Estate Side Hustles : License Or No License

Real estate is a massive industry. After all, everyone needs a place to live. There are dozens of professions that focus on the real estate industry and there are all sorts of opportunities for real estate side hustles as well. 

Some of the activities in the real estate industry require you to have a real estate license. The licensing process changes from state to state in the US, although most of the laws and rules are similar wherever you go. 

The licensing laws in your state are important to understand because you DO NOT want to be performing activities that require a license if you don’t have one. The penalties are big fines and possible jail time. 

Additionally, you want to be sure you aren’t putting your real estate license at risk by breaking state laws. The laws have all been crafted with consumer protection in mind and there are all sorts of ways where sloppy or unethical behavior can land you in hot water.

With that in mind, here are some real estate side hustles that may be worth exploring. It’s not a comprehensive list, but it’s a solid start. 

Related: How to passively invest in real estate

My Top 5 Personal Finance/Investing Books

I’m new to investing, what should I do? Where do I even begin?

Nobody starts out an expert, and even the best investors in the world had to begin somehow.

So how did the experts become, well experts.

Many got finance degrees, studied abroad and read a lot. Luckily for you, they have now all written books compiling their experiences, some being the best on investing and personal finance. They discuss what works and what doesn’t, so you don’t make the same mistakes they did.

There are so many great resources available to learn about the world of investing, business, and finance to include blogs, podcasts, and online courses. I feel the most long proven method is still by reading good ol’ books. I’ve spent a few hundred dollars per year on books, but I can tell you that they’ve resulted in countless dollars in savings and in current and future earnings. There really is no better return on investment.

Below is a list of my favorite books with a small description of each. I also have some of these in my Books section that have been that influential in my life to be recognized twice. Feel free to add some suggestions down in the comments as well.

(All of these links are affiliate links to Amazon meaning if you click through the site, I get a small percentage of it with no additional cost to you.)

The Total Money Makeover by Dave Ramsey

If there’s one thing I’ve never been accused of, it’s frivolous spending. Okay, that’s not completely true. I’ve got a gym membership only to use it a few times and I’m even guilty of have a gym memebership I didn’t activley use while having multiple free options on the military base gyms. However, I have worked very hard over time to be smarter about my spending, what some may people call financial prioritization. Still, I’ll be the first to admit that there’s still so much to learn about managing my finances especially budgeting. Dave Ramsey’s book, The Total Money Makeover, is packed full of helpful information on this subject.

This is a book about money, but what you won’t find in these pages is any kind of get-rich-quick scheme—Ramsey emphasizes that there is no secret way to building wealth. Instead, it takes both dedication and time. You must work for it—hard.

Unfortunately, we are not born with an innate skill on how to manage money. But that is not an excuse for poor money habits and avoiding the necessary steps to educate ourselves properly.

For those who have bad money habits, are swamped in credit card debt, or would just like to improve their budgeting skills, The Total Money Makeover is an extremely rich resource (pun intended). It provides a transparent plan on getting out of debt and lays out exactly how to revolutionize your finances. Ramsey points out many dangerous money myths and how to avoid falling victim to them. Throughout the book, he provides a step-by-step guide to achieving financial well-being.

No matter how much you know about handling your money, there’s always more to learn. If you think your budgeting skills could be even a little stronger, you owe it to yourself to check out Dave Ramsey’s book. You won’t regret it.

Cash out Refinance to Buy Stocks?

A cash-out mortgage refinance allows you to borrow more than you owe, against your homes equity, and keep the difference as cash. Taking out a Home Equity Line Of Credit (HELOC) is another way. 

Normally the most you can borrow from your house is 80% loan-to-value (LTV). So if your home is worth $1,000,000, and you have a $500,000 mortgage, the most you can refinance would be $800,000 and receive $300,000 in cash, and this money is tax free because it’s a loan that you will have to repay but can be very powerful in building a higher net worth or passive income. 

Cash-out Refinance To Buy Stocks

With the coronavirus and other factors, the 10-year bond yield and 30-year bond yield have both fallen to new all-time lows. The 10-year bond yield is now below 1% after the Fed announced a surprise 50 bps Fed Funds cut. More Fed rate cuts in the future are very possible as well.

With many investors cash heavy and unsure how the stock market will perform in the short term, many are turning to other vehicles to hold their wealth. This should help slow any major swings in real estate prices, as investors buy into investment properties. And rental prices even through 08-09 were much less affected than housing prices and the stock market. Some may take this time to do just the opposite and free up money to buy into a depressed market and get stocks while they are on sale. 

If you are thinking of doing a cash-out refinance to buy stocks, here are some of my pros and cons.

Pros Of A Cash-out Refi To Buy Stocks

1) Lock in massive outperformance. Let’s assume the S&P 500 is down 10% for the year when you purchase stocks. You would be able to lock in 10% outperformance on your cash-out capital. No matter whether the S&P 500 continues to go down or up, you will always be outperforming.

Although it’s great to make money when it comes to investing, the next best thing is outperforming the index or your peers. If an active fund manager were to outperform his benchmark by 10%, that would plave him in the top 1% of active fund managers. Given this performance, he’d probably get a huge bonus and attract a massive amount of assets and new investors.

To gain true wealth, you must outperform the average, otherwise, you’ll always be just average. 

Related: How to Passively Invest in Real Estate

2) Take advantage of all-time low interest rates. The Fed cuts interest rates to make money easier to get and increase economic activity. The lower interest rates go, the more people and businesses tend to borrow to buy equipment, property, goods, and services. Doing a cash-out refinance to spend is in line with the Fed’s desires. 

If inflation is running around 2% and you can get a mortgage rate at 2.425%, your real interest rate is only 0.425%. The lower the real interest rate hurdle, the higher the chance of earning a greater return. From a nominal return basis, the 2.425% mortgage interest rate drag on returns is comparable to paying a traditional wealth manager to manage your wealth or investing in a hedge fund which charges 2% of assets and takes 20% of profits. 

Everybody should consider refinancing their mortgage today. But not everybody should be doing a cash-out refinance. 

3) Diversify net worth. If you have a large percentage of your net worth in real estate, you may want to do a cash-out refinance to diversify your net worth. Note that your real estate exposure will only decrease based on your increased exposure in stocks. Your absolute real estate exposure won’t decrease since you haven’t sold any properties. You just have more debt.

4) You could get a tax deduction. The mortgage interest deduction may be available on a cash-out refinance if the money is used to buy, build or substantially improve your home. In general, homeowners who bought houses after Dec. 15, 2017, can deduct interest on the first $750,000 of the mortgage. Claiming the mortgage interest deduction requires itemizing on your tax return. As always, verify your situation with your accountant.