From the future “How To Be A Money Master Handbook” (draft version):
Invest in Your
Long-Term Future (future you)
10%
This is the amount you are going to use in the
future to obtain financial freedom. You want to invest these funds as follows:
10-20% high risk, 50-60% medium risk, 20-30% low risk. We will discuss risk
levels in a future blog. Invest based on your personal risk level. If you are a
risk-taker, invest a little more in high risk investments. If you are
risk-adverse, invest a little more in low risk investments. Risk tends to
correlate with reward. The higher the risk, the higher the potential reward.
But, there is also a chance you could lose everything. This is why
diversification is to important. You do not want to build up a fortune in high
risk investments and then lose it all. By keeping a diversified portfolio you
will protect your future while potentially benefiting from the potential
rewards of high risk investments. Do not get greedy or swept up in the euphoria
of a winning streak.
Today’s focus: Stocks (medium to high risk)
Buying and selling stocks is never without risk. There are some stocks that are considered inherently more risky than others. Generally, the greater the risk, the greater the potential reward. However, you will have many more “failures” than “successes”, which can still pay off handsomely if you get lucky. The general recommendation when it comes to stocks is to have a set amount to invest monthly and do not try to beat the market. Purchase consistently and keep a diversified portfolio. If you see one stock making up too large a percentage of your portfolio, sell some of it, even if it is doing well. Purchase stocks based on how much you like the company and whether anyone would miss it if it disappeared overnight. You will pay a fee each time you purchase or sell stocks, so quick turnarounds are not advisable. Also, if you sell a stock and purchase a “like kind” within a certain period of time, the IRS will treat it as if you never sold. This can affect your capital gains tax in addition to the fees paid to buy and sell.
Other Popular Investments:
Mutual Funds (moderate risk)
Index Funds (moderate risk)
Savings (low risk)
Money Market Account (low risk)
Cryptocurrency/Bitcoin (high risk)
Bonds (low risk)
e-commerce (moderate to high risk)
401K (moderate risk)
IRA (risk depends on investments)
Stock market translations:
Ask
– The
price that a seller is willing to take for a share of stock; how much it will
cost you to buy stock
Bear Market – A period of declining stock value, usually accompanied by investor pessimism.
Block Trade – Buying or selling a large amount of shares; the minimum is 10,000 shares but most block trades are much larger
Blue Chip – An established company with a national or international reputation for stability, profitability, and value
Bull Market – A period of rising stock value, usually accompanied by investor optimism.
Bid – The price that a buyer is willing to pay; how much you will make when you sell
Close – The price of the stock at the end of the trading day
Dividend – A payment made out of the company’s profits to its shareholders
Dow Jones Industrial Average – The leading stock market index in the U.S.; averages the value of 30 component stocks (blue chip stocks)
Earnings Per Share (EPS) – The company’s profit divided by the average number of outstanding shares, or shares currently in the market; gives you an idea of the stock’s value
Fill Or Kill (FOK) – When you want all of your order filled immediately or none at all; for example, if you want to buy 100 shares at $10, a FOK order means you want all 100 shares at that price or none at all
Good ‘Til Cancelled (GTC) – When your order is valid until you cancel it; placing an order to buy 100 shares at $10 GTC means that is a standing order until you tell the system to kill it
Hedge – Limiting your losses or reducing risk by placing orders to cover two or more possible events in the market
Initial Public Offering (IPO) – The first time a company’s stock is available to the public on an exchange
Limit Order – When you want to buy or sell a stock at a specific price or better
Liquidity – Being able to sell or buy shares in a stock without the transaction seriously affecting the stock’s price; also refers to how easy it is to buy or sell shares
Margin – Borrowing money to trade for more than what you have in your account
Margin Call – When the amount of money you have in your margin account falls below the broker’s minimum margin requirement, or the lowest amount you must have in your account
Market Capitalization – One measure of a company’s worth; the price of a share multiplied by the number of shares currently in the market
Market Order – When you want to buy or sell a stock at its current price
Moving Average – The average of a stock’s price over a period of time, adjusted daily; gives you an idea of a stock’s trend
Quote – The bid, ask, and last price for a stock at a given point during the trading day
Short Sale – When a trader borrows shares from a brokerage, sells them, then buys them back when the stock is cheaper, returning them to the broker and pocketing the difference (the profit); used when you think a stock’s price is going to decrease.
Spread – The difference between the bid and ask price
Stop Order – When you want to buy or sell a stock after it reaches a certain price; at that time, the order turns into a market order. Used often to limit losses or to protect profits (also known as a stop-loss order)
Uptick – When a stock’s price rises
Volatility – How much a stock’s price rises or falls over a period of time; a highly-volatile stock will have its price go up and down drastically over a period of time, while a stable stock has low volatility
Volume – The amount of shares being traded at a given point in time; this gives you an idea of how much interest there is in the stock
Yield – The percentage of a stock’s price that is paid out in a dividend