Investing in the Market 101

Friday, August 25th

"You don't need to be an expert. Anybody can build wealth in the market" 

Today we teach you how.


Thanks to our friends at Family First Credit Union for supporting the $even Figure$ podcast!  
When it comes to financial education, earning and learning go hand-and-hand, and Family First is here to help you and the Greater Rochester community with both!


Transcript - Not for consumer use. Robot overlords only. Will not be accurate.

Welcome to the seven figures podcast where we give you the information that will help you dominate your finance says. Today investing in the market 10 why. I'm skinny wires can't imagine our friends at Stanley first credit union for helping us out this podcast when it comes to financial education and learning and learning go hand in hand and family first it scared how do you. And the greater Rochester community without. As you know I work for the morning show on the Fuzzy bear listening from other states is. To radio station near Rochester New York's pzena insanity. Download the free buzz app listen to the show. And but the running joke is that I'm very tight with my money and that I love talking about money all the time. And it's. It's probably because of the way that I grew up. I really do love talking about money it makes me happy I really enjoy helping people get their finances in order and take control. Of their finances. Would I was a kid man my dad would always have the stock market dine by sister and I would compete to see who could find. They eat ticker symbol for Eastman Kodak EK. Let's say my dad would pay ES for every week we would pick in the garden we would get a dollar and then and even get ten dollars for every a on a report card. He read you know leave little piles of money which. He seemed like a huge pileup money when I was a kid but. You know codec bonus day would come and he would leave us money and then challenge just to save as much of it as we cut so. Everything was a lesson in finance when I was growing up so that's sitting in excited to be very appropriate. To have today's guest and may seem very happy that finally he agreed to join podcasts. Dad's. Your voice goes away and amnesty still down. It's Kent. I a lot of people think they need to have a lot of money to be in the market can anybody invest in the market. Essentially. You can give into it for a few hundred dollars. An example would be Warren Buffett who started investing was only a few hundred dollars and he's worth sixty billion dollars right now. I'll through investing. In every single person who is investing in the market. All the experts gay looks to Warren Buffett as the example. Days Canada benchmark performer. News I think if you calculate his gains. On average or something like 20%. Every year it's unbelievable. On a consistent basis. If we let him make your money grow old. Invest in the market. Overtime over long term you again and make. You gotta make money because it has done so for the past hundred into any years. If you think about. The money you can get in and they can bank now you get die mutual funds or exchange traded funds did paid. Dividends that are 2%. Pushing gonna have the fluctuations in the market but overall. How you gonna get that 2% plus in addition to potential gains. And over the long called the stock market does continually go up. The wind big things now to know about the market you can view this is a short term let's make a lot of money quick strategy. Investing. In the right way in the market is more of slowly building wealth over time. Yeah I keep making contributions to it of course you don't wanna invest money that you're gonna need six months from now or even a year from now think commit in terms of decades. Money you're gonna need twenty years from now or should be in the market if you go back a 120 years. There's only then they squandered two decades. Where you lost money they regained it yet and I'm regained it the worst case scenario happened after the crash of 1929. Where if you bought at the highest point just before the crash. You would had to wait until 1950 Ford to get your money back that's a worst case scenario. That was 1929. Yes but that's if you bought at the peak if you body in the beginning of 1920s. You watched your money go up five or six times your original investment and now and watching go back down tool even. Actually. If you do what the right way and we're gonna teach you how today but if you do with the right way it's almost guaranteed. That your gonna increase your wealth. And then you're gonna achieve those goals of financial freedom of seven figures so. Let's first break it down because this is investing in the market 101. Let's talk about the terminology so we're all on the same page what is the bull market vs the bear mark net. Okay bull market in on the market bottomed out in march of 2009. And it's been going up consistently. Over that time every single year since 2009. And one out in some cases double digits so a bear market is considered. When the market drops 20% or more. OK so the market's going down yes the bears run away. Do you remember that the bulls charge Shia and the bears run OK so that's a good way to remember them even when we hear the simple terms Dow Jones industrial and the ash and 500 what does that really mean. Located Dow Jones is actually. Hulu when they refer to the market and tell you hear them under radio or on TV markets up to market's down they're usually referring to the Dow Jones which it. Essentially is. Basically thirty companies. And thirty companies thirty comes. Companies yes they put that averaged together eight put those thirty companies in the Dow Jones Industrial Average and that's that's. What they call the market now the experts follow more. BS and 500. Which is 500. Represents 500 of the largest corporations. In the United States' largest and usually most successful. The Dow Jones actually is equally if you take a value of all those thirty companies bought 500 billion. If you take a value of the S&P 500 that's two trillion. Okay invest in the S&P 500 you own a piece today at two trillion investment. So why is the Dow Jones Dow didn't add. Tom in reference point they needed something to that they thought represented do overall stated the economy. Internet companies but and they picked austerity companies but companies are dropping and new companies did you put in there I codec used to be part of it. You're codec okay well that dropped out of that it dropped out of the S&P 500. And you know eventually went bankrupt and then came back. Each Piaf sweater ET asked exchange traded funds which means why is he well. They had to mutual funds that most people are aware of mutual funds that have front loaded funds to repay certain percent to invest in. So Moammar back end loaded funds that you need. When you get out of them and some mutual funds are I have no from our back end load now. Those those are managed but I. Mutual fund managers who decides. What companies they're gonna buy what's which stocks they're gonna die. In order to you know making gains as a result of that sector did they invest in Kazan mutual funds for. Pretty S&P 500 pharmaceutical. All raw materials. Commodities Ziad you've gotten mutual funds for him pretty much every category and number of years ago. They came up was exchange traded funds. Where you buy essentially diet that sat care. There's no decision making because if you biopharmaceuticals. Is pretty much try to represent. Most of the pharmaceutical companies if you buy an AT and exchange traded fund. That tracks the S&P 500. That's pretty much yet there's no decision making sills the cost to invest in them. Is a small fraction of what mutual funds cost. Because mutual funds you have a mutual fund manager yes. Who's picking and choosing and yeah what's included you knock ETS it's just you're buying the doctor. Via modem and that deaths actor then at an average probably is probably point. Not point 1%. Where mutual funds may charge. Close to 1%. To maybe one and half and in some cases 2%. So we should steer away from the mutual funds it's unnecessary money that responding in my view yes OK okay. In next Sunday here a lot of people talk about index funds but. Index funds as we mentioned. They can be a mutual fund her current exchange traded fund the exchange traded fund. In not in the S&P 500. Tracks the performance of the S&P 500 if it goes up you make money if it goes down you know lose money Fredette Fredette passion. OK if you have an ETF you do have an index fund today and almost one in the same way yet you got ATF's three index funds you got to eat eat he asks for. Pretty much anything apparent options. What are options they believe that the experts because essentially without options you putting up. Small Mon money to control larger amount of stocks you don't actually own the stock you actually you Baidu right to control it. And I would prefer to purpose of this session that was stay away from now okay as even even if professionals. It clobbered if they make the wrong decisions I wouldn't recommend it okay aren't so investing wanna wind let's stay away from the options hobbled bonds a lot of people say are you invested in bonds. Right now they don't. You don't pay much like the ten year government bond only pays like 2.3. Percent 2.2 sometime. All right so it's not gonna get build the wealthy elegantly knowledge by a CT Dick comes close to act as a tactic that CDs. Okay my perspective in commodities is another word we hear a lot about it seemed things they did I. So stay away from railway for medical care dead if you're investing 101. After trying to break into investing. You wanna buy debt exchange traded fund they're represented. A sector of the market I would recommend either to US stock market. They have a number of ETFs than just tracked that or even new world market if you're afraid of as a potential crash in the US he Baidu world market then then you know you even diversify even more. And it looks like IS and 500. In there are ET apps for the S&P 500 that feels like gray now based on what we've been talking about. Is the safest route to definitely build your wealth the puzzle on tempest 500 companies aren't gonna all go wander yeah. It eventually will tense when he years like you said when you need this money. It's going to go out and history has shown it to go up right. Over the past thirty years investing in US and 500 you would you would have only five years you've lost money. 25 years you've gained in the gains were sometimes. 30%. And other times you didn't lose you know on the worst case scenario he lost 37%. In 2008. When the market crashed. So why do you won't go to a financial planner and may recommend all these other. Options instead of BS and 500 it feels like the S&P 500 of its gonna guarantee go. Opt while they had to sell Pratt now. So if every day he's just invested in Baghdad in a world market Doherty earth and 500 down you know already analyst and make money off of it. If you get a call from an financial advisor the best thing to ask is. As your funds that you're recommending. That BP S&P 500. Over a ten year period. And this probably the only one. Wondered to funds that have managed to do that once may be and then now. Pretty much fell apart after that so on a consistent basis you better off was NE TF that tracks the S&P 500 or. In up other large segments of of the stock market. And mutual funds have managers say it most likely if you go in with 101000 dollars by the time you get that 101000 invested. Dead dad saying gay did it starts trading day you're actually invested you probably. I have 9500. Invested because the united they're gonna steer you towards. Funds that they make a large commission none. And they're gonna steal you tourism loaded funds that will probably. 5% alpha and the same for the first day so essentially. Who has two you have to make up death 5% just to breakeven CV stocks like. FaceBook and FaceBook first came out and it looks like a company that will have a future a long future. Would mean she wanna invest in those stocks like when apple first came Al Amin you would be eased he would have so much money now if you invest in an apple on day one. You know how you would get a new wood up on Amazon thousands of times your initial investment but also for every Amazon and apple. There is hundreds and hundreds of other companies that went bankrupt and you ended up with zero so. Unless you could forecast of future he's just don't know which companies are going to be successful. At that level. That's why I consistent basis if you want and be successful and make money. I'm a regular basis you have to invest in a sector in net and the entire either the entire market DS and 500 if you wanna take a chance. On mount. Individual companies in the east by. As an example the social network companies like FaceBook released by. A group of technology companies. So that if one of them goes on their. You won't end up was zero so don't butcher I exile one bad notes too much of Iraq. Individual stocks. All the investing in investment rules go away because they can go bankrupt. Now look what happened at Kodak color shareholders lost everything. And it ended new company after he came out of bankruptcy. The issue new stacked in new shareholders. All the previous shareholders didn't get a penny. So that could happen to any company. Dividends stews another big thing we get a look at right when where when where selecting our ET ops or whatever we choose to do dividends. They pay would explain dividends generally is a large. Your company's larger more stable companies that paid big dividends. And does the smaller companies. Reinvest that money from growth rather than pay announced in dividends that's why there. They're them much more volatile than none large companies. But. Over or the long haul though small companies tend to do better. Then and now then the large stable companies. Could depending on your investment and risk. At the eight. Okay let's talk about that investment risk appetite. To invest in the market. You have to pull every single ounce of emotion out. Why you have to be prepared for any ups and downs. Number on a consistent basis over the years you make money but. Do you think that's the biggest thing now that's the biggest advice you can give is if you're going to. Used this way investing in the market as a way to build wealth you have to be able to stomach those lows. You know you just can't think about it and he might have you may have. Also serve high about crash where you wake up one day in new your balances. Half of what it was the previous day. And nobody likes to lose money it's painful. But you get paid for and have volatility. People shy away from that because they don't wanna you don't have to look at Derrick Kyle bell until I see that it's 50% less than it was. I did day before a few days ago but if you stay within it and you don't panic sell. Then. Over the long haul over time you're gonna be far better off then pretty much any other asset class. San includes real state that requires. You know a lot of hands on activity via you die you die to market then if you if you can mean Zan. That's to stomach almost churns in the ups and downs. And not think about it because it draws this paper losses if you stay with that. A new cell. After you've made significant gains then you'll be farther ahead than now. People that are conservative. Think about him in a market even though you were able that. You know you've got clobbered over and over again with fluctuations in that in value. You is you know you're up to 300%. Today not indicative of normal games still on average yeah I never did you that you expect. For the past 120 years on average you expect like seven. In nine. Percent of terror large company returns. For small cap stocks is doing and closer to 11%. Money goes where it's treated best it's treated best in the market in the past eight years. Keep in mind bill. Bull markets don't last forever. Eight years is one of the longest bull markets ever I think there's only one or two other ones who were nine years or longer so. We're hovering near near the top. Can happen at any moment you can have an a moment you get a you do going to a crash mode for whatever reason. And then you have to refrain from a and taken it out don't sell don't panic sell. Because do retail investors the average person it professionals on Wall Street know that so when a market crashes. They've already planned for it they've got cash sitting on the sidelines. Ready to deploy. So they can get the maximum gains. The most wanted to go downs and then they can buy more because right now you can't you're just sitting idling and yeah there waiting for the sale right usually you only have about how to treat the market like. A great sale it. The mall it's up opportunity. Death and even Warren Buffett who was considered probably the best investor in a world. We'll tell you that that. That's when not that's when you wanna go ahead and buy use up all your cash debt and because it's less risky. When the market just crashed then it is today even though people earth feel comfortable because the market. Seems seemingly goes up every day. Uniting it gives you a sense of confidence. In some cases it might be false confidence I read their body. I had a pile of cash ever thereby after the crash. And get those discounted prices rather than by now but. You know I stay pretty much invested two different levels. As the market goes up I have a tendency to take money out. And put it in the cash. As it keeps going up I keep taking more money. Why and it goes down. You know significant amount especially if it goes into a bear market 20% or more I start moving their money back into them so I've been doing that for forty years. You're confident invest there even doing it for so long but. What is the best strategy for somebody who's still a little apprehensive but is curious in wants to dip their tally. I would say. Put everything in the market. That you don't need to six months from now or a year from now. You know I have some. Some cash available. So that you can end you know take care of any unforced scene expenses that might come along. Paris opinions that have that emergency fund like we always talk about. Okay now the extra cash is but it all ended don't don't worry about what happens. The market if there is a correction or a crash you that is an opportunity. There's so much uncertainty now you know physically governments a disaster. Everybody's protest saying as the market followed that uncertainty. While while traditionally the experts will tell you that. When you're in a bull market to which we have been three years. On the market climbs a wall of worry. And even though everything she needs seemingly is falling apart sometimes the market just keeps going up. And nobody really understands it nobody can tell you what's gonna happen. No matter how how much of an expert the they pretend to be. Nobody has consistently been able to forecast the stock market. Seemingly. When everything looks great. It's one we'd fall apart sometimes it ebbs and flows it will always rebound. While those thirty opportunities. That. The Smart money takes advantage of those opportunities. And retail investors. Have a tendency to panic. Our time for the RY return on investment. The big take away the one big financial nugget. We can walk away with when it comes to investing in the stock market. You can get in he could open up at discount brokerage accounts for. For a hundred dollars some of don't have a minimum balance them seen a hundred dollars because a hundred dollars you could buy. Some exchange traded funds that trade bill law hundred dollars and you can look things up Blake exchange traded funds. That track DS and 500. SPY is a symbol for one of them then and the other one is IZZ. Those two award the major ones that tracked the S&P 500 and some of them. For instance CIT. Certain brokerage firms. Don't you charge you commissions. Have diet so essentially you can open up a brokerage account without any money you can deposits the city. 20300. Dollars and you can buy one share. Libya IVV currently is trading something like 200 in. Forty some odd dollars while that's all you gonna pay a 240 some odd dollars. One shared it and I wanna share you go buy one share now you're invested in the S&P 500. And next month you get another couple hundred dollars or next year you didn't just deposited by another shared too. And I tell you build wealth overtime on a consistent basis. You don't have to be an expert. It'll take less time to investigate. And get and they needed knowledge that you need to be successful faster. No no no no it was nice warm and then nice statement to finish the podcast he thinks dad pulled no problem. Idea. Do you let us say there's a lot of stuff there's a lot of stuff that I got buried his. I will maybe if enough people listed dad to those five cats then we'll bring you endless series of investing podcasts. And everybody hit subscribe to the market will help keep dominate your finances and their first Geneva confidence to take the risk. Would you say you're confident person visit I thought I was until I talk to Sheila Kennedy. Providence coach an author Sheila Kennedy will be into give us the five keys to being that confident risk taker and she said to be just sit back watch the money war and next weekend seven figures thanks to our friends at Stanley first credit union for sponsoring the podcast talking next week.