Investing 101

Yes, I know there are an almost unlimited number of sources on the web that have information about investing.  And many of them are independent from any financial services business that might be trying to sell you something.  So, let’s say then that this is for my own benefit.  I have this stuff rattling around in my head and am using this opportunity and this forum to commit it to “print”.

I find that sometimes people are reluctant to admit that they don’t understand some of the basics related to investing.  The terms that are used and the vast array of investment products and strategies can be imposing and overwhelming.  To some extent, that’s the way the financial services industry wants it.  They would prefer that you simply hand over your money and let them “manage” it for you.  You’ll find that I’m greatly skeptical of this approach.  While there are good and honest service providers, I believe that the average investor can manage his or her own investing at a much reduced cost and with results that are as good as or better than the majority of the professionals. Along the way I will point you to other references that will reinforce this approach.

Contents:
Stocks and Bonds
What does the stock price mean?
Stock and bond classifications and indexes
Dividends, stock buy back and splits
Mutual funds and ETFs
Diversification and asset allocation
Investing in your workplace 401k
DIY vs Professional Management

7 thoughts on “Investing 101

  1. Pingback: Road to a million is paved with fear and risk | WeBeTripping Blog

    • Thanks for the link. I’m also a fan of Retire Early Lifestyle. In fact, we met Billy this summer when we were traveling in Mexico, saw him in Chapala. Good luck.

  2. Hi Kevin,
    My significant other and I will soon be following in your footsteps. We have lived on the Monterey Peninsula, for the past 30 years, working in the high end housing industry. The best days in this field are behind us, so it’s time to reinvent.

    I have enjoyed the clarity of your writings on financial planning, and have a question. We found ourselves at the epicenter of two seismic economic disasters. The first in Silicon Valley, where our client’s involvement in the tech industry, pulled us into the tech bubble. The second, and far worse event was the crash of the housing industry, which hit us dead center in home equity, and business income. As a consequence, we are sensitized to the larger dangers inherent in financial markets. The ones that are unpredictable for when, and how big.

    You have invested so, “the income is not affected by market swings” but how safe do you feel with your strategy, in regards to the other looming macro economic risks. One example being the debt overhang, and a devaluing USD? Is there a strategy that has a built-in insurance against this scale of economic event?

    Thanks again for your work,
    Jim

    • Hi Jim. Thanks for your comments. The quote you reference, of course, refers to the stream of income from dividend paying stocks. Many of these dividend payers have been consistently paying and raising their dividends for many years. Johnson and Johnson, for example has been increasing their dividend payments for 50 years. Think about all of the shocks to our economy during the past 50 years. So, not only did they not cut it during the recent financial crisis, they continued to increase it. Their 5 year dividend growth rate is 9% per year. There are many others like this. Yes, their share price goes down at times but this does not affect their dividend payments.

      Regarding your question about a strategy with insurance against major economic events, the “safest” option is US government bonds, however, with interest rates currently so low the risk for this strategy is that future inflation and rising interest rates will lead to significant losses for US bonds. So at this time, which has more risk? US bonds (current yield of 2% on 10 year bond) or Johnson & Johnson with a current yield of 3.25% with a reasonable expectation of annual increases in the dividend?

      Some people who look for certainty in their retirement income choose annuities. Personally, I’m not a big fan of annuities but they can be used as part of a total strategy to cover some or all of your essential living expenses. There is a plethora of options with annuities and naturally they have a set of terms unique to the different annuity types. Here is one recent article from Charles Schwab regarding annuities.

      I agree with you that there are risks in the US economy, but there are also some positives. The USD is still the world’s “go to” currency. The US housing market is starting to show some real strength and we have a huge opportunity with the reemergence of domestic oil and gas production.

      Thanks again for the comments. Good luck to you.
      Kevin L Cooper

      • Thanks Kevin.
        Would you be willing to share a percentage breakdown of your portfolio’s holdings? You mentioned, dividend growth holdings along with MLP’s, REIT’s and preferred stocks in your interview with Billy and Akaisha.
        Jim

  3. Thanks Kevin.
    Would you be willing to share a percentage breakdown of your portfolio’s holdings? You mentioned, dividend growth holdings along with MLP’s, REIT’s and preferred stocks in your interview with Billy and Akaisha.
    Jim

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