Read this with me: https://amzn.to/2PLQG4A
If you have made it this far in your investment journey, congrats! You have a budget, you have worked through an emergency fund, started saving and maxing tax advantaged accounts, decreased spending, and are buying wine by the case. So now what? Well, assuming you read the title of this post you may have guessed it - time to start considering the stock market.
Unlike bonds stocks tend to at least keep up with and even beat inflation, meaning you are not losing money by having them. That is a great start if you ask me. Over a long haul, and on average, stocks return much more than the safer options. If all goes well, and you sell at a win, stocks are actually a tax shelter, and assuming you hold them long enough you only need to be concerned with capital gains.
That said, the stock market is really easy, you can only win or lose on stocks. Considering dividends and other items, there is a good chance to win. That said, unless you know something you shouldn't (which legally, you cannot act on) then you are probably best investing in low fee, or no fee index funds. This way you are leveraging averaging to win at the market.
Rules to Investing in the Stock Market
Ignore Your Broker
This is a big one, and goes against lots of advice. That said, statistically, almost no broker has historically beat the market enough to justify their fees. You want to minimize your transaction costs and odds are you should just leverage a low cost broker. If you do decide to use a broker, make sure they have a "fiduciary responsibility" meaning they have to act in your best interest and not theirs. Oddly, this is not a mandate. Be warned.
Also, along the same lines, if anyone offers you a "hot tip" ignore it. Keep it in mind, but do not act on it, if that stock blows up - perhaps next time put a little more faith in it. That said, you are better off not listening to just any advice.
Please use this like an index, I am going to list a whole lot of popular terminology
Well laid out, but anything inside was well known months in advance.
Easy but illegal to make money with.
Past movement in stocks cannot predict future movements. Any chart play is entirely luck - no matter how good the "strategy" is.
Do not do anything to your position, just there to make a stock look cheaper.
Similar to a split but smaller scale, not to be confused with a real dividend.
Dividend Reinvestment Plans
Taking dividends and putting it back into the stock, can be seen as a savings due to no transaction fees.
If you get a small amount, makes sense to reinvest, otherwise take cash and diversify.
Betting against a stock, borrowing from the lender in hopes to sell at the lower price. This is bet against bubbles and or company management. Can be used to make money on "expensive" stocks.
Very small stocks, normally with special purchasing. Tends to have very large spreads.
A group of stocks and bonds.
How volatile a stock is. More volatility more movement,if it moves twice as fast as the market (market own 10% stock down 20%) it has a beta 2.
Dow Jones Industrial Average
30 stocks used as the overall average
Making money on borrowed money. Buying a house @100 with 20 down, selling at 140, you dont make 40% but rather 200% (40k on 20k).
An amount the broker lends you to buy stock, like a stock credit card. Don’t buy stocks on margin.
The broker asking you to pay back your margin.
The ability to buy or sell stock at a price, for every winner there is a loser - the commission add up fast.
Basically betting your shares for some small return. If you think a stock wont move much, you can you your shares and make a few bucks.
Long term plays - similar to puts and calls, however you may be able to move profits into capital gains.
Don’t buy them, most people who do, make no money.
Betting against interest rates, like they are commodities.
Options on Futures
Optioning on commodities and futures.
Anything under $3 a share. Highly speculative, gambling.
Rare metals like chromium, similar to commodities.
Easily accessible money.
Any losses or gains in the same year are a net.
Up to 3k in losses can be claimed, the remainder carries over.
If applicable use losses to cancel out short term gains, they are taxed higher.
Consider if you should hold before you sell.
You can sell the stock and rebuy with the tax incentive, but you need to wait 31 days.
Selling a specific variant of a stock, if you do not want to sell your oldest stock, but perhaps your newest, you need to specify.
Lower cost and information gap between people and brokers
Open only to accredited investors. Charge a portfolio percentage and a high percentage of profits
They tend to command high dollar amounts.
Private Equity / Venture Funds
Venture capital, privately funding businesses for a take.
However high management fees if not doing it yourself.
I am just a regular guy who does far to much research on financial independence and early retirement (FI/RE). I look forward to sharing my journey with you all.