This video comes from Khan Academy, you really want to take the 10min to watch this, then re-watch it again in a few days so it really sinks in!
Having a solid understanding of investing terminology and the basic concepts here is an essential step in your education into investing and the stock market.
This video will cover the basic concepts or price and market capitalization, or market cap.
Got it?
Great!
Next video is : Investing for Beginners - The Income Statement
We are going to take a look at some tools from the Vanguard site (Vanguard is an investment company, one of many). They have some useful charts and interactive goodies on their site:
https://personal.vanguard.com/us/insights/investingtruths
Lets break that down, the first section is about risk:
https://personal.vanguard.com/us/insights/investingtruths/investing-truth-about-risk
Here you can use the slider to see how a mix of bonds, cash and equities would have been affected by volatility in the markets from 1929 to 2008.
Play with the sliders there, you can see how you would have done if you were in 100% bonds, or 100% equities, or any combination of equities, bonds and cash.
Source: Vanguard.com
For investors, risk comes in many forms. There's the risk of a downturn in stock prices. There's the risk that inflation will erode an asset's purchasing power. There's the risk of political instability affecting international markets. And so on.
Achieving long-term financial goals means accepting the trade-off between risk and reward, and understanding the historical patterns that have gone along with the three primary asset classes. Stocks, historically, have offered higher long-term returns than bonds or cash, but they've also carried more risk. Bonds have offered higher returns, with more risk, than cash. Cash has provided a measure of stability, but money that's stuffed in your mattress nets zero return and will probably fail to keep pace with inflation. Paradoxically, taking a conservative approach to market risk may expose you to a high degree of purchasing power risk.
Fundamentally, how you allocate your assets among stocks, bonds, and cash depends on how much risk you're willing to take for an expected return. And that depends on why you're investing, and when you need your money.
So, what's the right way to divvy up your portfolio? You'll need to answer three basic questions:
1. What are your goals and time frame?
To manage risk effectively, first establish your goals. (Are you saving for retirement or a vacation? Or both?) Next, set a reasonable time period to reach them. Generally, the longer your time frame, the more money you can consider allocating to stocks and stock funds, which have had the greatest long-term potential for growth.
For near-term goals—those less than a year away—think about conservative cash investments, such as a money market fund. On the other hand, if you're saving for something a little farther out, such as a down payment on a house with a time frame of three years, give some thought to lower-risk assets like short-term bonds. If you're looking even further down the road to retirement, you may be able to afford to invest more aggressively in stocks—as long as you're willing to accept the added risk.
2. How well do you sleep at night?
Over the last 80 years, as you can see in the interactive illustration above, stocks have turned in the strongest overall long-term performance of all three asset classes—with some painful short-term setbacks along the way. To be a successful investor, you need to expect the unexpected and be prepared for bad days as well as good ones.
As the chart below shows, annual returns for stocks have fluctuated much more dramatically than for bonds and cash, ranging as high as +54% and as low as –43%. It's easy to handle the upside of stocks, but some investors would have trouble sleeping after a steep drop. While bonds haven't offered the same high reward potential as stocks overall, they generally haven't fallen as far either. That's why having a mix of stocks and bonds in your portfolio sometimes can lessen the severity of turbulence nightmares.
3. Are all your eggs in one basket?
You can further reduce your investment risk through diversification. That means spreading your assets around—across different asset classes, market sectors, capitalization levels, and countries.
An easy way to do this is by investing in mutual funds, which can provide exposure to hundreds of securities in one investment vehicle. You could build a fully diversified portfolio—one that encompasses multiple asset classes as well as a broad spectrum of securities within each class—by owning just one broadly diversified index fund. You can also invest in funds that focus on different market sectors, industries, countries, or market capitalizations (that is, sizes of the companies they're invested in).
Just bear in mind that no amount of diversification can guarantee you'll turn a profit or protect you from losses in a declining market.
I am brand new to the forum, this is my first post, and after surfing around found this page and after seeing 60 minutes Sunday night with the Khan Academy and then finally finding this thread looking for some education and seeing the first post contain a Khan video, I knew I was in the right place. This was what I intended to send to StockJock in a PM, but don't have those privileges yet so I will post it here below. If anyone one else has any suggestions as I begin my profitble investing journey, I am all ears. Thanks to everyone for your contributions and hosting a helpful forum where everyone is welcomed. Also, If anyone reading this is a Scottrade account holder, please PM me with a referALL code as they call it and we'll both get 3 free trades. I need multiple codes, like 5 or maybe 6. Planing on getting all of my accounts set up after 3/22/12.
I am a brand new investor (43) looking to manage my own lack luster performing bank IRA's >100k by opening a Scottrade account. I haven't made about $1 in 10 years just letting my stuff sit there and have finally had enough. I am interested in your advice on the best way and place to learn and gain practical knowledge for self directed investing?
I am interested in large cap dividends stocks, but also options and futures, with a particular interest in mining and metals and energy, specifically coal, gas and electric.
I am brand new to the site and see that you post helpful advice and recommendations to newer investors and I would appreciate some level headed guidance to get me started in the right direction with classes, online tutorials or books.
Thank in advance!
Todd O
toddolie
Just went through all of the Khan Academy videos that were posted, came to the end and then went, "Now what?" I'm already addicted to learning and will use the other links provided and do some more Khan watching while also attending some of the Scottrade local office classes (already did the opener one) after getting my accounts up and running. For now I'll continue to use the tools and resources available here and check out links to other beginner valuable sources that you have mentioned like Vanguard and others.
In the meantime, since I am a bit of a value investor, this is the fuel I'm burning while watching all of the video content. Nice and stable, good price and solid performer. Costco brand.
Thanks again!
Hello, i'm currently 17 years old, i'm really interested in stocks, and i'm new to this website and i was wondering how I would get started in stocks. I have watched the video and i understood some of it but i was wondering what do I use to buy stocks, like what programs. Please respond back and thank you.
Hello, i'm currently 17 years old, i'm really interested in stocks, and i'm new to this website and i was wondering how I would get started in stocks. I have watched the video and i understood some of it but i was wondering what do I use to buy stocks, like what programs. Please respond back and thank you.
We trade with online brokers.
Im sure you have seen the ads on tv, Etrade, Scotrade, thinkorswim etc
Investing isn't just for the wealthy. If you have a few thousand or even less than a hundred dollars saved, here are some suggestions on how to make the most of it.
When you invest money in corporate stock, commodities, futures and other venues, the expectation is that you will enjoy reasonable return on your money, perhaps even high returns. However, investment fees can creep in and eat away at the gains. Pay attention, and you can learn how to save money on investing fees.
Investing isn't just for the wealthy. If you have a few thousand or even less than a hundred dollars saved, here are some suggestions on how to make the most of it.
When you invest money in corporate stock, commodities, futures and other venues, the expectation is that you will enjoy reasonable return on your money, perhaps even high returns. However, investment fees can creep in and eat away at the gains. Pay attention, and you can learn how to save money on investing fees.
I have been trying to find some investing classes locally, like at the local community college etc on self directed investing basics, since reading isn't my preferred method of learning. I like watching, listening, participating etc in group settings, if possible. The Khan videos are extremely good. Not totally against books but reading on the computer is hard for me, just having received my first pair of reading glasses.
Anyone have good sources of learning how to evaluate performance fundamentals, general rules of thumb, and also how to identify options opportunities? This is really what I am interested in learning about and spending most of my time on. I have my Scottrade account opened and have made a few smallish trades but have much to learn. Wish I could find a sensei to gleam from.
How did you veterans get to where you are?
Thanks in advance!
You learn by doing.
There is fast track into investing, you can learn the basics, but just like driving, you need experience in the seat if you are going to get better.
You can read every book ever written on how to drive a car, but until you spend some time behind the wheel, its all just theory.
You learn by doing.
There is fast track into investing, you can learn the basics, but just like driving, you need experience in the seat if you are going to get better.
You can read every book ever written on how to drive a car, but until you spend some time behind the wheel, its all just theory.
And if they listen to you they'll go broke. Touche. lol
Hey toddolie, paper trading will help you get started. Don't use cash if you're unsure.
I like the driving reference, being a former SCCA competition license holder, seat time is very important, as long as there is talent to begin with. I'll continue to try and log in here every day and keep reading the hyperlink posts in the education sections and go from there. I also plan to attend a bunch of the Scottrade classes they offer, which will at least help me with their site and how to navigate and use their tools etc. I just thought that maybe there was a book or two or class or something that many would agree is a good place to start instead of jumping into a pool without knowing how to swim. I'll take your advice the trade paper on options long before I risk my own funds
