Invest Like a Pro: A 10-Day Investing Course

by Jesse Mecham

Complexity in the investing world serves one evil purpose: it paralyzes you. The complexity kills your momentum, suffocates your confidence, and adds no value whatsoever when it comes to the performance of your investments.

Warren Buffet, the greatest investor of all time, said it best: "..the active investors will have their returns diminished by a far greater percentage than will their inactive brethren. That means that the passive group - the 'know-nothings' - must win."

You should NOT invest if: You want to make quick buck.

Your uncle/aunt/dad/brother/neighbor has been talking up some opportunity that won't be around much longer.

to build wealth.

wealthy people, by definition, are investors.

There are no exceptions to that rule. If you want to be wealthy, you need to be investing. (Where the wealthy invest is another topic entirely, but not because it's secret, only because it's so diverse. Their wealth is doing something, and that something is their investment. Every time.)

What could you DO with your wealth?

Retirement

The same researchers at Princeton that settled on the $75,000 "happiness number", recommended that we spend less on material items (which don't increase our happiness), and more on experiences, which do. What experiences could you have, or share, with your wealth? I find that question motivating.

Education

Remember learning about SMART goals in that time management seminar you were late to? SMART goals are: •Specific •Measurable •Attainable •Relevant •Time-Specific

In the end, just like your day feels wasted if you don't have clear tasks to accomplish, your investments can easily be wasted if there's no specific target to reach. If you don't have a specific investment goal in mind, you likely 1) won't get started, 2) won't invest enough and 3) won't continue. You'll be an In 'n Out investor, and while the burgers are good (and shakes even better), you can't do that and win in the investment game over the long haul.

compound growth,

Compound growth grows on top of the new gains. Instead of getting 2% of 1000, what you invested. The 2% will be applied to the new gain of 20 dollars. So now it'll be 2% of 1020 instead of just the original investment.

investing

boils down to these three components, in all their glory:

•The amount of money you're investing. •The length of time your money will be invested. •The rate your investment is growing (oft...

a quick way to figure out how long it would take to double your invested money, is to divide 72 by the rate of return you're getting.

If my rate of return is 8%, my money will double in (72 / 8 = 9) nine years.)

So you buy a house worth $200,000 and then you have it appraised and it's worth $220,000. You had a rate of return of 10% ($20,000 growth / $200,000 investment).

Taxes negatively affect your investment's rate of return. If you predict your investment will return 10%, but your state and federal governments tax you at a combined 30%, then that means you get to keep 70% of your return (100% - 30% in taxes). So your rate of return will be 7% (10% * 70% = 7%).

if your cash is in a savings account earning 1 percent, you're being taxed on that 1 percent and then inflation is ravaging it. You're actually losing money :( With that 10 percent return we've been using, 3 percent went to taxes, and 3 percent to inflation. We're down to 4 percent. Woah.

I personally avoid mutual funds all together and invest where the expenses are even lower (about .10 percent, or 10 percent of a percent).

My favorite investing option, Betterment (this is the one I use personally, except for our company 401k) also charges a management fee of anywhere from .15 to .35 percent. That fee is dramatically less (about one tenth) than what a financial advisor would charge you, but Betterment is able to charge less to the individual because they can serve more people. Now, I do believe there is a place for financial advisors and their management fee.

three components to growth: the time an investment has to grow, the amount you're investing, and the rate of investment growth.

components that make up your investment growth rate. Those are: intrinsic growth, inflation, taxes, transaction fees, investment fees, management fees, and 401k fees.

key principles that you must follow in order to win at the investment game.

•Starting now. •Choosing to be boring. •Understanding risk & reward. •Understanding allocation. •Diversifying (appropriately). •Buying Low and selling high, on autopilot. •Focusing on what you can control.

I committed him to $100 per month, set up on autopilot.

Set it and forget it.

greater risk and greater reward. Other investment types carry much less risk, and much less potential reward.

least- to most-risky: •Cash •Bonds •Stocks Within bonds and stocks you have varying degrees of risk and reward,

You can mix cash, bonds, and stocks in the right way to get to virtually any risk/reward profile.

You don't want to invest in a single stock, or bond. You want to be invested in many stocks, and many bonds. That way, if one stock tanks, there will be 2,000 others that might climb

One problem people run into, actually, is that they *think* they're diversified because they're invested in multiple mutual funds (which hold many stocks). Upon closer examination of those mutual funds, you realize that many of them are holding the same stocks!

Avoid mutual funds

Buy Low, Sell High (of course...) You hear the mantra to buy low, and sell high. Did you know that most investors do the exact opposite? Investors see that their investment is going up and they think, "Yeah! This investment is going great! Me wants more!" And that is right before the investment takes a nosedive. And with a nose-diving investment, the inclination is not to think, "Yeah, I want to put my money in that plummeting investment!" You think the opposite: "I gotta get out!" So right at the bottom, you sell your investment, having eaten all of the losses.

Even when the market may be crashing. Hold on tight since often times once ppl start selling, things go back up.

Based on your risk preference and time horizon, you decide you need to be 50% invested in stocks, and 50% invested in bonds. Let's say that portfolio is $20,000 where $10,000 is in stocks and $10,000 in bonds. Then stocks go on a tear! They're up 30% on the year. Bonds, meanwhile have take a 10% dip. Your overall portfolio is up 10% on the year, valued at $22,000 and you're feeling really good about things. However, your mix is now off. Stocks grew from $10,000 to $13,000 ($10,000 + 30% growth) and bonds dropped from $10,000 to $9,000 ($10,000 - 10% decline). Your new asset allocation is not 50/50, it's 59% stocks ($13,000 / $22,000) and 41% bonds ($9,000 / $22,000).

You want a 50/50 split.

Your target mix is $11,000 in stocks, and $11,000 in bonds, because your $22,000 is divided equally bet...

So you sell $2,000 of your stocks, and purchase $2,000 of bonds. You've now sold stocks when they were high, and ...

Trying to time the highs and lows of the market is a fool's game. It can't be done with any reliability, and you shouldn't waste your time trying.

In fact, waiting for the perfect time to get back into the market can have a disastrous effect on your returns!

Become a Control Freak

focus only on what you can control.

Here are the various aspects of investing, listed from what you MOST control, to what you LEAST control: •Time (when you start investing) •Allocation (how you're investing, based on your risk) •Amount (how much you're investing) •Your return on investment

something that charges you a tenth of that.

it's best to focus on what you CAN control (the cost), and diversify like crazy.

Asset allocation is in your control, and it's important.

Understanding how you're taxed, and doing your best to minimize those taxes, is completely in your control. Avoiding funds that buy and sell frequently, using the appropriate tax-sheltered vehicles (covered later), and selling your holdings very infrequently will all help you minimize your tax bill and increase your return on investment.

Market Performance