Stock: A monetary segment of partial ownership. It is when a company divides market value into little chunks that are affordable.
Market Value: How much a company is reported to be worth. Evaluated and verified by the SEC.
SEC: Securities and exchange commission. This is a tax-funded government branch that monitors companies for fraud, safety, and validity of investment. Very good track record, as far as government work goes.
Share: A portion of stock.
Dividend: A regular payment, usually in small amounts every quarter as a “thank you” for having purchased shares. You can think of it like this: An apartment building has 100 apartments, or 100 shares. You buy 2 shares/apartments. Those renters pay rent. The apartment building keeps some for maintenance, utilities, etc. You get the rest of the rent. Solid companies with expected growth pay dividends. Some don’t. It is just an investment strategy.
DRIP: Dividend Reinvestment Plan. This is an agreement with a company. You say “Hey, I’ll buy 1000 shares in a Drip Fund.” The company says “Cool. Here is your receipt.” You now own 1000 shares. As those shares earn dividends (rent), that rent immediately goes back into buying MORE shares. So next quarter, your dividends bought you 10 shares. Now you have 1010 total. Next they buy you an additional 10.1 So you have 1020.1 Etc. etc.
Price: How much a share costs.
Broker: A person or company that negotiates the selling and buying of stocks. Middle men, really. But these guys are crafty, and know how things work. Generally they want you to do well, because they will do well.
Bull/Bear: Bull means the market, company, or sector is in a position where it encourages purchasing of shares. Bulls Charge, Bears Hibernate. A Bear market means the market, company, or sector is in a position where it encourages SELLING of shares.
Discount: If a stock is oversold, it means that it is generally priced LOWER than it is evaluated. It is like something on sale, a discount. You can buy it, hoping the price goes up, then sell it for a profit.
Risk: This could be a total calculated risk regarding possible bankruptcy of a company, loss of value, being bought for less than its value, or some just…dissolving.
Sector: A chunk of the economy a few businesses fall under. Energy, Food, Minerals, Manufacturing, Real Estate, FOREX, etc. Some people are really good at certain sectors and making money, but are terrible at others. This is why fund managers tend to stick to their market sector they like.
Fund: A single stock symbol you can buy. The fund takes your money and divides it among other stocks. Sometimes just two, sometimes hundreds. This way, if you only have 10$, you can still diversify your money safely.
Forex: Foreign exchange markets. The New York Stock Exchange isn’t the only one! There are others!
ETF: Exchange Traded Fund. This is a fund in which you can purchase and sell it like a stock, but still enjoy diversification.
YTD: Growth earned in a year. 6% a year is very good. 50% on year is highly suspicious.
There are a million more terms to learn, but this is 101.
First, you need a broker. If you are new, I highly recommend TD Ameritrade. They have educational classes you can take, webinars, that gradually unlock more investment skills. Like leveling up.
I recommend Motif after that, and in addition to that.
For a completely new investor, you’ll want to take the educational courses. They aren’t long, and you can generally try out your new skills AS you learn them. TD Ameritrade also gives you $100,000.00 of practice money in a dummy account to learn with.
For a new investor, pick a few stocks. Something big and blue. Blue Chip. Blue Chip companies are the giants, worth billions of dollars that are very stable. Just google a few! Google is one. Apple. Amazon.
Most brokers will charge you 5$ a trade, sometimes 10$. So don’t trade throughout the day unless your skills and gains can more than make up for your investment costs. If that doesn’t sound like you (which it isn’t for any new investor,) then you need to find an ETF with no commission fee. This is an ETF that you can buy or sell without any fee at all.
Let’s look at an example:
This ETF costs $109.48 a share. It looks like it lost value a little today, 0.15%. It also looks like it took a hit right around election time, but has been climbing.
See the “Distribution Yield?” That is the Dividend. It says it again right below. So if you own this stock, you will earn $2.63 a year just for having it. That is free money, folks. You can sell your share at any time and get your 109.48$ back, and keep your $2.63. Or buy a bunch and just…earn an income.
It has a morningstar rating of 3 (which is good.) That is like the Michelin Star. One is good. Two is great. 3 is awesome. 4 is perfect. 5 is godlike. It also has a little “about” section. But we can look in more detail what kinds of things this fund uses your investment to ..invest in. “Total Assets” is 47 Billion. That is a big, cozy, secure company, especially since it was started in 9/22/2003. Before the recession in 2008. It is commission free as well, at least at TD Ameritrade.
Here is a breakdown of the things that fund likes to invest in. So when you buy your share, you are actually dividing up your 109$ this way. It can change, if the fund manager thinks something bad (or good) will happen.
Pretty cool. But what if you don’t have 109$???
Here is a more affordable stock. Notice, it is 100 times smaller than the previous one, has no morningstar rating. Hence…Risk. Now you know why it is cheaper.
Full disclosure…I am not paid by TD Ameritrade. I am no a broker. I’m not the best investor. I really recommend you talk to a bank, or a broker to learn about stocks and trading if you really want to do this. You can pick any broker that is right for you, and any stock that fits your financial needs.
Ideally, your stock will grow in value over time. Turning your regular investment into something substantial. If it is something like real estate, you’ll basically be buying tiny little apartments with your monthly deposit, until you are eventually sitting on a huge ownership of real estate, getting monthly dividends/cash for doing nothing. That is called Passive Income.
That stock symbol, “O”, is the golden child of the passive income traders. This company has always paid a dividend, and always increased their dividend. MONTHLY. Which means you get a chunk of cash every month, whether or not the price goes up or down. As you can see, the price trends upwards, so not only do you get monthly payouts which you can reinvest, but your actual shares gain value too. Lets take this screen cap and do some math.
Lets say you start investing…60$ a month in this stock starting at age 25. Lets say, for some reason, they STOP increasing the dividend, but pay that rate every month and you use it to buy more “O”. When you are 60 years old, you’ll have $145,584.26 in one stock.
That’s a lot, right? But remember, this isn’t just shares you can sell, these shares have special powers. They pay dividends. Monthly. So if your annual pay out is 4.38%, lets divide that by 12 months. .365 % a month. Multiply that by your nest egg of $145,584.26. That means you will earn $531.38 dollars a month. Forever. If you pass that ownership to your kids, it means they will also earn $531.38 a month forever. Unless they add to it, in which case…it grows.
What if you put in $120 a month? That is $1062.77 a month. $240? That is $2125.53 a month for the rest of your life. The rest of your child’s life. Forever. Effectively preventing them from EVER being in poverty, unless they are stupid and sell the capital shares and spend it on a big house or car. But if you teach them to protect their assets, they will always be safe.
THINK about that. How much is your car insurance? Your car? What if you really committed this? I know most of us can’t afford $240 a month right now. I’m fortunate enough to be able to afford it, but not comfortably. But I deal with it, you know? I don’t ever travel, I buy generic crap on sale. Our clothes are discounted usually from walmart. I don’t smoke or drink or party, or go to bars. We put that money away so that our kid(s) will never have to suffer. We put it away so that our family line will be shielded from poverty.
So you see…it curdles my milk when people talk about “wallstreet” being corrupt. Sure, keep them out of government. But you realize my investments tie me to foreign governments, oil companies, and everything else? I’m not evil. I just want a shield for my baby. I don’t want my kid to ever have to be jealous of fat people on welfare. I don’t want my kid to ever have to worry about where money will come from.
I want them to feel free to take chances, take risks, because our planning will be there to protect them, long into the future.
You ought to invest to. If you haven’t already, learn. It starts slow, but I was thrilled when the first few cents trickled into my investment account…like a pay day of $0.05. Not much…but it was PROOF. It works…Ever since, i’ve been hooked.
I have some funds set to reinvest in themselves. Some that split dividends between my checking account and reinvesting in themselves. Some set to just fill up a checking account until there is enough to buy shares of something ELSE.
Poor people buy stuff. Middle class buys liabilities (things that cost money.) Rich people buy assets (things that generate money.)
You should to.