Videos play from YouTube only after you press play. Watch on YouTube
Hi, my name is Prince Chenou and I work at a big fine institution and I just come here to make videos to give advice and wisdom to anybody who's willing to listen.
Transcript
Transcript generated from the video captions. It may contain small errors.
Hey everybody, in this video I want to talk about all things investing. If that sounds interesting to you, let's get into it. Hi, my name is Prince Chenou and I work at a big fine institution and I just come here to make videos to give advice and wisdom to anybody who's willing to listen.
So, let's start off from the beginning. What does investing even mean? Investing is the act of putting money into assets with the expectation to generate a return or profit. This can be investing through bonds and stocks, investing through real estate, or even investing yourself through buying courses or going to school to learn new skills in the hopes to make a higher income.
Now that we know what investing is, let's talk about why somebody would choose to invest in the first place. One could choose to invest to beat inflation and grow their purchasing power. Basically meaning without investing, inflation can slowly erode the value of your cash over time. Someone else can choose to invest to build wealth for major goals such as retirement, buying a house, or even financial independence.
Overall, the key to investing is to take advantage of compound interest. What is compound interest? Compound interest is when you earn interest not only on your original principle, but also on the interest it's already earned. Let's give a illustration with some basic math. If you have a $100 and earn 5% interest each year, you have $105 at the end of the first year.
At the end of the second year, you'll have $110.25. Not only did you earn $5 on the initial $100, but you also earn $25 on the $5 interest. While 25 is not sound like a lot, but it adds up over time. Moving forward, I want to talk about some basic investment vehicles. Let's first start off with stocks, also known as equities or shares.
They represent a fractional ownership in a company. When you buy a stock, you essentially purchasing a piece of that company, entitling you to portion of its assets and earnings. Stocks are typically bought and sold on stock exchanges. This could look like owning shares of Apple, Google, Tesla, or even Amazon. As a shareholder, you entitled to the dividends.
Those are the payments companies make to the shareholders of the with investors. You can also benefit from any growth the company value has over time. Later in this video, I also want to explain how you can hold multiple individual securities like stocks and bonds into one single product. But before that, let's move on to bonds.
Think of bonds as buy into a loan, except this loan is being made to a government or a corporation. Bonds usually offer lower returns compared to stocks, but they also come with lower risk. Here's how it works. When a company or a government issue bonds, they're basically borrowing money with the promise to pay it back with interest.
Now, not all bonds are created equally. There's ones for from financially strong and reliable companies or governments and are known as investment grade bonds. On the other hand, bonds from riskier companies, those with a higher chance of default are called high yield or junk bonds. The higher the risk, but they're also potential reward or higher.
Now, moving forward to mutual funds, you can think of these as like group of investments. You and other investors pull your money together and a professional manager picks a mixture of stocks, bonds, or other assets for the group. It's a great way to get instant diversification even if you don't have a tons of money to invest.
Keep in mind though, you usually pay higher management fees since someone is actively choosing the investments for you. Now, let's look at ETFs or exchange traded funds. They work much like mutual funds as they hold a basket of investments and they but the thing is that they also trade on stock exchanges just like individual stocks.
So, that means that you can buy and sell them throughout the day at market prices. They're often cheaper than mutual funds and offer uh diversification, making them a popular choice for hands-off investors. Another major asset class that you can invest in is real estate. You can earn income from rental properties and profits over time of the property increasing.
Real estate can also offer tax benefits and hedge against inflation. But it's not without it risk though. It requires more hands-on management, upfront cost, and market awareness. And finally in this section I want to talk about index funds. Index funds are a type of mutual fund or an ETF that tracks a specific market index like this S&P 500.
Instead of trying to beat the market, it aims to match it. That means lower fees, less active management. And over time, index funds have proven to be a simple but effective way to build wealth, especially for long-term investors. While we just talked about different investment vehicles, I want to shift over to talk about what are some different investment accounts you can have.
Let's first start off by talking about brokerage accounts. This account is your standard taxable investment account. You can use it to buy and sell stocks, bonds, ETFs, and many more. There's no limits in how you can invest or when you can withdraw money. But keep in mind, you do owe taxes on things like capital gains and dividends.
It's super flexible but not as tax friendly as a retirement account. Now moving over to 401ks or 403bs accounts. These are employer sponsored retirement plans. You contribute straight from your paycheck often with pre-tax dollars and in some cases your employer will even match a portion of your contribution. This is literally free money.
These accounts are designed for long-term saving. So pulling money out of them can trigger taxes and penalty fees. Now looking at Roth and traditional IAS, these are individual retirement account that come with a tax advantage. With the traditional IRA, you can take a tax break up front. Your contributes are tax deferred. That means that you don't pay taxes when the you invest the money now, but you will pay taxes when you take the money out in retirement.
With the Roth IRA on the other hand, you pay taxes now, but your money grows taxree and withdrawals in your retirements are completely taxree. The right one for you really just depends on your income and future out tax outlook. Now that we've covered different accounts, let's take a step back and talk about something that affects every investor, the risk and return.
Generally, the higher potential return, the higher the risk. That means that you may make more money, but you can also lose more. Your risk tolerance is key here. It's all about how much market ups and down you can handle emotionally and financially. Tough questions to ask yourself. Are you the type to panic when accounts dip or can you stay calm and ride it out?
One of the best ways to manage risk is through diversification. That means spreading your money across different types of investments so that you're not relying on just one to perform well. Think of it like not putting all your eggs into one basket. So, how do you actually get started with investing? Let's break it down.
First, set clear goals. Understand what your short and long-term goals are. Short-term goals can look like going to a vacation or buying a car. And long-term goals can look like having a retirement or buying a home. Next, make sure that you have a solid foundation. Creating a budget can stick that you can stick to an emergency fund for unexpected emergencies.
Then choose a platform to invest. There's a lot of popular options including Vanguard, Fidelity, and Robin Hood. Pick one that really fits your style. And then lastly, decide how the invest you want to be. You want to be hands-on, DIY, and do it yourself, or do you want to hire a financial advisor?
Or you could even use a robo advisor that does the work for you. Now that you know how to start, let's go over some common mistake investing mistakes and how to avoid them as well. Mistake number one, trying to time the market. It's nearly impossible to predict the perfect time to buy and to sell.
A better strategy just to invest a consistent amount regularly. This helps you to catch both the highs and the lows and it's called dollar cost averaging. Mistake number two, not diversifying. Putting all your money into one stock or sector can backfire fast. One way to avoid this is by buying into lowc cost diversified index fund or ETFs that tracks the broader market.
Mistake number three, letting emotion and emotions take over. Fear and greed are powerful and they're terrible for financial for managing finances. The key to is to stay consistent and disciplined. It's easy to get spooked by news and market swing, but remember the market recovered from major events like the dotcom bubble or the 2028 financial crisis.
Staying of course really matters. And then finally, invest in something that you do not understand. Always know what you're putting your money into before you buy it. The old saying, if it sounds too good to be true, then it probably is. Before we wrap up, here's a few final tips to keep in mind as you begin your financial journey.
Start early. Time is time in the market matters more than time trying to time the market. Be consistent. Like I said earlier, investing is a set amount on a monthly basis through dollar cost averaging can help you smooth out the market ups and down over time. And never stop learning. Investing isn't just one time decision.
It's a lifelong journey. The more you understand, the more confident you become. And lastly, I want to leave you with this quick Bible verse that really sums up everything that I've talked about today. Proverbs 13:11, "Wealth gained hastily would dwindle, but whomever gains it little by little will increase it." Thank you for watching and have a blessed day.
This video is for general educational purposes only and is not personalized investment, tax, or legal advice. Every situation is different. Talk with a qualified professional about your circumstances before acting. PLC Wealth Partners is a registered investment adviser. See our disclosures.
