Understanding Investing for the Beginner: Part 1

*photo courtesy of https://www.flickr.com/photos/pmarkham/
*photo courtesy of https://www.flickr.com/photos/pmarkham/

 

When it comes to making money, I have made many, many mistakes. Unfortunately, I didn’t have anyone to teach me. Fortunately, I didn’t give up. I’ve learned a lot.

For those of you interested, I hope to save you some of my pain and accelerate the process, so you can earn enough money to buy your freedom and focus on those things which really matter in life. If you’re a subscriber to my site than you understand that happiness, after a point, is not going to be achieved by money alone.

When I first started to learn about investing, it became clear that most people were generating wealth in a limited number of ways, and by using a limited number of techniques. Real estate, business and the stock market seemed to be the key avenues to wealth, and techniques like leverage could amplify your efforts. Unfortunately, this was like knowing that an airplane was a great way to get from point A to point B. If you just handed me the key to the airplane and sent me off, I was pretty much guaranteed to crash and burn.

Just like investing, I discovered that flying a plane wasn’t actually that hard. If you have a good teacher and put in a little time and effort, most of us can easily become pilots. I found it was the same with investing.

Step 1. Be patient.  Trying to get rich quick is hard and risky, and you probably won’t stay rich long. There are things you need to learn in order to accumulate and retain your wealth. They aren’t difficult or complicated, but they are critical to succes.

OK, here’s how I invest in the stock market.

Step 2. Set up a self-directed investment account. This allows you to easily buy and sell stocks by yourself, from the comfort of your own home. I’m in the Great White North (Canada) so this may vary somewhat in your location, but here it’s dead easy. I went online to my favorite financial institution, followed the instructions to download a form, filled it out, sent it in, and soon had an account. If I had a question, I just asked my financial institution. They wanted my business and were very supportive and helpful.

Step 3. Start putting in regular contributions. This can be done one transaction at a time or by setting up regular transfers from a bank account to an investment account.

Step 4. Once you’ve accumulated a bit of cash, you need to figure out which stock to buy.

(Note: A stock or a “share” is just part ownership in a company. Generally, you don’t get to help run the company, but if they make a profit or take a loss, you share in it. You are a shareholder.)

Here’s how I choose a stock.

I look for a company that has been around a long, long, long time. The odds of them of them going under and losing all my money is limited.

Next, I want a dividend. A dividend is not a complicated thing. Not all companies pay out dividends.

Here’s my explanation of a dividend. When a company makes a profit, they have a couple of choices about what to do with it. First, they can put it back into the company and use it to grow the company. This can be good, as it can make the company worth more and then you can make a “capital gain” (This is when your share gets worth more.)  Otherwise, they can split up the profit between the shareholders and pay them in the form of a dividend. Often they do a little of both.

They’ll distribute a fixed amount of money for each share you hold. So typically about every few months you’ll see extra money appear in your account. They’ve distributed the dividends! I love it when I get dividends. It’s just like Christmas.

Three things I want to know about my dividends.

  1. What is the “yield”? (Don’t freak out. Yield is just another fancy word they use so that people in the financial industry can feel important. It’s not complicated.)
  2. How long has the company been paying out a dividend continuously? I want to know that this company has a history of paying out dividends for a long, long, long time. In other words, they likely will continue to do so for a long, long, long time.
  3. Have they regularly increased the dividend? Again, this is simple stuff. If they’ve regularly increased it for a long, long time, then they likely will continue to do so.
  4. Have they ever suspended a dividend?

All this information is free and easily available online.

I’m going to let you absorb this and then invite you to read Part 2 of this post. Maybe reread this and then go online and search “stock quote”. See if you can find some companies you think might be good candidates and see if you can find out what they pay out in the form of dividends.

See you in Part 2 and don’t forget to share or tweet this post.

Thanks!

Archie

 

It should go without saying that you are responsible for your life in all dimensions. Take what I have written here only as my non-professional opinion. You must decide what is right for you and seek professional assistance as you feel necessary. Thanks and all the best!

 

 

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