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INVESTING 101 FROM STOCKS AND BONDS TO ETFs AND IPOs, AN ESSENTIAL PRIMER ON BUILDING A PROFITABLE
PORTFOLIO
MICHELE CAGAN, CPA
Avon, Massachusetts
CONTENTS INTRODUCTION CHAPTER 1: BASIC ECONOMICS BUYING AND SELLING INTEREST RATES ECONOMIC INDICATORS SECTORS THE SEC GLOBAL ECONOMICS COMPANY FUNDAMENTALS CHAPTER 2: WHAT ARE STOCKS? BUYING STOCK IN A COMPANY STOCK EXCHANGES DIVIDENDS KINDS OF STOCKS CYCLICAL, DEFENSIVE, VALUE, AND PENNY STOCKS CHAPTER 3: BONDS, MUTUAL FUNDS, AND ETFs WHAT ARE BONDS? WHY BUY BONDS? BOND RATINGS AND YIELDS TREASURY AND MUNICIPAL BONDS CORPORATE BONDS
MUTUAL FUNDS HOW FUNDS OPERATE FUND TYPES EXCHANGE-TRADED FUNDS (ETFs) MANAGING YOUR FUNDS CHAPTER 4: STYLES OF INVESTING VALUE INVESTING GROWTH INVESTING AND TECHNICAL INVESTING DAY TRADING AND SHORT-TERM TRADING CHAPTER 5: INVESTING IN REAL ESTATE LEVERAGING FLIPPING HOUSES RENTAL PROPERTIES REAL ESTATE INVESTMENT TRUSTS CHAPTER 6: CURRENCY AND COMMODITY TRADING TRADING CURRENCIES AND DERIVATIVES COMMODITIES AND PRECIOUS METALS OPTIONS SHORT SELLING CHAPTER 7: EDUCATION AND RETIREMENT PLANNING INVESTING FOR EDUCATION RETIREMENT PLANNING CHAPTER 8: SOCIALLY RESPONSIBLE INVESTING GREEN INVESTING
SUSTAINABLE RESOURCE FUNDS CHAPTER 9: YOUR INVESTMENT PORTFOLIO INVESTING GOALS RISK ASSESSMENT DIVERSIFICATION YOUR INVESTOR PROFILE STOCKBROKERS CHAPTER 10: ADVICE FROM THE PROS BENJAMIN GRAHAM (1894–1976) WARREN BUFFETT (1930–) PETER LYNCH (1944–) JACK BOGLE (1929–)
INTRODUCTION When you hear the word “investing,” you probably think first of stocks, bonds, or mutual funds. These are certainly among the most common forms that investments take, but there’s more to investing than that. Investing is about getting your money to make more money. That’s the simplest definition of it. And there are all kinds of ways to do that. They include: Stocks Bonds Mutual funds Precious metals Exchange-traded funds Real estate Commodities Currency trading In this book, you’ll learn about all these things and more. We’ll examine different investing strategies and get advice from some famous investors such as the Nebraska genius Warren Buffett and billionaire Peter Lynch. We’ll unlock the mysteries behind those terms you hear sometimes on television or see online: short selling, penny stocks, and economic indicators. You’ll learn about the
various exchanges such as the New York Stock Exchange and the NASDAQ, as well as institutions such as the Federal Reserve and the Securities and Exchange Commission and how they impact investing choices. You’ll get advice on investing for education and for retirement. You’ll learn how to evaluate your risk tolerance. And you’ll learn some basics from the best investors out there. Investing is a way of helping you reach your goals, whether those are paying for your education or that of your children; traveling and having new and exciting experiences; or financing a secure retirement. By investing wisely and well, you can expand your savings and make your financial dreams come true. There’s an exciting world filled with money-making opportunities out there, and it’s waiting for you to take advantage of it. Welcome to Investing 101.
CHAPTER 1
BASIC ECONOMICS Investing is about making your money grow. That can’t happen unless the securities you invest in grow and pay out earnings. And that is directly tied in to the health of the economy. The most basic premise of the economy is this: If consumers spend money, the economy can grow; if they don’t, it can’t. When the economy is sluggish, consumer spending lags, overall corporate growth stagnates, and investors see poor returns. When the economy is booming, people spend money, corporations prosper, and investments grow. In fact, consumer spending makes up most of our gross domestic product (GDP), and that keeps the economy flowing. Unders