A popular retirement plan offered by an employer. The greatest thing about it is that you can put money in it tax-deferred. That means you are able to save a bigger chunk of your paycheck up front (since you’re using the money you’ve made before taxes are taken out), let that grow, and only pay taxes when you take it out, specifically when you retire. It’s meant to help you when you’re retired and don’t have a steady income from a job, so the IRS tries to hook you up with that tax incentive because you’re not supposed to use it until then. If you do, there’s often a 10% penalty (on top of any taxes you now have to pay.)
A useful number because you can use it to calculate how long it takes for the power of compound interest to double your money. For any given rate of interest, just divide it into 72, and that’s how many years it will take; 6 percent will double your money in twelve years; 12 percent will double your money in 6 years; 36 percent will double it in two. Super easy!
Anything you own that has value. Assets aren’t limited to what’s in your bank account. Your home, your car, your wardrobe collection, your jewelry, are all assets. Assets that are cash or can be turned into cash quickly (cash and stocks) are called “liquid assets,” whereas the ones that are difficult to turn into cash quickly (like a home or a pair of Jimmy Choos) are called “illiquid.”
The breakdown of where you’re putting your money. The five main asset classes — equities (stocks), fixed income (bonds), property (your home), and alternative investments (a friend’s business, or a piece of artwork) — have different levels of risk and reward. Depending on your goals for investing, you want to balance the risk/reward by investing in varying amounts of cash. For example, an aggressive investor may have a 90-10 asset allocation, putting 90% in stocks, which have a greater potential for earnings but also greater risk, and 10% in bonds and cash, which have less earning power (financial upside) but are safer investments. The older you are, the less aggressive you want to be since you will have less time over the long run to recoup any losses should any of your investments tank.
Launched in early 2009, Bitcoin (BTC) is the dominant cryptocurrency. It has no inherent value, so its worth depends entirely on the trust people have in it; in my view, that’s the most interesting thing about bitcoin, the fact it is a built-in lesson on the arbitrary nature of money values. Bitcoins are created or “mined” by individuals (miners) by long, slow computer calculations, and are stored and exchanged via digital “wallets.” This number-crunching burns a lot of energy, and the cost of that energy is the real cost of creating bitcoins. The currency’s main use is in buying and selling things anonymously over the Internet, though there are also cafes, stores and companies that take them. The value of the bitcoin has gone up and down sharply in its short life. I’m writing this in Sept 2018; in the last few years, the value of one Bitcoin has hit a high of over $19,000 (Dec 2017) and a low of $3,250 in (Sept 2017) and is now at $6,300 (Sept 2018). Back on Oct 2, 2013, the currency lost 40% value in one day, when the FBI seized an illegal exchange called the Silk Road, where payment was taken in bitcoins --though it should be stressed that there is nothing illegal about bitcoins per se. In essence Bitcoin is (to quote JPM) “ a giant transaction ledger recording who owns each individual unit of the currency at any one time” in which all transactions taking place in the currency are simultaneously visible to all its users. An interesting feature of the currency is how transparent it is: all bitcoin transactions are visible, though also anonymous. You can check the prices here https://www.coindesk.com/price/
Blockchain is the technology behind cryptocurrencies. Blockchain is a secure transaction ledger shared by all parties in a distributed network that records and stores every transaction that occurs in the network, creating an irrevocable and auditable transaction history. Blockchain is the core technology underlying bitcoin, but we see the potential for Blockchain to span several industries not just the financial industry.
The simplest way to define Blockchain is as a superior database where:
1. Data that is stored is encrypted;
2. Access to the data is encrypted;
3. Transactions are immutable; in that it is impossible to alter historical records, thus creating a credible audit rail.
4. The distributed nature of the Blockchain means that is it has a built-in redundancy and can survive the loss of one node because the master record is shared.
These are large-cap, industry leaders with the kind of brand dominance that makes them household names. These are the kinds of stocks we want to consider owning for a lifetime.
Also called an investment account, it’s the place where you hold financial assets. Examples of brokerage accounts would include your retirement accounts: 401(k) or IRA, as well as non-retirement accounts.
This forms when a lot of market players (professional fund managers and retail investors) chase a particular asset class. For example, there was a tech bubble in 2000, and one in real estate in 2008, pushing prices up to overvalued, unsustainable levels. Then something pricks the bubble and prices come crashing back down.
A bull market is when stocks are rising, a market characterized by optimism. It’s named for the upward motion a bull makes when it attacks another animal. Often times one will experience declines in a bull market period. In fact, many long term investors (including me!) are happy by a small correction to let the market settle and regroup but the extended trend is positive.
A buy-side analyst works for an investment management firm that manages the assets of clients via seperate accounts, mutual funds, or ETFs. The term refers to the fact that investment management firms tend to “buy” research from Wall Street or “sell-side” firms. Buy-side analysts are typically assigned to broad industry groups or entire sectors and are charged with the task of supporting the firm’s portfolio managers in selecting stocks for their client portfolios. (Yours truly started investing as a buy side analyst before being promoted to a fund manager).
One of the most useful ideas in financial planning and achieving holistic wealth, worth doing it in your own life when you face a important decision (to buy or rent a home, to work full time or work part time), and also, when you’re not facing any particular decision, and life seems to going fine. The idea is to draw up a calculation of what something -- a purchase, an investment, a change of job, a house move, any life stage change choices -- costs and what it benefits you. This might sound obvious, but the critical factor is to include the costs of both making the choice and of not making it. That’s the factor that we often leave out: the cost of not doing, of going on as we are. This is important when it comes to discussing investing and your financial goals. (See opportunity cost as well)
These are virtual currencies that are created, stored and governed electronically by an open, decentralized, cryptography system. CCs can be used to exchange money, to buy goods/ services or as an investment. There are over 1,500 cryptocurrencies with a marketing cap of $400 billion, with Bitcoin being the largest, representing a third of the market according to CoinMarketCap.
The Dow Jones Industrial Average, an index of the top thirty “blue chip” stocks, like Apple, Microsoft and Wal-Mart. It’s an index that is usually a good indicator of how the overall stock market is doing. If you hear “the market is up today” on the news, they are usually referring to the Dow: (see also; index, Blue Chip)
Don’t confuse this with revenue. It’s the amount of profit that the Company takes in over a given period of time after taxes. Otherwise known as the amount of money the Company makes. As professional managers, we look at earnings as one of the most important factors for determining a company’s stock price, because it serves as a good litmus test for whether the business will be successful in the short and long run. (see also: Revenue and P/E ratio).
Exchange traded funds are pools of shares in various stocks; that bundle is then bought and sold on the stock market. ETFs are similar to mutual funds in that they offer the benefit of exposure to an array of assets, yet they’re cheaper because they’re not maintained by fund managers. For any particular industry you want to invest in, there are ETFs that allow you to do just that. Unlike index funds, which are made up of shares in many companies in a particular index (the S&P 500, for example), ETFs can be made up of more complicated components, so investors may not always know exactly what they own. A technology ETF, for example, may include a complex bundle of securities that are actually betting on the future price of various technologies.
Someone who gives you financial advice and guidance to help you meet your long-term money goals. Financial planners may be certified or just have been at it a long time, but either way, you’re paying for their advice; it’s not free and unfortunately not always in your best interest. Typically, financial planners are specialised and knowledgeable in all of the different aspects of your financial life including taxes, estate planning and retirement. But at the end of the day, the most important thing is that you know what’s happening with your money (don’t completely delegate this power away to your financial planner) and you have a good rapport and you trust that they have your best interest in mind.
In investing, fundamentals are the underlying realities of a business, in terms of revenue, costs, and profits. Investors who specialize in fundamentals -- Warren Buffett for example -- look over annual reports, balance sheets, and Wall Street broker reports focusing the future revenues, looking at these numbers. This might sound like common sense, and very boring, but many investors don’t do this and look at trends and momentum and themes and try to guess the way the market will move. In other words, nonfundamental investors don’t “research and assess” companies they should invest in, but rather which company most investors will think most investors will want to invest in. When I started investing my own money as a college student, I didn’t know any better, so having made and then lost money investing in a nonfundamental way in college days (before I became a professional fund manager), I have come to the conclusion that is simply safer, better and wiser to stick to fundamental investing.
Gross domestic product is the total market value of all goods and services produced within a given country, from cars to appliances to clothes to shoes. Economists use GDP to measure the strength of a particular economy. For example, the US GDP looks at the total market value of all goods and services produced within the US, from cars to appliances to clothes to shoes. When US technology service firm Facebook generates a lot of revenue from ad sales in the US, it usually means the economy is healthy because they have buyers for their products, and GDP will increase.
These stocks tend to be new and buzzy, and are growing faster than the average company. Growth companies tend not to pay dividends, as they are re-investing their earnings back into their growing businesses. While you don’t get your money back right away, the long-term money you make from the stock price appreciation is typically very good in a bull market. Growth stocks are especially common in certain industries (like technology and biotech). An example would be Facebook (large cap) and Twitter (for a smaller cap), which tends to bounce around a lot (the stock price is volatile), versus a value stock like JPMorgan Chase, which has lower stable growth.
We often hear about holistic health, how we need the food, the supplements, the exercise, the mental to be all aligned to be healthy. Holistic wealth is about creating joyful, healthy, and aligned wealth. Having a healthy, dynamic relationship with money translates into holistic wealth, success and alignment in every aspect of life. Having a positive relationship with money helps to increase our confidence satisfaction, happiness, and what we’re able to give back to our family, community and the world.
That’s why we came up with a new approach. Rather than wrinkling our noses and doing “investing” the way society says we should, we ask our community to take a step back and really think about what wealth—both financial wealth and holistic wealth—means to them. This revolutionary idea begins with expanding our notion of what investing truly is. At Heels & Yield, we talk about investing as directing our time, energy, money and resources in ways that move us closer to our dreams and our vision of our future lives.
An index fund tracks a specific index like the S&P 500. By buying shares in all of the companies included in that index, the fund is designed to reflect that index’s overall performance. The advantage of index funds is that they carry much lower fees than those of actively managed funds and over time tend to perform as well than many mutual funds.
An IPO is the first sale of stock by a company to the public. IPOs are underwritten by investment banking firms (like Goldman Sachs, JPMorgan Chase, Bank of America Merrill Lynch and others) to determine the price of the offering, timing, and number of shares to be offered. (Yours truly worked at Bank of America Merrill Lynch doing IPOs for companies for my first job!). Often, these shares are offered to big clients of the investment banking firm and are difficult for individual investors to acquire. They are require investors to do due diligence before purchasing them.
A particular approach to investing based on one’s goals, risk tolerance and time to devote to it. Our focus is on growth, value, growth at a reasonable price (a variation on both the value and the growth strategies). These strategies can be employed in any size category of company.
We hear interest rates in the news all the time, but why are they so important? The interest rate is the cost of money at any given moment. It’s also the rate at which it is possible to invest risk-free, because when you buy a government bond at a prevalent interest rate, and it’s guaranteed to pay you back (some governments do default though). This means that when interest rates go up:
1. Life is harder for businesses, because money is more expensive
2. People will tend not to invest as much as they would in companies (in the form of stocks, private equity, hedge funds), preferring to invest in risk free bonds,
3. The stock market will correct in certain sectors that depend on cheap financing; bank stocks will go up because they make more money because they can charge higher amounts of loans
4. People with mortgages will find it harder to make their repayments, and those who are coming off fixed rate deals may suddenly see a dramatic increase in their monthly payments
5. That means that mortgage defaults will rise, so
6. There will be downward pressure on house prices (because it costs more to finance a home now) and
7. Some people who owe a significant portion of their house to the bank will be in negative equity, which will stop them from spending money
8. The currency will rise, because the higher guaranteed rates of return will attract money into buying the country’s debt. So
9. Life will be harder for companies that use massive debt to fund their growth because their products will become more expensive,
10. And inflation will fall, inflation means - money is worth less, and in this situation, a rise in interest rate means money is worth MORE. There’s more, but this is the starting point.
For our purposes, a long position is simply when an investor owns shares of a company’s stock. If I own shares in Facebook, I am long Facebook.
The cost of not choosing a given opportunity. In investing, opportunity costs can come in the form of money you would have made on an investment had you not invested that money elsewhere. For example, in 2004 I purchased a YSL bag for $1200 USD. The opportunity cost of that decision is the $30,000 I could have made if I had instead invested the $1200 USD in Alphabet/Google stock during its initial public offering when all my colleagues were buying it.
Market timing refers to any strategy that involves trying to predict future price movements and shifting between different investments to take advantage of them. To take an example, you believe that facebook shares are likely to fall and facebook bonds might rise over the next month, you would buy facebook bonds, and sell facebook shares. You would only intend to hold those positions for as long as you think facebook bonds will keep beating shares; as soon as you think the trend will reverse, you would buy shares and sell bonds.
