The Stock Market For Beginners Pt 1

*Disclaimer: This article is for entertainment purposes and should not solely be used to invest in the markets or otherwise. None of the advice given should be taken without the advice of a professional money manager reviewing your investments

If you are here I am assuming one of two things: 1.) you are eager to know more about how the market works or 2.) I pushed you here (sorry boys). Regardless of why you are here or what you want to learn I have some low level tips as well as high level tips for both beginners and intermediate investors.

Welcome To… Con Street?

Knowing how to invest is important for day, swing (retail), hedge funds, wealth advisors, people with a 401k… actually it’s better to list who it isn’t good for and that is: people who don’t want to be in the markets. The truth is even if you aren’t on the market all day every day you should still know what you are in if you have a market account. For example: let’s say you have an account with an advisor and he brings back 5% yearly. All could be well in your mind but what if I told you that 5% is lousy for stock returns and that a lot of “money managers” or advisors charge an outlandish fee to manage your assets. Even if he/she charges you a rate of 1% after all is said and done that is too much. If you hire an advisor always ensure that they are a fiduciary, because asset managers can charge 1% of your portfolio yearly even if you lose money. Fiduciaries only make money when you do and that is just the tip of the iceberg, Wall Street is full of thugs and goons who want your money and I want to guard you from that negativity in your life(new year new you). Let’s talk about the Bulls Vs Bears sentiment.

Bulls Vs. Bears

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No this is not the birds and the bees statement nor is this a testimony of some weird Comicon party in my mom’s basement. In the market there is people(or algorithms) who want stocks to go up(the bulls) and people(or algorithms once again) who want the stocks to go down(the bears). When you buy or sell a stock you are trading because someone else has to be actively selling at that price. Usually if someone identifies as a bull they strictly buy stocks and if someone identifies as a bear they are usually shorting a stock. Shorting a stock involves borrowing a stock from stock owners and hoping the price goes lower so they can sell it to the previous owner at the price borrowed but the owner loses because the owner actually gets the stock at the price it currently (once again lower hopefully). That might seem complicated but just think they make a profit if the stock goes lower. This can get very complicated and the practice of shorting is highly debated (especially recently with Gamestop). All you need to know now is bulls try to buy low and sell high while bears try to buy high and sell low. Another thing is really savvy traders can identify as both bears and bulls.

Types Of Assets

The types of assets available on the market are pretty vast. You can buy/sell stocks, bonds, commodities, foreign currency, crypto currency and more. There is other assets obviously outside the market. Investment assets can be described as something that can be bought and sold for a profit or loss in the future. So that means that the only thing considered an investment is… pretty much anything. If you believe your Disney VHS collection will be worth more down the road its an investment. If you believe that your grandmas fake left leg will have a crazy monetary value in the future, save that sucker for safe keeping buried in the back yard(or don’t). The point is anything can be considered an investment and that’s a fact. Before we dive into specific assets I want to talk about depreciation. While some things increase in value depreciation is when something decreases in value. Some things depreciate relatively fast including cars, buildings, consumer goods(especially electronics). While that sucks, it gives consumers value in things that are reduced in value in 1 to 2 years(will the real smartphones please stand up).

Stocks are assets that represent a part of a corporation that can be publicly or privately(less common) on the stock market. Stocks are largely more volatile than commodities and bonds. If you control a majority of the stocks of a company, even if that means 10%, then you control most of the decisions the company makes. However, fear not, if you own just 1 stock of a company that means you have a vote in things that are majorly important like stock splits and filings. That is a really brief description but just know this, stocks run the U.S. business world.

GameStop(GME) during the controversial Reddit market manipulation

Bonds are a a form of borrowed money to a company or the government that have a fixed interest(similar to CD’s). Bonds are great…if you want to make more interest than CD’s or savings accounts. It is a really good addition to your portfolio if you are closer to retirement and want to sit on money at a fixed interest rate or if you don’t like the risk associated with stocks. I wouldn’t mind investing in bonds as a 25 year old… if I had a couple million dollars. Another thing to mention is that when bonds go down in interest usually stocks go up and vice versa. The reason is pretty clear, when everyone exits the market it is easier to give a low interest rate because people still have to retire and when people enter the market again it is harder to get people to invest in bonds(supply and demand).

Treasury Bond Yield(yes those are percentages)

Commodities are very intriguing because they are so vast. You can trade anything from oil to gold to live cattle to orange juice. The thing is that commodities aren’t just ‘traded’ they are contracts that switch hands. Contracts actually cost money to trade hands so there is a fee associated with every contract. Stocks used to have fees related per trade but that has long became a thing of the past large in part because of the free commissions trading Robin Hood introduced. If the contract expires and it is in your hands you may be responsible for retaining and storing the commodities which can be very expensive. Maybe it isn’t a big deal if you receive 1,000 boxes of orange juice but I cannot imagine receiving 1,000 live cattle or 1,000 barrels of oil. Regardless maybe its just goof that you know this exists.

Investment Accounts

So if you believe that you are ready to start opening an investment account and you have heard enough I would first caution of doing that with such limited information, second of all recommend you talk to a authorized wealth advisor or accountant and thirdly continue reading to get some of the basics of how investing works. But let us say you wanna bite off more than you can chew, you should look at different tax advantage accounts and non-tax advantage accounts.

Roth 401k and Traditional 401k

A 401k account is usually provided by your employer and if self employed can be provided by yourself. These accounts give you a tax advantage on either when you deposit it or when you withdraw it based on your salary. For example if you chose to pay the taxes now(Roth 401k) it will be tax free when you withdraw or if you want to pay the taxes later(Traditional 401k) it will be tax free now. It is important to note that 401k’s are taxed based on your salary for when you choose to get the taxes taken out. So if you plan on making more money later opt to pay the taxes before(Roth) that way you pay less and if you plan on making less later opt to pay the taxes then(traditional). 401k’s are limited to $19,500 in contributions yearly so max those bad boys out. Speaking of maxing tings out, if your employer offers a contribution match you should always at least put in enough to match them because that is free money!

IRA

An IRA is very similar to a 401k except that they are limited to contributions $6,000 and are tax free as long as you have had an IRA for five years until withdrawn which then are taxed. There is a fee for early withdrawal before retirement associated with the account. To be honest this account and a HSA are areas that I have relatively little information about. As advised you should speak to a tax accountant before making a decision or a wealth manager.

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HSA and FSA

I have limited knowledge on these accounts but I do know that these accounts are associated with employer options and emergency health options that in some cases allow you to invest tax free for accounts that have limited withdrawal opportunity. To learn more I suggest you dig through this article and check it out to see if it looks like a good fit for you investment strategies: https://www.self.com/story/hsa-fsa-hra-difference .

Taxed Accounts

Unless you are an active day or swing trader this should be the last account you invest in. These accounts are usually offered through brokerages and are relatively easy to manage your investments at the cost of options in some cases. You can actively trade in these accounts, however, note that all trades will be taxed both when bought and sold.

Wrap Up

In conclusion today we talked about types of accounts, types of assets and in general(very very very basic) how they are traded on the market. Tomorrow we will dive into my specialty, active trading so please please return tomorrow for an article that may or may not change how you view the market!

-Jessy

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