Investing Is The Best Thing: An Introductory Guide to the World of Investing for Teenagers and Their Parents

By Jamaal C. Boyce

This book is a beginners guide that introduces young adults and their parents to many aspects surrounding the world of investing.

• Language: English
• Publisher: J Carmichael REI L.L.C.
• Release date: Nov 9, 2023
• ISBN: 9798987045558

Book preview

INVESTING

Is the Best Thing

An introductory guide to the world of investing for teenagers and their parents

Jamaal C. Boyce

Copyright © 2023 BY J Carmichael REI L.L.C.

All rights reserved. This publication, or any part thereof, may not be reproduced in any form or by any means, including electronic, photographic, mechanical, or by any sound recording system or by any device for storage and retrieval of information without the written permission of the copyright owner.

Printed in the United States of America

DEDICATION

This book is dedicated to the memory of my mother,

Marlene Diana Boyce. I love you and miss you dearly.

I will always remember to pray for peace.

Contents

PREFACE

Chapter ONE

The Investing Mindset

Chapter 1.1: Introduction to Investing

Chapter 1.2: The Importance of Time

Chapter 1.3: Greater Fool Theory: Don’t be the Greater Fool

Chapter 1.4: Margin of Safety: Why you Need It

Chapter 1.5: Rich vs Wealthy: What’s the Difference?

Chapter 1.6: Market Crashes Can Be Good

Chapter 1.7: The Power of Compound Interest

Chapter Two

Investment Accounts

Chapter 2.1: Brokerage Account

Chapter 2.2: Retirement Accounts

Chapter 2.3: UGMA/UTMA Account

Chapter 2.4: 529 Account

Chapter 2.5: Education Savings Account

Chapter Three

Basic Investment Knowledge

Chapter 3.1: Introduction to Financial Markets

Chapter 3.2: Functions of the Financial Markets

Chapter 3.3: Common Investment Types

Chapter 3.4: Saving vs. Investing

Chapter 3.5: Best Time To Start Investing

Chapter 3.6: Investing Basics

Chapter 3.7: Amount of Money Needed to Start Investing

Chapter 3.8: Figure out and Set your Investment Goals

Chapter Four

Budgeting for Your Investments

Chapter 4.1: How to Spend Money Wisely

Chapter 4.2: Ways to Make a Plan to Spend Money

Chapter 4.3: Understanding Budgeting and Its Importance

Chapter 4.4: Steps to Make a Budget

Chapter 4.5: Different Budgeting Strategies

Chapter 4.6: Using Budgeting and Tips for Your Budgeting

Chapter 4.7: Downloadable Budget Templates

Chapter Five

Stock Market Investing

Chapter 5.1: Introduction to The Stock Market

Chapter 5.2: History of the Stock Market

Chapter 5.3: Understanding Income, Value, and Growth Stocks

Chapter 5.4: Dow Jones & Company

Chapter 5.5: The S&P 500

Chapter 5.6: The Nasdaq

Chapter 5.7: Learn How To Start Trading

Chapter Six

Other Types of Investments

Chapter 6.1: Bonds

Chapter 6.2: Real Estate

Chapter 6.3: Options Trading

Chapter 6.4: Funds

Chapter 6.5: Mutual Funds and ETF’s (Exchange Traded Funds)

Chapter 6.6: Cryptocurrencies

Chapter 6.7: Intellectual Property

Chapter 6.8: Commodities

Chapter Seven

Start Investing

Chapter 7.1: Create an Investment Plan

Chapter 7.2: Decide on Account Types

Chapter 7.3: Select your Investments

Chapter 7.4: Monitor Your Investments

Chapter Eight

Investment Strategies and Stock Analysis

Chapter 8.1: Strategies for Long-Term Investing

Chapter 8.2: Determine your Financial Goals

Chapter 8.3: Risk Tolerance

Chapter 8.4: Portfolio Diversification

Chapter 8.5: Understanding the Balance Sheet

Chapter 8.6: Understanding the Income Statement

Chapter 8.7: Understanding the Cash Flow Statement

Final Thoughts

QUOTES TO HELP YOU ON YOUR INVESTING JOURNEY

Afterword

ACKNOWLEDGEMENTS AND THANK YOU’S

PREFACE

As a teacher of Economics and Investing for the past several years, it has amazed me how many of my students have little to no savings or investments for graduation. Whether it be to pay for college, start a business endeavor, or simply start the process of adulthood, the lack of savings and or investments for 99% of my students has been troubling. My economics and investing course is taught in their senior year of high school, right as they are about to graduate. When I ask my students how they are paying for college, most have no idea; a common answer is to take out debt. When I ask them why they have no savings or investments to pay for college or to start a business, the common answer is, I don’t know.

Most say no when I ask my students if they discuss investing with their parents. Many say that their parents have no idea about investing in their future. Many parents I have spoken to have told me they don’t know anything about investing, that it is confusing, and that they have no outlet to learn about investing they trust. Students AND parents seem to believe it is a complicated process they cannot do. Many are intimidated by doing something as simple as opening a brokerage account.

As an activity, I like to show my students a compound interest calculator. We would play around with it using different numbers and rates of return. Using the calculator, I show my students how they have wasted every person’s most valuable resource. TIME. They are amazed at how much money they could have had if someone had invested for them consistently over the past 18 years. I encourage them not to waste the next 18 years of life and to start learning about investing. I never tell them what to invest in, rather give them different options. What works for one person may not work for another. I encourage them not to waste THEIR children’s greatest resource when they finally have children.

This book was written with an online course I created titled Investing Is The Best Thing. The purpose is to expose teenagers and their parents to investing. Learning about the world of investing is a lifelong journey. You never graduate. You must consistently continue to learn about the world of investing. There are things that I myself continue to learn on a daily basis. This book and my course aim to get teenagers and their parents on the path to investing to build wealth for themselves and their future generations. Hopefully, in the future, when I ask my seniors how they are paying for college, starting a business, or just adulthood, they will have concrete answers and resources to do so. This is why this book and my course exist.

Chapter ONE

The Investing Mindset

Chapter 1.1: Introduction to Investing

Investing is laying out money now to get more money back in the future.- Warren Buffet

If you don’t find a way to make money while you sleep, you will work until you die.- Warren Buffet

There are many different definitions of the word investing. An investment or investing is when you purchase an asset(resource) with the hopes of generating future income or an increase in value(appreciation). Appreciation is the increase in the worth of an asset through time. When a person buys an investment, the intention is not to consume the asset immediately but to use it to build wealth in the future. Simply put, an investment is when you purchase something now, hoping to make more money from that purchase later.

Investing is the outflow of a resource today—time, effort, money, or another asset—with the expectation of a bigger payback later than what was first put in. An investor may purchase a financial asset now with the hope that it will provide income in the future or that it can be sold at a higher price in the future.

An asset is anything of value that has the potential to provide economic benefits to the owner. When investing in any asset, you should always ask yourself these three questions: How much money can I make? When will I get this money? And how sure are you that you will get it? Of course, you won’t have the exact answers when you purchase the asset, but these questions can help you determine if the asset you are investing in is worth it. Some examples of assets include

Financial Assets: Cash, bank accounts, stocks, bonds, and other securities that have a monetary value and can be easily converted into cash.

Physical Assets: Tangible items such as real estate, vehicles, machinery, equipment, and other physical possessions that have value and can be used or sold to generate income

Intangible Assets: Assets that aren’t physical but have value due to legal or intellectual rights. Examples include patents, copyrights, trademarks, and goodwill.

Business Assets: Assets owned by a business, including physical assets like machinery and property, as well as intangible assets like brand recognition and intellectual property.

There are others as well…..

Simply put, an asset is any resource you own that puts money in your pocket. You want to invest in assets.

*Do not confuse assets with liabilities. If an asset is something that puts money in your pocket, a liability is something that takes money out of your pocket. Make sure you are investing in ASSETS, not liabilities.

Always remember this quote: Assets feed you, Liabilities bleed you.

Question:

If you lost your job and could never work again, how long could you live off of the assets that you own? Can the assets that you own feed you and take care of you? How long would you survive if you had to live off the assets that you own in order to take care of your liabilities? The answer to these questions should either make you feel extremely good or should scare you.

How an Investment Works

The act of investing seeks to generate income and increase value over time. Any method used to generate future income may be considered an investment. This involves, among other things, the purchase of bonds, stocks, or real estate property. Buying a building with the intention of renting it out is an example of purchasing an investment.

Any activity intended to increase future income might be considered an investment. When a person seeks higher education, for example, the goal is often to gain knowledge. The initial investment of time in class and money for tuition could result in greater earnings throughout the course of the student’s career. This too, is an investment.

Because investing is focused on the possibility of future development or income, every investment carries some risk. An investment may not provide any income or may lose value over time. For example, a corporation you have invested in may go out of business. Every investment carries risk, even the safest investments.

Objectives of Investing

The following are popular investing goals:

Safeguarding your Money

Investing protects your money against sudden and wasteful spending. It also assists you in protecting your money from the consequences of inflation. Unless your money is placed in an interest-earning asset, inflation erodes its value. As a result, investing will help you stay up with inflation automatically.

Growing your wealth

The best way to grow your wealth is to invest wisely. It allows your money to earn interest, and if you maintain the interest invested your interest will begin to earn interest as well(compounding). You can’t save your way to being wealthy, but you can invest your way to become wealthy.

Building Funds for Emergencies

Everyone in life will have financial ups and downs. Sometimes you make a good income and save money, but other times you need a huge quantity of money for an emergency. Building investment pools would come in handy on the down days. Investing can help build substantial funds for emergencies that will happen in life.

Securing Your Retired Life

A great retired life is one in which you do not have to worry about how you will get money to support yourself. After you’ve saved and invested enough money for retirement, you’ll enjoy the freedom that comes with it. Investing early and in the right assets(assets that generate income for life) can allow you to retire with less financial worry.

Saving on Taxes

When you invest in a stock, and it appreciates(goes up in value), and you sell it, you pay what’s called capital gains tax. When you work at a job and get paid, you have to pay what is called income tax. Long-term capital gains tax(after a year of holding a stock when you sell it) is lower than income tax. When you sell a stock within a year and make money on it, it is still considered income tax, so you pay a higher rate.

Let’s keep it simple. Let’s say you own a stock for a year, and you sell it and make $100,000 from the sale of the stock. You will pay capital gains tax. Now, let’s say you work for a year and make $100,000 in taxable income. You will pay income tax. Income tax is taxed at a higher rate than capital gains tax. So in essence, the money you worked for is taxed more than the money you DIDN’T work for. Not to mention, if you have another stock that you owned for a year and sold at a loss losing money, you can use that against the stock you made money on that you owned for a year, also helping to reduce your taxes. Do you see why Investing Is The Best Thing?

It could be argued that receiving a paycheck is the worst way to get money because it is taxed at a higher rate. The wealthy understand this. The middle class and poor do not. You can get rich by getting a paycheck, but in order to get wealthy, you must invest. It’s that simple.

Funding Bigger Life Goals

Your monthly salary may not be sufficient enough to buy your next automobile or to buy a home for your family. However, if you save and invest a tiny amount over a few years, both scenarios may be achievable.

Different Categories of Investments

Depending on the sort of asset you invest in, you may anticipate a specific level of risk and return. There are many different types of investments:

Stocks

Bonds

ETF’s

Mutual Funds

Real Estate

Real Estate Investment Trusts(REITs)

Commodities

Certificates of Deposits(CDs)

Retirement Plans

Options

Derivatives

Index Funds

Cryptocurrency

Business Ownership

Intellectual Property

Forex(Foreign Exchange)

Fine Art

Cash

And many more…..

Chapter 1.2: The Importance of Time

I made my first investment at age 11. I was wasting my life up until then- Warren Buffet

The wealthy invest in time. The poor invest in money

- Warren Buffet

Time IN the market beats timing the market.

- Warren Buffet

Investing might seem to be a high-risk, difficult, and fast-paced process. With an infinite number of investment vehicles to select from, it might be tough to take your first step as an investor, particularly given that all investments entail the danger of losing some or all of your money. So, what’s the point?

There are several compelling reasons to include investing in your entire financial strategy. Investing may help you maintain your wealth by eliminating the impacts of inflation(rise in prices of goods and services over time), saving for long-term objectives (like retirement or your children’s education), or creating passive income(income you don’t actively work for). So, how can you overcome all the disadvantages of investing and make it work for you? A good place to start is to recognize that if you are a young investor, you have time on your side. Time is the greatest resource we all have, for the simple fact it is non-renewable. You can’t get time back. Wasted time is gone forever.

Time And Luck

The Myth

There are countless stories of people who took major risks in an investment and struck it rich quickly. We all love the get rich quick stories because we all secretly aspire to be the stars of such stories. Those success stories contribute to the myth that being a successful investor is similar to being a hotshot gambler in that you must risk everything in order to reap a worthwhile reward and that some people are born with the innate ability to predict the market, make the right moves, buy and sell at the exact right time, and strike it rich.

The Reality

The fact is that serious investment takes a significant amount of time. Investing properly requires a thorough education. If you invest in the stock market without doing your homework, you may as well be playing the lottery or gambling. You are leaving your investments up to chance. Educating oneself about the stock market is a difficult endeavor that requires continual study. It’s not only about knowing how economies and global markets function; it’s also about remaining informed about what’s going on in our world. A wise investor closely monitors the sectors and firms in which they invest by tracking things like performance, governance, public opinion, and industry trends. Consider all of that data changing and upgrading on a regular basis. Most people don’t want to put in this work, which is why only a few are successful investors.

When we recognize that investing may take some time, we reduce chance investing. It’s not about taking a chance but about making informed judgments, which is a good thing since it means investing is something you can practice, investigate, and eventually improve on over time. Investing can be pretty boring. If you are having wild swings in emotion or high excitement and downswings, you may not be investing. You may be gambling. Investing to build wealth takes time. Plain and simple.

Time and Risk

The Myth

There is a horror tale for every investment success story. Acting on faulty advice, losing every single cent, and being taken advantage of by an inept financial advisor are just a few of the examples. This myth reinforces the notion that investment is too dangerous and unpredictable to be worth the time or risk. One of the common things people will ask is, Isn’t investing risky? Why waste my time?

The Reality

Life by itself is risky. Getting behind the wheel of a car is risky. However, you can control the level of risk. If you drive 160 mph while on the phone with one eye open, that is a different level of risk than doing the speed limit with both eyes on the road. No investment is ever guaranteed, which means your money is never completely protected. Some forms of investments may be safer than others, but the danger of losing money is always there. However, your choices when investing are no different than your choices in life. Using logic and a level of common sense combined with controlling your emotions and learning more each day will set you up for success in life and investing.

After making sound, well-researched investment decisions, the period of time it takes for your investment to mature is your strongest defense against risk and