FAQ and Resources
What is the stock market?
The stock market in a nutshell is a way for you to invest in companies. Essentially you are buying shares (pieces) of the company in hopes of a return on your investment. The stock market is speculative and reflects the price of the companies 3 to 9 months into the future.
https://www.quickenloans.com/blog/stock-market-101-stock-market-workWhat are the differences between ETFs and mutual funds?
Generally speaking, there are two fundamental differences:
1. ETFs can be traded during the day which means their prices fluctuate during the day. Mutual fund prices do not fluctuate during the day. Instead, mutual fund prices changes after the market closes.
2. ETFs are generally not actively managed whereas mutual funds are actively managed. Therefore, ETFs carry a lower expense ratio whereas mutual funds carry a high expense ratio. Not to mention, some mutual funds have a required minimum amount you must buy in order to be able to purchase that mutual fund. On the other hand, ETFs do not have a minimum amount.
https://www.investopedia.com/articles/investing/110314/key-differences-between-etfs-and-mutual-funds.aspWhy should you buy ETFs vs individual stocks vs mutual funds?
ETFs carry a lower expense ratio + do not have a minimum buy in vs mutual funds.
ETFs super diversify your portfolio where you are putting a lot of eggs in multiple baskets to distribute your risk vs individual stocks.What is dollar cost averaging?
Dollar cost averaging is pretty much not making a lump sum purchase. Instead you are buying at a constant rate to average up or down a stock.
https://www.investopedia.com/terms/d/dollarcostaveraging.aspHow does dollar cost averaging look?
There are 2 factors when it comes to practicing dollar cost averaging:
1. time spread = spread out your buys over a period of time. For example, buy once every month or twice a month. Do not buy back to back days.
2. buy spread = buy at different price points. for example, buy high, buy medium, and buy low. your cost basis will average out to be medium
Why should you follow/practice dollar cost averaging?
This prevents you from buying at a true high or low. Yes it does cap your gains, however it is the safest way to invest because it also caps your losses. It makes investing simple and easy with as little thought as possible. I have bought plenty of stocks that were at a -10% or +10% for the day because I understand that I am buying quality stocks. Eventually the quality stocks will increase!What brokerages do I use to trade stocks?
https://www.tdameritrade.com
https://www.merrilledge.com
https://www.robinhood.com
https://www.vanguard.com
https://www.sofi.com
https://www.webull.com
https://www.coinbase.comWhat is retirement?
I define retirement as living cost = income. For example, if I add up all my expenses and determine that I can live off $50,000, then that is the income that I need after taxes (pre tax amount is ~$61,000 of income).
Here is an awesome calculator to give you an idea on how much you need and how long that nest egg will last with your given inputs:
https://www.bankrate.com/retirement/calculators/retirement-plan-calculator/What is 401k/roth IRA?
It is a retirement account that allows to pay tax later (pre tax = deferring tax = 401k) or pay tax now (post tax = nondeferred tax = Roth). Anything that has "Roth" means that it is post tax where you pay tax now and put money into your Roth IRA (or Roth 401k).
https://www.investopedia.com/ask/answers/100314/whats-difference-between-401k-and-roth-ira.aspHow much should I put into my retirement account?
The specific answer would be putting anywhere between 7.5% to 15% of your income to your 401k or Roth IRA or both. The broad answer to this question would be to contribute what you feel comfortable contributing and slowly increase the amount after each year to hit close to 15%.I am retired now. How much should I withdraw from my retirement account?
It is safe to say that you can withdraw anywhere between 3% to 4% of your retirement nest egg. This all depends on how much your anticipated spending is during your retirement. I highly recommend playing around with the retirement calculator that is below to give yourself an idea on how much you can withdraw.
https://www.bankrate.com/retirement/calculators/retirement-plan-calculator/How do my investments get taxed (short term vs long term capital gains tax)?
Capital gains tax is tax that is added in addition to your income tax. Short term capital gains gets taxed at your income tax bracket whereas long term capital gains gets taxed at 15% (or 20% if your income exceeds a certain amount).
https://www.investopedia.com/articles/personal-finance/101515/comparing-longterm-vs-shortterm-capital-gain-tax-rates.asp
You can use the below link to get an idea of how much tax you'll be paying:
https://smartasset.com/taxes/income-taxesWhat are the different types of investing risk level and the returns per year associated with it?
1. certificate deposit (CDs) = return around 1%
2. bonds = returns around 2% and this is tax free!
3. ETF stocks = historically returns around 5-9%
4. individual stocks = returns -50% to 50%
5. options on stocks = returns -100% to 1000%+What are some terminologies to know to help me understand the stock market better such as price to earning ratio (PE), capital gains, etc?
I will have to refer to Investopedia on this! This website is a great learning tool to get your feet wet on the terminology.
https://www.investopedia.com/financial-term-dictionary-4769738What are some websites to do research on stocks?
There are two ways to approach analysis on stocks.
1. Technical analysis which involves using charts/data to inform your decisions
A. https://www.tradingview.com/
B. https://www.investopedia.com/simulator/
C. https://www.wallmine.com/
D. https://seekingalpha.com/
2. News
A. https://www.marketwatch.com/
B. https://finance.yahoo.com/As an investor, what type of stocks (growth stocks vs dividend stocks) are right for me?
To answer this question with a general answer, everyone is different and has their preferences. To answer the question more specifically, if you have time on your side as in you are willing to wait 10+ years, then I would definitely aim for growth stocks. If you have a short horizon or are older, then go for dividend stocks primarily. To summarize, if you are:
young = growth stocks
older = dividend stocksWhat is the ideal portfolio?
This definitely really depends on two factors:
1. Age factor = The younger you are, then the more you can risk because you have time on your hands. On the other hand, the older you are, then the more your portfolio should be weighted in bonds/cash. For example, if you're 50, then your portfolio is 50% bonds + 50% stocks. When you're 60, then your portfolio shifts to 60% bonds + 40% stocks.
2. Risk factor = everyone's risk appetite is different. For example:
I. low risk = 20% cash + 40% bonds + 40% stocks
II. med risk = 10% cash + 20% bonds + 70% stocks
III. high risk = 5% cash + 10% bonds + 85% stocksShould I buy penny stocks or any other high risk stocks?
I highly recommend avoiding this. What is more important is creating a foundation by buying ETFs or blue chip stocks. If truly cannot ignore your inner demons, then I would invest no more than 10% of your portfolio on high risk stocks.