Episode 6

This episode discusses some basics about the financial markets and information to help people make educated decisions about investing their money.

Transcript

SPEAKER_01 1:06

Whether you're just starting your financial journey or you've been around the block. Welcome to money, finance, and investment with Mr. Will.

SPEAKER_00 1:29

What's up everybody? Welcome to today's episode of Money, Finance, and Investments with Mr. Will. Today I'm going to address a subject that I get asked questions about all the time, and that is investing. What should I invest in? How should I invest? What things do I look at to determine what my investment should be and all these different things? So thought it would be a good idea to just tackle that topic on today. I'm going to address the main and most common things as it relates to investing, and I'm not even going to be able to address all of that, obviously, in the amount of time that I have for today. There are going to be a lot of other things that people invest in. Again, just focusing on the basics and addressing those things for this particular segment. So when we're talking about investing, there are really three major markets that people invest in. You have the stock market, you have fixed income markets, then you have currency markets. And they're all, of course, are a little different. Okay. So the stock market, of course, is where you invest in shares of a company, you own shares of a company in one of several different ways. That company is a publicly traded company. There are privately held companies that have private offerings, but I'm not getting into that. So with the public uh offerings, you can buy shares like of Walmart, IBM, Marriott, John Deere, PayPal, etc. And there are different ways that you can do that. You can do that through a direct uh ownership in that particular share. In other words, you can get it directly, you know, going uh to that particular uh to the stock market uh and getting shares of that company of those holdings individually, or you can do it through mutual funds or exchange traded funds, which means you own a little piece of that company, but you may own a little piece of that company and five or six or ten others, depending on what the particular holding is, what the particular mutual fund is. Uh, there are specific kinds of mutual funds. There are mutual funds for technology, there are mutual funds for things like uh the healthcare industry and uh like textiles and all the different types of sectors uh that are available, and then any combination thereof. So there are even crypto um uh funds, mutual funds, and so you can invest in uh in equities, which which is what those are called, in a variety of ways, and that's considered the stock market. Okay, now the stock market is um a uh a market that uses indexes to kind of you know evaluate and look at things from day to day, week to week, month to month, etc. And the three main indexes that people use when they're looking at the stocks and they're looking at information and data as it relates to making decisions is the Dow Jones, the NASDAQ, and the SP. Now the Dow Jones is the oldest of those three. It also is the one that is the not the smallest in the sense of size, but in terms of the amount of companies that will be represented uh by it. And only there's only 30 companies on the Dow Jones, and those 30 companies are uh selected by a committee, and they are basically well-known, well-established, some would even call famous uh companies that are amongst the largest, if not the largest, in the United States. Okay, these are all U.S. companies, and uh again, it's only 30 of them, and people look at uh those uh that particular indicator as a way of looking at the day-to-day performance of the market. You know, the market had a good day, bad day, um, you know, or maybe even other little trends like you know uh were the uh economy as a whole, should I say, um, how it's looking as a whole, right? In the short term. The NASDAQ is a little different. And uh the NASDAQ is uh an index that has uh a little over 2,500 companies. Uh it's called the Nasdaq composite. And these are primarily uh technology, innovation, uh growth, you know, fast growth companies. Okay, so they they're really kind of specific in terms of the sectors that are looked at. Okay, so it gives a snapshot, so to speak, of um how the economy is doing as it relates to that those particular sectors, technology, innovation, fast growth. So it gives a different viewpoint, so to speak, of the markets. And so if you're an investor and you're looking to invest, right, then you may uh look at that that index, the NASDAQ that is, and based on how the NASDAQ is doing, you might not want to invest in any technology um shares or stocks, or you may want to, just depending on what your particular focus or goal is. And so um the next one is the SP 500, and the SP 500 is a um index that is representative of the 500 of the largest companies in the US, which is why of course it's called the SP 500, right? Now, a little side note, there are other um uh breakdowns of this, for example, there's the SP 100 or the NASDAQ 100, right? So there are other variations of this, but these are the main ones that uh people refer to. And the um SP 500 is generally the one that experts and financial analysts would have you look at to get a bigger overview of the economy as a whole, because these are 500 of the largest companies in the country. So when they look at this index, it it gives you a more broader view of how the economy is doing as a whole as opposed to particular sectors, right? And so if the SP 500 is up, uh then that's a suggestion that the the economy as a whole in all different the all the different um sectors are doing fairly well, right? And so as an investor, if you are someone that's doing your due diligence, you know, you will look at these and based on what your particular goal is or what your particular strategy is or what your particular focus is, you will look at this as an indicator as to what type of uh investment and or equity or stock or share you would like to invest in. Again, whether that's a uh single stock, you know, when I say a single stock, meaning um it's not a mutual fund or exchange traded fund, it's it's Microsoft, and you want 100 shares of Microsoft, okay, versus you're looking at a mutual fund where it says, okay, well, based on what the SP 500 is showing, you know, I'm looking at maybe again an in uh a mutual fund that has holdings of a variety of companies. And there are also index funds as well. And so each of these markets have, or each of these indexes have funds that you can buy an index fund that has all of these companies, a piece of all these companies represented in them. So these are different ways that you can invest in the equities market or the stock market. Okay, then you have the fixed income markets, and the fixed income markets are bonds, treasury securities, uh CDs, high yield savings, money market, these types of things. Of course, these are more conservative, they're unlike stocks, they're not volatile, they're not constantly bouncing up and down. You know, a stock you can buy a stock in any particular company, and today it could be $14 a share. Tomorrow it could be $12.30 a share. You know, three days later it can be $19 a share. So that fluctuation happens with the stock market or with stocks, and that's true with mutual funds and exchange traded funds as well, because those stocks are in those funds, so that means that there's going to be fluctuations, regardless of whether it's an individual stock or a basket of stocks in the form of a uh of a fund, right? What a fund does is it gives you diversity. So if you got a fund that has 20 different uh shares in it, if two of those shares are not performing well, but the other 18 are, then your fund as a whole is going to be you know positive because those two that's not performing well aren't going to you know bring it down. Okay, of course it works the opposite way as well. If you got 11 funds that are not doing well, and those 11 funds are uh doing way, way more poorly than the ones that are doing well are, then the fund will be down. So it works both ways, okay. But again, your risk is spread out when you uh do a fund or something like that. But again, contrast that to the fixed income market, you are investing in a fixed income instrument, which could be a bond. So you're not you don't own shares in companies or anything. Um what a bond is is basically a loan. You're loaning that particular company, whether it's a corporate bond, whether it's federal or a local, you know, government. It's basically a fancy way of you know loaning money for them to use that money to do whatever their projects are that they have. Okay, and then of course you have treasury securities, which are treasury bills, you got something called tips, which are treasury inflation protector strips, you have treasury notes, and then you have you know government savings bonds. So these are all more conservative, no volatility, it's not going up and down. There's a fixed interest rate that you get on that, and you can invest in those depending on what your goal is. You know, you may be saving up for a house in five years and you need a certain amount of money for a down payment, and you don't want to risk losing any of your principal, you may invest in a fixed income instrument for something like that, right? Or even maybe for college for your child. Uh, if you have a long-term, uh $529 or those types of instruments are great. But if you're down to like three years and you have a lump sum of money and you want to put somewhere and get maybe three, four, you know, five percent interest, you know, for the next few years without any risk of principal, then you may look at a fixed income product, right? Now the third one, which is probably the least known uh or common of these three, not that it's not common, but the least of these three is the currency market. And in the currency market, you trade currencies against one another, the dollar against the yen, or the you know, the euro against the dollar, the euro against the the yen, or you know, the uh Canadian uh dollar versus the Swiss uh dollar. So there are different lot of different pairs that you can trade against in the currency market, and the currency market is actually by far the largest market in the world. The stock market, if you want to do a comparison, the stock market is like a lake, and the currency market is like an ocean. Okay, so way, way, way bigger market because again, you got currencies from all of the countries that exist, and those currencies are um traded, okay, against each uh other. It's a um it's a potentially well, let me not say it this way. Let me say it this way, rather. The currency market doesn't move um as volatilely as the stock market, but the currency market is also just as much risk, if not more, than the stock market, depending on whether or not you're using leverage. Okay, and again, you can uh look up you know these terms as I'm giving them to you just for time's sake. I don't want to go into detail of all of those, but the currency market is not investing in a company, it is literally investing um in money and betting against one dollar or one currency against another, betting that that particular currency is going to increase or decrease in comparison to the other currency, right? So from a perspective of investing, you know, capital dollars, these are the most common ways that people invest, and um they all have different purposes per se. So if you're looking for growth, if you're looking for a faster way to build your um cash flow or your your your uh return up, then you probably would look at you know some variation of the stock market. Um, if you're looking for some long-term, steady, conservative, again, like the examples that I gave you, then the fixed income markets would work, um, including again using high uh high yield savings of CDs and so forth. Uh depending on what your goal and your purpose is, any of those could actually make sense. But that that that's not where you want to invest if you're trying to like you know really prepare for your retirement account, you know, and you're in your 20s or you're in your early 30s or something like that. You know, you don't the fixed income markets isn't really where you want to be because the growth in those are going to be way, way, way slower. Right now, the currency market is people do invest in it for the long term, but it kind of serves a purpose similar to the stock market. Um, and it's people usually do that because they are in a trading mode and they're trying to actively uh generate a significant return on their money, and so the currency market gives you the ability to do that because with the currency market, uh, there are platforms where you can leverage, where you can use leverage. So because the currency market isn't as volatile, uh, doesn't move as much as the stock market, you can get a platform where you're leveraging your money like 50 to 1, 30 to 1. And so by for every dollar you invest, it has the leverage of investing $30. So you can really accelerate if you know what you're doing, you can really accelerate the potential for growth, but you can also accelerate the potential for loss. So you gotta know what you're doing, you gotta, you know, uh have some due diligence, and unlike the stock market, where you can hire professionals to uh manage a portfolio, you you don't really find um that type of scenario in the currency market. Yes, there are people who will make private arrangements, but you're not gonna go to like a Schwab or a Fidelity or any other financial institution and find an advisor that you can hire to manage the currency for you. That's what I mean when I say that. Okay, so um so so they each kind of have a different uh purpose per se in terms of how to use them. So what's the difference between those different types of markets? Okay, so the the the difference between the the the Dow, the indexes per se, the DAO, the Nasdaq, and the SP um is uh let me see. Let me pull something out here and give it to you this way. All right. So the Dow is again companies like Walmart, McDonald's, Apple, you know, the largest companies. And the the the Dow is weighted differently. Okay, so the way the the index of the Dow works is it's weighted by the price of the company. So a company with a higher price, the that with a stock with a higher price, has more impact on the movement of the market. Okay, uh, that's why you may have heard the term the mag 7. The mag 7, which are uh um Google, Apple, uh Meta, um Tesla, Amazon, um who am I missing? Um Nvidia, um I think I just named them all, right? Those stocks, those companies have over recent years had way more influence on the market than almost all the other companies combined because of their size and their growth, right? They're all a part of all of them except for one, Google is not a part of the DAO, but all the other ones are a part of the Dow, right? They're also a part of the NASDAQ, right? And they're also part of the SP 500. Okay, so looking at those companies um and how they are weighted helps investors to kind of make decisions as it relates to how they want to invest and what they want to invest in, right? Whereas the NASDAQ, the NASDAQ is weighted uh based on the market cap market capitalization, meaning how much market share a particular company has um with regards to their size. Okay, so based on the market share of that particular company or those particular companies, that will impact how it moves the needle within the index of the S P in terms of the performance of it. Okay, so so that is um a considerably different. Barometer, if you will, than the way that Dow Jones is. Then when we look at the SP, the SP is also market cap weighted, right? Which means the total dollar value of the company determines its impact. Okay. And to get into the index, a company must be what they say is huge based based in the United States and highly profitable. So these companies that are listed in these indexes, they do change periodically based on how they're performing and based on where they are at that point in time when you know decisions are made. So all of these things are used to help make a decision as it pertains to whether you want to invest in a startup company or a uh a well-established company or whether you're trying to uh invest to get dividends versus investing to get growth, right? These these are all little intricacies per se that impact the strategy that people use uh as it relates to investing. Okay. Um now there are a number of um in uh indexes that people can invest in. I'm just gonna call out some of them that um come into play, right? So let's see, we got as far as um uh uh index fund that you can invest in, or ETF really. For the SP 500, you have the SPDR, you have the Vanguard SP 500 ETF, which is identified by V the symbol V O O. Uh the spider SPDR, which is referred to as a spider, is SPY. Then you got another one that's called uh the iShares Corp SP 500 ETF, which is IVV. I'm just giving you these um as references because these are uh indexes where you can invest in and you will hold a little piece of all 500 of those companies that are in the SP. Okay, the same thing is available for the NASDAQ. Uh in the NASDAQ, you have the uh Investgo Nasdaq 100 ETF, which is QQQM. Now, I am not recommending that you invest in these or not, I'm just simply identifying what they are and what they represent as it relates to the investment option. You have the Investgo QQQ trust, which is identified by QQQ. Okay, if you were looking to invest in an index fund, okay. Um you got again the um let me see, there was another one here. I think I wanted to point out. Um, the Dow Jones does not have um an index fund like the others, but the Dow Jones again, there's only those 30 companies. You can invest in any of those 30 companies, or you can find a mutual fund that does hold those 30 companies, but um, they're not necessarily considered an index fund per se. All right, so I think um that's um the majority of what I wanted to talk about as it relates to investing. Um you let me see, you typically find um companies, not company, well, yeah, companies and their 401ks invest in or offer, should I say, index funds. So if you work for an employer, you'll have index funds that are available to your employer that are identified differently. Most of them are called lifestyle funds. Even the federal government has um those types of funds, so you'll find those available um to your employer if you want to invest in a way where you have a little bit of all of these uh specific companies available to you to invest in. Okay, of course, um if you want to do a fixed you know income, then there are different you can go you know to the federal treasuries, you can go to banks and get CDs, you can go to corporate a bond market and get corporate bonds, so different ways that you can get uh all of these things. Okay, so um last thing I want to say is how do professionals use these particular indexes? Okay, so they use them to spot trends, they use them to measure performance, they use them to read the economic history, and they use them as a way of looking at the future, um the future potential of what's happening in the market, okay. And just to go back, uh just to make sure I said the mag 7 are Google, Microsoft, Meta, which is Facebook, Apple, Amazon, Nvidia, and Tesla. I might have missed Tesla in the first time when I was listing them. Okay, these are the Mag 7 uh stocks that you know have a significant impact on the markets, right? So that's a little bit of information about investing. Uh, I again obviously I'm not going to get into specifics. You need to talk to an advisor who can assess uh your specific situation as it relates to what you should do or what type of recommendations they may make to you based on your situation. But this I just thought would be helpful as a little quick way of uh providing some information to help you make decisions about what type of investing would make sense for you. So until next time, hope you all find that information useful, and I'll see you on the next episode of Money, Finance and Investments with Mr. Will.

SPEAKER_01 28:33

This has been another episode of Money, Finance, and Investments with Mr. Will. For more information, check out his book. Money Ain't the Problem. What we do with it is so that you can learn how to live your best financial life. In the meantime, be sure to check out our next episode of Money, Finance, and Investment with Mr. Will.