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Beginner's Guide to Investing

Lesson 2 of 12

Compound Interest in Action

 

Beginner's Guide to Investing

Lesson 2 of 12

Compound Interest in Action

 

Lesson Info

Compound Interest in Action

first why investing is even important in the first place. So we have three key reasons, and a big one is compound interest. One of my favorite quotes allegedly, Albert Einstein said it. It's that compound interest is the eighth wonder of the world. He who understands that earns it. He who doesn't pays it. Many of us have been on the wrong side of compound interest when we have debt. But compound interest in its simplest form, is the idea of earning interest on your interest. It creates the snowball effect. So in a really simple example, let's say, this year you invested $1000 it earned a nice return of 10%. So at the end of the year, you have $1100 in year two. What's going to happen is you're now earning interest on that $1100 not just the original $1000 that you invested, so it's earning interest on your interest. It's the snowball effect that works for you when you're investing, works against you when you're paying off debt. So that feeling of how is it that I'm putting $400 a month...

towards my student loans, and this never seems to go down. That's compound interest being the bad guy. So let's give it a more specific example. So in January of next year of 2020 you are going to put $1000 into an index fund, and each month after that you're going to put $100 a month into this index fund. And you're going to do that for 20 years, $100 a month for years and you're gonna get over that 20 years, an average 7% return on your investments. What I mean by that is some mark. Some years the market's gonna be great. Maybe you get a 12 15% return, and some years it's gonna be crappy. It could even be negative. But on the whole, over this 20 years, we're going to see you got 7%. So by December 31st 2040 you have accumulated just shy of $50,000 in this investment. What if you just saved $1000 as your initial investment and then put $100 per month in there and said we're not investing in this case we're saving? You'd have about half $25,000 depending on the interest rate. Your savings account would fluctuate a little bit, but this is a wonderful example of how when you invest your money is doing some of the heavy lifting for you. This is the exact same behavior. But in one case, you an investor in one case, you're just saving. So I asked every expert I interviewed for my book. What is the biggest mistake that a rookie investor can make when it comes to investing? And almost every single person said not starting early enough. Time is our greatest asset in our lives as investors, but a lot of times we procrastinate, procrastinate, procrastinate because they're coming up with various excuses about why we can't get started.

Class Description

AFTER THIS CLASS YOU’LL BE ABLE TO:

  • Create an investment plan that’s right for you and your budget
  • Build your net worth through stocks
  • Know the basics of investment terminology
  • Create short, medium, and long term financial goals
  • Understand your company’s investment options

ABOUT ERIN'S CLASS:

Exchange-traded funds. Brokerages. Asset allocation.

Most people want to start investing, but have no idea where to begin. How much do you need to start? How do you know if you’re taking the right first steps? In Beginner’s Guide to Investing, author and financial expert Erin Lowry breaks down the obtuse language and lays out your investment strategy options. Learn the common misunderstandings, set your financial goals, and take strategic steps no matter your starting amount, time frame or business context -- Erin has you covered.

Don’t let beginner’s paralysis get in your way; Erin provides you with the knowledge and tools for financial literacy. Learn the basics of investment terminology, the stock market, saving for retirement and everything you need to feel confident to start growing your wealth.

WHO THIS CLASS IS FOR:

  • Young professionals

ABOUT YOUR INSTRUCTOR:

Erin Lowry is the author of Broke Millennial: Stop Scraping By and Get Your Financial Life Together and Broke Millennial Takes On Investing: A Beginner’s Guide to Leveling-Up Your Money. Her first book was named by MarketWatch as one of the best money books of 2017 and her style is often described as refreshing and conversational. Erin has been featured by The New York Times, The Wall Street Journal and USA Today and on CBS Sunday Morning, CNBC and Fox & Friends. When she’s not thinking or talking about money, Erin is planning her next travel adventure or probably looking up pictures of dogs. Erin lives in New York City with her husband.

Lessons

  1. Class Introduction

    Meet Erin, self-titled “investing translator” and personal finance expert. In this lesson, Erin shares her background, addresses misunderstandings regarding investing, and lays out what you’ll learn in this course: how to know if you’re ready to start investing, must-know terminology, how to handle market ups and downs, retirement plans and more.

  2. Compound Interest in Action

    What is compound interest and how does it work to maximize your returns in any investment account? Erin shows you how compound interest works in your favor over two years, five years and beyond with clear examples.

  3. Time

    Why does time matter so much in terms of investing? Examine a case study with Erin to see how time functions with compound interest to yield higher returns.

  4. Inflation

    In this lesson, learn how investing just a little money can help you combat and even beat the inevitable effects of inflation.

  5. Setting Financial Goals

    What do you need to consider when preparing to invest? Erin shares a checklist to be sure you’re ready. Learn how to approach short-term and long-term goal setting, budgeting and setting up an emergency fund. Erin explains the difference between retirement accounts and taxable accounts.

  6. Must Know Terms

    Being a new investor can be intimidating -- as someone who approached the process without prior knowledge or a finance background, Erin lays out the must-know terminology in layperson’s terms. In this lesson, learn about how to diversify your investment portfolio, factors such as your time horizon and risk tolerance, and the difference between bond funds, ETFs, mutual funds, index funds and more.

  7. Fees

    Don’t let high management fees and fine print sneak up on you; learn how to vet brokerages when considering your investment options. Erin explains and advises on expense ratios, what to ask when considering contracting a financial advisor and where to find details on associated fees to ensure you’re getting value for your money.

  8. Quick History of Stock Market

    Financial downturns have been devastating, yet studying past market events can show us how to weather the storm. Erin gives a quick review of previous American stock market downturns and how to protect yourself when the market does go down.

  9. DIY Approach

    You’re ready to invest -- how do you start? What level of involvement do you prefer? Erin walks you through different options and factors to consider: investment advisors, discount brokerages, minimum deposits, roboadvisors and micro-investing apps.

  10. Investing with Debt

    Should you be investing with debt? Whether you have credit card debt or student loans, Erin advises on whether it makes sense to start investing or not.

  11. Retirement

    Why should your investment goals prioritize retirement and why should you start now? Erin walks you through questions to consider when opening a retirement account and explains the differences between the 401k, 403b, traditional IRA and Roth IRA.

  12. Picking Initial Investments

    In this final lesson, Erin advises on how to choose your investments and approach building your portfolio. She closes by sharing valuable online resources for further information such as calculating compound interest, opening a brokerage account and researching investment options.

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