The main goal of this introduction to personal investing is to convince my audience that they are capable of investing their hard-earned money and provide them with the tools to do it. I observed on the examples of many acquaintances that people, who are uncomfortable with investing sort themselves into two camps: they either manage their investments in a very haphazard fashion, occasionally investing some money based on a friend’s advice without a coherent strategy or they entrust all their money to a financial advisor paying 1% of the portfolio or more, in most cases without good understanding of what happens to their assets.
Personal investing is one of the areas (along with photography, tax preparation, travel planning), which became democratized thanks to the plethora of online software tools, giving the amature practitioners much more power than they had, say 20 years ago. I strongly believe that upon learning a few basic investment concepts, one can manage the investments on their own, or, even if they employ a professional, have a better understanding of how their portfolio is managed.
We’ll start the class with the discussion of what makes investment different from saving or from speculation. We’ll talk about the role the time horizon plays in the investment decisions and the power of compounding.
We’ll then move to the traditional investments: stocks, bonds and cash by diving into the nature of each of these categories and how they complement each other. I’ll mention alternative assets (real estate, crypto, precious metals) and the reason why they are considered “alternative”.
Next, we’ll proceed to the basics of building investment portfolios (consisting mainly of stocks, bonds and cash) by learning about the three important concepts: risk management, diversification and investment costs, which constitute the guiding principles for creating such portfolios. We’ll talk about passive vs. active investing strategies and discuss stock indexes like S&P 500 or Dow Jones Industrial Average.
I also plan to talk about behavioral biases, which prevent us from becoming successful investors and how to recognize and overcome them.
Having done with the theory, I will describe investment vehicles you can use to grow your assets: mutual funds, ETFs, 401Ks, target-retirement funds, robo-advisors and traditional brokerages. These vehicles make it easy to implement your investment strategy by combining risk management, diversification and low investment cost.
NB: I am not a professional investment advisor. The information I will present is based on my personal investment experience and on my reading of the investment literature and internalizing the concepts (all of them pretty basic) of successful long-term investing. My goal is not to recommend any specific investments, but to provide the knowledge one can use to become successful long-term investors themselves.