1. Intro
Ultimate goal is to live by passive income or investment rather than working
System way: guide by ChatGPT
- Define Financial Goal
- Understand Risk Tolerance
- Create Emergency Fund
- Educate on Investment Options
- Retirement Accounts
- Choose Investment Platform
- Diversify Portfolio
2. Investment Accounts
Taxable Brokerage Accounts
- Take advantage of capital gain tax rates
Traditional Retirement Accounts
- IRAs, 401K
- Taxed later
Roth Retirement Accounts
- Taxed now
3. Type of Investments
Money market funds: money sit in the account until invest
Stocks: buy a piece of that company
- Return come from dividend payment and increase in the fair market
- Volatile, would generate higher return
Bonds: lending money to that company
- Return come from interest payments and return of principle
- More stable, lower return
Mutual Funds: a basket of stocks, but charge an expense ratio
Index Funds: like Mutual Funds, require less expense
4. Order
Limit order
Market order
Stop order
Stop-limit order
5. Practice
Set clear investment goal
- More precise, easier to sort out the best means
- Set time limit, the longer, the less risk
- Evaluate finance
Determine how much can afford to invest
- Exclude the emergency fund (few months of mortgage or rental, and other bill)
- Set a budget
- A large lump sum
- Investing smaller amounts at set times each month
Appraise the tolerance of risk
5.1. Cost of Investing
Commissions and fees
- Trading commissions
- Maintenance fee
- Service fees
5.2. Stock Selection
Blue chips
Dividend stocks
Growth stocks
ETFs
6. Tax-Efficient Investing
Two account
- Taxable account: regular account
- Tax-Advantaged account: IRA/401K/Roth 401K
7. Behavioral Finance
Financial participants are not perfectly rational and self-controlled
Concept: mainly 5 concepts, can explain the bais
- Mental accounting: propensity for people to allocate money
- Herd behavior: mimic the majority
- Emotional gap: decision based on extreme emotion
- Anchoring: attaching spending level to a certain reference
- Self-attribution: tendency to make choices based on overconfidence in one’s own knowledge
Bias
- Confirmation bias: should look for more information
- Experiential bias: should look forward
- Loss aversion: when loss, just quit, don’t expect go back
- Familiarity bias: should diverse
8. Economic Cycles
Circular movement of an economy, from expansion to contraction and back again
- Expansion, uptrend through the expansion stage
- Peak: growth hit maximum rate
- Contraction: growth slows, employment falls
- Trough: hit low point