Vishal Reddy - One Hour Investor: A Beginners Guide to Investing Wisely in Stocks, Mutual Funds, and Bonds

Copyright 2019 by Vishal Reddy.

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Table of Contents

Disclaimer

Investing in the stock market is an inherently risky venture, no matter the types of investments you make. At the time of writing, I do not own any of the financial securities mentioned in this book and thus neither recommendnor advise againstany specific securities mentioned within this book. This book is a basic educational guide to investing, and any investing decisions on your part should be made in consultation with a professional financial advisor. I make no claims of any securities mentioned herein, in terms of future profits, losses, or general performance. Investing can lead to financial losses, up to and including your entire invested capital. My words shall be construed solely as entertainment and not as a recommendation to buy or sell any particular financial security or to invest in any particular sector, industry, or asset class. Invest at your own risk.

Introduction

Does the stock market seem like a foreign world to you? When you see financial experts on television, does their nonstop jargon just fly over your head? Dont you wish you understood how the stock market works so you could make money too?

With this book, your wish has been granted!

In One Hour Investor , you will learn to master the basic fundamentals of investing. Whether you want to learn about stocks, bonds, mutual funds, 401(k)s, or investing for long-term financial freedom, this is the book for you. Written in a very accessible style for beginners, One Hour Investor is your handy guide to investing in the stock market and beginning your financial journey.

Whether youre a teen or twenty-something who wants to know how to save for your eventual retirement, a senior who wants a steady stream of income, or anybody in between, the answers are within this book.

One Hour Investor is the quick and easy beginners guide to investing. It covers all sorts of financial instruments as well as basic financial concepts youll need to know to invest wisely. You dont need to be a math whiz or have an MBA to understand anything in this book. Its all laid out for you in plain English with examples so you can learn what you need to know about investing. Theres even a handy glossary at the end of the book if you ever need to look up a financial term or concept.

You can stop worrying about your financial future. By picking up this book, youll have taken the first steps of your journey to financial success. So, what are you waiting for? In just one hour, you could possess enough financial knowledge for a lifetime of successful investing!

CHAPTER 1:
What Everyone Should Know about Investing

Heres a pop quiz for you: Whats the one thing that we all possess, regardless of our station in life? Heres a hint: its actually more valuable than money. The answer is time .

Now you might be thinking, How can time be more valuable than money? Well, there are two reasons. First, time is something we can never get back, unlike money. You can always earn more money, but you can never earn back time once its gone. Second, time is what allows your money to grow for you so you can create wealth and financial freedom. This phenomenon is called the time value of money (TVM) , and its the most important principle you must understand to become a successful investor.

Time Value of Money (TVM)

The time value of money means that a dollar today is worth more than a dollar in the future . How does this work? Lets start with a basic example. Pretend you have two choices. Either I give you $100 right now or I give you $100 next year. Which do you choose?

Obviously, everybody prefers money sooner than later. But the key difference here is that the $100 Im giving you right now isnt going to be spent right away. Thats because you are going to invest it. And thats where TVM comes in.

If you take my $100 right now, you could put it in your bank account and have it earn, lets say, 2% interest per year. So after one year, your $100 becomes $102. That means you made a 2% profit because $2 divided by $100 equals 2% (Figure 1).

But what if you accepted my $100 a year from now and invested it in the same bank account? Youd still make a 2% profit, but it happened a year later. In other words, you missed out on your money growing sooner rather than later, so you end up with less money (Figure 2). TVM means that the sooner you invest money, the bigger it will grow.

Figure 1

Figure 2

Now lets go further. If you had taken my $100 immediately and put it in your 2% interest-earning bank account, youd have $102 after one year, right? So, what would happen if you kept the $102 in your bank account for another year? Well, it would grow by even more than $2 because of compound interest.

Compound Interest

Compound interest is the interest earned on your principal and previously earned interest. In Year 1, you only earned simple interest because the interest only applied to your principal of $100. In Year 2, the 2% interest is applied to your principal and interest of $102 ($100 principal plus $2 interest).

A quick calculation shows that $102 1.02% = $104.04. Do you see the magic of compound interest now? The $104.04 balance means youve made a 4.04% profit in two years just by doing nothing. Because compound interest applies to your principal and earned interest, you are making more money just by letting your money stay in your account. Your interest from Year 1 produced an extra 4-cent profit for you. Now thats not much money, but over time compound interest grows incredibly fast, especially at higher interest rates and over longer periods of time.

Now imagine you want to keep investing, so you leave the $104.04 in that same account and let it accrue (grow) at 2% interest every year for 10 years. Using a financial calculator , enter $100 for the present value (or PV) or Starting Principal, 2 for the interest (or INT), 10 for the number of periods (or N), and 0 for payment (or PMT). Now select future value (or FV) or Calculate. The result reveals that after 10 years, the initial $100 you invested is now worth $121.90. So in 10 years, youve made $21.90 by doing absolutely nothinga return on investment (ROI) of 21.90%. This is because $21.90/$100 = 21.90%.