Why invest in stocks? To make money. There is really no other reason. I finance my travels through money I have made with investments. There are three fundamental investment types as far as I am concerned: (1) invest in yourself (example: education); (2) invest in real estate (example: a home) and (3) invest in equities (example: stocks, bonds, etc.). There are lots of other types of investments as well. I rank these ways to make money in terms of what I feel are the best order. I think investing in yourself is best, investing in real estate is next and investing in equities is last.

With your money you can buy two types of things. The first is an asset. An asset is anything that is expected to grow in value over time. The second is a liability. A liability is anything that will decrease in value over time.  A home is an asset and an automobile is a liability. Note that this is not your normal definition of an asset or a liability. It is the way I like to think of how I spend my money.

Pay yourself first. Read this article. It says that 3/4 of all Americans do not have enough money to take care of more than 6 months worth of expenses if they loose their jobs. Americans are pathetic savers. Paying yourself first means that you are living on less than you make. I can take three month vacations all over the world each year because I have lived on less than I have made over the years and I have spent money on assets as opposed to liabilities. Most of the monies that Americans have is tied up in their homes. Granted, many people have hundreds of thousands of dollars of equity in their homes but they can only access it via a loan or line-of-credit. Not very liquid.

Never carry credit card debt. Financially, it is a killer. The percentage rates are simply astronomical. It is said that the average investor can get 10% off of their money in the stock market. The average interest rate for a credit card is about 20%. Always pay off the credit card each month. Some people advocate never having a card. That is just a lack of discipline. Good financial management requires mental discipline.

What are stocks and bonds? A good definition of stocks can be found here and here and here. A good definition of bonds can be found here and here and here.

How do we buy equities? Through a broker. The major brokerage houses are Fidelity, Charles Schwab, TD Ameritrade, USAA Brokerage, TradeStation, E*TRADE, ally, Merrill Edge, Vanguard and Interactive Brokers. What goes into choosing a broker? A lot. Good articles on the subject are located here and here and here. The key issues for a broker are Trading Costs, Trading Tools,Investment Products, Mobile Trading, Stock Analysis, Regulation, Banking Services, Account Security, Order Execution, International Trading according to one article. I think that’s pretty much a lot of BS. I look at customer service, research capabilities and trading costs. Most big trading houses have lousy service, research and trading costs. We’ll talk more about that in the next lesson.