Investment Theory

Basic Investing Concepts

7 Lessons Easy

About this course

For beginners who want to explore the realm of investing, starting with the basic concepts of Investment Theory.

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Introduction to Investment Theory

This course is designed for you if you think of yourself as a beginner. A beginner might be someone with no experience with investing. Or it might be someone who has some experience but feels confused about what to do. It's easy to get overwhelmed by the complexity of investing, but there is some good news. Investing doesn't have to be complicated. If you prefer to spend your free time on more important things, this course is for you. It's designed to be simple and easy to follow. Here is a list of the lessons.

  1. Basic terms – the language of investing
  2. Key concepts of investing – how things work
  3. Checklist - What you’ll need to get started
  4. Why simple is almost always better than complex
  5. How to avoid over-thinking your investment process
  6. How much time you should spend on investing
  7. What is The Secret Weapon?
  8. Why all professional investors use it
  9. The 3 biggest reasons why novice investors stumble
  10. How to stay on the right path
  11. What to do after everything is set up
  12. How to set up alerts and reminders
  13. How to keep your portfolio in balance
  14. What to do when the market misbehaves
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Why novice investors struggle

Most non-professional investors tend to stumble in three ways. The first is a failure to have a clearly defined and written action plan. The second is a failure to stick to the plan when the going gets tough. And the third is the failure to regularly review and make changes to the plan as life circumstances dictate. All three of these mistakes can be avoided by simply sticking to the plan.

The way to avoid these common mistakes and stick to the plan is to include a schedule of action items in the plan itself. This is a list of actions that require attention at regular intervals, and by adhering to this schedule, you will transform your plan from just another document for the filing cabinet, into a living document that evolves and improves with time.

Here is an example of actions steps from a plan I recently wrote for a novice client.

  • I will contribute $250 to my 401k account every pay period
  • I invest 80% in my stock fund, and 20% in my bond fund
  • I will use dollar cost averaging to make sure I'm not buying at the top
  • I will review and revise, if necessary, my plan at the end of each year
  • How has my risk tolerance changed over the last year?
  • Have my stated goals changed since the last time I updated this plan?

If you write your investment policy correctly, it should be a succinct statement that guides you through your goals and risk tolerance, then helps you pick an asset allocation, and then finally lays out your ultimate plan for investing. You should be able to keep it to a single page.

Keep your investment policy statement somewhere you can access it easily. It helps to review your policy statement before you make any decision about your portfolio.

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Understanding the Investment Game

  • Overview of how the markets work
  • The relationship between risk and returns
  • The power of compound interest
  • Where the dangers lie
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How to set realistic investment goals

• List your financial goals
• Put a realistic number on each goal
• Put a time frame on each goal
• Calculate your Nest Egg - today and at retirement
• How do you know if you’re saving enough?
• Your MAR (minimum annual return)

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How to set realistic expectations

  • How much can you earn from your investments
  • How much risk can you handle
  • Are you saving enough
  • When things go wrong
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Taking inventory

• Learn what’s really in your portfolio
• Calculate your investing track record
• Compare your results with relevant benchmarks
• Find out what’s working for you - and what isn’t
• What kind of investor are you?

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Glossary of Investment Terms

The terms and jargon used in investing, and what they mean.

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