I highly recommend Tony Robbins products.
He was instrumental on putting me on a collision course with success:

The Power to Shape Your Destiny – Tony Robbins

 

Fast Fact Notes Chapter 6 & 7

Chapter 6 – Investment Basics
An Introduction to the Wide World of Investing

Ask yourself: is it better to bury your money in the ground (where it will lose value due to inflation), or invest your savings to let your dollars grow?

Investing makes sense - it’s all about making your money work for you – and not the other way around!

And best of all, if you’re young (and smart), you have plenty of time to invest and see your money double, triple, quadruple… Because the earlier you begin investing, the more you can theoretically increase your original investment.

Be the Best – Invest!
Once you have assessed your budget and are confident in your ability to live within that budget, you can proceed to make your money work for you through smart investing.

What is investing? Simply put, it means committing money to earn a financial return. Investing is how you can make your money grow without work.

Imagine being able to earn money while you sleep, vacation, study, shop… all day, every day! This is possible by earning profit and income by investing your savings in index funds, real estate, and entrepreneurial endeavors (all covered in the chapters ahead).
Being financially comfortable gives you the freedom to live the lifestyle of your choosing. There ways you can achieve this are to 1) build up your net worth, and 2) build up your cash flow.

Net worth is the measure of how much money you have.
Cash flow is the amount of money coming in on a regular basis from your investments.

Your net worth and cash flow income should be working for you all the time.

Compound interest
The beauty of compounding interest is that you’re making money off of the money you deposit AND you’re making money off the interest the bank paid you. So, interest is calculated not only on the initial principal, but also on the accumulated interest that you are generating over time. In financial markets, this means automatic reinvestment. When your stock pays dividends (a portion of its profits), they should be automatically reinvested to buy more of the stock. It’s the best time to buy, too, because stocks always drop a point or two after dividends are paid, and you can pick up a few more shares.

Investing basics –a brief glossary
Rule of 72 - divide the interest rate into 72 for calculating how long it will take to double your investment. For example, if you receive a 12% interest rate that means your investment will double every six years (72 divided by 12 = 6). So that $100 you invested is $200 after 72 months.

Three types of income – Active, earned through work. Passive, earned without labor on your part, like the income received from rental properties. Portfolio, returns that comes from financial market investments.

When first starting, take “baby steps” and keep your risk as low as possible. Decide how much you can afford, and don’t get in over your head. By starting slowly, you can allow yourself to learn the ropes without getting burned by your mistakes.

Finance success tip - be consistent
The first step in being consistent is adopting a regular savings plan, as taught in the budget section. Your savings plan is the backbone in having the money to invest on a regular basis.

Next, you need to place that money in investment vehicles that will allow your money to double, triple, quadruple or better. These investment vehicles will be discussed in later chapters. For now, just understand the importance of a consistent investment plan.

Building wealth over time is all about taking the long view, and not getting bogged down by short-term gains. And it’s true that building your financial freedom will take some time. But that doesn’t mean you shouldn’t get involved now. Success can come faster than you might think!

Money Pros make money while they sleep because they started investing on a consistent basis early, thereby harnessing the power of compounding interest.

 

The Laws of Investing
Supply and demand – When more people want a product, supply prices go up. And when fewer people want that product, prices go down.

Assets and Liabilities – Easy as ABC. Assets produce income  whereas liabilities cost you money (for example, cars). Try to get assets, not liabilities!

Length of investment –Basically, a dollar in hand today is worth more than a dollar that will be received in some future year.

Rate of Return - Return on investment (ROI) refers to the percentage of profit or revenue generated from a specific activity.

Cash Flow –The income generated through investments.

Leverage - The ability to control large dollar amounts of a commodity with a comparatively small amount of capital.

Diversification – Whatever you’re investing in, diversification is an investment strategy that reduces market risk by combining a variety of investments such as stocks and real estate, which are unlikely to all move in the same direction (up or down) at the same time.

Step-by-step - how to make your first investment

Step 1: Due Diligence
“Due diligence” means to educate yourself on the investment that you are considering, and do your homework before committing.

Step 2: Determine risk, determine reward - risk vs. reward
All investments have a certain amount of risk and reward. Ideally, you want to earn the highest return (reward) with the least amount of risk.

Step 3: Evaluate each investment’s pros and cons

Step 4: Using your “gut instinct”
Many top investors rely heavily on gut feelings that are supported by facts. Developing and trusting your gut feelings will be important to your success. Just by taking time to reflect on each deal, you will increase the accuracy of your deal instinct. If your gut feelings match the research, the deal will most likely be successful.

Money Pros are well on the road to financial freedom because they carefully assess each opportunity, and strive for investments that offer high rewards with limited risk.

 

The Big Picture
1. Trends. One of the biggest things you will be looking at is trends. A trend is the direction that a market has a tendency to move toward.

Ultimately, trends allow you to forecast and place your investments ahead of these movements. As your knowledge of trends improves, so will your confidence in the results derived from demographic models. Additionally, they will provide key information on where to find the next profitable investment.

2. Demographic research allows you to look at long-term trends as well as characteristics of current population segments. It all sounds complicated, but essentially we can draw conclusions based on demographic profiles, which take into account many factors such as age of population, economic cycles, spending patterns, lifestyle preferences, growth rates, generational preferences, migration patterns, historic patterns, income and employment trends, just to name a few.

3. General Research. To invest in companies or markets, you need to know if there are problems. And if these problems are being reported on TV or the web, you will get a better understanding of why this stock is tumbling, or that housing market is rising, etc.

Investment vehicles - ways to invest
Start investing in a retirement account once you have a regular income.

• The 401(k) plan is an employer-sponsored retirement plan in the United States and some other countries, allowing a worker to save for retirement while deferring income taxes on the saved money and earnings until withdrawal.
• IRA - Individual Retirement Account – is a retirement plan account that provides some tax advantages for retirement savings in the United States.
• Roth IRA - a Roth IRA differs from most of the other IRAs; contributions are made with after-tax assets, so all transactions within the IRA have zero tax impact, and the withdrawals are tax-free.
• Traditional IRA – often has tax-deductible contributions so money is taxed only when it is withdrawn at retirement.
• Self-Directed IRA - a self-directed IRA means the account holder can make investments on behalf of the retirement plan.

Money pros develop an investor mindset. As they hear about trends and keep up with current events, they think “how can I make money on this?”

 

Check your emotional baggage!
Emotions make us do things that we wouldn’t normally do. The biggest negative emotions affecting people when they invest are greed and fear. They want more yet they’re scared to lose it.

Another emotional crutch for some people is to fall in love with a stock, or a company, or a piece of real estate, and despite warning signs telling them to sell, they foolishly continue to hold on to it – even as it depreciates in value!

People that invest with this emotional baggage make bad decisions more often than someone with a clear, relaxed business-focused mind.

Finance success tip - think for yourself
There are always going to be ways to get rich quick. However, these ways do not have someone calling you up with a “hot stock tip,” or begging you to invest in a sweet deal. These types of sales people are trying to stir up your emotions by selling you a dream that is not probable.

Money pros don’t make investment decisions when they feel a high amount of emotion about that particular investment. They evaluate the opportunity logically, conduction their own research, then check their gut instincts before investing.

 

Team Work – Building a Successful Investment Team

As much as you do need to think for yourself, nobody ever made a million dollars by working exclusively on their own. It takes team work. By establishing a winning team, you can be the best and invest.

• Tax planner
• Attorney
• Financial mentors
• Personal development coaches
• A network of people - all looking to achieve financial independence

 

Remember due diligence! The next step would be to conduct your own research. Selecting the right team of experienced professionals will save you time and headaches in the long term.

Hire professionals, but always educate yourself enough to be knowledgeable – although many people are honest and hard working, it’s great to have a basic knowledge of what each member of your team does. Familiarize yourself with the ABC’s of each member’s job, and that will enable you to catch the people that are not playing fair.

Here is a list of basic questions you should ask each potential member of your team:

• How many years have you been in your respective field?
• Are you knowledgeable in real estate matters?
• What are your fees and how do you get paid?
• What credentials do you have?
• What professional boards do you belong to?
• Have you ever had any disciplinary action?
• What is your past experience?
• What other services do you offer?

 

Besides the questions listed above, ask your tax planner the following: “Are you available year round for questions?” When you’re first starting out, your taxes will be pretty easy to manage, but don’t do them yourself. Hire a professional that you can grow with as your investments and income grow, too.

Financial Pros understand the value of building a qualified team of trusted, successful advisors.

 

Networking – Fertilizing the Seeds of Investment
Just like building a solid team, there is an element of networking needed to ensuring investment success. The more people you maintain contact with, the more opportunities will be available for you, now and in the future. That’s why it is vital to create a stable network.

A network is simply the gathering together of contact information of people you know – friends from school and work, and other associates. Make special notes of people who are interested in investing, who seem like they are goal-oriented toward financial independence.

Communication is a two-way street, so it is important that you have their up-to-date contact information, and they have yours. Use the software at www.com to make this task easy.

Keep your network updated when you move or change numbers, or if you get a new cell phone or change to a new email address. And request that they do the same.
Below are a few simple ways to maintain your investor network:

• Consider sending out a monthly email telling your network what you’ve been investing in; reiterate your interests in particular stock market or real estate areas. That way they will associate these areas with you, and contact you directly if something of interest arises.
• Contact them when you see an investment they might be interested in. They will certainly repay the favor.
• Be a good friend, and be a good colleague. If these are old friends, remember to treat them as such. Continue to call and be in touch on birthdays and anniversaries. It doesn’t have to be all about business, and a good friendship can often be the best strengthening bond of a network.

 

If you truly want to put the effort into becoming financially independent, then developing a network of like-minded people interested in financial independence is a great start.

Building a strong investor network will ensure you a steady supply of viable investment options, both now and for years to come. 

Financial Pros have many opportunities come their way, financially and socially, because they keep regular contact with the network they have built.

 

Chapter 7 – The Stock Market
Rapid Growth of Your Investment Dollars over the Long Run

The Stock Market – just the thought of it conjures up images of scheming Wall Street fat cats sitting on piles of money, smoking cigars, and laughing about putting one over on the little guy.

Many of you have heard stories about all the millionaires that were made by people that owned stock shares in Microsoft, Google, and Wal-Mart, to name a few. But there is also a risk. Ever heard of Enron? How about WorldCom? Those financial disasters left many investors hurting in a bad way. But there is a safe, easy way make money without a lot of risk.

Keep your shirt on your back and invest smartly - follow the lessons and advice in this chapter. Education, experience, and knowledge separate successful stock market investors from the unsuccessful.

What are the benefits? “Show me the money!”
If you’ve saved up some money and you’re wondering what to do with it, investing in the stock market can be very lucrative. The younger you start, the more money – or the greater “returns” – you can reap in your lifetime.

Moreover, as young investors, time is truly on our side. And you will see that even if you start investing lots of money later on in your life, you would be in an equal or better financial state if you had simply decided to start investing less, but some, of your cash now.

For instance, say you have $500 invested at age 18, and add $200 each month; did you know that by the age of 45, you would be a millionaire!? (assuming a 15% return).

The goal of this section to give you a general understanding of the stock market and investment options available to you. Also to educate on the investment option that is best for novice investors – index funds.

Money Pros start investing early because they realize it’s nice to be young with money. Investing gives them the freedom of time and money to do what they like doing most.

 

Buying & Selling Stocks 101
The stock market is a market for the trading of company stock and other financial securities. A stock is genuine partial ownership in a company. If you own 10,000 shares of a company with 1,000,000 outstanding shares, you would own 1% of that company. The stock of companies in the United States is listed on several different exchanges. The stock market is one piece of the overall U.S. financial market.

How buying and selling work
Let’s break it down. A stock broker is the middle-man. and He sells or buys stock on your behalf. The reason is that stock transactions must be made between two members of the exchange – you can’t just walk into a stock exchange and start trading stocks. So, you’re going to be using a broker to invest in stocks.

Therefore, a basic stock market transaction works like this:

You à Broker à Electronic Exchange à Broker à You

There are fundamental rules of economics, and the stock market runs according to these rules.

Supply and demand - Supply is the quantity of stock shares available for sale. Demand is the number of stock investors are willing to purchase at a given price. If supply is greater than demand, in the case of stocks, then the price will naturally fall. If supply is less than demand, the price will go up.

Risk and Return - Just like supply and demand, risk and return have a correlative relationship, or at least they should if you’re getting a good deal. If you’re investing in something with low risk, then you probably won’t be expecting high returns.

Ownership - As amazing as it sounds, owning a stock makes you a co-owner of the company. With ownership, you gain a voice in the company’s business. You can vote at meetings and take a real interest in the inner workings of the company you invest in.

The Joy of Index
An index is a group of stocks that collectively represents a larger group. Index funds basically allow investors to buy a bunch of stocks that mimic the performance of the entire stock market, in the hope of replicating a successful trend. Since you’re investing in the overall performance of the market, this greatly reduces the risk of investing in a single stock.

Some of the best indexes cover these exchanges:

The Dow Jones Industrial Index – The Dow is an average of 30 most significant stocks traded on the New York Stock Exchange (NYSE).

The Standard & Poor’s 500 – The S&P is a basket of 500 stocks from leading companies in leading industries.

NASDAQ 100 – One hundred of the largest domestic and international non-financial companies are on the NASDAQ stock exchange. This exchange is heavily weighted with technology stocks.

Wilshire 5000 – These are all publicly traded companies in leading industries, representing the broadest index for the US equity market. It has grown from 5000 to over 6500 stocks.

 

Key benefits associated with broad market index investing

Higher returns - Over the last 10 years, broad-based index funds have beat the returns of the majority of all mutual funds. In fact, according to Standard & Poor’s, less than 30% of managed funds in 2006 beat broad market index investing.

Lower fees - Mutual funds fees are typically around 2%, while index funds that mirror market returns should be under 0.5%. Spot the difference? Index investing makes dollars and sense.

• Passive investment – Investing in index funds requires less stock market education and minimal time to track investments.

 

How do I invest in indexes?
There are two ways to invest in broad market indexes. Both are similar in their returns but are different in how the index is bought, and have different fee structures.

An Index Fund is a mutual fund that purchases all the individual stocks that make up an index in order to match that overall market. Typically, fees on index funds are higher and there are minor restrictions on when you can sell.

An Exchange Traded Fund (ETF) is similar to an index fund, with the benefit that EFTs can be bought and sold like stocks. Perfect for investors who believe in passive management. The management fees on ETFs are low. In addition, they can be bought or sold anytime the market is open.

You will achieve similar returns whether investing in index funds or exchange traded funds, but ETFs have lower fees and fewer restrictions, so it is a better way to invest in broad market indexes.

How to invest successfully for the long term

1. Dollar cost averaging allows investors to invest in broad-based index funds by slowly buying smaller amounts of the index over a longer period of time.  This simple yet powerful technique will enable you to reduce your risk and supercharge your returns. If the price goes down, you’re able to buy more shares, so when the index goes back up you own more shares. The effect of dollar cost averaging is that it spreads the cost basis (prices at which you purchase the index at) over several years, insulating you from short term price corrections.

2. Diversification is an important step in developing a successful investment formula. Diversification is defined as spreading investments among many different securities or sectors to reduce the risk of owning any single investment. Fortunately, when you invest in broad based indexes you are diversified.

Money Pros understand investing in broad market indexes will yield them long-term results that mirror the return of the stock market. If history is an indication of the future, broad market indexes will continue to outperform most mutual funds, and you money pros will benefit.

 

How to Create a Dollar Cost Averaging Plan
To create a successful dollar cost averaging plan, all you need to do is take two simple steps:

1. Budget the exact amount of money you can invest each month. It is important that amount is consistent; otherwise the plan will not be as effective.

2. At set specific intervals (weekly, monthly or quarterly), invest that money into the broad-based index fund. Your broker should have an automatic withdrawal plan that automatically will transfer money from your checking account.

Money Pros are diversified and follow a dollar cost averaging plan. This gives them excellent returns while minimizing their risk.

 

How to buy
Nowadays, it’s awesome because you can set up a brokerage account online and have immediate access - ideal for conducting your buying and selling from the comfort of your own room! Visit www.com for the top brokerage sites that will put you on the fast track to start your investing career.

Call the day before you are going to invest, after 4PM EST (everything is Eastern Standard Time because investors live and die by the closing bell on Wall Street). Investing after 4PM will be after market hours, and you can take your time with the person on the phone. Explain to him/her it is your first trade, and that you want to purchase $500 of the broad-based index you choose (or whatever number you decide!). If you’re an average investor with little experience, I suggest investing only when you have saved enough money to do so. Don’t invest your gas money!

Broad-based index investing in combination with dollar cost averaging greatly reduce market risk. In combination with broad based index fund investments, you further limit risk. This is the simplest, most powerful way for a newbie to invest in the financial markets.

Mutual Fund Investing – What is a Mutual Fund?
Mutual funds are funds operated by an investment company. The money is pooled together from various shareholders and then invested in different stocks, bonds, options, commodities or money market securities. Mutual fund managers buy and sell stock on a regular basis to achieve returns that beat the overall market performance.

• There are several types of mutual funds, which include:

 

Equity funds – Essentially, this is a mutual fund with a portfolio consisting primarily of stocks (as opposed to a mix of bonds and other commodities).

There are several different types of equity funds:

Growth – These are stocks believed to be the fastest-growing companies in the market. On the other hand, they rarely provide dividend income and are considered fairly high risk.
           
Income – Investing in securities that pay interest or dividends to provide stable income.

Growth and income – A combo of the two above, providing both growth and income.
           
Value – Investing in large or mid-sized companies that may have been overlooked.

Small, Medium and Large Cap funds – Based on size, these funds invest in emerging (small), mid-sized (medium) or established (large cap) companies.

Sector – Stocks in a single market sector carry more risk than investing across many sectors; however, the potential rewards are greater. Sector funds may include funds that just invest in computer chip companies or telecom companies.

Balanced – As the name implies, a mutual fund that invests into the money market, bonds, preferred stock, and common stock.

Fixed income funds and money market funds – These are extremely safe funds that earn much lower returns, on average. They work as interest-bearing investments with reduced risk compared to equities. If you’re a typical teenager, you probably won’t have a need for this in your portfolio.

Mutual fund investing
As noted above, most fund managers (70%) under-perform the overall market. Until you have enough knowledge to pick a specific mutual fund, stick with index investing.

Money Pros invest in mutual funds only once they are educated enough to pick out funds that meet their investment objectives. If they aren’t educated currently, but have to invest in mutual funds due to employer 401k requirements, they seek advice of professionals before choosing a fund to invest in.

 

How do investors in individual stocks choose the right one?
Purchasing individual stocks can be rewarding, but it carries more risk than index investing.

One of the cardinal rules that many financial advisors teach their clients is that they should thoroughly research any stock before purchasing it. In addition, successful stock traders have a plan for when they will sell the stock. If the stock climbs to a certain price (or drops to a price), they have already planned their next buy/sell moves.

There are many ways to choose stocks and analyze what’s happening in the marketplace. Now we’ll look at ways that a experienced investors choose stocks to invest in.

1. Most investors prefer to invest with the trend of the market.

2. Individual stock investors also consider the trend of the specific sector the stock is in. An example of sectors includes technology stocks, defense stocks, and oil stocks, to name a few.

3. Understand the stock’s past. It might sound like home work, but being aware of how a stock has performed in the past is a great way to keep yourself from getting burned.

4. Determine where the stock is at now. Fundamental analysis allows investors to base investment decisions on the current financial condition of the company. This includes looking at earnings, assets, debt, growth potential, competition, and products.

5. Be vigilant. This means even after you buy a stock, you want to be aware of the news about what your company is doing.

Once you’ve done your homework on a stock and you’re satisfied it’s a reasonable investment, then you are ready to consider buying it.

Money Pros invest in individual stocks only after they have extensive knowledge of the stock market and investment strategies.

Money Pros also have long-term financial goals in mind, especially when they start investing. Once their knowledge builds, they can allocate part of their money to shorter term investment options.

 

The Professional Touch – Should you Talk to a Pro?
You can and should talk to the pros, just be sure you understand how the system works.

Stock brokers are paid per trade you place. So the more trades you make, the more they get paid.

Financial planners can also get paid per trade if they are suggesting you buy individual stocks. If they are suggesting you invest in mutual funds, they are receiving a percentage of the dollars you invest.

Possible interview questions for the pros            

• How many years experience do you have?
• What credentials do you have?
• Do you invest your own money in the stocks or funds you’re recommending? (If not, why not?!)
• What are your fees? How do you get paid?
• What professional boards do you belong to?
• Have you ever had any disciplinary action?
• What other services do you offer?

Bottom line: Never take their advice without doing your own research. For the most part, if you follow my recommendations you won’t get burned, and you’ll have a fun (and hopefully profitable!) time of investing in the stock market.

Money Pros understand that professionals often give advice to enhance their own personal financial situation. They listen to advice, but also conduct their own personal research.