Full transcript
0:00I want to welcome you to the stock
0:01market for beginners ultimate guide. If
0:05you're new to the stock market then this
0:06video will be perfect for you.
0:09So I want you to know that every
0:10experienced investor in stocks was once
0:13a beginner.
0:14So it is an honor to guide you in your
0:17stock market journey to help you achieve
0:19financial success and financial freedom.
0:22Now let's begin.
0:23So here is what we're going to cover in
0:25today's stock market for beginners
0:27video. You are not expected to absorb
0:30all this information in one sitting. So
0:32please subscribe and watch this
0:35piecemeal at your own comfortable pace.
0:38So let's begin with this. You should
0:40invest in the stock market because it is
0:42a proven way to grow your wealth.
0:45Just look at the historical data. These
0:47are the average annual returns that
0:50investors make in the stock markets.
0:53In the past 30 years the stock market
0:55has gone up by an average of 9.9%
0:58a year.
0:59If you look at the past 50 years it's
1:0110.8% a year. In the past 100 years an
1:05average annual return of 10.5% a year.
1:09But I'm going to tell you this because I
1:10want to be upfront with you.
1:12Yes, there are stock market crashes.
1:16But over time the stock market recovers
1:19and essentially the stock market keeps
1:21going up.
1:23It's it's like home prices. Generally
1:26real estate tends to increase in value
1:29so you know this.
1:30But I want to I want to make this clear.
1:32So here are the median home prices in
1:34the past.
1:35100 years ago a home cost this is the
1:38median price $3,200.
1:4250 years ago you could buy a home the
1:44median home for $33,000.
1:4730 years ago the median home price was
1:49$126,000.
1:51And today the median home costs
1:54approximately $400,000.
1:56So it just keeps going up. And it's the
1:58same thing with the stock markets. The
2:01reason why financial assets, such as
2:04properties or stocks, continue going up
2:07is partly because of inflation.
2:10However, the stock market does outpace
2:13inflation.
2:15But ultimately,
2:16you want to put your money to work by
2:17investing it, and the stock market has a
2:20proven track record of growing your
2:22money.
2:23Now, let's proceed.
2:25It is essential that you understand how
2:27the stock market works.
2:30I don't want you to throw your money in
2:31stocks into the stock market if you
2:33don't understand the basics. So, in this
2:36section, let me explain to you
2:38what are stocks, how to invest in
2:41stocks, how people get wealthy by
2:43investing in the stock market, and what
2:46stocks are best for beginners. So, let's
2:48get started. I want you to know that the
2:50stock market is very simple. So, let me
2:52explain to you what stocks really are.
2:55So, let's just say that you own a
2:56business, and so you're a business
2:58owner. And let's say that you want to
3:00raise a lot of money for your business
3:02to grow and expand.
3:04So, what do you need to do?
3:06You need to find investors, and a great
3:08place to find investors is in the stock
3:11market. Now, in order for you to raise a
3:14lot of money for your company, you need
3:15to sell a portion of your ownership in
3:18your company to investors.
3:20And that's what stocks are. Stocks are
3:22just units of ownership in a company.
3:25So, if you buy stock in Apple or
3:28Microsoft or Tesla, you are an owner of
3:31the company.
3:32So, you probably own a very small piece
3:34of the company, but you are still
3:35technically an owner.
3:37Therefore, one person does not own Apple
3:41or Microsoft or Tesla. So, there are
3:43thousands of people that own stock in
3:45those companies, so those companies have
3:47thousands of owners, which are the
3:49stockholders. Now, let me tell you how
3:51to invest in stocks. So, the stock
3:54market is a big marketplace where you go
3:56to buy and sell stocks.
3:58To participate in the stock market, you
4:00need an online brokerage account.
4:02So, there are a lot of online brokerage
4:04accounts to choose from. I'm going to
4:06leave a link down below to some online
4:09brokerage accounts that are offering
4:11sign up bonuses with zero fees, and
4:13there's no catch. It will cost you
4:16nothing.
4:17And some of these sign up bonuses, they
4:18can be substantial, so please be sure to
4:20check them out. So, you open up an
4:22account, and then you transfer money
4:25from your bank account to your brokerage
4:27account, and then you're going to have
4:28money in your brokerage account, and
4:30then you're going to be ready to buy
4:31stocks. So, you want to buy stocks in
4:34good companies. That's because if a
4:36company does well, then the value of the
4:38company increases. If the value of the
4:40company increases, then the price of
4:42your stock goes up.
4:45And in many cases, if a company is
4:47making a lot of profits, the company
4:49will take those profits and pay a
4:51dividend to whoever owns the stock.
4:54So, you don't have to do anything to
4:55collect a dividend. It just gets
4:57deposited into your account, which is
4:59pretty awesome. So, this is passive
5:01income in its truest form.
5:03Now, if you want to sell your stocks,
5:05it's very easy. So, you may want to sell
5:07your stocks for whatever reason, such as
5:10you just want to cash out. Maybe you
5:12don't like the company anymore. Maybe
5:15you want to sell your stock to have
5:16money to buy a different stock.
5:19So, you're free to do as you please, and
5:20again, this is all free, no fees, zero
5:23commissions.
5:25So, when you sell your stocks, you'll
5:26have money in your brokerage accounts
5:28because, again, you sold your stocks.
5:30And whenever you want, you can transfer
5:32that money back to your bank account. Or
5:35you can let that money just sit there.
5:37Some brokerage accounts, they'll pay you
5:39interest on the money sitting in your
5:41accounts.
5:42Or you can use that money to buy stocks,
5:45you know, whatever you want. Now, I want
5:47you to know that many people get wealthy
5:49in the stock markets, and there's not
5:50just one way to do it. I'm going to tell
5:52you what most people do.
5:54And you can try to see which style is
5:57most appealing to you.
5:59Buy and hold, dividend investor,
6:02speculator, trader.
6:04And let me explain these styles to you.
6:06Buy and hold. Some people just buy
6:08stocks and they just hold on to them for
6:10a very long time. We're talking about
6:12years, even decades. Some people they'll
6:15even hold on to their stocks until they
6:17die and they'll put it in their will.
6:19So, this is a set it and forget it
6:21approach. Traders. Some people in the
6:24stock market will try to buy and sell,
6:26buy and sell frequently and make some
6:28money. So, these people are known as
6:30traders.
6:32Traders are not interested in holding a
6:34stock for the long run and watching the
6:36company grow.
6:38So, I would recommend that beginners in
6:40the stock market, so if you're a
6:41beginner, please refrain from trading
6:44with a large amount of money.
6:45I would recommend that you get some
6:46practice in first. But, it's true, many
6:50professionals get rich by trading, but
6:52that comes with experience.
6:54Speculators. Some people buy smaller,
6:57riskier stocks that have a lot of
6:59potential and could skyrocket in price.
7:02So, these are speculators. I'm not
7:04saying that in a good way or a bad way.
7:06People speculated on Tesla early on and
7:09made a lot of money. So, you could say
7:11the same thing for Amazon or Walmart and
7:13so many other stocks.
7:15But, there's other people that
7:16speculated on stocks and lost a lot of
7:18money. So, if you're going to speculate,
7:20don't invest too heavily in one stock
7:24and do not fall in love with a stock.
7:26Your emotions can cloud your judgments.
7:28Dividend investors. Some people buy
7:31stocks primarily for the dividends.
7:34Many investors take their dividends and
7:36reinvest them to get more dividends and
7:38your wealth accumulates over time.
7:41So, this is a great way to build your
7:42passive income.
7:44So, you can actually set your accounts
7:46to reinvest your dividends
7:47automatically. It's called a drip,
7:49dividend reinvestment program.
7:51I am personally a big fan of dividend
7:53investing because you literally get paid
7:55for doing nothing.
7:57So, if you're dividend investing, your
7:59money is making you money. So, you
8:01should know from the get-go which style
8:03is most appealing to you. And it could
8:05be more than one. It could be a
8:06combination, but there's no one right
8:08answer. There's no one right method. So,
8:11whichever path you take, you should
8:13understand the pros and cons of that
8:15method or that style. Now, let me tell
8:18you what stocks I think are best for
8:20beginners. There will be so many stocks
8:23to choose from. Small companies, big
8:25companies, companies in different
8:26sectors, energy, technology, real
8:29estate, retail, banking,
8:30pharmaceuticals, etc.
8:32There will be companies that focus their
8:33sales in the US. There will be
8:35multinational companies. There are just
8:37so many options.
8:39I would suggest that as a stock market
8:41beginner, you invest in bigger and more
8:44stable companies. The reason why I'm
8:46saying this is because of risk and
8:48reward.
8:49If you invest in a smaller no-name
8:51company, there's a higher probability
8:53that you can lose a lot of money.
8:55As a beginner, you should get a feel for
8:57the stock market, take it easy, and just
8:59learn.
9:00Once you get more experience and
9:02knowledge, then you can slowly move out
9:04of your comfort zone into stocks that
9:07offer more risk and reward.
9:09If you don't want to take this advice
9:10and you want to If you want to jump
9:12straight into risky stocks, then I beg
9:14you. Please do so with a smaller amount
9:17of money.
9:18Please take my advice. The stock market
9:20is not a get-rich-quick scheme.
9:23In the stock market, you want to be an
9:24investor. You do not want to be a
9:26gambler. And I want to see you make
9:28money. As a beginner, it is better for
9:31you to make a little bit of money than
9:32to lose money. So, I I recommend
9:36sticking with safer stocks to start and
9:38learning little by little. Slow and
9:40steady wins the race and it's a
9:42marathon. And just so you know, if you
9:44want to be very safe and diversify, then
9:46you can always buy index funds.
9:49An index funds is a collection of
9:51stocks. It's like a big basket of stocks
9:54where you get diversification. So it's a
9:56way for you to buy a little of almost
9:58everything, which decreases your risk.
10:00Now, in the stock markets, you can
10:02choose how to invest your money.
10:05So let me give you two and you can
10:06decide which method that you prefer.
10:10So option number one is that you can
10:12search for good stocks to buy.
10:15This is known as stock picking. So
10:17you're trying to pick the winners.
10:19If you're going to stock pick, then it's
10:21important that you spend time monitoring
10:24your stocks to ensure that everything is
10:25going well.
10:27So later in this video, I will teach you
10:28more about stock picking. Your option
10:31number two is index funds or ETFs.
10:34So if you don't want to become a stock
10:36picker, you can invest in index funds or
10:39ETFs in the stock markets.
10:42If you invest in an index fund or ETF in
10:44the stock market, that's like buying a
10:47little bit of all the stocks in the
10:49stock markets. So there's pros and cons
10:51to this approach, which I will tell you
10:53about right now.
10:55So today, I'm teaching you about index
10:57fund investing, which includes what is
11:00an index funds, the pros and cons, index
11:03funds versus ETFs, and how to invest in
11:06them.
11:07So let's start with this. What is an
11:09index? An index is simply a grouping of
11:12stocks or bonds or other securities. So
11:15for example, the S&P 500 is an index of
11:18the 500 largest publicly traded
11:20companies in the US.
11:22So the thing is that you cannot invest
11:25directly in an index, but you can invest
11:28in an index fund.
11:30Now, let me explain to you how an index
11:32fund actually works.
11:34So, let's say that you have an index
11:35fund that tracks the S&P 500. So, that
11:39index fund will buy shares of stock in
11:42all of the companies in the S&P 500.
11:45Therefore, the index fund will mirror
11:47the performance of the S&P 500. If the
11:50S&P 500 goes up 1%, then that index
11:53fund, it will likewise go up 1%.
11:57If the S&P 500 goes down 1%, then that
12:00index fund will go down 1%. Now, I want
12:04you to think about that. Really think
12:05about what I just said, because there's
12:07going to be pros and cons to this. So,
12:09let me tell you what they are, and we'll
12:11start with the cons. Because the index
12:13funds will mirror the markets, that
12:16means that if you invest in an index
12:18fund, then you cannot outperform that
12:20benchmark.
12:21So, for example, if you invest in an S&P
12:23500 index fund, then you cannot beat the
12:26markets. So, if you want to become a
12:27superior investor, an index fund may not
12:31be right for you.
12:33Another downside with index funds is the
12:35lack of flexibility.
12:37So, for example, if there's some stocks
12:39that you don't like in the fund, then
12:42unfortunately, you're going to be stuck
12:44with them. It's take it or leave it.
12:46That means that if there are stocks that
12:48are underperforming in the index fund,
12:50you can't cut your losses and you can't
12:52have them sold off. And another drawback
12:55is the tracking error. An index fund
12:58will not perfectly track an index. So,
13:00if the S&P 500 goes up 7%, the S&P 500
13:04index fund, it might go up 6.95%.
13:08And you may be like, "Hey, where's the
13:10rest?" Well, that difference, it
13:12includes the cost to run the actual
13:15index fund.
13:17So, sometimes the tracking error may be
13:18tiny, like a difference of 0.01%,
13:21but with other index funds, it may be
13:23much more.
13:24But, there also may be tracking errors
13:26if an index fund uses derivatives. In
13:29those instances, an index fund will not
13:31track precisely.
13:33Okay, so we just got all the bad stuff
13:35out of the way, but now let's talk about
13:37the good stuff because there are a lot
13:38of benefits with index fund investing.
13:42So, the great thing about an index fund
13:43is that you can be hands-off. You can
13:46become a passive investor.
13:48And this is great for someone that's new
13:50in the stock market or inexperienced.
13:53If you do know what you're doing you're
13:55just too busy.
13:57Let's just say that you don't have time
13:58to research individual companies or you
14:00don't have the time to pay attention to
14:02macroeconomic conditions, then this will
14:04solve the problem. So, I understand that
14:07we're all busy, life gets in the way and
14:09this may be a good solution for a lot of
14:11people to become a passive investor with
14:13index fund investing. So, here's another
14:16benefit. So, the truth is that most
14:19people are not good at picking
14:21individual stocks.
14:23If you're not paying attention to the
14:25economy, if you're not staying current
14:26on the sector, and if you can't read
14:28financial statements, well, that
14:30probably explains why.
14:32So, it's hard for even the professionals
14:34to beat the markets. So, research shows
14:37that from 2001 to 2016
14:40active fund managers under performed
14:42their benchmark index.
14:44So, honestly, if you put your money in
14:46an index fund, then you're probably
14:47going to do better than most people. I
14:50do want you to know this though because
14:51most people when they talk about index
14:53funds, they overlook this part.
14:55So, recently passive investing through
14:57index funds, it has been outperforming.
15:00However, active management generally
15:03outperforms passive investing when the
15:06stock market or an index is going down.
15:09That's generally because active managers
15:11they capitalize better during the market
15:13recovery phase. So, in other words, when
15:15the markets are going up, an index fund
15:18tends to do better. When the markets are
15:20going down, active management tends to
15:23do better. Now, another big benefit is
15:26diversification. Diversification is so
15:28important for your investing portfolio
15:30because it lowers your risk.
15:33Index fund investing provides you with a
15:35simple solution. That's because when you
15:37buy an index fund, you're buying up a
15:39slice of up to hundreds or thousands of
15:42companies at once. With diversification,
15:45it's going to balance your risk and your
15:47portfolio will experience less
15:49volatility.
15:50Now, here's what I suggest to you. I
15:52would say compare the pros and cons and
15:54see if See if this makes sense to you.
15:56So, to review, the benefits of investing
15:59in an index fund include, but are not
16:01limited to, passive investing,
16:03dependable returns, and diversification.
16:07The drawbacks are you cannot outperform,
16:11the lack of flexibility, and tracking
16:13errors. So, I hope you enjoyed that
16:15educational information, but I want to
16:17give you my I want to share with you my
16:18opinion as well. So, I'm going to speak
16:19freely.
16:21This is like a heart-to-heart about
16:22index fund investing.
16:24So, if you're going to ask me for my
16:25opinion about index fund investing,
16:28I believe that it depends on the
16:29investor. It depends on the individual
16:31person. But, for most people, for most
16:34investors, I believe that index fund
16:36investing does make sense. There are
16:39more benefits than there would be cons
16:41or negatives because just think about
16:43how practical it is. Think about how
16:45convenient it is. You could just throw
16:46money into an index fund and you don't
16:49have to You don't even have to know
16:50what's going on. You don't have to
16:51manage it. You could just focus on
16:54your job, your career, your friends,
16:56your family. You could focus your focus
16:59your energy and your attention
17:00elsewhere. It's You'll be more
17:01stress-free. You don't have to make
17:04these big decisions. You don't have to
17:05keep up to date on the macroeconomic
17:08environment or company-specific news.
17:11So, there's a lot of benefits that you
17:12have to take into consideration.
17:14So, sure, the trade-off would be that
17:16you're not going to be the next Warren
17:18Buffett. So, you need to ask yourself
17:20those types of questions and be honest
17:22with yourself. Are you trying to be the
17:24next Warren Buffett? Because if you are,
17:26then index fund investing is probably
17:28not for you. It's not a good fit for
17:29you.
17:30Not with the goals that you're trying to
17:31achieve.
17:32But if you're trying to find a place
17:35where you can park your money, excess
17:37cash as an investment, and you can do it
17:39passively, just check up on it
17:41passively,
17:43inconveniently, then index fund
17:44investing might be a really good fit for
17:46you.
17:47But I do want to say this last part, and
17:49this is especially important to
17:50beginners because
17:52when people are talking about index
17:54funds, they usually think about a a very
17:56broad index. Let's just say the S&P 500,
17:59right?
18:01However, you can use index funds,
18:03targeted index funds to complement
18:06yourself as an investor, as an active
18:09investor. So, for example, if I'm going
18:11to be actively participating in the
18:12stock market, like I'm going to be
18:13looking at stocks every day, and not
18:16necessarily buying or selling every day,
18:17but you know, I'm staying up to date as
18:20an active investor in the stock market,
18:22and I'm buying stocks in all different
18:24types of sectors, but I feel like that
18:26I'm lacking exposure in, let's just say
18:29pharmaceutical stocks, okay?
18:32If that's the case,
18:33then I could I could use index funds, a
18:36targeted index fund like that that
18:38specializes just in pharmaceutical
18:39stocks to complement my overall
18:42investing style.
18:44And the other approach is that
18:47if you do want to park most of your
18:48money, the majority of your money with a
18:50broad index, let's just say an index
18:52fund, an S&P 500 index fund, right?
18:55You can park the majority of your money
18:57in that vehicle, the S&P 500 index fund.
19:00However, if you really have that itch
19:03to buy and sell individual stocks, well,
19:06you can have the majority of your money
19:08in a in a broad index fund like that, a
19:10well-diversified index fund like that,
19:12but then additionally, you could
19:14complement that by buying
19:17the stock picks that you like. Let's
19:19just say, well, you really think Tesla
19:20is going to do good or you really think
19:22Microsoft is going to do good. Then you
19:24could have the bulk of your money in an
19:25index fund, then you could use smaller
19:27amounts of money to make your stock
19:29picks, but it the bulk of your portfolio
19:32will revolve around index funds
19:34investing. Now, let me answer some
19:36really good, commonly asked questions
19:38about index funds.
19:40Are index funds popular? The answer is
19:43yes.
19:45Index funds were introduced in 1976.
19:47Investing in index funds is the most
19:49common form of passive investing.
19:52It is estimated that passive investing
19:55in the stock market makes up about 15%
19:57of the markets. That's the official
19:59stat. Some estimates are that it's over
20:0230%.
20:04So, yes, it's very common, very popular,
20:06so this is nothing new.
20:08Another good question is how do you
20:10invest in index funds?
20:12Okay, so it's very easy. You will need a
20:14brokerage account or a retirement
20:16accounts. You pick the index that you
20:18want to track, and then you buy shares
20:21of that index fund. So, it'll be very
20:23straightforward.
20:24Another very good question is how much
20:26money do you need to invest in index
20:29funds?
20:30Most index funds have no minimum
20:31requirements, so it could be a great way
20:34to get started with very little money.
20:36And I'll answer this last question. How
20:39many index funds should you own?
20:42So, that's going to depend on how
20:43diversified a particular index fund is.
20:47If you invest in a well-diversified
20:49fund, then you may only need to own one
20:51index fund or two index funds. However,
20:54if you invest in an index fund that's
20:56more targeted, then you may need to own
20:58more than one or two in order to create
21:01diversification. Now, it's very
21:03important that you understand this.
21:05There is no one right way to invest in
21:09the stock markets.
21:11You can successfully pick your own
21:12stocks, invest in index funds, invest in
21:16ETFs, or a combination of these.
21:19I recommend that you choose what is best
21:21for you.
21:22And to make that determination, it's
21:24important that you understand the
21:26differences between the three: stock
21:28picking, index funds, and ETFs.
21:32So, personally in the stock market, I do
21:34all three. I invest in index funds, I
21:37invest in ETFs, and I pick my own
21:39stocks.
21:40Now, in this section, you will get a
21:41better understanding on whether one or
21:44two or all three are a good fit for you.
21:48I'm going to answer for you how are
21:49index funds and ETFs similar, how are
21:52they different, and how do you know
21:53which one is right for you.
21:55Okay, so I'm going to tell you the
21:56truth. The truth is that they have more
21:58in common than not. They have more
21:59similarities than differences.
22:02But, I want you to be aware of the
22:03differences that could make an ETF or an
22:05index fund a deal breaker for you.
22:09I want to I want to demonstrate to you
22:11what is going on with an index fund. So,
22:13you could think of it like this.
22:15Let's say that you, me, my brother, your
22:18neighbor, and my Uncle Bob,
22:21we're all pooling money together. And
22:23with this pool of money, we're going to
22:25buy all the stocks in the S&P 500.
22:29And let's just say we do that, and let's
22:32just say that you want out.
22:34When you want to cash out your portion,
22:36the fund has to sell some of its
22:38holdings to pay you out. Now, let's
22:41compare this to an ETF. So, with an ETF,
22:44an exchange-traded fund, you could think
22:46of it like this.
22:48Let's just say that you bought all the
22:50stocks in the S&P 500.
22:53And you packaged them all up into one
22:55bundle. And you did that 10 times.
22:59And I say to you, "Hey,
23:01can you sell me one of those?" And
23:02you're like, yeah, sure. And I buy it
23:05from you. So, it's simply traded from
23:07you to me like a stock. So, I hope that
23:10helps to clarify what is going on. An
23:13index fund is a collection of securities
23:16that are financed by a pool of
23:17investors. An ETF is a collection of
23:20securities that are traded between
23:23investors.
23:24So, that's it. That's the difference.
23:26But, there are a lot of similarities and
23:28let me tell you what those are. Both an
23:31index fund and ETF offer you a low-cost
23:34solution, diversification, and a proven
23:37track record.
23:38So, index funds and ETFs, they're both
23:40passively managed. This means that
23:41there's no human that is actively
23:43choosing what to invest in.
23:46Therefore, index funds and ETFs are
23:48low-cost. They have a low expense ratio.
23:51Now, both index funds and ETFs, they
23:53will give you diversification because
23:55they hold a variety of assets.
23:57And index funds and ETFs generally
24:00outperform active fund managers over a
24:02longer period of time. Now, I want to
24:05tell you the differences and this will
24:06help you determine which one is better
24:08for you.
24:10So, the four biggest differences between
24:11an index fund and ETF are liquidity,
24:15minimum investment requirements,
24:17expenses and fees, and taxation.
24:20So, let's get started with liquidity.
24:23You can buy and sell ETFs throughout the
24:25trading day like a stock. With an index
24:28fund, you can only buy or sell at the
24:30end of the day. Therefore, an ETF is
24:33more liquid.
24:35So, this probably will not make a big
24:37difference for most long-term investors,
24:39but it does matter if you're going to do
24:41any day trading or shorter duration
24:43moves. Now, moving on to minimum
24:45investment requirements. So, generally
24:48an ETF will have a lower minimum
24:50investment requirement when you compare
24:52it to an index fund.
24:54So, for example, you can buy as little
24:55as a single share of an ETF. In some
24:58cases, you can even buy fractional
25:00shares of an ETF.
25:03But with some index funds, they're going
25:04to impose a minimum requirement. It
25:07could be $1,000, it could be $2,000, or
25:10even more.
25:11Now, when it comes to expenses and fees,
25:13both index funds and ETFs are low-cost
25:15investments.
25:17That's because both are passively
25:19managed.
25:20Previously, ETFs were known to carry
25:22lower expense ratios compared to index
25:25funds, but that gap has been closing.
25:28And the expenses for index funds and
25:30ETFs are now quite similar. So, you're
25:33going to see expense ratios in the 0.05%
25:35to 0.02% range, which is a fraction of
25:391%, which is a very low-cost solution.
25:43And of course, we have to consider
25:45taxation.
25:46ETFs are more tax-efficient compared to
25:49index funds. That's because of their
25:51structure.
25:52So, I previously demonstrated to you how
25:54they're structured, and that
25:56structuring, it has tax consequences.
25:59So, essentially with an ETF, you're
26:01selling to another buyer, and the cash
26:03comes directly from that buyer.
26:06To cash out of an index fund, you have
26:08to redeem it from the fund manager. And
26:11the fund manager will have to sell some
26:12of the holdings to get the cash to pay
26:15you out.
26:16So, if there is a gain on the sale, that
26:19gain is passed on to all investors of
26:22the fund. That means that you could end
26:24up with a tax bill even if you don't
26:26sell a single share.
26:28So, ultimately, assets are bought and
26:30sold every time an investor enters or
26:32leaves an index fund.
26:34And anytime there's a capital gain,
26:36every investor that's part of the fund
26:38will need to pay capital gains tax. Now,
26:41I want to be very clear with you on this
26:43topic of taxation because I don't want
26:44this to scare you.
26:46So, this is going to be in relation to
26:47how much money that you have in the
26:49index fund. So, if you have very little
26:51money in fund, then don't expect the tax
26:54consequences to be
26:56significant. But, if you do have a lot
26:58of money in the index fund, then yes, it
27:00could be a decent amount.
27:02Now, let me give you my opinion on which
27:03one is better, an index fund or an ETF.
27:06But, I want to tell you this story to
27:07help you understand the situation, the
27:10whole situation.
27:11So, the index fund was created in 1975
27:14by John Bogle, who went by the name of
27:16Jack. So, Jack Bogle was the founder of
27:19the Vanguard Group. Bogle created the
27:21index fund in 1975 so that everyday
27:24investors could compete with the pros.
27:27So, that was 1975. It took a few years
27:30for index fund investing to catch on,
27:32but eventually it gained traction.
27:35So, 18 years passed by, it's 1993. State
27:38Street Global launches their S&P 500 ETF
27:41called the SPDR, it's referred to as the
27:44spider.
27:46But, this wasn't the first ETF. This was
27:48preceded by the Toronto ETF in 1990,
27:50among others.
27:52But, ultimately, the ETF is an
27:54improvement of an index fund. It's like
27:57an index fund 2.0. And that's why ETFs
28:00have been gaining in popularity very
28:02quickly. 1993, the ETF market basically
28:06didn't exist. 2002, there are over 100
28:10ETFs. 2009, over 1,000 ETFs. Currently,
28:16we're close to 10,000. And right now,
28:19there's a competition for your money
28:20between index funds and ETFs. Now, let
28:23me tell you what I think.
28:25My opinion is that an ETF is an upgraded
28:28version of an index fund. And here's
28:31why.
28:32If you're on a tighter budget, an ETF
28:35may be better for you if you have less
28:37money to invest upfront. So, I'm
28:40referring to the higher minimum
28:42requirements.
28:43So, ETFs, yes, they do have a better tax
28:46structuring, and that's going to give
28:47you a
28:48greater control of claiming gains or
28:51losses.
28:52And because you can sell, so you can buy
28:54or sell an ETF throughout the day,
28:56so if that need ever arose, I'm guessing
28:58that in most situations that it would
29:00not, but if it ever did, that you could
29:02take it advantage of that situation of
29:05any major price movements throughout the
29:07day
29:08and that is a benefit that you cannot
29:10have or do with an index funds. However,
29:13some of these ETF advantages, they might
29:15not make a meaningful difference to you,
29:17especially if you're a long-term
29:18investor.
29:19So, I want to be clear that I do like
29:21index funds, but if I had to choose,
29:23then I would go with an ETF, but that is
29:25just my opinion.
29:27But if there's a
29:28if there's a particular index fund that
29:31does not have a competing ETF, then
29:34yeah, I would buy, you know, that index
29:36fund. So, that's just the way I see it.
29:38So, to be clear, both index funds and
29:41ETFs have my stamp of approval.
29:44However, personally, I like to pick my
29:46own stocks in addition to index funds
29:49and ETFs. Now, if you want to pick your
29:52own stocks, then it is essential that
29:54you understand the terminology and you
29:56know how to read stocks.
29:58Because if you don't understand the
30:00stock terms, then you're going to be
30:01lost and you're not going to be able to
30:03distinguish good stocks from bad stocks.
30:06So, let's begin with the essentials. So,
30:09in this next segment, you're going to
30:11learn the key data and stats when you're
30:13researching a stock.
30:15And it doesn't matter if you're looking
30:16at a stock screen on your app or
30:19brokerage accounts or a website.
30:22So, the information and terminology that
30:24I'm about to show you, it's going to be
30:25the same no matter where you look.
30:27So, please follow along and make sure
30:29that you fully grasp this info because
30:32it'll be critical. We're going to look
30:34at
30:35finance.yahoo.com.
30:39So, let's go over there.
30:45Once you arrive here
30:47at this top bar search bar right here,
30:50that's where you're going to put in your
30:52ticker symbol. That's your
30:54identifying letters of your stock. So,
30:58let's look at Ally Bank.
31:01So, Ally Bank is owned by Ally
31:03Financial. So, let's go there. A L L Y,
31:05that's the ticker symbol as you can see
31:07right here.
31:09We're going to select that.
31:12What we're going to do
31:15in this tutorial is give you the basic
31:18overview of what we are seeing on the
31:21screen.
31:22Let's begin.
31:24As of right now, when we are reviewing
31:27Ally Financial, ticker symbol
31:30A L L Y,
31:33the price is $18.43
31:36a share.
31:38The market is closed, so this right here
31:42this will not be this will not be
31:44fluctuating because the market is
31:45closed. If the market is open during
31:48that time, you will see this
31:49fluctuating, you know, every few
31:51seconds. If you refresh it, it'll
31:53fluctuate.
31:55During this day, during the
31:58during this trading day, it went up
32:00$0.99.
32:02Therefore, it was up 5.68%.
32:06That's a pretty big gain.
32:08However, my
32:10Markets are very volatile these days.
32:13That's what you are reading after hours.
32:16The stock market has closed.
32:19However,
32:21the stock will still be trading
32:24after the market closes, and also
32:26tomorrow
32:28premarket. That just means the stock
32:30will be trading before the market opens.
32:34The amount, the The
32:35of how much of these stocks or these
32:38shares will be trading, it's going to be
32:40very minimal compared to
32:43the shares of the stock that are traded
32:45on the market during the day. So,
32:47there's going to be In other words, in
32:48layman's terms, there's going to be a
32:50lot of buying and selling, a lot of
32:51buying and selling, buying and selling
32:52during the day, and there's still going
32:54to be a little bit of buying and selling
32:56after the market closes and before the
32:58market opens.
33:00Currently,
33:01it's after hours.
33:04The next day, tomorrow morning before
33:06the market opens, you'll see this say
33:08pre-market. So, before before the market
33:10opens.
33:12Let's go on to here.
33:14This is the meat of the data.
33:17What I've highlighted, that's what we're
33:18going to be looking at closely.
33:21Today, Ally Financial closed at $18.43.
33:25The day prior, the previous close
33:29of Ally Financial was $17.44.
33:36This morning, today, the stock price
33:39opened at $17.90.
33:42So, yesterday, it closed at $17.44
33:46right here.
33:47And then, at today's open, it just
33:50jumped open and started the day off
33:53at $17.90. So, it was a good start. It
33:56was a good morning for Ally Financial.
33:59This is your beginner's tutorial, so we
34:02are not going to cover what the bid and
34:03the ask are.
34:05The bid and the ask, just for your
34:06information, this is more intermediate
34:07level, is what people are willing to pay
34:10for it. An ask is the price at which
34:12they are willing to sell it at, a share.
34:14But again,
34:15for now, if you're a beginner, please
34:17ignore those.
34:19The day's range is the price
34:23fluctuation of the day.
34:26During the day, during today's trading
34:29day, it fluctuated from $17.41
34:33all the way up to $18.55.
34:37The 52-week range, that just shows you
34:40the price where the price of Ally
34:42Financial has been in the past year.
34:46It has been as low as $10.22
34:49and as high as $35.42.
34:53So, you can see the current price, the
34:55$18.43,
34:57you know, it's not near the lowest and
35:01it's not near the highest point
35:04during the 52-week range.
35:07The volume, volume is very important.
35:11This shows how many shares
35:14of Ally Financial
35:16has traded this day.
35:20This shows that 6,994,221
35:24shares have traded today.
35:29If you see a stock
35:31with a volume
35:33that's very low,
35:35that means that you can get trapped in
35:38that stock because you wouldn't be able
35:41to sell it. So, if you see a stock with
35:43a volume close to zero, that should be a
35:46red flag and that should be problematic
35:48because
35:50even if the stock went up and you wanted
35:52to sell it, you probably couldn't get
35:53rid of it. However,
35:56if I'm looking at Ally Financial and I
35:58see that the volume is nearly 7 million
36:01shares
36:03and one share is $18.43,
36:06that means it's very liquid. In other
36:09words, in layman's terms, that just
36:11means that it's very easy for you to buy
36:13a share of Ally and it's very easy for
36:16you to sell a share of Ally because
36:18nearly 7 million shares trade hands each
36:23day.
36:24Well, that was today. The average volume
36:26is how many shares of this stock trade
36:29on average
36:31per day.
36:32So, as you can see, today's volume was
36:34slightly less than the average. However,
36:37I mean, that's
36:38that's very easy for you to sell your
36:40position and get out very quickly
36:42because a lot of
36:44shares are trading each day.
36:47Moving up here, market cap,
36:50it's going to say 6.877B.
36:54That means the company, the market cap
36:57means market capitalization, which means
36:59the value of the company. The value of
37:02the company
37:03is how many shares
37:05there are of that company multiplied
37:10by the price per share.
37:12So, how many shares there are times the
37:14price per share will give you the market
37:15cap, which means the value of the
37:17company.
37:186.877B
37:20just means the market cap or the
37:22company's value is valued at 6.877
37:27billion dollars.
37:29If you saw this as an M instead of a B,
37:34then that would mean 6.877 million, but
37:37this is a B, so the market cap, the
37:39value of the company is 6. 6.877 billion
37:42dollars.
37:44Beta, this is an intermediate level
37:47terminology or item, so please ignore
37:49this for the time being.
37:52This is P/E ratio is a price to earnings
37:54ratio. This is more intermediate level
37:56as well. This just means the price of
37:59the stock divided by how much in
38:02earnings each share of this stock means.
38:06Again, this is more for intermediate
38:07level analysis.
38:09This we're just going
38:10over the very basics during this
38:12tutorial.
38:14However, that's P/E ratio, and we'll
38:17cover that, you know, we look on this
38:20very heavily in the intermediate level,
38:21so we'll be covering this very
38:23thoroughly. Earnings per share,
38:26this is this is intermediate level
38:28stuff, too.
38:29This just means how much in net income
38:32the company makes divided by how many
38:34shares there are, so it's the earnings
38:36the earnings
38:38per share.
38:41The earnings dates,
38:43this is the expected dates where the
38:46company will release their quarterly
38:49earnings.
38:50So, it is expected. Today's date is June
38:521st, and we are expecting
38:57the earnings to be released
39:00between July 16th through July 20th.
39:06There's
39:07forward dividend and yield.
39:10This just means
39:12the dividend that a company is paying.
39:14So, Ally Financial is paying a dividend
39:17yield of 4.14%.
39:21Not all stocks, not all companies pay
39:24dividends. Ally Financial is one example
39:28of a company or a stock that pays a
39:30dividend. This just means that if you
39:32bought $100 worth of Ally Financial
39:36stock,
39:37then you would receive in dividends
39:41a rate of 4.14%.
39:44So, if you bought $100 worth of Ally
39:46Financial stock,
39:47you'd receive in dividends $4.14
39:51approximately.
39:54Ex-dividend date, this just means the
39:56date that you need to be This is more of
39:59an intermediate level thing because this
40:02is representative of the date that you
40:03need to have been in the stock for the
40:06dividends for you to receive the
40:08dividends.
40:11This is
40:13one-year target estimate. This is
40:17Honestly, you should do your own
40:18research and your own homework. Don't
40:20rely on other people's targets or
40:22estimates, especially from a generic
40:24site like a Yahoo Finance. All this
40:26other stuff is this concrete data. This
40:28is But these things where they're
40:30opinions or estimates, I wouldn't rely
40:34on a site like Yahoo or Google or just
40:38any generic Again, this is just opinion.
40:42So, do your own research.
40:44And again, this is not beginner-level
40:45stuff.
40:47But we'll make videos on those topics.
40:50Here, you're going to see the news
40:52regarding the company.
40:54This is particularly important if
40:56there's large price fluctuations
40:59in the stock, then you can see why the
41:01stock moved up so much or why the stock
41:03moved down so much. So, you can check
41:05the news here.
41:07Watch out for the ads, though.
41:11And it just goes on and on.
41:14Click bait right here.
41:20That is the new section. And this This
41:22section's very important to you, of
41:23course. This is the chart.
41:251D, that just means the one-day chart.
41:27This is the price movements
41:30of L I Financial during the one day.
41:33The X axis
41:35axis
41:37Am I saying that right? Y axis, X axis,
41:39it just sounds funny.
41:41Okay, this is showing the time of the
41:42day, and this is the Y axis is showing
41:45the price.
41:47You can switch the time frame to 5 days
41:50to see how the price fluctuates.
41:551M is 1 month. 6M is 6 months.
42:00See, you see the price has dropped
42:01considerably from February 18th February
42:04February 14th
42:07down to the second or third week of
42:09March.
42:10I would see the news during that time
42:13frame to see what the heck happened,
42:14what triggered this, was it overblown,
42:17was it justified, or was it
42:19or do you think that it can go down
42:21more? So, I would check the news to see
42:22what happened during this time frame.
42:23That's why it's good to look at the
42:24charts as well.
42:27YTD just means year-to-date.
42:32So, this will start January 1st, January
42:342nd was the first trading day of the
42:36year up until today.
42:391Y is a 1-year chart.
42:41It was pretty stable and then it just
42:43took a real big dive
42:47early February.
42:495Y is 5-year chart.
42:51Click on the max, it'll take you back as
42:53far as it goes. You can do a full-screen
42:55approach.
43:01Wow, that's one heck of a dive. Look at
43:04that.
43:06That one down really fast.
43:09We'll go back, hit the back button over
43:10here.
43:15You're going to see some features here
43:17that are locked, like the company
43:18outlook. I think you got to pay for, you
43:20got to
43:22freemium, huh?
43:24It's not worth it, probably not worth
43:26it.
43:28You got the charts, we were just there.
43:31I would ignore the conversations. Let's
43:32see what this is all about.
43:36Don't trust anybody on the conversations
43:38on Yahoo's message board. That's Just
43:40don't. Just trust me.
43:43Statistics.
43:46This is your more intermediate analysis.
43:50So, we'll ignore that for now.
43:52You have the historical price closings,
43:54what the stock price was on a particular
43:57day, if you wanted to be in if you're
43:59interested in a particular day,
44:01or from a a set time frame.
44:04The profile will just give Give little
44:05bit more information about the company.
44:10Some nice paydays. Give you the
44:12executives, titles, pay. I really like
44:15to look at the
44:17who the executive team is because the
44:18leadership is key. And you can do your
44:20background or your research on these
44:22people.
44:24Give you the size of the company,
44:25sector, industry, the website, and all
44:27the basic information.
44:29More info here.
44:32Okay, this one's probably one of the
44:34more important segments.
44:37The financials. Here you can look at the
44:39income statement, the balance sheet, and
44:41the cash flow statement. So, you can see
44:43how they are financially.
44:47If you look at the income sheet,
44:49again, we'll do a separate video about
44:51reviewing the income sheet and the
44:52balance sheet and the cash flow
44:53statements.
44:55I'm sorry to be going all over the
44:56place. Let's go back to income statement
44:59and relax here for a bit.
45:02Generally, high-level overview, you can
45:04see the history. This is their one-year
45:07figure, one-year figures from 2016,
45:102017, 2018, 2019. So, this is
45:13comparative.
45:15Each line, each each row is a
45:17comparative analysis compared to the
45:19previous year.
45:21And what I would do for again, this is
45:23very high-level overview, just see if
45:25their total sales are growing, which is
45:28their total revenue. See if their total
45:30profits are growing or decreasing, which
45:32is their net income.
45:35So, that's how you would just look at
45:36their financial health from a fair from
45:38a very high-level overview.
45:44And then you can do the same thing from
45:46their balance sheets.
45:48You know, you can see their assets,
45:49their liabilities. Are their assets
45:51growing? Are their liabilities growing?
45:53Just see the the health of their
45:54company. And you can do the same thing
45:55with the cash flow statements.
45:58On the analysis tab,
46:01again, don't trust these people. I mean
46:05they're like these analysts are like
46:07weather
46:09weather men. It's just like weather
46:11reporters where they just get it wrong
46:12all the time. Just don't listen to this.
46:14Do your own research.
46:16Number of analysts. Just look at this.
46:18This is just nonsense.
46:20This is just nonsense.
46:23We won't get into options.
46:27Again, that's more advanced.
46:30Holders. Well, this is more intermediate
46:33stuff that a beginner probably would not
46:35need to know. This is just showing you
46:36the top ins- Who
46:39is holding
46:42these shares of this stock?
46:44People want to know this stuff to see if
46:46there's smart money, which is, you know,
46:48big institutions or big big-time
46:50investors that are shareholders. Because
46:53usually that's a signal of a vote of a
46:55con- vote of confidence in that
46:57particular company, depending on who the
46:59investor or the who the institutional
47:01holder is.
47:05And this is I mean, you don't need to
47:07This is This is not practical
47:09information.
47:10Sustainability. So, that is the typical
47:13information that you're going to see
47:14when you look up a stock.
47:16In addition, it's very important that
47:18you know the common stock market terms
47:21that you'll hear very often.
47:24So, in this segment, I want to explain
47:25to you 10 common terms that every
47:28beginner in the stock market should
47:30know.
47:31So, I'm going to teach you the lingo and
47:33some key concepts.
47:35Starting off with number one is a bull
47:38market. When the stock market is going
47:40up, people call it a bull market. That's
47:42because a bull thrust its horns in an
47:45upward motion.
47:46In a bull market, there's going to be
47:48ups and downs along the way, but the
47:50general direction of a bull market is
47:52up. A bull market can last for a few
47:55months or for many years. The average
47:58bull market lasts for 3 to 4 years.
48:01During a bull market, most investors are
48:03making money. That's because on average,
48:06stocks gain 110% during a bull market. A
48:10bull market is good times, and that's
48:12why people love it.
48:13Everyday investors enjoy watching their
48:16account values go up, and it's a great
48:18time all around.
48:20A bull market can be triggered by
48:21various factors, such as a booming
48:23economy or quantitative easing. Number
48:27two is quantitative easing, also
48:29abbreviated as QE. This is when the
48:32Federal Reserve is printing money, which
48:34causes inflation. When you have high
48:37inflation, most things will go up in
48:39price, including stocks in the stock
48:42market.
48:43So, stock prices tend to go up during
48:45quantitative easing.
48:47That's just because there's simply more
48:48money in the economy. All that newly
48:51printed money it needs to go somewhere,
48:53and a lot of that money finds its way
48:55into the stock market, driving up the
48:57price of stocks. Number three is a bear
49:00market. When the stock market is going
49:02down, people call it a bear market.
49:05That's because a bear swipes its claws
49:07in a downward motion.
49:09People use the term bear market when the
49:11stock market has fallen at least 20%
49:13from its peak.
49:15The average bear market lasts for 9
49:17months. On average, you can expect the
49:20stock market to fall by 36%.
49:23Therefore, you can understand why most
49:25investors do not enjoy a bear market.
49:29Number four, shorting. When the stock
49:31market is going down, not everyone is
49:33going to be sad though, because in the
49:35stock market, you can make money by
49:37betting that stocks will fall in price.
49:41In the stock market, most investors make
49:43money by buying a stock at a low price
49:45and then selling it at a higher price.
49:48You buy low and you sell high. However,
49:50you can switch the order around. You can
49:53sell high and then buy low. You're doing
49:56the same thing just in the reverse
49:59order. Therefore, when you're shorting a
50:01stock, you're hoping that the stock goes
50:03down in price.
50:05If you want to make money shorting a
50:06stock, then you should be searching for
50:08companies that have a very bad future
50:10ahead of them. This could be bad
50:12management, a dying industry, a product
50:14or service that was just a fad, too much
50:17debt, competitors that are outcompeting
50:20them, etc. When you're looking to short
50:22a stock, you want to make sure that
50:24they're as bad as they come. The more
50:26terrible, the better. Number five,
50:29quantitative tightening. We spoke about
50:31how quantitative easing is money
50:33printing. Quantitative tightening is the
50:36very opposite of that. When the Federal
50:39Reserve prints money, that's
50:40quantitative easing. When the Federal
50:42Reserve takes that money back, that's
50:45quantitative tightening. Quantitative
50:47tightening tends to be harmful to the
50:49stock markets. If the Federal Reserve is
50:52pulling money out of the economy,
50:54there's going to be less money to go
50:55around. If there's less money to go
50:58around, there's going to be less money
50:59in the stock markets. This means that
51:02the price of stocks will generally go
51:04down. So, it's pretty straightforward.
51:06Quantitative easing pushes the stock
51:08market up, quantitative tightening
51:10pushes the stock market down. At number
51:13six, we have dead cat bounce. When the
51:15stock market is going down, it's not
51:17going to go straight down. It's going to
51:20go up and down, up and down, but the
51:22general direction is downward. In this
51:25downward trend, you may see stocks
51:28bounce in price only to fall down even
51:30further.
51:31A lot of amateur investors lose money in
51:34a dead cat bounce because they think
51:36that a stock has reached a bottom at
51:38this point. They see the stock price
51:40going back up and they FOMO. They have
51:43the fear of missing out. However, that
51:46was not the bottom and this bounce will
51:48be short-lived.
51:50This bounce in price is something that
51:51always happens because nothing will ever
51:53go straight down. It's like a law of
51:55physics in the stock market. Even stocks
51:59that announce that they're going
52:00bankrupt will have a dead cat bounce.
52:03They call it a dead cat bounce because
52:05when a cat jumps out of a tall
52:06structure, let's just say a tree, the
52:08cat hits the pavement, it dies on
52:10impact, it still bounces up because of
52:13physics, Newton's third motion, but the
52:16dead cat that bounced up, it's coming
52:19right back down. When a stock is going
52:21down, it may bounce back up. Investors
52:24may think that the stock is coming back
52:26to life and it's going to shoot back up,
52:28but no, it's going right back down.
52:31That's a dead cat bounce. Number seven,
52:34don't fight the Fed. The Federal
52:36Reserve's monetary policy is a big
52:38factor on whether the stock market goes
52:40up or down.
52:42If the Fed prints money, it pushes the
52:44stock market up.
52:46If the Fed takes that money back, it
52:48pushes the stock market down.
52:51Of course, it depends on how much money
52:52they're printing or taking back. The
52:55bigger the quantity, the bigger the
52:56impact. The Federal Reserve's decisions
52:59have a big influence on the direction of
53:01the stock market. The Federal Reserve
53:04can have more of an impact on the stock
53:06market than the health of the economy.
53:08This was clearly evidenced in 2020.
53:11During 2020, the economy locked down,
53:14unemployment skyrocketed, and GDP fell.
53:17However, the Federal Reserve printed an
53:20excessive amount of money and it sent
53:22the stock market up 18%.
53:25So, that's how powerful the Federal
53:26Reserve's influence is on the stock
53:28market. Therefore, you don't fight the
53:31Fed.
53:32Number eight, dollar cost averaging.
53:35You'll see investors abbreviating this
53:36as DCA. When you buy a stock, you never
53:39want to go all in. So, let's just say
53:42that a stock is at $10 and you think
53:44it's a good price.
53:46Don't act like a crazy person and use
53:49all of your money to buy it at 10, even
53:51if you think it's a good price.
53:53So, sure you can buy some at 10, but
53:55save some money in case it drops to nine
53:58and save some money in case it drops to
54:00eight. By doing so, you'll be averaging
54:03down on your purchase price. In this
54:05example, let's just say that you thought
54:07it was a good price at $10. And let's
54:09say that nothing is fundamentally
54:11changed with the stock and on no news,
54:14the stock falls to $9. So, this will be
54:17a great opportunity to DCA, dollar cost
54:20average down, and buy more shares at a
54:22cheaper price. A benefit of dollar cost
54:25averaging is, if you buy some at 10 and
54:27then it goes up, then you'll make money.
54:30If the stock goes down, then you can buy
54:32more shares at a cheaper price and this
54:35will allow you to make even more money
54:37because you got in at a better price.
54:39Number nine, tax loss harvesting. This
54:43is when you're selling your losing
54:44stocks, taking the loss so that you paid
54:47less taxes.
54:48So, let's say that you bought and sold a
54:50bunch of stocks during the year and
54:52you're up $5,000.
54:54In that case, congratulations on your
54:56success. However, you're going to face
54:58taxes.
54:59However, if you're holding on to some
55:01stocks that went down in value, you can
55:04sell them at a loss, so your total gains
55:07are reduced.
55:08By tax loss harvesting, you end up
55:10paying less in taxes. Number 10, support
55:14and resistance. These are very important
55:16terms that you're going to hear often. A
55:18lot of people in the stock market like
55:19to look at the stock charts and identify
55:22patterns.
55:23If there's a certain price that a stock
55:26has a hard time falling below, that's
55:28called the support.
55:30If there's a certain price that a stock
55:32has a hard time going above, that's
55:34called the resistance. In a lot of
55:37cases, when the support is broken, it
55:39will turn into the new resistance. And a
55:42lot of times, when the resistance is
55:43broken, it will turn into the new
55:45support. Now, let me tell you how to
55:48find good stocks to buy.
55:51So, it's a simple two-step process. Step
55:54one is discovery. So, how do you even
55:57find companies that are listed on the
55:59stock markets? And step two is your
56:02evaluation. So, that's researching
56:05whether a stock is a good buy or not.
56:08So, let's talk about step number one,
56:09which is finding stocks.
56:12First, you have to find out which
56:14companies are listed on the stock
56:16market, right? So, how do you do that?
56:19And the answer is simple. There are
56:20multiple ways. So, here's one way. There
56:24are many free websites that list all the
56:26companies that are on the stock markets.
56:29And you can filter your search for which
56:31stocks that you want to look at based on
56:34the size of the company, the price of
56:36the stock, by industry, stocks that are
56:39trending up, stocks that are trending
56:41down, how popular a stock is, etc. So,
56:44that's one method. Another method is
56:47that you can find stocks by reading
56:49financial news outlets. So, we're
56:50talking about Wall Street Journal,
56:52Google Finance, Yahoo Finance, etc.
56:55Another method is that you can subscribe
56:57to free newsletters about stock picking.
57:01There are subscription services for
57:03stock picking. You can always ask your
57:05friends, your family members, or
57:07coworkers. Now, step number two, which
57:10is very important, is doing your
57:12research. Do your due diligence before
57:15investing your hard-earned money into a
57:18stock.
57:19Cuz your money's on the line.
57:21You want to make sure that you do your
57:22homework to maximize your odds that you
57:25pick a winner.
57:26If you get stock recommendations from a
57:28newsletter, a subscription service, a
57:31friend, a family member, or coworker, it
57:33doesn't matter where it comes from.
57:35Always do your own research. And I want
57:38to tell you this, there is no one right
57:40way to evaluate a stock.
57:43Some investors will pay more attention
57:46to sales growth,
57:47others to profits or dividends,
57:49price-to-earnings ratio, cash flow, the
57:52charts, etc. Your evaluation will most
57:56likely encompass a variety of these
57:58factors. So, everyone has their own
58:00style of stock picking. Now, let me give
58:03you my honest opinion about where you
58:05should buy and sell stocks.
58:08So, a brokerage account is where you buy
58:10and sell stocks. And the majority of
58:13brokerage accounts have zero
58:14commissions. So, that means that it
58:16costs you nothing to buy a stock or to
58:19sell a stock. So, they don't charge you
58:20anything. It's literally free. That's
58:23because these brokerages have other ways
58:25of making money. They make money from
58:27lending, from interest, from market
58:29making, so they make money in a lot of
58:31ways, not limited to just those, so they
58:34don't even bother charging you a
58:36commission to buy or sell stocks. So,
58:39the question is, which brokerage account
58:41is the best? Where should you open up a
58:44stock market account?
58:46My honest answer is, they're all the
58:49same. Now, of course there's going to be
58:51exceptions, like if you're a
58:52professional day trader,
58:54but for the vast majority of investors,
58:57it doesn't matter if you have a million
58:58dollars or a hundred dollars, any name
59:01brand brokerage account will be good.
59:03So, I'm going to leave a link for you
59:05down below of a good brokerage account
59:07that I use personally.
59:09If you use that link, then you'll
59:11receive a sign-up bonus of free stocks
59:14to kickstart your account.
59:16Now, moving on to stock market taxes,
59:18this is very important for two reasons.
59:21So, the first reason is,
59:23well, you don't want to get in trouble
59:24with the IRS. And the second reason is
59:26that you want to minimize your taxes on
59:29your stock market gains. So, I'm going
59:32to teach you what you have to do with
59:34the money that you make in the stock
59:35markets, money that you lose in the
59:37stock markets, your dividend income,
59:40your interest income, and how to reduce
59:42your taxes in the stock markets.
59:45If you have more advanced questions or
59:47if you just need clarification on what
59:49we covered today, then please write them
59:50in the comments down below and I will do
59:53my best to help you out. So, let's start
59:55with the basics. In the stock market,
59:57your taxes will be based off the
59:59calendar year. So, we're talking about
1:00:01January 1st to December 31st.
1:00:04Your brokerage account will keep track
1:00:06of all your activity for the year. And
1:00:08this is going to include gains, losses,
1:00:10interest, dividends, etc.
1:00:13Now, I want you to be prepared. So, I
1:00:16want to give you a timeline of the
1:00:17events so that you don't miss any
1:00:19important tax deadlines or documents.
1:00:22So, let's say that it's December 31st.
1:00:25This is the last day of the year and
1:00:26then the day ends and then the year just
1:00:29ended. So, happy New Year.
1:00:32It's now January 1st and your brokerage
1:00:34account has until February 15th to give
1:00:37you a tax documents that you need to
1:00:39report on your tax return. This tax
1:00:42document is called the consolidated
1:00:441099.
1:00:46The consolidated 1099 will include the
1:00:481099-B,
1:00:50which states how much money that you
1:00:52made or lost in the stock market that
1:00:54year.
1:00:55The 1099-INT
1:00:57and that states how much interest income
1:01:00that you earned that year in your
1:01:02brokerage accounts. And the 1099-DIV,
1:01:05which states how much dividend income
1:01:07that you earned that year in your
1:01:09brokerage accounts. Now, you would think
1:01:12that in this day and age everything is
1:01:14computerized, right? So, why can't your
1:01:16brokerage accounts immediately generate
1:01:19your tax documents on January 1st? Like,
1:01:22what's up with that? So, that's a good
1:01:23question, but there's actually a good
1:01:26reason why it cannot be done that
1:01:28quickly. It's because even though your
1:01:30tax period ends on December 31st, there
1:01:34are certain types of stock transactions
1:01:36that can retroactively affect your
1:01:38taxes.
1:01:39So, for example, let's say that the year
1:01:412023 ended, and it's January 22nd of
1:01:452024.
1:01:47So, with certain transactions,
1:01:50what you do in January can affect your
1:01:52taxes in the previous year.
1:01:55One example is the wash sale rule.
1:01:58That's why brokerage accounts cannot
1:02:00immediately generate your tax documents
1:02:02on January 1st.
1:02:05So, you're most likely going to get your
1:02:061099 tax document in early to
1:02:08mid-February,
1:02:10which should be enough time for you to
1:02:12finish your tax return by the April due
1:02:14date.
1:02:16So, that's an overview of how this all
1:02:17works. Now, let's go over the most
1:02:19common situations.
1:02:22In the stock market, you will only pay
1:02:24taxes if you make money. If you lose
1:02:26money in the stock market, then you will
1:02:28not pay taxes. So, as a matter of fact,
1:02:31if you lose money in the stock market,
1:02:32then you will receive a tax deduction.
1:02:35Now, let me give you an example to
1:02:37clarify. So, let's just say that you buy
1:02:39Tesla stock for $100 in January of 2023,
1:02:43and let's say that you sell it 1 month
1:02:45later in February of 2023 for $120.
1:02:49So, congratulations,
1:02:51you made a gain of $20.
1:02:54You sold the stock for 120,
1:02:57but you will not pay taxes on the full
1:02:59sales price of $120.
1:03:02You will only pay taxes on your $20 of
1:03:05gain.
1:03:07So, how much will you pay in taxes?
1:03:11That's going to depend on which tax
1:03:13brackets that you're in, and that
1:03:15depends on how much money that you make
1:03:16overall.
1:03:18If you're in the 10% tax bracket, then
1:03:20your $20 a gain will be taxed at a rate
1:03:24of 10%, which means that you will owe
1:03:27the IRS $2. You made a gain of $20. You
1:03:32need to pay $2 of taxes to the IRS, so
1:03:35you came out ahead by $18. Now, here's
1:03:39what you must know to save yourself a
1:03:40lot in taxes.
1:03:43If you hold the stock for 1 year or less
1:03:46and then you sell it for a gain, then
1:03:48you will pay regular tax rates. This is
1:03:50called short-term capital gains. So,
1:03:53it's just based on how long you hold the
1:03:56stock. 1 year or less is classified as
1:03:59short-term.
1:04:01So, if you're in the 10% tax bracket and
1:04:03you make money in the stock market, then
1:04:05you will pay a tax rate of 10% on your
1:04:08short-term capital gains.
1:04:11If you're in the 37% tax bracket and you
1:04:14make money in the stock market, then you
1:04:15will pay a tax rate of 37% on your
1:04:18short-term capital gains. But,
1:04:22if you hold the stock for more than 1
1:04:24year and then you sell it for a gain,
1:04:27then it will be classified as a
1:04:28long-term capital gain. So, it just
1:04:31depends on how long you hold the stock.
1:04:34Short-term is a year or less. Long-term
1:04:38is longer than a year.
1:04:40So, long-term capital gains receive much
1:04:43better tax rates and it doesn't matter
1:04:45which tax bracket that you're in, your
1:04:47tax treatment will be much better
1:04:49regardless. It is a game-changer. So,
1:04:52let me explain.
1:04:53If you make a lot of money at your job
1:04:55and you're in the 37% tax bracket, your
1:04:58long-term capital gains will be taxed
1:05:00around 20%.
1:05:03If you're in the 25% tax bracket, your
1:05:06long-term capital gains will be taxed at
1:05:0815%.
1:05:09If If in the 10% tax bracket, your
1:05:12long-term capital gains will be taxed at
1:05:14a rate of 0%.
1:05:16So, that's right. 0%.
1:05:19If you don't believe me, you can look up
1:05:210% long-term capital gains tax.
1:05:24Therefore, regardless of whichever tax
1:05:27rate that you're in, long-term capital
1:05:29gains will receive favorable tax
1:05:31treatment. So, keep that in mind.
1:05:33This is going to save you a lot of
1:05:34money, especially if you're sitting on a
1:05:36big winner.
1:05:37And this leads to another important
1:05:39point that you must know.
1:05:42You only trigger a tax consequence when
1:05:45you close your position. So, let me
1:05:46explain.
1:05:48So, let's just say that you bought
1:05:50Microsoft stock in the year 2020 for
1:05:54$100.
1:05:55By the end of the year, by the end of
1:05:572020, the stock goes up from $100 to
1:06:01130.
1:06:02But,
1:06:03you didn't sell it. You're just holding
1:06:05on to it.
1:06:06Because you did not sell the stock and
1:06:08you did not close your position, you did
1:06:10not trigger a tax liability. And let's
1:06:14say that it's next year. So, now we're
1:06:15in 2021.
1:06:17And 2021 ends, and Microsoft went up to
1:06:20$150. So, congratulations.
1:06:23But, you just held the stock. You still
1:06:25didn't sell it.
1:06:27Then it's going to be the same thing.
1:06:28You did not sell your stock, you did not
1:06:30realize the gain, which means that a tax
1:06:32consequence has not been triggered. So,
1:06:36still,
1:06:37there's nothing to report on your tax
1:06:38return, and you don't have to pay any
1:06:40taxes yet because you haven't sold a
1:06:42position, you have not closed your
1:06:44position. And then, let's say that we're
1:06:47now in the year 2022, and you finally
1:06:50decide to sell the stock for $180.
1:06:54Now, I'll tell you two things.
1:06:55One, your gain is $80. You sell the
1:07:00Microsoft stock for $180, you bought it
1:07:03for 100, so your gain is 80, and you'll
1:07:07be taxed on your $80 of gain.
1:07:10The second thing is that your tax rates
1:07:12will be much better.
1:07:14Because, remember, you held onto the
1:07:16stock for longer than 1 year, and this
1:07:19makes it a long-term capital gain. And
1:07:21long-term capital gains receive much
1:07:23better tax rates. Now, let's talk about
1:07:26losing money in the stock market because
1:07:29it happens. When you make money in the
1:07:31stock market, you have to pay taxes.
1:07:33When you lose money in the stock market,
1:07:35the IRS gives you a tax deduction.
1:07:38And a tax deduction allows you to pay
1:07:40less taxes, which is a good thing. So,
1:07:43let's be clear. Losing money in the
1:07:45stock market is bad. Try not to do that.
1:07:48But, if you lose money, at least you get
1:07:50a tax deduction. When life throws lemons
1:07:53at you, you make lemonade.
1:07:55So, use this to keep a positive attitude
1:07:58towards losing money in the stock
1:07:59market. At least you get a tax break.
1:08:01So, let's run through three examples of
1:08:04you losing money in the stock markets.
1:08:06So, example number one. You work a job,
1:08:09and at your job, you make $100,000 of
1:08:11taxable income. So, congrats, you make
1:08:14six figures.
1:08:15You have all this extra money, and
1:08:17you're like, "I'm going to invest some
1:08:18money in the stock markets."
1:08:20And you buy $2,000 of Peloton stock, and
1:08:24your investment declines from $2,000 to
1:08:261,000 in the same year.
1:08:29And you don't sell it by the end of the
1:08:31year. You just keep holding onto the
1:08:33stock hoping that it recovers. You know
1:08:36what the tax consequence is?
1:08:38There is none. Because, remember, you
1:08:40didn't sell the stock. You did not close
1:08:42your position, so you did not realize
1:08:45your loss. Therefore, there is no tax
1:08:47consequence. The tax implications will
1:08:50be triggered in the year that you sell
1:08:52the stock for a gain or for a loss.
1:08:56Example number two, it's going to be the
1:08:57same setup. You make $100,000 at your
1:09:00job.
1:09:01You buy $2,000 worth of Peloton stock.
1:09:04It declines to $1,000 and you can't take
1:09:07it anymore. The stock is just stressing
1:09:10you out and you end up selling it the
1:09:12same year for a $1,000 loss.
1:09:15In this scenario, you realize a loss of
1:09:17$1,000.
1:09:19But hey, you have to look at the bright
1:09:20side. You get a $1,000 tax deduction.
1:09:24So, on your tax return, you make
1:09:26$100,000 of taxable income at your job,
1:09:29but now you get a $1,000 stock market
1:09:32loss to reduce your total taxable
1:09:34income.
1:09:35So, on your tax return, your taxable
1:09:38income goes from $100,000 to 99,000.
1:09:42So, hey, you save some money on your
1:09:44taxes.
1:09:46And example number three, same setup.
1:09:48You make $100,000 of income at your job
1:09:51and let's say that you bought $20,000 of
1:09:54Peloton stock. Like, you went overboard.
1:09:56Like, you YOLO'd.
1:09:57And let's just say that the stock fell
1:09:59in value from $20,000 to 10,000.
1:10:03You know, that sucks, but it happens.
1:10:06And you sold the stock and you lost
1:10:08$10,000.
1:10:10Okay, so here's what happens.
1:10:13So, there's a rule that limits your
1:10:16losses per year.
1:10:18You can only use a maximum of $3,000 of
1:10:21losses per year as a tax deduction.
1:10:25So, if you lost $10,000 this year, you
1:10:29can take a $3,000 tax deduction this
1:10:31year,
1:10:32and then your tax return would look like
1:10:34this.
1:10:35Taxable wage income, $100,000.
1:10:38Capital losses, 3,000.
1:10:41Taxable income, 97,000.
1:10:44And then you would have unused losses of
1:10:46$7,000.
1:10:48So, the $7,000 of remaining losses would
1:10:51carry forward into the future. So, don't
1:10:53worry. Even though you can't use all of
1:10:56your losses as a tax deduction this
1:10:59year, you can use them in future years.
1:11:02So you don't lose your losses, they
1:11:04carry forward.
1:11:06And if you don't use all your losses
1:11:08next year, then the losses just keep
1:11:11carrying forward until you're able to
1:11:13claim them all in full. Now, I have to
1:11:15clarify this. This is so important. Do
1:11:18not be confused.
1:11:20If you lost $10,000 on Peloton stock,
1:11:23but you made $10,000 on Walmart stock,
1:11:27then you can use the entire $10,000 loss
1:11:29from Peloton to offset the $10,000
1:11:33Walmart gain. So they net together.
1:11:37The $3,000 limitation is when you lost
1:11:39money in the stock market overall. And
1:11:42$3,000 is the maximum tax deduction that
1:11:45you can claim to lower your other
1:11:48taxable income, such as taxable income
1:11:50that you made at your job. To clarify,
1:11:54if you made a gain of $10,000 on Walmart
1:11:56stock, but you lost $15,000 on Peloton
1:12:00stock,
1:12:02that means that you lost $5,000 in the
1:12:04stock market.
1:12:06And then you can use $3,000 of that as a
1:12:10tax deduction to reduce your wage
1:12:13income.
1:12:14So you lost $5,000 in the stock market
1:12:17overall. You can use $3,000 as a tax
1:12:20deduction that year.
1:12:22And then your $2,000 of remaining losses
1:12:24will carry forward to next year. Now,
1:12:27let's cover your tax obligation on your
1:12:29dividend income and your interest
1:12:30income. So this is very easy, but I
1:12:32don't want you to overlook this.
1:12:35So remember, around early February, you
1:12:37should receive your tax document from
1:12:39your brokerage accounts. This tax form
1:12:41is called the consolidated 1099.
1:12:44And this will tell you how much money
1:12:45that you made from interest and
1:12:47dividends for the tax year that just
1:12:50ended.
1:12:51And you have to report this information
1:12:53on your tax return, but it's very easy
1:12:55to do that. If you're filing your tax
1:12:58return yourself with a do-it-yourself
1:12:59software, then you just simply look at
1:13:02your 1099 tax form, and then type into
1:13:04the software the figures that your
1:13:06software needs. But in today's modern
1:13:09society, many tax software allow you to
1:13:12directly connect to your brokerage
1:13:13accounts. And the software will
1:13:15automatically retrieve the relevant tax
1:13:18information that your tax return needs.
1:13:21And just for your information, you may
1:13:23have interest income in your stock
1:13:25market accounts because you may be
1:13:27earning interest on money that you're
1:13:29not using within your accounts.
1:13:31If you get paid interest, it's listed on
1:13:33your 1099 tax documents,
1:13:36and you you have to report on your tax
1:13:38return, but that's very straightforward
1:13:39to do.
1:13:41Your interest income will be taxed at
1:13:43your regular tax rates. You will not
1:13:45receive any special treatments on your
1:13:47interest income. And here's a little
1:13:49extra information on dividends. So, some
1:13:52of your stocks may pay dividends. It's
1:13:55listed on your 1099 tax document, and
1:13:57you report it on your tax return.
1:14:00Some of your dividends may be taxed at
1:14:02your regular rates, and these are called
1:14:04ordinary dividends.
1:14:06Some of your dividends may be taxed at
1:14:08lower rates, and these are called
1:14:10qualified dividends.
1:14:12So, it just depends on the
1:14:13classification of the dividends, so
1:14:15we're not going to get into that today.
1:14:17On your 1099 tax document, it will
1:14:19separately list out your qualified
1:14:22dividends. But long story short, be on
1:14:25the lookout for your 1099 tax document
1:14:27by mid-February.
1:14:29Use that information for your tax
1:14:30software if you're self-preparing your
1:14:32return.
1:14:33If you're using an accountant, give them
1:14:35the consolidated 1099 tax documents.
1:14:39If you do not report your 1099 activity,
1:14:41it will most likely result in an IRS
1:14:43letter, unless your activity is
1:14:46extremely minimal. Again, this was a
1:14:49beginner's guide to taxes in the stock
1:14:51markets.
1:14:52If you have intermediate or advanced
1:14:54questions, please ask them in the
1:14:56comments down below.
1:14:58I intentionally did not go into the
1:15:00details of estimated tax payments,
1:15:02equity options, commodities, foreign tax
1:15:05credits, etc.
1:15:07So, I don't want to scare beginners
1:15:08because those issues will not be
1:15:10applicable to most people. And I want to
1:15:13clarify this. If you invest in stocks or
1:15:16index funds or ETFs or mutual funds
1:15:19in a retirement accounts, there are no
1:15:21tax consequences until you take that
1:15:24money out of your retirement accounts.
1:15:27So, if you buy or sell within a
1:15:28retirement account, those are
1:15:30non-taxable transactions, and they will
1:15:32not be reported on your tax return.
1:15:35I hope you learned something and enjoyed
1:15:37this video. Thank you so much for the
1:15:38support. Please subscribe, and I wish
1:15:40you a very nice day. Happy investing.