One of my secrets to maintaining a growth mindset is devouring positive content through my ears. I am not a huge reader, but Audible has allowed me to average 24 books “read” a year for the last three years running. It’s changed my life for the better. So I hooked up with Audible to offer you guys a special deal. 2 free audiobooks and a 30-day trial.
Last week we covered growth concepts for our kids in the realms of financial intelligence, personal development, and building authentic relationships. This week I want to deliver to you some interesting content I’ve discovered in these three growth domains. Your overall action is to absorb a particular piece of content and envision how you can apply it to your life. Bonus points if you share your thoughts on the Three Action Thursday Facebook Group.
“Your Network is Your Networth” is the title of my friend Jayson Gaignard’s latest podcast episode. Jayson’s advice? Forget real estate, stocks, and crypto-currencies. Relationships are the ultimate asset.
“You can’t connect the dots looking forward, you just need to trust that they will somehow connect.” Steve Jobs
Community Made Podcast Season 2 Episode 1
Patrick Bet-David interviews Molly Bloom aka “The Poker Princess” about her true story as the 26-year-old woman behind the most exclusive, high-stakes underground poker game in the world.
Molly talks about how she overcame various challenges and fears in her life. Ultimately she was arrested by the feds for her illegal actions, but such an interesting story of understanding yourself and developing yourself I just had to include it. Take away the illegal aspect of what she did, and it’s quite impressive what she built.
I’ve put together my “Top 8 Personal Finance Terms You Should Know” and I’ve also included my own personal Take Away on each one….
1. Compound interest
When investing or saving, this is the interest that you earn on the amount you deposit, plus any interest you’ve accumulated over time.
Take Away: It will make your savings or investments grow at a faster rate over time as you make interest on your re-invest interest.d
2. Dollar Cost Averaging
A strategy in which an investor places a fixed dollar amount into a given investment on a regular basis. The investment generally takes place each and every month regardless of what is occurring in the financial markets.
Take Away: I love this strategy. Because your monthly investment amount is fixed, you are buying more when prices are low, and less when the prices are high.
3. Net worth
The difference between your assets and liabilities. You can calculate yours by adding up all of the money or investments you have, including the current market value of your home and car, as well as the balances in any checking, savings, retirement or other investment accounts. Then subtract all of your debt, including your mortgage balance, credit card balances and any other loans or obligations. The resulting net worth number helps you take the pulse of your overall financial health.
Take Away: It’s more important to track your Net Worth NOT your salary. But if you can get them both to go up simultaneously then good on you!
4. Asset allocation
The process by which you choose what proportion of your portfolio you’d like to dedicate to various asset classes, based on your goals, personal risk tolerance, and time horizon. Stocks, bonds, real estate, and cash or cash equivalents (like certificates of deposit) make up the four major types of asset classes, and each of these reacts differently to market cycles and economic conditions.
Stocks, for instance, have the potential to provide strong growth over time, but may also be more volatile. Bonds tend to have slower growth but are generally perceived to have less risk. A common investment strategy is to diversify your portfolio across multiple asset classes in order to spread out risk while taking advantage of growth.
Take Away: Asset Allocation is something that I think most people don’t think about. But once you go through a downturn in stocks or in real estate you begin realizing how important diversification across assets is.
Commonly referred to as fixed-income securities, bonds are essentially debt investments. When you buy a bond, you lend money to an entity, typically the government or a corporation, for a specified period of time at a fixed interest rate (also called a coupon). You then receive periodic interest payments over time and get back the loaned amount at the bond’s maturity date.
Take Away: I’m not a huge bond guy, but they serve their purpose as part of asset allocation.
6. Capital gains
The increase in the value of an asset or investment—like a stock or real estate—above its original purchase price. The gain, however, is only on paper until the asset is actually sold. A capital loss, by contrast, is a decrease in the asset’s or investment’s value.
You pay taxes on both short-term capital gains (a year or less) and long-term capital gains (more than a year) when you sell an investment. By contrast, a capital loss could help reduce your taxes.
Take Away: Capital gains (and dividends) are awesome!!!! Do some research on how they can benefit your portfolio over time.
Also called equities or shares, stocks give you ownership in a company. When you buy stocks, you become a company shareholder, giving you a claim on part of that company’s assets and earnings. The two main types of stocks are common and preferred.
If you hold common stock, you can vote at shareholders’ meetings and receive dividends—however, you’re also lowest on the totem pole in the corporate ownership structure. Preferred stockholders have a higher claim on assets and earnings than owners of common stock (for example, they receive their dividends first), but they don’t have voting rights.
Take Away: Stocks are my fav. I generally rely on index funds to diversify my stock portfolio. I generally do not buy individual stocks.
The process of buying or selling securities over time in order to maintain your desired asset allocation. For example, if your target allocation is 60% stocks, 10% real estate, 10% bonds and 20% cash, and the stock market has performed particularly well over the past year, your allocation may now have shifted to 70% stocks, 8% real estate, 8% bonds and 14% cash.
To rebalance your portfolio, you could sell some of your stocks and reinvest the proceeds in bonds, real estate, and cash to bring the portfolio back to the original balance.
Take Away: This goes hand in hand with asset allocation. And I think for me this becomes super important as you near retirement.
Until next week,