Everyday Finance and Economics with the Siglers

EP 03: Investing? What?

April 20, 2021 Glenn and Christina Sigler Episode 3
Everyday Finance and Economics with the Siglers
EP 03: Investing? What?
Show Notes Transcript

Hello! and welcome to Everyday Finance and Economics with the Siglers! The podcast where we discuss what you need to know about personal finance and economics and give you practical advice on how to get started and be smart with your money.


This episode is the first part of our series on the world of investments. We are starting with the most basic of basics, defining the investing terms that you absolutely need to know. Join us next time for some more investing knowledge and tips and tricks for the budding investor!



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Intro music: 

Coffee & Lullabies R&B mix by J.Lang (c) copyright 2020 Licensed under a Creative Commons Attribution Noncommercial  (3.0) license. http://dig.ccmixter.org/files/djlang59/62099 Ft: CrazyLittleAsian aka SHA


Coverart by Karina Ng @karina.ng on instagram

Speaker 1:

Hello, and welcome to everyday finance and economics with the Sigler's the podcast where we discuss what you need to know about personal finance and economics, and give you practical advice on how to get started and be smart with your money where your host Glen and Christina. So

Speaker 2:

Christina, what's going on in the economy this

Speaker 1:

Week. Okay. So here's, here's what went down this week. This week, the long awaited CPI or consumer price index came out and that measures the changes in price of a basket of representative household goods, things that everybody has in their house, everybody needs. Um, they measured the changes in price of those goods over time. And it comes out every year. This year, the consumer prices Rose by the largest amount in eight and a half years, which means prices in general are rising. Many economists and business leaders are concerned because this would normally be a sign of inflation. But the chairman of the federal reserve drone pal, as that, this is just pent up demand. As people get vaccinated, um, all the pent up, um, quarantine demand for things is getting released and now that people are safer, um, but if this inflation persists, then the federal reserve will have to take other measures such as raising interest rates that could dampen economic recovery, which is really important at this point.

Speaker 2:

That's the big, that's the biggest issue. Um, business leaders and investors are concerned that, um, if, if inflation is persistent and is above the fed target of 2%, which they said they will S uh, allow it to run hot, uh, then they'll have to clamp down by, um, in the past. What they've done is they've raised interest rates considerably. And if you raise interest rates that raises the cost of cost of borrowing and other things, which slows down economic activity,

Speaker 1:

That's true. But the thing is you have to also consider the fact that our economy is not in a normal economic state right now. We were already kind of in a, in a damping sense of

Speaker 2:

Right. And, and, and that's the big concern. We haven't seen a situation like this, right? And so what are, you know, what are the tools that they have in place or the, you know, will they manage it correctly, uh, and, and, and navigate the, through this situation, uh, for everybody's best interest.

Speaker 1:

Yeah, there's a lot of, there's not a lot of precedent for this. So they're going to have to be really careful because nobody really knows what to do. And our economic term for this week is inflation. Inflation is the rate of increase of prices over a given period of time. A prime example of this is how, uh, our grandparents and parents used to tell us that they used to be able to buy soda or candy or chips or anything for like 25 cents. And now they cost like a dollar 50. Um, so that's, that's how inflation works. Prices rise over time.

Speaker 2:

Yes. I used to be able to buy a can of soda for 15 cents. I really went to that. I cannot do that anymore.

Speaker 1:

I wish I could relate. So to cost so much, now it costs like a dollar 75 anyway. All right, dad, I think it's time to get into this week's topic. What are we talking about today?

Speaker 2:

Today? We're talking about investing.

Speaker 1:

That is a very great topic, uh, especially for young college students like me. All right, dad, what is investing

Speaker 2:

Well? Investing is the act of committing your money to an endeavor with the expectation of obtaining, uh, either a stream of income from it or profit when you sell.

Speaker 1:

Okay. So putting money in something to get money out of it,

Speaker 2:

Right? And, and, and you're, hopefully you're going to get a lot more money out of it. This is unlike consuming, where you're just, Hey, I'm giving my money and I get, you know, food or something. You get something that you, you will use up immediately like a service, right? Like a better service. But this is either a, uh, uh, looking to acquire a share of an asset that will either appreciate over time or generate additional revenues for you over time.

Speaker 1:

In layman's terms, this is putting money in something to get more money out.

Speaker 2:

That's the short term, and this is different than savings because it involves risk. And I'm going to just put it out out here. You know, risk means you could lose some or all of your money. And in certain situation you could lose more money than you actually put in. But you know, that those are we'll start. We'll talk about that later, but

Speaker 1:

This is very important to consider. Just be careful as a general word of caution. All right, dad, there's so many terms involved with investing. There's so many acronyms and things that you just people say, and I'm just expected to know. So what are some different types of investments?

Speaker 2:

Okay. We will start with the, the big categories. Um, ones that everyone should be hearing about are, are, are equities. Those are stocks. You know, those are shares of companies. Uh, there are publicly listed companies where you can buy a piece of Tesla or Amazon or Microsoft, and you own, you know, a tiny sliver of that entire company. Um, and those companies could be us companies. They could be Canadian companies. You can buy shares of companies anywhere that they, uh, that anywhere there is a public exchange. Um, for the most part, you can get a, get a piece of that company.

Speaker 1:

So technically these publicly traded companies are owned by people who own the equities, right? That's

Speaker 2:

Exactly right. So it's not owned

Speaker 1:

By like the CEO or whatever. They just like manage it.

Speaker 2:

So that's the difference between a privately held company and a publicly held company. And so privately held company it's, you know, either the family or the person that started, they are the owner. They, they can make all the decisions, a publicly held company. The management of the company works for the shareholders and the shareholders can, uh, can direct the companies to do certain things or not. Okay. Now there's lots of ways to own equities. You can own them, uh, in buying stocks, you can't own them through a mutual funds. And a mutual fund is a, is a bunch of stocks together. Uh, usually put together in a, in a common theme, whether you like all that's right, all tech, all, all consumer goods, all, all fast growing companies, things of that nature, um, you know, uh, money managers seem to think they can get an advantage because they concentrate on that area. And, and they put together a mutual fund based on those themes. And, you know, a little bit different than mutual funds is something called an ETF. And that's an exchange traded fund. It acts very similar to, uh, to a mutual fund. The difference is mutual funds only trade at the end of the day, uh, exchange them, uh, for their value. Uh, that's calculated at the end of the day where an ETF can be traded just like a stock throughout the day.

Speaker 1:

Okay. Let's back up. Let's back up a little bit. So when you say throughout the day, whose day are we talking about, we're talking about

Speaker 2:

What about the day of the act of Mark and for the U S markets that's nine 30 to 4:00 PM Eastern standard time. So, um, you know, the New York stock exchange, New York stock exchange the NASDAQ. Now there are after hours things, but we'll just talk about that.

Speaker 1:

That's so much, that's so much more complicated. The thing is about like these, it can get as complicated as you don't want it to. It can get so complicated. That is true and more complicated than makes sense for anyone. Really?

Speaker 2:

Yes, but we're, we're trying to give everybody the basic, so we'll stick with the initial easy things for everybody. So we've talked about equities, we've talked about equities trading days from nine 30 to four, right? You, you buy or sell your stocks between nine 30 and four exchange traded funds. You can try, you know, you can buy them or sell them any minute of that time period for mutual funds, you can put in your order during the day, but you won't get a price until after the exchanges close and all the, and the mutual fund company has an idea of what the prices were for all the stocks in their fund.

Speaker 1:

Right. Okay. Okay. That makes sense. Okay. All right. Other things.

Speaker 2:

So we've talked about equities. Now, we're going to talk about debt and fixed income. Those are bonds and other fixed instruments. So when you buy equities, you're buying a share of the company. Bonds are ways that companies can borrow money. They issue bonds, and it's, it's, uh, it's an IOU. They promise to pay you back your money, plus some interest. And, uh, but companies, aren't the only, only groups that are entities, that issue bonds. You can get them from governments. Um, so many governments at every level. And, um, they, uh, bonds, uh, range in, in length. You can get short-term bonds, you can get, or short-term debt instruments as little as well. Banks can do stuff within a day and a day and seven days, stuff like that. But most folks are looking at, uh, three months, six months, um, uh, year five year, two year, five year, 10 year, 30 year, that that's their traditional, um, um, yield curve that describes, um, the interest rate. That's how, you know, how long the, the, the, the duration of the bonds or the debt instrument, plus the interest that you would get for that bond, uh, or for, for bonds in general. Um, the, the general concept is that the longer that, that company borrows your money, the longer the bond, the more interest you should get for it. So if, uh, if you want to hold my money for a day, you might get like a fraction of a percent, but if you want to hold my money for 30 years, you better pay me a whole lot more. Because I, as the, as the, uh, uh, as the holder of debt, you got to compensate me for the other things I can do with my money and the risk of holding my money for such a long time.

Speaker 1:

So debt investing like bonds is you giving a loan to a company or a government or whatever, and they'll pay you back at the end of the term.

Speaker 2:

That's exactly right. Or, and here's what a lot of people do. You can trade bonds. So not only can

Speaker 1:

You buy it, it doesn't have to stay with you.

Speaker 2:

It doesn't have to stay with you. Somebody else might pay you more for it, and you, you might want to get out it. So those, you know, so those are things that the, you know, people need to pay attention to. Another category is real estate. And so for most of us, that's a house, but there's lots of forms of real estate. There's just owning land. There's, you know, houses, buildings for self use, commercial property, rental property, and there's even, um, um, things called real estate investment trusts or, and real estate ETFs, which essentially a mutual fund for, for every list.

Speaker 1:

I think a lot of the real estate though is, well, I mean, yeah, unless you're buying it, but there's a lot that goes through inheritance for real estate and there's value in that too.

Speaker 2:

Yeah, absolutely. Um, but you know what I want, what we want to point out to people here is that you can, and some people do, um, buy houses or buy commercial property to, uh, as a source of income. So you'll rent, rent, rent it out, um, repeatedly. Um, and

Speaker 1:

Maybe Airbnb, Airbnb is that

Speaker 2:

Kind of, kind of, but what I'm in a college town, you'll have people buying up, um, lots of houses and renting them out to college students. And every year more co you know, different college students come in and they rent them out to me. Or you can do that in, in your town. Um, there's a lot of people doing things like that. Okay. Now, if you don't want the, the, the challenge of owning that property, because now you're responsible for all the repairs and stuff, that's when you would get into something like a REIT where the traded fund that's the traded fund. Okay. All right. So the next category is commodities, and everybody is familiar with that. That's oil timber, precious metals, gold, silver platinum, and even currencies food and food products, soybeans, wheat hugs, things like that.

Speaker 1:

Yeah. Straighten hugs, somebody who's out there trading Hawks. Right.

Speaker 2:

And, and, and there's a, there's a future skill. This is where you start getting into things like futures, contracts, delivering.

Speaker 1:

Yeah. I've seen like gold futures and stuff like that. The 10 year.

Speaker 2:

Well, typically the, the best, the easiest way to describe futures is really through, um, ag agricultural products. So the farmer, he knows he's got his wheat coming in, in, in say September, but he needs money now. So he sells a contract to deliver a hundred bushels of wheat in September for set price. You as a, as an, as an, uh, ag business, you want to lower your risk. You don't want to wait until September to buy all your, all your wheat. Cause you don't know what the price is going to be. And you need, you know, you need certain amount of wheat, so you want to reduce your risk too. So you're going to have a contract that they get some wheat in September as well. And those prices, those contract prices can fluctuate through through the summer because, Hey, the weather's good. The weather's bad, the crops, all of those things influence all of those things influence. What's going to happen with those punches. Okay. All right. And now we're going to get into alternatives and that's a really loose category. Includes tangible assets, such as art wine, antiques stamps. And what everybody's talking about now is, is cryptocurrencies. But there's just

Speaker 1:

Are the, are the NFTs, the non fungible trade?[inaudible]

Speaker 2:

An alternative. I would certainly consider that an alternative

Speaker 1:

Asleep because nobody even knows what well, yeah, it is like, it is like, it's just a thing on the internet, but only you can own it, I guess.

Speaker 2:

Uh, yeah.

Speaker 1:

That's like the hot new thing, like cryptocurrency is a hot new thing, but NFTs are like the hot high, like this is the, yeah. This is their moment. Yeah.

Speaker 2:

Yep. And I'll, uh, and we're going to, now, we're going to get into now. There's the big thing about alternatives for me is make sure you understand what you're investing in and the risks, um, that will, that will help you. Um, if not, you're just speculating and, and, and those that don't know enough, you know, have the highest risk of, of, of, um, of losing and those kinds of things.

Speaker 1:

And also speculation is illegal, right? Not illegal, highly frowned upon by the sec.

Speaker 2:

Well, um, look, there's a lot of markets built on speculation. That's true. Uh, so, um, it's not illegal. It's no, it's not, uh, it's not illegal. It's I will just say it's, it's unwise, but a lot of people gotten rich on speculation, but there's a flip side to that for, for, for, for all of those winners, there's probably a whole lot more losers.

Speaker 1:

Let's say 1% winners, 99% losers. I don't have any data on that. No data. This is unfounded. This is unfounded speculation. Yeah. We're doing it right now.

Speaker 2:

We're doing it right now. All right. And then there's, uh, one last bucket that, you know, a lot of people don't consider, uh, as a, as, as an asset class, but I, I will, because it helps balance out all this other stuff and it's cash. Yep. Just, just play it all hard cash or cash equivalents and that's money in the bank, money in a non-risky non, non, um, nothing sexy, a savings account or, you know, something that's really easily convertible to cash

Speaker 1:

Like a credit union or something does a credit union count for that. I don't know, banks credit unions. You can do all that stuff. Yeah. That's an investment because you get interest back. That's more money. I have 2 cents more than I did before.

Speaker 2:

So the, the bigger issue is, you know, go, go back to my definition of investment. Is there risk involved?

Speaker 1:

No, not really. Well, well, yes. Credit

Speaker 2:

And banks have gone bankrupt in the past. So that is your risk, low risk, but it's low risk. And in the United States, you have something called, um, FDI C something and other things for, um, for credit unions, um, that essentially ensure, and will allow folks to get their money back.

Speaker 1:

All right. That's it for our first part of our investing series, be sure to join us again. Next time. When we go further into the world of investments, if you have any questions for us, you can email us@efespodcastatgmail.com and follow our Instagram at E F E S podcast. Thank you so much, guys.