I started reading at such a young age that it feels like I’ve been reading since I came into consciousness. Before I started reading by myself, my dad would read the Wizard of Oz series to me. But it was when he started the Harry Potter series that I took the first book from him one night and said, “I want to read this one.”
There were nights I would go to bed at 4:00 a.m. just to finish a book, on a school night no less! Nothing and no one could stop me, not my mom, my young eyes or the butt crack of dawn on the horizon. Reading is my preferred way to learn new things, so if you’re not a big reader, or don’t have the time for a whole book, you’ve come to the right place because I’ll be reading investing books so that you don’t have to!
“Investing 101” by Michele Cagan, CPA, is a book that my uncle gave me when I started working at AAII. Instead of reading it, I put it in my closet and never looked at it again—until now!
“Investing 101” offers a ton of entry point options for beginners. Cagan covers basic economics, stocks, bonds, mutual funds, exchange-traded funds (ETFs), styles of investing, investing in real estate, currency and commodity trading, education and retirement planning, socially responsible investing, how to create your investment portfolio and advice from professionals. If any of those aspects of investing interest you, Cagan does a good job of explaining things plainly but factually. If you click on any of the links in this paragraph, they will take you to a place on AAII.com where you can begin learning more about these investing ideas.
I was on alert for any descriptions of investing concepts that might help me build a portfolio, and Cagan introduces the concept of diversification. Diversification is an investing technique that acts as a safety net against how the economy might perform: “Different types of industries perform better during specific stages in the economic cycle. For example, some industries take off when the economy is expanding, while others actually profit more when the economy is in a slump. That means that investors can always find a way to profit in the markets, as long as they know where to look.”
Instead of trying to take a wild guess when certain investments will do well, diversifying what you hold in a portfolio means you won’t have to stay up at night thinking about how the economy will affect your investments. Instead, you can stay awake plagued by thoughts about the end of the world!
Some great advice Cagan included that I’m going to follow is to “avoid duplication. It is a waste of your investment monies to own multiple funds with identical objectives. It’s best to own just one fund in any particular fund category.” She also notes, “However, keep in mind that it’s usually not advisable to have more than six or seven mutual funds at a given time, or you can start to counterbalance your efforts to construct a strong portfolio.”
I gravitated toward the chapter on mutual funds and ETFs since investing in individual stocks right now is still intimidating for me. I think I could easily follow these guidelines that Cagan provides and start investing in mutual funds and ETFs. I’ll report back on how that goes!
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