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EPISODE 21 - LET'S TALK INVESTING WITH ANGELA MATTHEWS

Oh, investing!  This is Tiffany's absolute favorite topic to talk about.  Angela Matthews sits down with her to discuss how she got started and some strategies she uses to make smarter investment decisions.  Definitely have a pen and paper ready because they dropped so many gems!

About our Guest
Angela E. Matthews is a thought leader and expert in the Personal Finance space, particularly investing. She is the founder of the Happy Investor Method, which has a mission to impact millions by helping them create millions. With the goal of achieving financial freedom for everyone through investing in the stock market, Angela has single-handedly created a movement. For people who strive to be happier with their money and their achievements, Angela is your go-to.

Follow her on Facebook: https://www.facebook.com/TheAngelaEMatthews/

Follow her on Instagram: https://instagram.com/Happyinvestormethod

Follow her on Twitter: https://twitter.com/angelaematthews

Links...

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TURNOVER RATIO

Definition 
A portfolio's turnover rate measures the level of buying and selling of investments. You will typically see a turnover ratio when analyzing mutual and index funds. They are the same thing.

Why It's Important
High turnover rates can lead to higher portfolio expenses. Not only that but usually, if a portfolio has a high turnover rate or ratio, the more taxes you will potentially have to pay. Once a position is sold out of the portfolio, you will either have a capital gain or a capital loss. A good advisor will attempt to make sure your gains and losses offset so that you will not have additional tax implications. But this is not always possible. Paying attention to the turnover rate is super important to avoid a tax headache later.

If you are investing in a taxable account, it is best to look for tax-advantaged funds or ones with low turnover. Tax-deferred or tax-free accounts (such as IRAs and 401ks) do not matter quite as much since you are not...

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TRANSACTION FEE

Definition
A transaction fee is a fee charged by a brokerage firm for every trade that takes place. These fees can range from $0 to $9.95, depending on the firm.

Why It's Important
Transaction fees are significant because anytime you make a buy or sell trade in your account, you're charged that fee. So, let's say you need to sell out of investments and invest in something different. You will have to pay that fee not once but twice for each investment. Let's say the fee is $4.95 per transaction; you would have to pay $9.90 per investment to sell then subsequently buy a new security. Multiply that by how many investments you are trying to get rid of, and it could be quite expensive. I have seen situations where an investor paid hundreds of dollars just in fees to get out of bad investments!

Transaction fees are becoming a little less important because most of the brokerage firms have moved to $0 fees this year. Among the firms that have made the change are Ally Invest, Charles Schwab, TD...

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MUTUAL FUNDS

Definition
A mutual fund is a pool of managed investments. These funds are usually managed by a portfolio manager to keep them in line with their investment objectives.

Why It's Important
The best way to think of mutual funds is as a basket. When you purchase shares of mutual funds, you are purchasing a basket of different stocks or bonds. I love mutual funds, and that's typically all I invest in. 

Mutual fund benefits include professional management, diversification, liquidity, and brokerage commission savings. You are pretty much paying a mutual fund company to create a basket of stocks that meet your investing needs. For instance, you can find mutual funds of marijuana companies, international companies, and even companies that focus on sustainability. There were over 9,600 mutual funds available on the market as of 2018. So, there is plenty to choose from! You save on brokerage commissions because if you were buying individual stocks, it would be way more expensive. Some...

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ACCREDITED INVESTOR

Definition
An accredited investor is a person or business that is authorized to buy and sell securities without being registered through the Security and Exchange Commission (SEC) 

Why It's Important
An accredited investor can invest in a variety of unregistered investments such as hedge funds, venture capital, and private equity opportunities.  But, of course, this status is not open to everyone.  In order to gain the status of accredited investor, you have to meet two different criteria:

  1. The individual must have earned income exceeding $200,000 or $300,000 when combined with a spouse during each of the past two years with the expectation that it will continue.
  2. The net worth of the individual or couple must exceed $1 million (excluding the primary residence)


Now, as I said before, it doesn't have to be individuals.  It could be a trust or any entity that meets the requirements.  

Eventually, I want to become an accredited investor!  All in due time!

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PROSPECTUS

Definition
A prospectus is a formal document required and filed by the Securities and Exchange Commission (SEC) that describes an investment offering to potential investors.

Why It's Important
The prospectus contains information about the company, it's management team and the latest financial performance.  It also states other information that the investor should know to make an informed decision like how the proceeds are used and risk factors.  Every investment available on the exchange market has a prospectus, even mutual funds. The mutual fund prospectus is slightly different as it describes the objectives of the fund and what philosophy is being used to pick the underlying stocks and bonds.  

The investment can't be sold until the prospectus is approved by the SEC.

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MARKET CAPITALIZATION

Definition
Market Capitalization or "Market Cap" is the value the market puts on a publicly-traded company. You can find market cap by multiplying the total shares outstanding by the purchase price.

Why It's Important
Market Cap is used to value and gauge the public opinion of a company. Amazon's market cap is currently about $856 billion (as of 10/11/19). That's huge! Their stock price is $1,731.92. You would think that the higher the stock price, the higher the market cap, but that is not always the case.

In comparison, Apple's market cap is $1 trillion, but its stock price is $236.21 (as of 10/11/19). This information tells me that Apple has more stocks outstanding than Amazon. Keep in mind that the market determines the market price, and every share a company sells is some ownership of the company. When you are researching what stocks to invest in, be sure to take a look at their market cap as part of your valuation.

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MORTGAGE-BACKED SECURITIES

Definition

A mortgage-backed security is a security backed by a collection of mortgages held by an organization.

Why It's Important
Mortgage-backed securities are a pretty complex topic to understand, so let me give an analogy.  Let's pretend one of the organizations (Ginnie Mae) goes grocery shopping.  In the grocery store are hundreds of thousands of mortgages on the shelf.  My mortgage is somewhere on those shelves, as is yours.  Ginnie Mae goes down the aisles and groups the mortgages in their cart based on creditworthiness and chances of getting their money back.  The ones with the highest rate of default are called sub-prime mortgages.  When they check out at the register, they put hundreds if not thousands in each bag and then resell the bags to investors.  The best mortgages have a lower return because they are not as risky.  The subprime mortgage bags have a higher return because they are the riskiest.  As I pay on my mortgage,...

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EPISODE 5 - LISTENER REQUEST: WHAT ARE ROTH IRAS?

Always wondered about Roth IRAs?  Join Tiffany as she breaks down what they are and how to best utilize them.

This is a listener request episode.  If you want to have your question featured, please submit on our website.

 

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