YIS Unit 1: Lesson 1 - Who Are Investors
Summary
TLDRIn this Young Investor Society video, James Fletcher teaches the principles of investing, emphasizing the importance of compound interest and the power of starting early. He uses hypothetical scenarios to illustrate how different investment choices and time horizons can significantly impact wealth accumulation. Fletcher encourages viewers to consider their investment decisions carefully, highlighting the potential for substantial returns with patience and strategic planning. He also addresses common concerns about market volatility and provides practical advice on how to begin investing, including the use of online tools and automated investment processes.
Takeaways
- 💼 Investing is not just for the wealthy; it's a mindset of building wealth over time, applicable to everyone who saves and invests money.
- 🚀 The decision to invest involves weighing the value of money today versus its potential future value, influenced by one's perception of risk and reward.
- 📈 Benjamin Graham, a renowned investor, believed that investors are those who believe in a better tomorrow, which is a core philosophy of investing.
- 💰 The power of compound interest is emphasized, where Albert Einstein referred to it as the 'eighth wonder of the world,' highlighting its significance in wealth accumulation.
- 🔢 A key lesson is that the earlier one starts investing, the more time there is for compounding to work, leading to significantly higher returns over time.
- 🏦 The type of investment matters; historically, growth stocks have provided higher returns over the long term despite periodic downturns.
- 💹 The importance of starting to save and invest early is underscored, with examples showing the substantial difference in wealth accumulation between starting at age 20 versus age 40.
- 📉 The script addresses concerns about market volatility, explaining that despite downturns, historical trends show that markets have consistently provided positive returns over the long term.
- 💻 Tools like Microsoft Excel or Google Sheets can be used to calculate compound interest, simplifying the process and allowing for easy investment planning.
- 💡 The presenter encourages setting specific investment goals and planning how to achieve them, including the rate of return needed and the investment vehicle to use.
Q & A
What is the primary message of the Young Investor Society video?
-The primary message is to educate viewers on the importance of investing and the power of compound interest, emphasizing that everyone is an investor in some form and that the key to building wealth is understanding how to save and where to invest money for optimal returns over time.
How does the video define an investor?
-The video defines an investor as someone who believes in a better tomorrow and makes decisions on the value of money today versus its value in the future, rather than just a greedy person on Wall Street.
What is the significance of Benjamin Graham's quote in the video?
-Benjamin Graham's quote about investors being believers in a better tomorrow is used to highlight the forward-thinking mindset that investors should have, focusing on long-term growth and wealth accumulation.
What is the purpose of the $100 and Mercedes scenario presented in the video?
-The scenario is used to illustrate the concept of present versus future value, helping viewers to understand the decision-making process involved in investing and how it reflects one's perspective on wealth and time.
How does the video explain the concept of compound interest?
-The video explains compound interest as the magnifying effect of money over time, where starting to invest early allows for more time to compound and thus accumulate more wealth.
What does Albert Einstein's quote about compound interest signify in the context of the video?
-Einstein's quote is used to emphasize the extraordinary power of compound interest, suggesting that it is one of the most impactful forces for wealth creation when utilized effectively.
What is the role of time horizon in investment decisions according to the video?
-The video suggests that a long time horizon allows for the maximization of returns through investment, as it provides more opportunities for compounding and growth despite potential market fluctuations.
How does the video illustrate the impact of different investment choices on wealth accumulation?
-The video uses examples of investing in growth stocks, rare art, and real estate to show that the choice of investment vehicle, along with the rate of return and the time period, significantly affects the amount of wealth accumulated.
What advice does the video give regarding starting to invest early?
-The video advises starting to invest as early as possible to take advantage of the power of compounding, highlighting the substantial difference in wealth accumulation between starting at age 20 versus age 15 or older.
How does the video address the concern about stock market downturns in relation to compounding?
-The video reassures viewers that despite market downturns, historical data shows that over any ten-year period, the markets have averaged positive returns, emphasizing the importance of patience and long-term investment strategies.
What tools or methods does the video recommend for calculating compound interest?
-The video suggests using tools like Microsoft Excel, Google Sheets, or online compound interest calculators to easily calculate the effects of compound interest over time.
What steps does the video suggest for someone looking to start investing?
-The video recommends setting up custodial accounts for teenagers, using online brokerages for adults, and automating the investment process through regular transfers into the stock market, preferably into simple ETFs or index funds like the S&P 500.
Outlines
💼 Introduction to Investing Mindset
James Fletcher introduces the concept of investing, challenging the common perception of investors as greedy Wall Street figures. He differentiates between spenders and investors through hypothetical scenarios involving immediate and future monetary rewards. Fletcher emphasizes the importance of valuing money differently in the present versus the future and introduces the idea of compound interest, a key principle in investing. He highlights Benjamin Graham's influence on Warren Buffett and the belief in a prosperous future as a core tenet of investing. The summary ends with a call to reflect on one's own investment behavior and the impact of saving and investing decisions on wealth accumulation.
📈 The Power of Compound Interest
This section delves into the power of compound interest, illustrating how different investment choices can yield vastly different outcomes over time. Fletcher uses a hypothetical scenario to compare the long-term returns of growth stocks, rare art, and real estate. Despite the volatility of growth stocks, they outperform other investments over a 50-year period due to their higher average annual returns. The summary underscores the importance of starting to invest early and the significant impact of compound interest on wealth accumulation, even for those with modest incomes.
🚒 Case Study: Firefighter's Investment Strategy
Fletcher presents a case study of a firefighter who saves $1,000 annually for 50 years. He explores the potential outcomes of investing this money in various financial instruments, from a savings account with no risk and zero return to the stock market, which historically has provided a 10% annual return. The summary highlights the dramatic difference in wealth accumulation based on the investment choice, with the stock market offering the potential for millions in returns. It reinforces the message that the rate of return and the timing of investment are critical factors in building wealth.
💡 Practical Steps to Start Investing
The final paragraph provides practical advice on how to begin investing, suggesting the use of custodial accounts for teenagers and online brokerages for adults. Fletcher recommends automating the investment process through regular, automatic contributions to an investment account, preferably in a simple ETF or S&P 500 index fund. He concludes with a challenge to set an investment goal and calculate the necessary rate of return and investment strategy to achieve it, emphasizing the importance of taking action to secure one's financial future.
Mindmap
Keywords
💡Investor
💡Compound Interest
💡Risk Tolerance
💡Time Horizon
💡Savings
💡Investment Options
💡Return on Investment (ROI)
💡Automated Investing
💡Stock Market
💡Financial Goals
Highlights
Introduction to the concept of being an investor and the mindset of wealth building over time.
The importance of understanding the value of money today versus tomorrow in investing decisions.
Benjamin Graham's influence on investing philosophy, teaching the belief in a better tomorrow.
The significance of the decision-making process in investing between immediate and future value.
The concept of compound interest as the magnifying effect of money over time.
Albert Einstein's quote on compound interest being the eighth wonder of the world.
The power of compound interest demonstrated through a hands-on activity with different investment options.
The impact of time horizon on investment returns, emphasizing the benefits of long-term investing.
The example of a firefighter saving $1,000 annually and the potential returns from different investment vehicles.
The significant difference in wealth accumulation between starting to invest at age 20 versus age 40.
The potential of achieving millions through investing with high annual returns, as demonstrated by Warren Buffett.
The critical factors for successful investing: earning a high rate of return and starting early.
Addressing common concerns about investing during stock market downturns and the importance of patience.
Practical advice on how to calculate compound interest using tools like Microsoft Excel or Google Sheets.
Guidance on how to start investing, including recommendations for brokerages and investment apps.
The suggestion to automate the investment process for a consistent and disciplined approach to saving.
A challenge to set an investment goal and plan the steps to achieve it, including the required rate of return.
Transcripts
[Music]
welcome young investor society my name
is James Fletcher I'm a portfolio
manager and I'm the founder of young
investor society and today I would like
to teach you about what it means to be
an investor so when you hear the word
investor what do you think about do you
think of a greedy investor on Wall
Street or do you think of someone
building wealth and becoming wealthy
over time so let's start with a question
to find out whether you're a spender or
an investor I'll give you $100 today or
if you wait one year I will give you a
brand new Mercedes which one will you
take will you take the cash will you
take the car or of course you'll take
the car anyone would wait one year for a
brand new car okay so let's let's try
another one
I will give you $100 today for or $100
one year from now which one would you
take of course you would take the money
today it wouldn't make any sense to wait
a year for for the same return today
when you're investing you're making the
decision of how much worth the money is
for you today versus how much is it for
you tomorrow Benjamin Graham the teacher
Warren Buffett and one of the greatest
investors of all time said that
investors are believers in a better
tomorrow okay so let's try another
question and let's make it a little more
complicated five years from now I will
give you five hundred dollars take out a
notepad maybe think about it and how
much would you be willing to put aside
today for five hundred dollars five
years from now would you be willing to
set aside a hundred dollars would you be
with only willing to set aside or four
hundred fifty dollars for five hundred
dollars would you only be willing to set
aside fifty dollars today and what does
your answer to that question tell you
about yourself
so if I'm only willing to set aside you
know four hundred ninety nine dollars to
get five hundred dollars a year from now
which basically means my my money I'm
willing to invest money for a small gain
five years from now that probably tells
you that you're a saver and it also
tells you that you're probably pretty
risk intolerant that you're very
cautious what about if I'm willing to
put aside fifty dollars today for five
hundred dollars five years from now
that tells you that you're willing to
take more chances that you're willing to
probably be more aggressive and that and
that your money means more to you now
than it does five years from now so the
truth is we are all investors if we
think investing is only for those those
highbrow financial types on Wall Street
the reality is that everyone is an
investor we all make money during our
lifetime and we're all in the business
of saving and investing for a down
payment on a home for our kids college
and we're all investors and the question
is how good of an investor are you the
question of how much wealth you will
build in your life really boils down to
two questions the first question is are
you able to save each year and how much
you're able to save each year and the
second question is when you save where
do you put the money so that's it can
you save money and then when you save it
how do you where do you put it and can
you invest it so does it really matter
where you put your money
yeah of course it does
investors talk about something called
compounding or compound interest have
any of you heard that phrase before it
basically talks about the magnifying
effect of money that money is magnified
over time and that starting earlier
allows you to compound more albert
einstein called compound interest the
eighth wonder of the world so let's
let's explore the power of compound
interest
and I and let's start with handout 1.1
take a minute and go through this
handout and then we'll come back and
discuss it
all right welcome back I hope you
enjoyed the activity so what did we
learn did you invest in rare art did you
invest in real estate did you invest in
growth stocks with the highest return
but then go down every five years so
what are the answers if you're in 25
years
the answer is growth stocks would give
you a hundred and sixty seven thousand
dollars four hundred and twenty two
dollars at fifty years old
the answer is growth stocks again would
give you 1 million two hundred forty
nine thousand six hundred sixty one
dollars and then at age seventy what
does the answer again is growth stocks
six million two hundred thirty nine
thousand dollars
eight hundred sixty two dollars so how
is that possible growth stocks had the
highest return but also would go down
every five years in our example rare art
for example at age seventy which never
went down which were safe and then
tripled at the end would give you three
hundred thousand dollars in real estate
which was safe and and went up every ten
years would only give you six hundred
twenty seven thousand dollars so what do
we learn from this activity one thing we
learn is that if your time horizon is
long your your best interest is to
maximize your returns and so in this
activity growth stocks had the highest
annual return and they gave you the
highest return so I hope that helps you
understand compound interest I hope the
other takeaway for you is if you start
early and you can earn a 10 or 12
percent return compounded per year
look at those numbers by by the time
you're 70 years old you could achieve
six million dollars over six million
dollars so the power of compounding is
incredibly powerful let's go through one
more example here in our presentation so
let's assume you're 20 years old and you
just took a job as a firefighter which
is your childhood hood dream
unfortunately your salary is meager but
you make it a goal to save $1,000
per year and put it in a retirement
account you work and save for the next
50 years until you retire so so 50 years
of work saving $1,000 per year so where
can you put your money in this scenario
so there's a couple of options you can
put your money in a savings account
which will keep your money at no risk
but we'll give you a zero percent return
you can put your money in a in real
estate or in bonds and on average real
estate or bonds give you about 3% annual
return per year in 50 years what will
you have you will have a hundred and
sixteen thousand dollars saved up where
else could you put your money you could
put your money in the stock market the
stock market the SMP 500 in the United
States has averaged since 1902 the year
2015 a 10 percent annual compound return
so real estate was 3 percent the stock
market was 10 percent and the stock
market would give you 1 million three
hundred fifty nine thousand dollars $199
accumulated in 50 years amazing isn't it
so even a firefighter with a meager
salary saving only $1,000 per year would
still have over a million dollars by the
time here he retires he or she retires
ok so let's assume you there's a fourth
way to put your money and let's just
assume for fun that you are Warren
Buffett and you can beat the stock
market and let's say you can generate
20% annual rate of return so double the
sp500 where do you think this gets you
by the time you retire 20% annual return
in 50 years would give you 109 million
dollars eight hundred twenty six
thousand one hundred nineteen dollars
the difference is amazing so when we
think these are just small numbers
between doesn't really matter whether I
compound at an annual return of 1
percent or 3 percent or 10 percent or 20
percent the truth is it matters and a
deal and and those investors that are
able to invest at 10% or even 20% like
Warren Buffett then you wind up with
millions or hundreds of millions of
dollars because of that high rate that
you're able to compound starting early
is another way to increase your money so
does it matter when you start to invest
so let's say you're the fire fighter and
let's say instead of starting at age 20
you start at age 40 by the time you
retire at age 40 you would have a
hundred and ninety thousand dollars
seven hundred seventy three dollars if
you started at age thirty you would have
five hundred thirty five thousand
dollars six hundred eighty two thousand
dollars and if you started at age twenty
in our original example you would have
1.3 million dollars so does it matter
when you start to invest yes so that's
why we say that two most important
questions are when you start to save and
what rate of return you can save at so
the two most critical factors earn a
high rate of return and start early
investing what about now what about if
you're 15 years old and you just join
young investor society is there really
going to be a difference between age 20
and age 15 the reality is if you start
five years earlier it would be 2.2 two
million dollars it's a difference of
almost a million dollars between if you
start investing when you're 20 and if
you start investing when you're 15 only
five years but these are five years that
could put an extra million dollars in
your retirement account so what are the
effects of the firefighter we can review
it here if you at age 70 starting at age
40 you would have a hundred ninety
thousand dollars at the annual rate of
return of 10 percent but if you start
when you're age 20 its 1.3 million
dollars I hope this lesson was was
helpful for you I
you see that compound interest just like
Albert Einstein said is the eighth
wonder of the world and I hope that you
as as a young investor as someone
learning about the markets will take the
time now to invest it literally is your
million-dollar decision
to decide now to start investing in
compounding and and putting money in
your future retirement account
all right I hope you enjoyed that lesson
let's take a couple of the most common
questions after we learn about that
lesson the first one is what do we do
when the stock market goes down and how
are we able to compound and make money
when we know that the stock market has
terrible periods where the market goes
down 20 30 % it's a great question and
it is absolutely true that there are
periods where the markets will go down
and they may even go down by what we
call a bear market they go down by more
than twenty or thirty percent but over
any ten-year period in history the
markets have always averaged up even if
you bought at the worst period of time
right before the Great Depression in
1929 ten years later you have always
made money even then and long term
almost over any decade you have been
able to achieve 10% returns in the stock
market and so while the stock market
will go wildly up one year and wildly
down the next if you're able to be
patient and save that money for ten
years then you're able to achieve that
long term rate of return okay second
question how do we calculate compound
interest
so in though in the worksheet there were
some questions of how do we calculate
the how do we calculate compound
interest especially when we don't have a
calculator are there ways on the
computer or other ways to calculate it
it's a great question and actually when
when I calculate compound interest as an
investor oftentimes I use Microsoft
Excel or Google sheets and so in the
worksheet which we did we took the
original amount and multiplied it if it
was a 5% return the next year we
multiplied it by 1.05 and then in the
next year if it was a 3% decline we
multiplied it by 0.97 which is one minus
that percentage you can set up a formula
in Google sheets or you can go online to
compound interest calculators these will
help you calculate compound
online there's many tools where you can
just put in a rate of return and and how
many years for this rate of return and
it will give you the number so I
encourage you to go online and and and
experiment with Microsoft Excel and
Google sheets and this will help you
calculate compound interests in a more
seamless easier to use manner third
question last question that we often get
is okay James you've told us about the
power of compounding I believe you I
want to start investing how do I
actually start investing so how do I
actually start investing today and what
I would tell you is there's many ways go
to your local brokerage and look up
custodial accounts if you're a teenager
or if you're an adult go to your local
fidelity or Schwab or whatever brokers
you want to use and they will help you
get started there's also great online
brokerages so brokerages like each trade
or interactive brokers and then more and
more you're seeing mobile brokerages or
or investment accounts made for apps so
here we have Robin Hood which is a free
stock trading app unfortunately for
teenagers they don't have custodial
accounts yet so we like to recommend a
stock pile which is a great app for
teenagers and actually as why is members
you'll get five free dollars if you go
on the dollar day section of the website
you can get five free dollars to start
investing at stock pile so those are
some ways to actually start investing
the second thing I would say and answer
that question is how do I actually get
started is when you get started
investing the most powerful way is to
automate the investment process so take
a bank account and then have it
automatically transfer let's say $50 per
month and then you can tell your
Interactive Brokers account or your
fidelity account to take that $50 a
month and automatically invest it in the
in the stock market and I would
recommend just a simple ETF or a simple
sp500 and this is a way where you can
start investing young and automate that
and investing process thank you so much
for your time the last article I'd like
to give you as part of this lesson is a
challenge and I would like to have you
take a minute take out a note card if
you're taking notes write it down and I
want you to make an investment goal what
is one goal that you want to save money
for maybe it's for a wedding maybe it's
for a down payment on a car maybe it's a
house or maybe it's just your dream is
you want to retire when you're 70 years
old and you want to buy a house in the
Bahamas
whatever goal you have write it down
right now and I want you to think what
rate of return do I need to earn to
achieve this goal and then to achieve
this goal
this rate of return what do I need to do
to achieve it and where do I need to put
my money and this will help you make a
plan and so you can achieve your
investment goal so I hope you enjoyed
this lesson I hope the FAQ section is
helpful and I hope more than anything
that you'll start to invest now and put
money in your future account Thanks
تصفح المزيد من مقاطع الفيديو ذات الصلة
40 CRORES from a 10,000 INR SALARY? | Ankur Warikoo Hindi
The Basics of Investing (Stocks, Bonds, Mutual Funds, and Types of Interest)
Jim Cramer: How compounding can help you double your money in 7 years
3Commas DCA Bots with @tjmiller
Inside the Mind of a Finance Maverick | Aaron Chapman | Part 2
Must Do Things in your 20s to Become Successful
5.0 / 5 (0 votes)