How to Retire Wealthy by Maximizing Returns, Minimizing Risks, and Controlling the Animal Spirits Within
This work is licensed under an Open Educational Resource-Quality Master Source (OER-QMS) License.
Caveats
There is a very high degree of risk involved in trading. Past results are not indicative of future returns. The author, Adam J. McKee, and all individuals affiliated with this publication assume no responsibilities for your trading and investment results. All textual materials herein and all other features are for educational purposes only and should not be construed as investment advice. Information about stocks, options, and other investment instruments are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the financial information herein is entirely at your own risk, and it is your sole responsibility to evaluate the accuracy, completeness, and usefulness of the information. You must assess the risk of any trade with your banker, financial advisor, broker, tax attorney or other relevant professional and make your own independent decisions regarding any financial practices and investments mentioned herein. The author has provided many examples of real financial practices and investments, and thus may have a position in any security discussed herein.
Table of Contents
Preface
Section 1: Investing Basics
- Our Goals
- Some Big Ideas
- The Magic of Compounding
- Cash
- Beyond Cash
- Types of Investments
- How Am I Doing?
- I Can’t Do This!
- Conclusions
Section 1.1: Bonds
Section 1.2: Annuities
Section 1.3: Derivatives
Section 1.4: Real Estate
Section 1.5: Mutual Funds
- Common Features
- Things to Consider
- Types of Mutual Funds and ETFs
- Stock Funds
- Types of Investment Strategies
- Managed versus Index Funds
- How Do I Make Money?
- Eaters of Profits
- The Tax Man Cometh
- Finding Information on a Fund
- Pitfalls to Avoid
- Developing a Trading Strategy
- Risk versus Reward
- Conclusions
Section 2: Stock Market Investing
Section 2.1: Stock Fundamentals
- What Is A Stock Anyway?
- When It’s Gambling
- Types of Stocks
- How to Trade Stocks
- You and Your Broker
- “Markets” is Plural
- Market Orders
- Other Types of Orders
- Margin Trading
- Bulls, Bears, & Investor Sentiment
- Timing Markets
- Conclusions
Section 2.2: Fundamental Analysis
- Market Capitalization
- Book Value
- Price to Earnings Ratio (P/E)
- Debt to Equity
- Free Cash Flow
- PEG Ratio
- Dividends
- More on Earnings
- Net Asset Value (NAV)
- Correlations
- Sectors and Styles
- Sectors
- Conclusions
Section 2.3: Castles in the Air
Section 2.4: Theories and Strategies
- Dealing with Declines
- The 50% Rule
- The Greater Fool
- Prospect Theory
- Rational Choice
- Technical Analysis
- Conclusions
Section 2.5: When to Buy and Sell
- Swing Trades versus Value Strategies
- Deciding to “Pull the Trigger”
- Chasing Stocks
- Diversify!
- Remember to Buy Low and Sell High
- Swing Trade Strategies
- Shorting Stocks
- Day Trading
2.6 Stupid Stuff to Avoid
- Securities Backed by Nothing
- Emotional Investing
- Letting Losers Run
- Sloth Isn’t So Deadly
- Living in the Past
- Save Tips for the Racetrack
- Take Some Off the Table
- All Your Eggs in One Basket
- I Have a Guy
- Don’t Confuse a Bull Market for Brains
- It’s Only a Couple of Percent
- Conclusions
Section 3: Retirement Investing
Section 3.1: Why Be Worried
- Americans Don’t Save
- We Don’t Invest in Us First
- We Don’t Account for Inflation
- We Make Deals with the Devil
- We Don’t Have Emergency Funds
- We Don’t Have a Plan
- Healthcare is Broken
- Financial Education
- Irrational Expectations
- The “I’ll Work Forever” Fallacy
- After Retirement
- Conclusions
Section 3.2: Death and Taxes
Section 3.3: The Enemy is Us
Section 3.4: Speeding it Up
Section 3.5: Predicting the Future
- Let’s Be Real
- Forecasting Returns
- Interest Yield
- Dividend Yield
- Effective Yield
- Return versus Yield
- Where Do We Go From Here?
Section 4: Macroeconomic Risk
Section 4.1: Inflation
- Nominal versus Real Interest Rates
- How We Measure Inflation
- Inflation and Bonds
- Inflation and Commodities
- Inflation and Stocks
- Inflation and a Balanced Portfolio
- Inflation and Income
- Conclusions
Section 4.2: Volatility
- Portfolio Return and Volatility
- Modern Portfolio Theory (MPT)
- The Capital Asset Pricing Model (CAPM)
- Conclusions
Section 4.3: Interest Rates
Section 4.4: Business Cycles
- Frequency and Duration
- Speeding Recovery
- Stocks and the Business Cycle
- Market Cycles
- Trading Market Cycles
- Conclusions
Section 4.5: Business Risk
- Strategic Risk
- Compliance Risk
- Operational Risk
- Commodity Price Risk
- Headline Risk
- Rating Risk
- Obsolescence Risk
- Legislative Risk
- Model Risk
- Conclusions
Section 5: Portfolio Risk
Section 5.1: The Riskiest Bet
Section 5.2: Asset Class Risk
Section 5.3: Measuring Risk
- Modern Portfolio Theory (MPT)
- Backtesting
- Your Ability to Assume Risk
- Your Risk Tolerance
- Conclusions
Section 5.4: Psychological Risk
- The Overconfidence Bias
- Herding
- Availability Bias
- Sensation Seeking
- Risk Tolerance
- Short-term Focus
- Conclusions
Section 5.5: Total Risk
Section 6: Retirement Portfolio Allocations
Section 6.1: Allocation Logic
- Some Simple Rules
- Rebalancing
- Life Risk
- Random Walks and Portfolio Allocation
- Time Frames
- How Allocation Reduces Risk
- Selecting Investments
- Conclusions
Section 6.2: Factors and Tilts
- Beating the Market
- Factor Selection Criteria
- Lessons from the CAPM
- Is Beta a Factor?
- The Size Factor
- The Value Factor
- The Momentum Factor
- The Profit Factor
- The Term Factor
- Conclusions
Section 6.3: Values and Goals
Section 6.4: Investing Myths and Lies
- Why You Can’t Beat the Market
- X Goes Up When Y Goes Down
- My Home is My Most Significant Investment
- Investment Costs are Negligible
- There are Signs
- The 4% Rule
- The Life Insurance Rule
- 120 Minus Your Age Strategy
- You Must be Rich To Invest
- Catching Up On Retirement Savings
- Company Loyalty
- Your Friendly Financial Advisor
Section 6.5: Asset Allocation
- Growth Versus Risk
- Investment Options
- What Makes the Market Prices Change?
- Risk Parity
- Final Thoughts