Investment Terminology for Beginners & Where to find Help

By Trilogy Financial

February 20, 2024

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Introduction

Investing can be a stepping stone towards financial freedom, yet the journey begins with understanding the basic terminology. This guide aims to unravel key investment terms, explore various investment types, and delve into the long-term investment advantages, all illustrated with real-world examples and statistics. As you venture into the financial world, remember that professional guidance is available to help navigate the complexities of investing. At Trilogy Financial Services, a dedicated financial advisor can work with you to amplify your wealth and fast-track your financial independence. Discover more about how they can assist you in planning for long-term success as we delve into the essential investment terminology.

Defining Key Investment Terms

1. Stocks:

- A share of ownership in a company which may yield returns through price appreciation and dividends.
- A share of ownership in a company. Stocks have the potential for high returns, with the S&P 500 for example having a long-term average return of 11.88% per year1.

2. Bonds

- Debt instruments issued by governments or companies that pay periodic interest and return the principal amount at maturity.
- Debt instruments that pay periodic interest and return the principal amount at maturity. They are considered less risky compared to stocks.

3. Mutual Funds

- Investment vehicles that pool money from multiple investors to buy a diversified portfolio of stocks, bonds, or other securities.
- Pools of funds from multiple investors managed by professionals to buy a diversified portfolio of stocks, bonds, or other securities.

4. ETFs (Exchange Traded Funds):

- Funds that track indexes, commodities, or a basket of assets and are traded on stock exchanges like individual stocks.
- Like mutual funds but traded on stock exchanges like individual stocks.

5. Dividends:

- Payments made by companies to shareholders from earnings, usually on a quarterly basis.
- Dividends are not guaranteed by companies to shareholders

Exploring Investment Types

Different types of investments cater to varying risk appetites and financial goals. In 2020, 35% of respondents believed real estate to be the best long-term investment, followed by the stock market2.

1. Growth Stocks:

- Companies expected to grow at an above-average rate compared to other firms.
- Examples: Amazon (AMZN), Nvidia (NVDA), and Tesla (TSLA) have shown substantial growth over the past decade1.
- Companies like Amazon, Nvidia, and Tesla are examples of growth stocks that have shown substantial growth over the past decade3.

2. Value Stocks:

- Companies trading below their intrinsic value based on fundamentals.
- Examples: Exxon Mobil (XOM), Johnson & Johnson (JNJ), and Verizon Communications (VZ) are considered value stocks1.

3. Dividend Stocks:

- Firms that have historically returned a portion of their earnings to shareholders through dividends.
- Examples: AT&T (T), Walgreens Boots Alliance (WBA), and 3M (MMM) have high dividend yields1.

4. Bond Investments:

- Bonds are considered less risky than stocks and provide fixed interest payments over time1.
- Bonds are essential for balancing a portfolio and are generally considered less risky than stocks3.

5. Mutual Funds and ETFs:

- These funds provide diversification and professional management, making them suitable for long-term investors1.

Advantages of Long-term Investments

Long-term investments, typically held for five years or more, allow the benefits of compounding to significantly enhance the value over time4. It's important to understand your risk tolerance when it comes to determining your investment portfolio such as the amount of money you want for your retirement account and what investments in stocks might yield the higher returns and market capitalization you are looking for in your broader financial goal.

Why Long-term Investments Are Valuable:

Compounding:
- One of the most compelling reasons for long-term investing is the benefit of compounding. When you reinvest the earnings from an investment, those earnings can earn more over time. The longer the investment horizon, the more substantial the compounding effect.
Reduced Impact of Volatility:
- Short-term market volatility can significantly affect investment values. However, long-term investments tend to smooth out these short-term fluctuations, potentially leading to more stable returns over time.
Tax Efficiency:
- One common advantage of a long-term investment is that they often enjoy more favorable tax treatment compared to short-term investments, which can enhance net returns.
Diversification:
- Long-term investments allow for diversification, spreading out risk across different asset classes or sectors, which can lead to more stable returns over time.

Delving into Case Studies and Numbers:

Warren Buffett:
- Warren Buffett is a quintessential example of a long-term investor. His strategy of buying and holding quality stocks has led to significant wealth accumulation over decades. His approach exemplifies how a disciplined, long-term investment strategy can lead to substantial financial growth.

Growth of $10,000 Investment:
- In the scenario provided earlier, a $10,000 investment growing to $33,618 over 20 years with a 7% annual return showcases the power of compounding. The formula to calculate future value is FV=PV(1+r)ⁿ
  - Where:
    - FV is the future value of the investment.
    - PV is the present value or initial investment amount ($10,000 in this case).
    - r is the annual interest rate (0.07 in this case).
    - n is the number of years (20 in this case).

Investment in Growth Stocks:
- Companies like Amazon, Nvidia, and Tesla have shown remarkable growth over the past decade, often outperforming the broader market. The ROI (Return on Investment) is calculated as:
  - (Final Value of Investment – Initial Value of Investment)/Initial Value of Investment)×100
  - (Final Value of Investment – Initial Value of Investment)/Initial Value of Investment)×100. Their high ROI illustrates the potential returns available from investing in growth-oriented companies over the long term.

S&P 500 Long-term Average Return:
- The long-term average return of 11.88% for the S&P 500 illustrates the potential for growth over time when investing in a diversified portfolio of large-cap US stocks. It also reflects the historical resilience and growth potential of the broader market over extended periods.

Conclusion

Understanding investment terminology and exploring various types of investments are crucial steps toward achieving financial growth. As illustrated through real-world examples and reinforced by compelling statistics, long-term investments offer a pathway to potentially grow wealth over time. However, the realm of investing can be complex, and making informed decisions is vital for financial success. If you are looking to make well-informed investment decisions, consider speaking with a financial advisor at Trilogy Financial Services. With the help of qualified professionals, you can navigate the financial complexities that may be hindering your wealth amplification journey. Trilogy Financial Services offers a range of financial services including 401k Retirement Planning, Wealth & Asset Management, Estate Planning Strategies, Investment Strategies, College & Education Planning, and Insurance Services, all tailored to help you achieve your financial goals1.

Instead of spending years mastering finances on your own, partnering with those who have already traversed the financial landscape can fast-track your financial success. A dedicated financial advisor from Trilogy Financial Services can work with you to make your money work smarter and harder, simplifying the financial intricacies that have been keeping you up at night. You can schedule a no-strings-attached portfolio review today and embark on a path to financial success guided by professional advisors. For more information and to schedule your consultation, visit www.trilogyfs.com/yourmoneyamplified. With the right knowledge and professional guidance, the journey of investing becomes an exciting venture towards pursuing financial security and growth.

1. Will

A will is the cornerstone of any estate plan. This legal document outlines how you want your assets distributed and names an executor to oversee the process. A will can also designate guardians for minor children, ensuring their care and well-being. Without a will, your estate may undergo a lengthy and costly probate process, and your wishes may not be honored.

2. Letter of Intent

A letter of intent is a personal document that complements your will. While it is not legally binding, it can provide clarity and guidance to your executor and loved ones about your wishes. This letter can include details about asset distribution, heirlooms, and even funeral arrangements. Updating your letter of intent regularly ensures that it reflects your current wishes.

3. Power of Attorney

A power of attorney document allows you to appoint someone you trust to handle your financial and legal affairs if you become incapacitated. This person, often a family member or close friend, can manage your assets, pay bills, and make important decisions on your behalf. Understanding your state’s specific regulations can help you make informed decisions about this designation.

4. Health Care Directives

Health care directives are essential for addressing your medical needs in emergencies. Key documents include:

Living Will: Specifies your medical care preferences if you become incapacitated.
Durable Medical Power of Attorney: Authorizes someone to make medical decisions on your behalf.
HIPAA Release Clause: Allows medical professionals to share your health information with your designated proxy.

5. Estate Planning for Second and Third Marriages

Subsequent marriages add complexity to estate planning. Consider the following:

Prenuptial Agreements: Protect assets and provide clarity on ownership.
Updated Legal Documents: Ensure your estate plan reflects your new family structure.
Beneficiary Considerations: Update beneficiaries to include your new spouse, if desired.

6. Guardianship Designations

If you have minor children, naming guardians in your estate plan is vital. This ensures that someone you trust will care for your children if you are unable to do so. Consider naming a backup guardian as an additional safeguard.

7. Trusts

Trusts offer a flexible and private way to manage and distribute your assets. Benefits of trusts include:

Avoiding probate
Maintaining privacy
Providing effective asset management
Offering control over beneficiary distributions

8. Multi-Generational Wealth Planning

Multi-generational wealth planning is essential for ensuring that your financial legacy benefits future generations. This involves creating strategies that protect and grow your assets while considering the needs of your children and grandchildren.

9. Trust Fund Manager

A trust fund manager plays a critical role in managing and distributing your assets according to your wishes. This professional ensures that the trust operates smoothly and that beneficiaries receive their designated assets without delays or legal complications.

10. Advanced Estate Planning Strategies

Advanced estate planning strategies are designed to address the unique needs of high-net-worth individuals. These strategies may include setting up complex trusts, charitable giving, and tax optimization techniques to preserve and grow your wealth.

11. Philanthropic Financial Planning

Philanthropic financial planning allows you to support causes you care about while benefiting from potential tax advantages. Discovering philanthropic financial planning opportunities can help you make a positive impact while strategically managing your estate.

The Takeaway –

Creating a comprehensive estate plan involves careful consideration of various legal documents and strategies. At Trilogy Financial, we specialize in estate planning for high net worth families and individuals, providing tailored solutions to meet your unique needs.

Our team of estate planning lawyers for high net worth families and high net worth estate planning attorneys are here to guide you through every step of the process. If you have questions or need assistance, please reach out to us. We are here to help.

Ready to Amplify Your Wealth today?

If you're ready to elevate your financial planning with our professional team, we invite you to schedule a meeting with us. At Trilogy Financial Services, our advisors in Corona are dedicated to crafting personalized financial strategies that align with your unique goals. Don't wait to start your journey towards financial success:

Schedule a Meeting: Reach out to us to arrange a one-on-one consultation with our financial professionals.
Give Us a Call: Prefer a quick conversation? Feel free to give us a call to discuss your financial needs and how we can assist. Call Us To Get Started. (844) 356-4934

Schedule a No-Strings-Attached Portfolio Review today and embark on a path to financial success guided by professional advisors. For more information and to schedule your consultation, visit www.trilogyfs.com/yourmoneyamplified. With the right knowledge and professional guidance, the journey of investing becomes an exciting venture towards achieving financial security and growth. This way, you're not just dreaming of an ideal retirement but actively working towards making it a reality.

Budgeting Advice

4 Steps to a Reliable Budget

Windus Fernandez Brinkkord, AIF®, CEPA

February 22, 2018

You just realized you need a budget. Whether it's because you'd like to be saving more money, you plan on investing in a retirement plan, or you want to straighten out your current finances, you know that having a reliable budget would make your life easier.

Creating a budget for the first time can be one of the most overwhelming experiences, especially when you're just starting to look critically at your financial situation.

Take a deep breath and don't stress out! There are just a few simple steps that you can take to reach a reliable, stable budget. I have some excellent pieces of advice that I give to all my clients, family members, friends, and even neighbors. Let me guide you on this financial journey.

Ready to get started?

__________________

Step One: Track all of your expenses

The first step to getting figuring out your finances is to figure out what you have been spending. Print your bank statements for the last three months and categorize each item in your statement on to a new spreadsheet. The Federal Trade Commission has a convenient website www.consumer.gov suggests categorizing every expense, including:

Car Expenses
Food
Clothing Expenses
Insurance
Credit Card Payments
Misc. Expenses
Entertainment/Going Out
School/Business Expense

Once you have your spending history, review your daily, weekly, and monthly expenses. Looking at the big picture and the tiny details all in one place can help you make small changes that have significant impacts on your finances. Reviewing all of this information lets you easily formulate your budget for next month without the hassle of digging through your bank statements.

Step Two: Set realistic goals

Start with a small, short-term goal. Set one finance goal to obtain over three months and use smaller milestones to meet the finish line you set for yourself. Use each week to reassess your goal and make adjustments as needed. When the goal is achieved, make another, and another, and another. Goals may require modifications, but it's an excellent way to set yourself up for financial success. You'll have something to be proud of every time you pass a milestone. And when the goal is reached? Reward yourself with something—that's still in your budget, of course.

Step Three: Make adjustments

I can't stress this enough—once the budget is set, don't be afraid to readjust as needed. There is no shame in making necessary changes to your budget. Situations change all the time, and nothing has to be concrete. Flexibility is key. Being rigid can make things harder for you and your family if something unexpected comes up and you need to spend more in one category than previously thought. Adjust smartly, not just because you want to splurge on a new gadget or pair of shoes.

Step Four: Never stop reviewing your budget

As I said in step three, adjustments are necessary. While you should remain flexible, if you notice that month after month, week after week, your budget seems to need changes, it's time to review. Reviewing your budget monthly will put your mind at ease if everything is going according to plan or allow you to see what hiccups caused you to veer off-course. Remember, no budget is perfect, and we all have to work towards a happy, balanced budget.

This is just a beginner's toolkit that can help you keep your budget in good health. These are my starting points that seeks to help you get to your financial happy place. There's no need to stress anymore. You don’t have to be perfect. I’ve seen too many people give up on budgeting because they made one mistake and got mad at themselves. Give yourself the grace to be human. As long as you are making more good decisions than bad ones over a long period of time, you can work towards getting to where get to where you want to be. You have a roadmap, and you can make your finances a priority quickly with just four simple steps.