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Dollar Cost Averaging

I think everyone who reads my articles agrees investing money in the market is generally a smart idea. However, as we have all seen in 2022, the market can be very volatile. What if you want to invest but just don’t have the stomach for the roller coaster ride?  Don’t worry. Take cover in the average.

There is a key way to reduce unpredictability when investing. This method is called Dollar Cost Averaging (DCA). DCA is investing equal amounts of money, spaced out over regular intervals, regardless of price (Investopedia). In this article, I am going to explain how DCA works, and the overall benefits of it. 

DCA is a valuable trick to know as a rising investor. And it’s not too difficult to understand. The simple approach is to invest the same amount of money over consistent periods of time. This allows the investor to buy at specific time points knowing that over time, they are buying the ups, and downs, of the market, to get the “average”. However, to better understand this, let me provide you with an example from Investopedia. Let’s say in January, a stock was at 20 dollars per share. By February it was at 16 dollars per share. By March, it was 12 dollars per share. By April, it was 17 dollars per share. By May, it was 23 dollars per share. An investor buys 1,000 dollars into the stock at the start of each month while the number of shares bought varies. In January, 1,000 dollars bought 50 shares. In February, it bought 62.5 shares. In March it bought 83.3 shares. In April it bought 58.2 shares. In May it bought 43.48 shares. Just five months after beginning to contribute to the stock, the investor owns 297.48 shares. The investment of 5,000 dollars has turned into 6,840 dollars. To understand this more, visit the link from Investopedia (Investopedia.com). Although investing without using DCA could have resulted in a higher profit, it also could have resulted in lost money. As I mentioned earlier, the goal of DCA is to create steady, long-term profit.                                                                                       

     There are two main reason to use DCA. The first is managing emotional investing. DCA is an established consistent method. Therefore, it allows you to focus on the goal at hand, rather than the hot takes and predictions within the market (Corporatefinanceinstitue.com). Like I said earlier, a big piece of DCA is to eliminate volatility; well limiting emotional investing most certainly helps. 

Another benefit of DCA is that it reduces bad timing. As great as professional stock journalists are, they can’t predict every rise or fall in the market. Instead of investing a large amount of cash into the market at one time, which with bad timing could result in heavy loss, DCA spaces out investments which will smoothly bring down the risk of bad timing (Corporatefinanceinstitue.com). 

As great as DCA can be, it’s not perfect. To master DCA one must understand the challenges it presents. So, here is a list of the pros and cons of dollar cost averaging (Investopedia.com). Along with that, this article from Investopedia explains how to best use DCA (Investopedia.com). I strongly recommend reading both these articles to establish a strong foundation on DCA. 

One note here; if you are participating in a 401K, you are already using the DCA method.  For some people, this is their primary method of investing.  If it is part of an investment mix, it adds a level of calmness to an investor’s overall strategy.

There are many great tools to have as a rising investor, and DCA is an important one to have. 

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Why is Credit Score important? How can it be raised?

Credit score. It’s important. Essentially, credit score is a tool used to determine how well someone will repay their loans. It also determines if a loan should be given in the first place and at what interest rate (investopedia.com). So, I’m sure you must be asking yourself, well how is it calculated and how is it built? I’lltell you. 

    There are five pieces used to calculate the credit score. Payment history, how much you owe, the length of your credit history, the types of accounts you have, and recent credit history (wellsfargo.com). To learn more about the specifics, I recommend visiting this article from Wells Fargo. It offers detailed information about the credit score.

     A good credit score is quite helpful when purchasing a home. For example, when buying a home, you need money. Banks are willing to lend you the money if they feel you’ll pay it back. Well, a good credit score allows you to be eligible for more money and lower interest rates for the home. A home can have a big impact on your life. So, a solid credit score is quite important. If you want to look more into it check out this article from Forbes (forbes.com). 

    A good credit score is also crucial when purchasing insurance. Insurance companies will check your credit score to decide whether to provide you coverage. Furthermore, they use it to determine how much to charge you. Once you have insurance the company will continue to monitor your score and decide if they need to raise the price. Therefore, a solid credit score is important when buying and using insurance (capitalone.com). 

    Good credit score is also important when applying for utilities such as electricity or internet. In fact, the better the credit score you have the easier it will be to get these services. So, it is clear a good credit score is needed for an easier path to buying utilities (capitalone.com). 

    Now, let’s jump into what a good credit score can do for a rising investor. It can raise your access to capital, lower your given rate of interest, and help you leverage the given assets. 

    So, how can a good credit score increase your access to capital? Well, a good credit score gives banks more trust in you. So, they feel comfortable with giving you more money (thebalance.com). The more money you are given the more possibilities you have. 

Along with that, a good credit score lowers your given rate of interest (thebalance.com). A lower rate of interest is something that everyone wants. It’s less money to pay back to banks. 

    A good credit score also allows you to leverage these assets. This means that you can take the money you burrow and invest it in stocks, businesses, real estate, and more to increase the amount of money you burrowed, pay that back, but also make a profit (investopedia.com). Check out the article I included from Investopedia. It explains in detail how to leverage your money using your credit score. 

    It’s clear that a solid credit score is important to build and maintain. So, I want to conclude the article by providing you with an article from CNBC and an article from the balance (cnbc.com) (the balance.com). CNBC explains four ways to boost your credit score. The balance explains how to maintain a good credit score. These articles were extremely helpful to me, and hopefully they can empower you too.

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Common Terms to Improve Financial Literacy

     In my previous posts, we discussed the importance of financial literacy on the path to becoming a rising investor. We then dove into the phenomena that money isn’t something that is often discussed openly. So now that the problem and dynamics around it are established, let’s dig into what we should be talking about first. It’s the basics. The fundamentals, so to speak. They are always the first steps when learning something new.

     For example, to compete in basketball, you must learn how to dribble before you can make a layup.

     As a rising investor, it’s key to understand the fundamentals of financial literacy. So here they are.

     There are seven key terms to understand to help you become more financially literate:

1.         APR.

2.         Assets.

3.         Credit Score. 

4.         Debt.

5.         Diversification.

6.         Interest.

7.         Principal.      

     My primary reference to establish this list was (opploans.com). The better you understand these terms, the better you will be able to manage your finances and investments. Let me provide some detail on each term.

     APR stands for annual percentage rate. It’s the yearly interest rate charged on borrowed money. APR is displayed as a percentage and is typically found on credit cards and loans. Here is a great article from Investopedia (investopedia.com). It can help you understand better what APR is, what the different types are, and what to look for in APR. This is a great, concise article, and I highly recommend it.

     Assets in finance are resources with economic value that can provide future benefits. Assets can be owned by individuals, companies, and even countries. Assets can be stocks, real estate, cryptocurrency, and much more. If you want to learn more about financial assets, I strongly recommend you visit The Balance (thebalance.com). This article provides accurate detail on the basics of financial assets.

       A credit score is a numerical rating that essentially determines how well a person may repay their debt. The better the credit score you have, the more opportunities you get. I have two great articles to further explain credit scores. The first is from Capital One (capitalone.com). This is a solid article that explains what a better credit score means. The second is from Experian (experian.com). This article is about ten minutes long and explains the basics of credit score.

       Financial debt is what you owe to another person or company. It can be created from credit cards, mortgages, personal loans, and more. However, there is more than that to debt. I found a great article from Investopedia (investopedia.com). This article covers the basics of debt, including the different types of debt. It’s a very helpful article to expand your understanding and questions about debt.

     Diversification is a core principle when investing. Diversification is when you spread your investments over different assets. It typically reduces the risk of overall loss. Here is a reliable article I encountered from Fidelity Investments (fidelity.com). It helpfully explains how to diversify your portfolio and the best ways to do this. It’s a quick and organized read.

     Financial Interest is the percentage of a loan that lenders will charge to borrowers. However, there is more than one type of interest rate. For example, there is compound and simple interest. This article from Investopedia is a reliable resource for further learning about financial interest (investopedia.com). It’s a shorter read but will be very helpful. 

     Financial principal is the amount of money you owe on a loan pre-interest. So, essentially the principal is the amount of money you agree to pay back. Interest is the money you pay for borrowing the principal in the first place. This is a helpful article I found from the Corporate Finance Institute (corporatefinanceinstitute.com). It explains the basics of principal and provides examples of principal in investments and in debt. It’s simple and gets straight to the point.

     As a rising investor, it’s important to understand the fundamentals of financial literacy. The terms I discussed are essential to know, but there are many more. So, I would like to provide you with one final article from the University of West Florida (uwf.com). It simply explains a ton of great terms to know. Like I said earlier, to succeed at anything, it’s crucial to know the fundamentals.

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Why Don’t People Talk About Money? How Can This Be Addressed?

     Like any challenge, it helps to talk about it. Think about trying to learn a new sport and not being able to talk to your coach; that would be difficult. 

     If you’re interested in becoming an investor, and before that, financially knowledgeable – there is a strange force working against you. A lot of people aren’t comfortable talking about finances. Here’s an astounding point I found in a great article in the Atlantic: only 17 percent of parents with an income above $100,000 a year have told (or plan to tell) their children how much they earn or their net worth. Believe it or not, people are “more comfortable” talking with friends about marital discord, mental health, addiction, race, sex, and politics than money (theatlantic.com).

     I read up on this more and think it’s important for every rising investor to understand why.   Here is what I learned.

     Money can cause judgment. Money can cause stress. Money is personal. So people don’t talk about it. That doesn’t exactly make for the best learning environment. But there are a lot of different reasons this happens.

     At the root of this, people don’t want to be judged or insulted for their financial choices and investments because it can be very complicated and overwhelming. People don’t talk about money because it’s personal and private (mablekwong.com). So, let’s get to it. 

     Consider this example, before people become financially strong, specifically young adults, they start by living paycheck to paycheck. Adding even a small amount of debt adds to this struggle. Poor investments and purchase decisions can pile up – and that’s just not a good situation. Usually, when this happens, a person is criticized rather than advised (usatoday.com).

     Adults are expected to make high IQ financial decisions. But, talking about money is stressful ( (theatlantic.com). And not only that, money can be confusing and even overwhelming. In fact, according to a survey issued by Charles Schwab, 70% of Americans had admitted to having high-stress rates when discussing money (schwab.com).

     Even success creates silence. When a person is financially successful, they still don’t talk about money because then they’d be viewed as a bragger. And that wouldn’t be a good look. Therefore, they decide to keep it to themselves and ignore the topic (theatlantic.com).

     Big problem. So, let’s find the solutions.

     First off, let’s talk about family. Parents, you can visit websites like (myra.com), (forbes.com), and (money.usnews.com). These websites give practical advice on teaching preschoolers, pre-teens, and teenagers the value of money. They are quick but helpful reads. Furthermore, I would recommend greenlight debit card to teach kids more about money (greenlight.com).  The goal is to help kids become finically literate. And for young adults, there are lots of age-appropriate articles such as (businessinsider.com), (cnbc.com), and (investopedia.com). These articles provide useful tips about investing and finances. They’re straightforward and easy to read.

     Discussing finances with friends can also be helpful. These articles give solid advice on how to discuss money with your friends. I highly recommend you take a minute and read these articles (cnbc.com), (thebalance.com), and (nytimes.com).

     Finally, the internet is a valuable resource but be careful. Look for legitimate sites like CNBC, Yahoo Finance, and Forbes. This article from cnbc.com showcases five financial communities where people discuss money and financial knowledge online (cnbc.com). The article goes on to provide a few detailed sentences about each site to help you out. As I mentioned earlier, just like in sports, to become a successful investor and financial literate, it’s helpful to have an experienced coach. As I continue on my journey as a rising investor, I can tell you firsthand that these articles have helped me immensely.

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Financial Literacy, What Is It and Why Does It Matter?

     Financial literacy, we all need to know it. It’s the first base to cover as a rising investor.

Financial literacy is saving money intelligently. It’s understanding the value of money. It’s understanding financial terms, tools, and opportunities – and also the traps to avoid. At the highest level, it’s putting your money to work for you by smartly investing. On the flip side, not being financially literate can be costly. A person can dig a hole without even realizing it and get stuck. When this happens, it’s tough, financially and emotionally. So let’s avoid that.

     Sadly, many of us lack these necessary skills – and experience some negative consequences. Only about 50% of Americans consider themselves financially literate on a base level (mint.intuit.com), and four of five adults wish they were taught more (visualcapitalist.com). Furthermore, about 50% of adults admit they’ve faced challenges when trying to purchase a home. Some, but not all barriers include 1) not having enough money saved for a down payment, 2) having too much existing debt, and 3) having a low credit score (nfcc.org). So the problem for a person in this situation is they can’t get approved to make the purchase they want, so they have to compromise or take a lesser deal.

     America, as great of a capitalistic powerhouse as it seems to be, has failed to convey its financial knowledge to all of its people. It ranks 14th overall in the world on basic financial skills, and in more detail, students perform average when tested on it. (investopedia.com). 

     As Carrie Schwab-Pomerantz states, president of the Charles Schwab Foundation, “As we know, so many Americans lack the basics of money management, and so, it’s difficult for adults to pass on that knowledge to their children when they don’t really have the knowledge themselves.” (worth.com). A huge problem that’s threatening my generation as well.

     The big question is, how can we fix this? Well, for starters, there are many online websites and courses that can be very helpful. Allowance is also great for kids. “Allowance can teach kids, little kids, the value of money,” says Carrie Schwab-Pomerantz. (worth.com). This is great. It helps children learn the value of money and allows for a conversation about it to begin at home. However, allowance isn’t something that everyone can afford, so it can’t be the only tool. 

     The good news is, that many Americans want Financial Literacy to be a required high school class. According to Forbes Magazine, more than 80% of Americans think high schoolers should take personal finance courses, per a survey published last month by the National Financial Educators Council. (forbes.com). The American youth is our country’s future. So, we can’t focus solely on adults. 

     The solution should include everyone. Society can move forward positively if more and more people become financially educated. Without financial knowledge, many financial issues occur. Possibly leading to unemployment, poverty, debt, homelessness, and more. As Carrie Schwab-Pomerantz says, “I was really, I guess, pleasantly surprised that so many Americans—basically 90 percent of Americans—say that poor financial literacy contributes to many of America’s issues, such as poverty and lack of job opportunities and that they’re recognizing the power of financial literacy and how it can empower our society.” (worth.com). Financial literacy is critical, especially in a crisis. 

     That’s why I am so passionate about this project. So, here is one source that can teach anyone the basics: (investopedia.com). 

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Introduction

Who am I? What are my Goals?

     Money. You can earn it. You can donate it. You can spend it. You can make it work for you. 

     When my older brother turned eighteen, my parents gave him a little money on his birthday and helped him open an account in the stock market. My dad had taught him some things about money. He was also involved in investment clubs at school. So now here he was, with his own account. This was real money. This was real life. 

     My brother is now a freshman at Ohio State in their finance program. Last I checked with him; he held a 76% return value in his account. 

     So, here I am at 17, hoping I will have the same opportunity in a year. I want to be ready for it.

     Hello, my name is Jackson Kubic, and I am a junior in high school from Cleveland, Ohio. Over the past few years, I have developed an interest in finance and investments. My mom and dad both run businesses. They both watch market news daily. Several times during my life, while my dad was checking his portfolio, he would have me sit with him and explain what he was looking at. Sometimes it was hard to understand, but at least I was being exposed to it. This helped me understand I needed to learn more about finance and investing.

     I participate in two clubs at school, Business Roundtable and the Financial Literacy club. They have helped grow my interest in finance and investing.

     I have started to earn money and have had four high school jobs. Each summer, I cut grass for families around my neighborhood. My freshman year, I was on a land-scaping crew. My Sophomore year, I bused dishes at a BBQ restaurant. Occasionally, I do some jobs for my dad helping on demolition crews for his projects. 

     It felt great to make some money and got me thinking, what do kids my age know about finances? So I Googled the topic on how to invest. An article I came across in my search focused on financial literacy. Curious, I started to read it. And guess what – I uncovered that apparently, we are living in a financial crisis! Let’s get to it.

     Financially literacy is a widespread problem that, solved, could be a cure for issues in the world. But not everyone can learn about these topics. Unfortunately, there are many reasons, from no classes and clubs about it in school to some parents having little knowledge about these topics. As Carrie Schwab-Pomerantz, president of the Charles Schwab Foundation, states, “As we know, so many Americans lack the basics of money management, and so, it’s difficult for adults to pass on that knowledge to their children when they don’t really have the knowledge themselves” (worth.com). I believe that this lack of financial education can lead to many people experiencing tough times in life. As Carrie Schwab-Pomerantz says, “I was really, I guess, pleasantly surprised that so many Americans—basically 90 percent of Americans—say that poor financial literacy contributes to many of America’s issues, such as poverty and lack of job opportunities and that they’re recognizing the power of financial literacy and how it can empower our society” (worth.com). If we can lift society up and find ways to help everyone become more financially literate, our society will be much better. It would be great if everyone could live in a society with a strong foundation in financial wisdom. 

     So, with all of this in mind, I decided to create the Rising Investor website. It will document my journey as I learn more about the art of finance and investing. However, this website isn’t only for me; it’s also for everyone else, especially teenagers. I want to help people learn as much as they can about finance and investing.

      I will cover topics such as the current financial literacy problem, why people don’t talk about money, how and why to invest your money, saving vs. spending, how to save money, the importance of the credit score, and more. Economic empowerment not only brings people up financially, but it also does socially. To me, economic empowerment is not to close the wealth gap; it is to raise everyone up. Having a solid foundation on all the topics I’m planning on covering may unlock many opportunities for people. I want to be a part of that. I hope that everyone decides to join me and learn more about finance and investing.