A Three Minute Guide to Understanding Stocks

Head over to the Investing for Beginners site at About.com, a division of The New York Times, to see my newest special.  It started because last week, I sat down to create an updated version of The Beginner’s Corner, which answered basic questions such as “what is the ask price and bid price of a stock?” and “what does a market maker do?”. As I kept writing answers to the questions I’d received from readers over the years, what started as a brief update turned into a week-long project that culminated in a new feature called 101 Things Every Investor Should Know About Stocks and the Stock Market.

This new special contains more than a hundred pages of content, each answering a specific question in only two or three sentences with links to additional information if you want to learn more.  You can click through it in under 3 minutes if you want the brief version.  This alone should put you years ahead of where most investors are because you’ll be able to answer questions such as, “What is the Dow Jones?” and “What is private equity? Or a hedge fund?”  Do yourself a favor and become educated on the 101 things that every investor should know. It could help lay the groundwork for a much better understanding of the rich, robust collection of articles you’ll find on the site after you’ve finished.

Wendy's Stock Certificate Dave Thomas

The special on investing in stocks and the stock market was designed for complete beginners that have absolutely no idea what things such as "assessable stock" or bid and ask spreads are. It lays the foundation for understanding the stock market so it's not overwhelming when you are confronted with these terms at your broker's office.

Read 101 Things Every Investor Should Know About Stock

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The Kennon Retirement Insurance Plan

One of the Things That Helped Me …

Retirement Insurance Plan

I thought of this "stupidity insurance" as writing my own self-insured retirement plan or insurance policy that would guarantee that by the time I was ready to stop working, I'd be able to take $21,422.71 per month after taxes WITHOUT EVER SAVING ANOTHER DIME after my 30th birthday. Anything else I built up - my businesses, my houses, my art collections, my brokerage accounts, my main retirement accounts - is extra (and, frankly, where the *real* money will be). The account should maintain its value of $6,426,814 over time, meaning that the whole sum could be left to my heirs or given to the family foundation for charitable purposes.

From time to time, you may come across reference to my “stupidity” insurance or my “reserve” fund.  I’ve had a bunch of readers write me over the years and ask about various comments I’ve made so I thought it might be useful to explain it.  My parents, siblings, and Aunt Donna have always known about my investing but virtually no one else did when I was a child (by the time I got into high school, though, it was all I talked about so hiding it was no longer an option).

For those of you who are older than 14, this isn’t going to do any good unless you have children or grandchildren that may benefit from some personalized version of it (which is why I’ve never written about it).  By the time I was older, we had put almost all of my siblings on a modified system that helped to guarantee they would enjoy the same outcome in their own retirements.  This plan has some resemblance to the dividend trust program I described in an article on student loan debt. (more…)

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U.S. Bancorp Stock

By simply putting $300 extra each month into shares of U.S. Bancorp, the firm that owns his mortgage, instead of paying off principal each month, this family member should end up with an extra $535,000 net in 30 years, plus own his house outright, and be collecting approximately $33,000 annually in cash dividends.

A member of my close family has been using a technique to build substantial wealth that doesn’t require a high income or any specialized knowledge, extra work, or effort.  I was so impressed by the way he implemented this program, I thought I would share it with my other family and friends (as well as anyone else who reads my blog) without giving away who it is.

Each month, he has a house payment of approximately $1,500, payable to U.S. Bank.  He decided that instead of making an extra $300 payment along with his regular mortgage bill to lower principal and pay the debt off early, he would instead establish a direct stock purchase plan and have that same amount automatically used to buy shares of U.S. Bancorp.  He was convinced the balance sheet of the bank was strong, and the fact that the CEO earns more in cash dividends from his outright ownership of U.S. Bancorp stock made him feel confident that management would act in the best long-term interest of shareholders compared to other banks, where huge bonuses and perks rewarded failure.


The commissions charged for this service are negligible, typically $2 per transaction.  This means that every year, he is investing roughly $3,600 in U.S. Bancorp common stock, with instructions that all of the dividends should be reinvested.  The mortgage on his home loan is roughly 5.5%.  How much will he make in extra profit from this transaction? (more…)

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