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Investment Insights

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 year​1​.

 

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 market​2​.

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 decade​1​.
    • Companies like Amazon, Nvidia, and Tesla are examples of growth stocks that have shown substantial growth over the past decade​3​.

 

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 stocks​1​.

 

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 yields​1​.

 

4. Bond Investments:

    • Bonds are considered less risky than stocks and provide fixed interest payments over time​1​.
    • Bonds are essential for balancing a portfolio and are generally considered less risky than stocks​3​.

 

5. Mutual Funds and ETFs:

    • These funds provide diversification and professional management, making them suitable for long-term investors​1​.

 

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 time​4​. 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 goals​1​.

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.

 

 

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Life Planning Advice

Top 10 Ways To Improve Your Financial Health

By
Zach Swaffer, CFP®
May 19, 2020

Top 10 Ways To Improve Your Financial Health

  1. Create an emergency fund (3-6 months fixed expenses)
  2. Identify your priorities/goals
  3. Plan for unexpected life events
  4. Understand your monthly cash flow (money in vs money out)
  5. Discuss finances with your spouse/partner
  6. Reward yourself for hitting financial goals
  7. Save up for large purchases
  8. Use risk tolerances and an allocation strategy for your investments
  9. Give yourself a raise (increase 401(k) contributions)
  10. Have a financial plan and review it annually

 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine what is appropriate for you, consult a qualified professional.

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Investment Insights

10 Strategies to Prevent Wealth Erosion

By Trilogy Financial
July 18, 2024

Are you aware of the common pitfalls that can erode your wealth and how to prevent them?

In the pursuit of financial independence, it’s not just about building wealth but also about protecting it from erosion. At Trilogy Financial, we understand the critical importance of mitigating wealth erosion to ensure long-term financial stability. Here are ten strategies to help you with asset preservation wealth & tax and achieve your financial goals.

 

1. Taxes

 

Taxes are a significant expense for everyone, but High-Net-Worth Tax Strategies can help manage and reduce their impact on your wealth. Consider maximizing contributions to retirement accounts like IRAs and 401(k)s for tax advantages, and explore health savings accounts (HSAs) for additional tax benefits.

 

Key Tax Strategies:

 

  • Maximize contributions to tax-advantaged retirement accounts.
  • Utilize HSAs for medical expenses.
  • Consult a tax advisor for personalized tax-saving strategies.

 

2. Credit Cards

 

High-interest credit card debt can quickly erode your wealth. Implementing a strategic approach to managing credit card debt can help reduce the financial burden and improve your net worth. One effective strategy for managing credit card debt is to use the debt avalanche or snowball methods.

 

Credit Card Management Strategies:

 

  • Use the debt avalanche or snowball methods to pay down high-interest debt.
  • Consider consolidating debt with a lower-interest personal loan or balance transfer credit card.
  • Create a disciplined budgeting plan to avoid accumulating new debt.

 

3. Depreciation

 

Assets like cars and electronics lose value over time, impacting your wealth. Adopting a ‘buy and hold’ approach and making strategic purchasing decisions can help mitigate the effects of depreciation.

 

Combating Depreciation:

 

  • Keep vehicles for longer periods.
  • Buy slightly used cars to avoid initial depreciation.
  • Invest in assets that appreciate or depreciate less over time, such as real estate or classic cars.

 

4. Market Cyclicality

 

Market volatility can cause anxiety, but a diversified investment strategy can help manage the risks associated with market fluctuations.

 

Navigating Market Cyclicality:

 

  • Diversify your investments across different asset classes and geographies.
  • *Implement dollar-cost averaging to manage investment costs.
  • Consult with a financial advisor to tailor a diversified portfolio.

 

*Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets. (67-LPL)

 

5. Lack of Diversification

 

Putting all your investments in one basket increases risk. Diversifying your portfolio across various asset classes and sectors can reduce volatility and potential losses.

 

Diversification Strategies:

 

  • Invest in a mix of equities, fixed income, and alternatives.
  • Use broad market instruments like ETFs or mutual funds.
  • Regularly review and rebalance your portfolio with a financial advisor.

 

6. Unexpected Expenses

 

Unexpected expenses can disrupt your financial plans. Establishing an emergency fund is crucial to cover unforeseen costs without resorting to high-interest debt.

 

Preparing for Unexpected Expenses:

 

  • Build an emergency fund covering 3-6 months’ worth of expenses.
  • Automate savings to ensure consistent contributions to your emergency fund.
  • Adjust your budget to prioritize saving for emergencies.

 

7. Misaligned Investments

 

Investing without a clear plan can lead to poor financial outcomes. Aligning your investments with your financial goals, risk tolerance, and time horizon is essential.

 

Aligning Investments:

 

  • Define clear investment goals and time horizons.
  • Educate yourself about different investment types.
  • Seek personalized advice from a financial advisor to create Custom Investment Strategies.

 

8. Procrastination

 

Procrastination can significantly impact your wealth-building efforts. Starting early and setting achievable goals can make a big difference in your financial future.

 

Overcoming Procrastination:

 

  • Set short-term and long-term financial goals.
  • Use financial tools and apps to automate savings and investments.
  • Consult a financial advisor to create a tailored financial plan.

 

9. Lack of Planning

 

A comprehensive financial plan is the foundation of successful wealth management. An advantage of effective personal financial planning is that it can transform uncertainty into a roadmap for success.

 

Creating a Financial Plan:

 

  • Assess your current financial situation.
  • Set realistic and specific financial goals.
  • Develop a plan that allocates resources towards achieving these goals.

 

10. Lack of Proper Protection

 

Unexpected life events can derail your financial plans. Proper insurance and estate planning can protect your wealth and provide confidence.

 

Implementing Proper Protection:

 

  • Obtain adequate life, disability, and long-term care insurance.
  • Create a will and other estate planning documents for Legacy Planning.
  • Consult with a financial planner to assess your Financial Protection Strategies.

 

Conclusion

 

Preventing wealth erosion is as important as building wealth. By addressing these common pitfalls with strategic planning and professional guidance, you can safeguard your financial future. At Trilogy Financial, we specialize in Comprehensive Wealth Management Services, Retirement Planning for High-Net-Worth Individuals, and long term family wealth planning. Our services also include family wealth protection, risk management positions, and Custom Investment Strategies that protect and grow your wealth. Contact us today to learn how we can help you achieve your financial goals and secure a prosperous future.

 

 

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.

 

*There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

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