Investing for Beginners

At Direct Payday Lenders Online ™ we can help you acquire a loan but more importantly we want to give you the tools you need to succeed financially. On this page you will find our investing guide for beginners. This should give you a basic understanding of the different investment options available to you and which type of investments can help you reach your goal.

More than it is a science or an art, investing is a process. It involves time, patience, a goal, and a logical strategy for obtaining that goal. However, even though it has the capacity to be extreme complicated at times, you don’t need to be a sophisticated math wizard to understand where your returns are coming from. While we can’t provide you with all the answers at once, by the end of this document you’ll have access to the basic information required to get started on your journey towards financial literacy.

Discussing everything from what kind of investment opportunities are available to you, to where you can engage them, how you can make money on them, and how to evaluate them, this resource is your starting guide to pursuing personal investments. While by no means a substitute for a professional advisor, this is your reference guide for taking control of the next conversation you have with one. Becoming a strong investor will help you avoid the need for direct payday lenders and allow you to save money.

Investing Objectives
Investing Strategies
Types of Securities
Types of Investing Institution


Investing Objectives

The first step to developing your personal investment portfolio is to establish an overarching goal that will guide your progress. Without a goal, you cannot justify your positions, you cannot make proper decisions, and you cannot evaluate your progress. However, with a goal, you can begin to make practical decisions about what sort of investments are best suited for you, even if that means they are not the most obvious of choices. The four main investment goals are as follows:

  • Fixed Income

    Fixed Income investing involves the pursuit of regular payments. Considered to be a ‘passive’ approach to wealth management, Fixed Income investing provides an excellent back-bone to your existing portfolio.

  • Capital Gains

    Capital Gains refer to the growth of the value of an asset owned by an investor. If you buy something at a low price, and then sell it higher, you have incurred a Capital Gain. Alternatively, if you buy something at a high price, and sell it lower, you have incurred a Capital Loss. The objective of pursuing Capital Gains is generally longer-term, and requires a great deal of patience and research to pursue. However, it has a greater ability to produce returns over the long term than most investment opportunities.

  • Tax Avoidance

    While we are by no means condoning dodging taxes, the tax system itself comes in place with very specific exemptions for personal investing. While Tax Avoidance is never really an investment strategy in itself, it is a good secondary objective to pursue. By carefully planning incomes over a lifetime, and structuring investments in a way that allows you to retain the majority of your wealth, whole percentage points of return can be maintained, and even gained from what would previously have been allocated towards taxation.

  • Wealth Preservation

    Wealth Preservation is an objective that represents the need for stability within a portfolio. By holding onto securities that provide reliable returns, and very little fluctuations in overall value, an investor is able to retain wealth for retirement, and for the benefit of future generations.


Investing Strategies

  • Growth

    Growth –centric investment portfolios center around the pursuit of capital appreciation. While this kind of growth can be achieved in most kinds of securities, different kinds of assets appreciate at different rates. It is therefore a prudent measure to focus on diversification within a growth-portfolio, so as to create a level of stability within the arguably unpredictable bursts of movement in the securities themselves.

    This is achieved by mixing bonds, stocks, and mutual funds into a single account. When pursuing a growth portfolio, it is extremely important to remember that gains and losses will be extremely unpredictable. For this reason, growth portfolios are generally seen as being best suited for individuals with long-term investment horizons, and sufficient cash flows from other sources to put them through the waiting period.

  • Income

    Income investment portfolios are managed in accordance to an investor’s tolerance for risk, reward, and timing. Riskier investments will produce a greater reward, but will require a longer time horizon. Shorter term investments might provide a smaller reward opportunity, but will come with a greater stability. These sorts of assets are fantastic for planning around short-term payment objectives (ie. Saving one more year for a vacation). Lastly, securities that pay out an income more frequently will generally pay out a lesser amount. However, these frequent payments are fantastic for personal investors to use towards paying regular bills or obligations.

  • Stability & Liquidity

    Portfolios emphasizing stability are generally similar to income portfolios, with the main difference that they have the main goal of preserving capital, as opposed to accumulating it. Investors may choose to pursue stability portfolios during extremely volatile market periods, or during periods of their life during which they are unable to take on a great deal of financial risk. Stable portfolios are generally created through products such as Certified Deposits, Guaranteed Investment Certificates, or bonds that have been indexed to inflation.

    Stability and Liquidity portfolios can be held for any period of time, so long as the investor is comfortable with the fact that their funds will not really change all that much in value. Again, the purpose of these portfolios is to keep your money hidden away for a time with better opportunities.

  • Tax Efficiency

    A tax efficient portfolio is generally most relevant to individuals that are in very specific situations to benefit from additional gains of a certain type. For example, an investor with high household expenses may favor a portfolio that holds income-trusts, as it allows them to fill out the remaining capacity of a tax bracket.

    Contrarily, other investors may purse bonds with delayed payments in order to incur capital losses in a given year, and enjoy them again at a later date as income. While a tax efficiency will never be the sole strategy behind a portfolio, the returns that can be generated through saving on taxes alone can be extremely rewarding on their own.

  • Community Sustainable Pursuits

    While it is easy to get caught up in the adventure of earning a profit through your portfolio, it is important to always remember to prioritize your objectives. For some investors, this means avoiding certain securities (such as cigarette companies) due to moral hazard. Other investors may actively choose to only pursue those investments that support companies that are active in the community or environment. Over the years, many opportunities and funds have arisen to help conscientious investors to incorporate their beliefs into their investment strategies. However, value-based investing should always be placed in check against diversification, so as to prevent a portfolio from becoming overweight in a single kind of industry.


Types of Securities

  • Certificate of Deposit

    A document from a bank that marks that an individual has committed to a long-term deposit, which will generate a fixed interest rate over time. The money is locked in with the bank, and can be withdrawn upon ‘maturing’. Think of these as being like a long-term savings account with a better interest rate.

    Purchased From

    Banks Brokerage Houses

    Price Range

    The price can be any amount. Sometimes banks will have minimums of $500.

    How to Profit

    Interest income.

    Investment Term

    An agreed upon fixed period.

    Investment Example

    A 4-year CD that locks away $5,000 and pays 2% interest per year, compounding monthly

  • Federal Bonds & Treasury Bonds

    Federal bonds are debt obligations issued by the federal government. You’re basically loaning money to the government, getting interest for a certain amount of time, and then getting the full amount of the loan back. While not necessarily secured against an form of assets, the good-name of the country, as well as its ability to leverage taxes backs this investment.

    Purchased From

    Can be purchased in most banks.

    Price Range

    $500-1,500. The riskier the security, the lower the price.

    How to Profit

    Semi-Annual Interest payments, combined with any change in the price of the security (ie. Did you buy it at a discount?), as well as any tax benefits, as the income is usually tax exempt.

    Investment Term

    3mo-30years. Depends on the security you choose to buy. The longer the term, the higher the interest rate, and the higher the risk.

    Investment Example

    A 3-month Australian bond that sells for $990, and matures at $1,000. A 1-year USA bond that sells for $1,010, and pays 10% interest.

  • State Bonds

    These are the same as Federal bonds, but are instead issued by a state.

    Purchased From

    Can be purchased in most banks.

    Price Range

    $500-$1,500.

    How to Profit

    Semi-Annual Interest payments, combined with any change in the price of the security, as well as any tax benefits.

    Investment Term

    3 months to 30 years.

    Investment Example

    A 10-year California bond selling for $950, and redeeming for $1,000.

  • Municipal Bonds

    Usually pertaining to the development of infrastructure, incomes, or services, these are bonds that are issued by municipalities. Contrary to Federal or State bonds, these may be secured against some asset.

    Purchased From

    Banks.

    Price Range

    Municipal bonds usually come in $5,000 par values and usually require a minimum investment of $25,000 in order to get the best price.

    How to Profit

    Interest income received by holders of municipal bonds is often exempt from the federal income tax and from the income tax of the state in which they are issued.

    Investment Term

    3 months to 30 years

    Investment Example

    A 30 year Dallas bond selling for $30,000 and paying out 10% interest per year.

  • Common Equity

    Equity represents an owners stake in a company. Common equity includes the right to vote on company issues, as well as a right to dividends. Common equity is the most common kind of stock that you’ll hear about.

    Purchased From

    Companies, organizations, and stock markets.

    Price Range

    Varies in accordance to many factors too complicated for this tiny box.

    How to Profit

    Return is composed of the dividends paid on the shares and any increase (or decrease) in the market value of the shares. Additionally, shareholders have a claim on assets in the event of liquidation.

    Investment Term

    Infinite, or until liquidation.

    Investment Example

    A share of Microsoft (MSFT) is purchased for $24, and is sold for $25, for a $1 profit.

  • Preferred Equity

    Corporate shares of stock that have fewer rights than normal shares, in exchange for greater income. Unlike common equities, these shares are not as tied to the company’s overall performance.

    Purchased From

    Companies, organizations, and stock markets.

    Price Range

    Varies.

    How to Profit

    Preferred shares generally earn a greater dividend, with greater reliability, than common shares. However, they sacrifice things such as the privilege to vote. Common shares also experience capital appreciation, but with less volatility than common equity.

    Investment Term

    Infinite, or until Liquidation

    Investment Example

    A preferred share for Exxon Mobil is purchased for $40, and the investor receives three dividends of $1 before selling the position for $41. The investor has made a $4 profit.

  • Mutual Fund

    An investment vehicle that is made up of a pool of capital collected from many investors, with the purpose of investing. Mutual funds are operated by a money manager, who invest the fund’s capital on the behalf of the investors by managing the fund’s holdings. Investors will benefit from pooling their capital by in turn having greater purchasing power as a whole.

    Purchased From

    HSBC, Vanguard and American Funds (Capital Group).

    Price Range

    $200-$100,000 minimum purchases.

    How to Profit

    through capital gains and distributions from the fund, investors gain access to returns as they are directly generated by the fund itself. These returns are directly returned to the investor, or re-invested appropriately in accordance to a prospectus.

    Investment Term

    Mutual Funds are not traded, but are redeemed by the issuing company. Some funds require investors to maintain their positions for at least 1-3 years before redeeming. Additionally, some funds (called ‘closed end’) may only allow redemptions during certain periods of the year.

    Investment Example

    An investor purchases $1,000 of units in a Vanguard mutual fund, and receives $100 in distributions at the end of the year, before redeeming their units for $1,000.

  • Exchange Traded Fund (ETF)

    An ETF is essentially a Mutual Fund that is traded through an exchange. These funds will generally track specific indexes of securities, and are traded based on the market’s expectations of the underlying assets.

    Purchased From

    Purchased through the equity exchange.

    Price Range

    Annual expenses for ETFs range between 0.1% and 0.65% and are deducted from dividends. Investors can purchase as little as one share.

    How to Profit

    Investors can make gains through distributions or capital gains. However, these capital gains must be made through trading on the market, as opposed to redemption.

    Investment Term

    ETFs are generally considered to be short term holdings.

    Investment Example

    An investor purchases a general bond ETF for $10, receives $1 in distributions, and sells the unit for $9 at the end of the year.

  • Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period.

    Purchased From

    Purchased through an options exchange.

    Price Range

    Option values vary with the value of the underlying instrument over time. The price of the call contract must reflect the likelihood of the underlying asset increasing to a certain price point.

    How to Profit

    Call options can be sold for a capital gain, or ‘executed’, allowing the buyer to purchase the given security at the agreed upon strike price, thus allowing them to profit by selling the shares into the open market directly.

    Call options gain value as the value of the underlying asset rises.

    Investment Term

    Call-Options are generally short-term investments, with terms of less than a year. Be aware that options contracts lose value over time.

    Investment Example

    An investor purchases a call for $2, allowing them to sell Microsoft shares for $22 each. Microsoft is currently priced at $25/share. The investor can execute or sell the option for a $1 profit.

  • Put Option

    An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time. This is the opposite of a call option, which gives the holder the right to buy shares.

    Purchased From

    Purchased through an options exchange.

    Price Range

    Vary in accordance to the likelihood of the underlying asset decreasing to a certain price point.

    How to Profit

    A Put option can be sold at a profit, or can be executed, allowing the investor to purchase a security at a given strike price. Put options gain value as the value of the underlying asset decreases.

    Investment Term

    Put-Options are very short-term investments. Be aware that options contracts lose value over time.

    Investment Example

    An investor purchases a put for $2, allowing them to purchase shares of Microsoft for $19ea. MSFT is currently priced at $22/share. The investor can sell or execute the contract for a $1 profit.

  • Private Equity

    Private equity involves the direct placement of funds into an organization. If you directly give a company a check as an investment, as opposed to buying shares through an exchange, you are engaging in a private investment.

    Purchased From

    Purchased directly from the company.

    Price Range

    Most private placements have very high minimum investments, starting at $5,000.

    How to Profit

    Private investments are generally very risky, but have great earnings potential through high dividends, or cashing out in an Initial Public Offering.

    Investment Term

    Private placements are generally very long-term investments, which will lock up an investor’s money for anywhere between 3-10 years.

    Investment Example

    An investor purchases $5000 in shares directly from the President of a private company. Five years later, the company has grown enough to list, and the investor sells their holdings for $10,000.

In addition to describing the different kinds of securities you can purchase, I’ve also included a list of the different kinds of institutions you can deal with as a personal investor. Included are the types of institutions, what kind of services they can offer you, who is best served by the institutions, and how much the services generally cost.


Types of Investing Institution

  • Financial Adviser

    An FA’s general role is to help an investor to manage their finances. This is accomplished by providing full time professional expertise.

    Type of Investor

    All investors can benefit from an FA. Their experience and access to markets and research is invaluable.

    Price

    Anywhere from 1% of all the holdings of an investor on a yearly basis, to a small commission on trades engaged through the company. Fixed fees may be applied for services like the development of a financial plan.

  • Brokerage House

    A broker provides clients with access to the financial markets. Their job is to enable experienced investors to make trades, and to even facilitate the trades themselves.

    Type of Investor

    Investors that are capable of handling their own financial planning can benefit from a broker, as can those that need access to specific instruments. Brokers can also provide access to exclusive opportunities and insights.

    Price

    Usually a $30/transaction fee, or a percentage commission on larger orders.

  • Discount Broker

    An electronic platform (ie. Website) that connects investors to the markets directly. The investor does not deal with a person, but instead interacts with the platform.

    Type of Investor

    Investors that are capable of planning their own portfolios, and do not require access to exclusive instruments or insights.

    Price

    Small monthly fees of $10-30, or transaction commissions as low as $1 make this a very affordable option for savvy investors.

  • Financial Planner

    A Financial Planner differs from a Financial Advisor in the way that they will generally focus on debt management and planning, rather than portfolio structuring. Financial Planners help individuals to understand how their cash flows from investments impact their lives, and help them to budget accordingly.

    Type of Investor

    Individuals being troubled by debt, or attempting to manage their work income with expenses benefit the most from a financial planner, in the way that they provide insights in how to best life a financially-aware lifestyle.

    Price

    A commission on services offered (ie. On debt savings), or a flat fee for consultation appointments.

  • Retail Bank

    A customer service representative that can facilitate simple transactions, or sell simple deposit services.

    Type of Investor

    Individuals pursing stability, liquidity, or simply looking to manage their funds through a main account. Most people will have a simple bank account to act as the center of their financial activities.

    Price

    Monthly service fees combined with service transaction fees.

  • Private Family Wealth Management

    Family trusts can accumulate to the point at which they should be treated as a major fund of money. These accounts have the option to hire a private staff to manage the assets.

    Type of Investor

    Wealthy families looking to preserve wealth throughout a series of generations. This kind of institutional service is not available to small-time investors.

    Price

    Yearly account management fees, and occasional performance bonuses.

  • Mutual Fund Manager

    A full-time professional that allocates funds within a mutual fund. The Fund Manager works for all of the unit holders of a fund.

    Type of Investor

    Any investor looking for the benefits associated with a Mutual Fund can benefit from the services of a skilled manager.

    Price

    Management expenses tend to be between 0.19-5% of a fund’s returns over time, depending on the nature of the fund.