What is happening with the Stock Market?! (Beginners Guide)

Last week the stock market was thrown right into the main stream discussion in ways it never has before. It has left a lot of people wondering WHAT IS HAPPENING WITH THE STOCK MARKET!?

For starters, you should know that none of what is happening has anything to do with real investing. The stories you heard last week and what will be ongoing discussions for the following few weeks are essentially gambling where several bets went very wrong for some very wealthy people and some smart everyday people wreaked havoc on Wall Street.

To best understand what’s happening there are some terms that you need to know the definition:

Hedge Fund: A hedge fund is a group or partnership of investors that use high risk investing methods to realize higher gains in the stock market. They are typically wealthy investment groups that use borrowed money or often times have institutional investors backing them with funds from 401k’s and Pensions.

Short Selling: If an investor believes a stock is going to go down in price by a certain date, they can make profit off of that loss in value by borrowing a share of that stock from their broker and sell it on the market today. Then in the future when that stock has a lower price, they can buy the stock back at the lower price and return the share of stock to their broker. The investors profit is the difference between what they sold the stock for initially and the lower price they’re able to buy the stock for in the future.

Retail Investors: If you’re independently investing in the stock market without the assistance of a fund manager, stock broker, or financial advisor utilizing online platforms like Robinhood, ETrade, WeBull, or others, then you fall into a category known as retail investors.

How to profit when the stock price goes down.

If you owned a stock today but believed it was going to go down in price over the next 60 days and that the highest price you could sell that stock for is the price it is selling for today, you would sell that stock today.

But what if you don’t actually own the stock today and are confident it’s going to drop in price in the future? This is where Short Selling a stock comes in. You borrow a share of stock from your broker and sell it today. Short sales have an expiration date in which you must return the share of stock back to your broker.

Investors then make money on a Short when the price of the stock does indeed drop. They sell it today at the highest the stock can sell for and buy it in the future at a lower price so they can return the share of the stock back to their broker. The risk of course is that the price doesn’t go lower but instead goes higher. In this case, the investor that borrowed the stock has to pay more money to buy the stock and return it than the amount they made when they sold the borrowed stock.

What happened this week on the stock market?

A group of retail investors who have been reading a Reddit thread online, primarily run by a group called Wall Street Bets, discovered that several stocks had been shorted by some hedge funds. What they discovered is that these stocks had been over-shorted, meaning that more shares of the stock had been sold short than actually existed on the market.

The hedge funds borrowed and sold more shares of stock than they can now buy and return to their brokers. The time for returning the shorted shares is basically now. The only way the hedge fund makes a profit on the deal is if they can buy back the stocks at a lower price than they sold them for.

These retail investors have chosen to go all in on the stocks that the hedge funds shorted. The sudden increase in buying activity on these specific stocks has caused their trading price to be above what the hedge funds sold them for. Now the hedge funds have to scramble to buy back the stocks thus creating more buyer demand and sending the price of those stocks up higher. The longer the retail investors hold on to their shares, the higher the price will go until the hedge funds can return all of their shares of the borrowed stock.

In order to “cover” their short position losses, the hedge funds have had to sell some of their long positions (stocks they like and that are increasing in value). This sudden sell off of high quality stocks caused the prices of those stocks to also go down, and lowered the overall Dow Jones Average.

The Controversy

There has been a tremendous spike in the volume of transactions occurring as a huge number of new retail investors have jumped into the market. When you open a new brokerage account and deposit money into that account, the money doesn’t immediately transfer. It takes a few days to go from your bank account and be received by your brokers account. The brokerage will still typically allow you to make trades during the waiting period, you just can’t cash out until your funds have all cleared. This has caused strain on the infrastructure system for brokers like Robinhood who cater to the retail investor. To put it most simply, these brokerages had to make a choice to either limit their financial exposure or allow all of these trades to go through even if there were issues a few days from now getting the actual cash transfers into the bank. The controversy here is that retail investors clearly wanted to participate in the market and buy into these various securities they were hearing about on the news and social media. These new investors buying into those securities could have and should have allowed the price of those securities to continue to rise. Because of the limits placed on the retail investors which limited the number of shares of a security could be purchased or held, the price of the securities didn’t rise as much as anticipated which scared off many of the retail investors into selling their securities for a loss. This ultimately allowed the hedge funds to buy back those same securities at a lower price than they were going to be buying them for.

On its surface, what it appears is that the brokers facilitated “stealing from the poor to give to the rich,” which is the opposite of Robinhood. These retail investors overpaid for a stock with the almost certain knowledge that it was going to increase anyway. However due to the actions these brokerages took in limiting purchase transactions, they squashed the price trajectory of these securities. These actions helped hedge funds minimize their losses and cost retail investors losses.

What does all of this mean for the average person?

Ultimately, the value of a company and the price of their stock are typically somewhat equal. Occasionally things get out of whack, like they are right now. The underlying assets in the middle of the stock market mess this week are brick and mortar companies that have had their doors closed for the past 6-9 months by the government in the middle of a pandemic and were already being subjected to digital changes in their markets. The reality is, their stock price likely should not be what it is trading for today. It likely won’t be trading at anywhere near this price 6 months from now.

This is not investing. It is gambling. It is trying to find the perfect time to jump off of a rocket ship in order to profit and if you miss the mark, you will lose money. If you want to play in that game, fine. Just be careful to only invest what you can afford to lose. Don’t bet your rent money on this fiasco and don’t change your long term financial strategies on a whim.

Real investing is following a disciplined strategy of making consistent investments over time into a well diversified portfolio. For the average person, payoff your consumer debts and build a small emergency account to free up your monthly cash flow. Then use your income to follow a proven investment plan that will help you build wealth.

The Smartest Thing You Can Do For Your Income.

If you’ve ever listened to those fancy financial guru’s discuss investing, you’ve heard the advice about having a well diversified investment portfolio.

Of course very few American’s are actually investing to implement this strategy. But the idea behind it is solid financial advice.

It basically means, don’t invest all of your money in one thing. Don’t make all of your investments be in a particular company, or industry, or type of stock. Rather spread your investing dollars around into several different types of investments.

This is done in investing to protect you from losing all of your money should a company go out of business or new legislation is passed that impacts an industry.

Income Diversification

Even though few American’s are in a position to invest their money into the stock market or other financial investments, most Americans do make a different type of investment every day.

Each day you invest your time in exchange for an income. It’s probably one of the most valuable investments you’ll make. After all, your income is the most powerful financial tool you have at your disposal to build wealth.

Yet the vast majority of us have zero income diversification. We go to work, invest 40 hours a week of our time, receive our compensation and go home. Then when disaster strikes in the form of a layoff, termination, or company downsizing we have nothing.

If you’re investing your time in exchange for an income then implementing sound investment advice should be a top priority.

When you recognize that we’re all self employed, you recognize that you must maximize the amount of income you can make when you invest your time. That means having only one source of income is dangerous.

I’m not saying you can’t have a primary source of income. I’m just saying if all you have is one way you earn money each month you’re playing a risky game.

This is what most successful businesses do.

Take Apple Computers for example. The iPhone is by far their most successful product and revenue driver. However they have a full product line that produces revenue of its own. If a competitor came in and stole 100% of the smart phone market away from Apple, they wouldn’t collapse as a company. Sure, it’d hurt. But they wouldn’t go out of business.

Do you mow your own lawn on the weekends? How difficult would it be to ask 2 or 3 neighbors around you, that already have lawn services, if you could do it instead? You may have to invest an extra hour on Saturday mornings but you’ll earn an extra $300/month.

Do you have knowledge that other people would want to learn? Could you start teaching a class? Are you in construction? Maybe you can earn referral fees when you refer out different contractors.

There are tons of ways to diversify your income and it’s one of the smartest things you can do for your finances.

What are some other ways you can diversify your income? Tell me your ideas in the comments.

Reduce Your 2013 Tax Bill and Make Extra Money Too.

As my good friend Benjamin Franklin once said, “Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.” 

We’re rapidly approaching April 15 and tax time is upon us. Nope, this isn’t a life insurance post. Although you really should go buy some good term life insurance. This is all about our least favorite person to give money to; Uncle Sam.


I love some of the benefits my tax dollars provide, like paved streets and a military that can crush anyone that dares to mess with us. Other things the government spends money on I’m not so fond of. And while paying taxes is important we certainly want to pay them exactly what we owe and not a penny more.

That’s why I’m glad there are some great deductions available in the tax code that help reduce our tax liability. You can deduct things like mortgage interest, childcare costs, business expenses and more. But most of those deductions come from expenses that you had in the actual tax year.

There is a way you can reduce your tax bill for 2013 now, even though the year is already over.

How to reduce your 2013 Tax Bill.

Putting positive rewards in place is always the best way to motivate people to do what you want them to do. Like dog biscuits. If you want your dog to roll over, tempt him with a treat until he rolls over. If you want your employees to come in to work 30 minutes early, tell them you’ll have breakfast waiting for them when they arrive. And if the government wants you to save for your retirement then they provided a nice little tax deduction for retirement savings.

You need an IRA.

If you’re under age 50, then you can contribute up to $5,500 to a traditional IRA (add an extra $1,000 if you’re over 50). You can make this contribution until April 15, 2014 and it will still count as a deduction on your 2013 tax return.

So if you’re out of debt, have a fully funded emergency account in place, and want to reduce your tax bill for 2013, go make a contribution to a traditional IRA.

Even better, that $5,500 contribution invested at age 30 will be worth $248,926.25 when you’re 70 if it averages a 10% return. So not only do you lower your tax bill this year, but you pick up an extra quarter of a million dollars in the process.

*My lawyer makes me say this. I’m not a CPA. I just happen to have read this part of the tax code. Seek professional tax advice for your specific situation.*

It’s Okay To Invest in Your Dreams.

I think it’s important that we take a look at money and how it works and that we learn tips and tools and tricks to get better. But ultimately there is a reason you want to get better with your money.

There is a passion you have. A hope… A dream. There’s something awesome that you want to do and you want to get better with your money so you can chase after that dream.

Invest in Your Dreams.

The reality is, it’s pretty difficult for broke people to help other broke people. It’s pretty difficult to start your graphic design business when you’re buried under a mountain of student loan payments and other debts. Adopting a kid is expensive and without a solid financial foundation it’s difficult to make that dream come true.

Maybe you want to be a writer or author. Well, that one doesn’t take much money to get started. If you have access to read this article you have the ability to start writing today. But writing and making money writing are 2 completely different things.

Ultimately with any career type dream you have, making money is important. In the famous words of Jon Acuff’s wife Jenny in regards to chasing a dream, “Income helps.” If you want to turn your writing into a full time career then there are some skills and tricks you’ll need to learn.

That’s why I’m glad I went through my friend Andy Traub’s Self Publishing class last fall. It’s an online, self paced class that teaches you everything you need to know about putting a book together to sell on Amazon and MAKE MONEY.

You Will Make Money Self-Publishing When You Learn the Self-Publishing System

In this class you’ll:

  1. Learn how to gain attention for your book before you even start to write it.
  2. Find some awesome tips to help you write your book efficiently.
  3. See how to get your readers passionate about telling other people about your book.
  4. Get tools and techniques for promoting your book that are vital for generating sales.
  5. Learn all the details of formatting a book for Kindle and iPad.
  6. Get an awesome trick for capturing your readers email addresses for engagement.
  7. There’s also tons of other bonus content.

After going through this class I’ve completely changed how I write not just books, but blog posts too. My site readership has gone through the roof. Interest in my upcoming books are higher than all the previous sales of my book Impact, and I haven’t even written them yet! I’ve increased my email subscription list by over 1,000 people since going through the class. My readers are more engaged with me than ever before in my 6 years of writing online.

Andy’s class isn’t theory. He’s ridiculously generous with his content and still he made over $40,000 in his first year with his first book Early to Rise. Then he compiled this class to teach others exactly how he did it.

If you have a story to tell and want to make money writing books, you need to go through this class!

Maybe you have a different dream. That’s awesome! Find something you can invest in that will help you make it come true. In fact, tell me what your dream is down in the comments and I’ll help you find something that helps you get closer.

But if you’re writing a book, seriously, this class is amazing!

I’d support and promote this class even if I weren’t an affiliate for it. I truly believe in the ideas Andy teaches through The Self Publishing System and I’ve seen it drastically change everything about how I write for the better and I’m confident it will do the same for you.

He just opened up enrollment to the class again for a short time period so sign up fast! You have nothing to risk since he does a 30 day money back guarantee too!

If you’d like to check out the class and sign up, while supporting my family too, here’s my affiliate link:
You Will Make Money Self-Publishing When You Learn the Self-Publishing System

Do you have a different dream you want to invest in? What is it? Tell me in the comments.


Does the 52 Week Savings Plan Work?

Does the 52 Week Savings Plan Work?

You may have seen the 52 Week Savings Plan floating around the internet over the past few weeks.  It’s a plan that makes an appearance around December each year in hopes of encouraging you to save some money over the new year.

The idea is that you save $1 on week one, $2 on week two, $10 on week 10, and continue this process throughout the entire year. On the last week you will have saved $1,378.  It’s hard to argue with the math. If you follow this plan exactly then you will have saved that exact amount.

But that’s the problem.

52 Week Savings Plan

I’m not one to criticize anyone for wanting to save money. But while the math works out on this plan, I don’t think in practice it works very well.  I think you get to August or September and quit. It takes too long to save too little and at the end things start to get tough.

Let’s take a look at what this plan really is and then I can provide you with a nice alternative.

Instead of laying the plan out by week, here’s what the plan looks like by month:
January – $15
February – $30
March – $46
April – $80
May – $82
June – $98
July – $114
August – $165
September – $150
October – $210
November – $186
December – $202

This plan sounds great on paper and in January it’s a breeze.  But if you follow this plan exactly you’re saving $913, or 66% of your total goal, in the final 5 months of the year.

What’s happening during that time? Back to school shopping. Kid’s sports. Winter clothes and coats. Christmas. If you look at your budget each year, these are some of your most expensive months. And in order to follow this plan you must pack on the majority of your savings during this time of the year.

It just won’t work. You’ll quit in August with only $465 saved.  You’d do better if you just saved $26.50 every week all year. ($1378/52 weeks).  It’s the same thing, but spreads your savings out consistently for the entire year.

The impracticality of this plan is my first issue. My second is that it is designed to encourage people to “begin” saving. That would mean people that don’t have much, if any saved.

If that’s the case, then taking an entire year to save $1,378 is a joke. Most families need more than this $1,378 in an emergency account, and you can’t wait an entire year to get it. The average person following my plan saves more than double that amount in about 6 weeks.

Here are some tips to help you save money fast:

  1. Shop your home and auto insurance rates.
  2. If you’re in debt, temporarily stop your 401k contributions to increase your take home pay.
  3. Buy a term life insurance policy and cash out your crummy whole life plan.
  4. Have a garage sale.
  5. Sell unused items on craigslist.
  6. Pick-up overtime hours at work.
  7. Take a part time job like delivering pizza’s or cleaning houses.
  8. Start a freelance business.

Sure, this way probably takes a little more work, but the results come immediately.  Why only save $1 this week when you could easily save more.

What do you think about the 52 Week Savings Plan? Tell me your thoughts in the comments.