April 27, 2021 • 14 mins
Hello! and welcome to Everyday Finance and Economics with the Siglers! The podcast where we discuss what you need to know about personal finance and economics and give you practical advice on how to get started and be smart with your money.
This episode is the second installment in our investing series. Glenn and Christina dive into the world of derivatives, diversification, and the risks and reasons involved in investing. Join us next time for the third and final part of our investing series, where we answer common questions!
Come engage with us!
Instagram: @efespodcast
Email: efespodcast@gmail.com
Website: http://efespodcast.buzzsprout.com
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Coverart by Karina Ng @karina.ng on instagram
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:09):
Hello, and welcome to everyday finance and economics
with the sicklers the podcastwhere we discuss what you need
to know about personal financeand economics, and give you
practical advice on how to getstarted and be smart with your
money
Speaker 2 (00:22):
Where your hosts Glenn and Christina Sigler.
So Christina, what's going on inthe economy this week,
Speaker 1 (00:28):
What matters this week and probably for the
foreseeable future.
Dad is semiconductor chips.
They are in every electronicproduct from bones to cars, to
TVs and game consoles.
Every, every electronic productyou have.
And there aren't enough of them.
At first, it was just atemporary delay in supplies at
the beginning of the pandemic,you know, as, as there was with
(00:49):
a lot of products, but sincepeople have been demanding more
electronic devices since they'vebeen staying at home.
So even though now production isback to normal, there still
aren't enough chips for demandbecause demand has just gone up
for them companies that usethese ships.
And there are a lot across, alot of different sectors are
having to delay the launch ofproducts or even cut back on
(01:11):
production altogether.
The economic term for this weekis the sec.
It's an acronym and it standsfor the U S securities and
exchange commission.
It was founded by presidentFranklin Roosevelt after the
stock market crash in 1929 tohelp restore investor confidence
in the stock market.
It's an independent agency ofthe federal government and has
(01:33):
three main goals, protectinvestors, maintain fair and
orderly markets and facilitatecapital formation, which
basically means encourage assetslike cash to be invested instead
of being used for personalconsumption.
All right.
We have another part of ourinvesting series here for you
today and let's get into theepisode.
Speaker 2 (01:55):
Alright so to recap.
So yeah, there's lots of stuffand we've covered many of them.
We've covered stocks, we'vecovered bonds, we've covered
ETFs.
Um, there's some slightdifferences between retirement
investments versus nonretirement investments and in
the United States, uh, the, oneof the big issues with that is,
(02:20):
uh, for retirement advantage, uh, investment, you, you can
invest in a lot of the samethings, but you get a tax
advantage because you can havemoney put into a mutual fund or,
or ETF or whatever you're doing,and you can have it done pre-tax
and, um, you won't be taxed onthat money until you decide to
(02:44):
take it out.
Yeah,
Speaker 1 (02:46):
We learned about this in financial
Speaker 2 (02:48):
And then the other side of that, there, there are,
uh, other, uh, uh, investmentscalled Roth Roth, 401ks Roth, a
Roth IRA where you can put themoney in after tax and then not
get it, and then not, not, notget taxed on any payout.
(03:10):
And so there's differentstrategies that you use based on
your income level, you know,that you use a Roth or non or
not a traditional 401k or IRA.
Um, you know, so retirementfunds retired investment funds.
Again, we we've gone back overthose.
(03:31):
Those are the non tax advantage,uh, bank products, certificates
of deposit, money, marketsavings.
Uh, those are those types ofproducts, cryptocurrencies,
which we've talked about beforeBitcoin doge coin, things of
that.
Um, and then derivatives, we'vetalked a little bit about
(03:53):
derivatives, uh, when we talkedabout futures, um, but
derivatives are really, um,assets that are valued based on
another asset.
Ooh.
And so that's what a futurescontract is and that's what
options are.
(04:15):
Um, um, it's, you know, anoption for, I want an option to
buy, um, Amazon stock threemonths from now at a, you know,
at a price of, you know,$300.
Oh,
Speaker 1 (04:29):
This is like, okay.
So if we're going to like it,this to something else layman's
terms, right.
You're betting on someone else'sbet.
Speaker 2 (04:38):
Yeah, yeah, yeah, yeah.
Okay.
You're betting that, that, youknow, so the difference, uh, so
a future is an obligation to you.
You have a contract to buy orsell, depending on which side of
fugitive, uh, yeah.
At a specific time and date inthe future of, you know, a
(04:58):
hundred barrels of oil, that's afutures contract and option is
the right to buy a, the option.
Yes.
You have the option becausethere's something called being
in the money being added, themoney, save you say, I want an
option to buy Amazon, uh, threemonths from now at$300 today to
(05:27):
prices$250.
And so you're betting that itwill go up and you're betting
that it will go up a lot.
That'll be more than$300, but ifit's not more than$300, why
would you buy yeah, youwouldn't.
(05:47):
And so you're going to pay that,that right.
To buy costs a little bit ofmoney doesn't cost as much as
the entire stock, but costs alittle bit of money.
Speaker 1 (05:59):
This is interesting.
Speaker 2 (06:00):
Okay.
So, so those are options andthere's options to buy and
there's options to sell.
Um, and, and then there's thingsalso derivatives called swaps
and what, uh, so when we talkabout the debt instruments, um,
the bonds, the bonds and stuff,so say, I ha I need a steady
(06:25):
fixed rate for, for my business.
And you have variable rate stuff, uh, or excuse me, you have
fixed rate stuff and I havevariable rates up, but I need to
swap it out because something'schanged in my business.
You and I can, we can, you and Ican swap instruments
Speaker 1 (06:46):
When you talk about fixed rate and very you're
talking about the interest rate.
Okay.
So fixed interest rate andvariable interest rate, and we
need to swap because somethinghappened to me.
Speaker 2 (06:56):
I, I see my business becoming, uh, either more, you
know, based on, you know,depending on what side I'm on,
I, my payments need to be eithermore stable or they have a lot
of movement and they move withwhat you move in the way that
your instrument works.
And so I will work out some sortof swap with you to change, you
(07:19):
know, to change, you know, howmy, how my revenue stream is
coming in so I can match what Ineed.
Speaker 1 (07:26):
Right, right.
Okay.
Okay.
Speaker 2 (07:29):
It's it's so think of it as a way to exchange one kind
of cash flow for another, asteady stream for variable
stream of payments.
Speaker 1 (07:40):
Okay.
Okay.
That makes sense.
Speaker 2 (07:44):
Right.
And that, and those are the, the, the five minute answer on
derivatives.
Speaker 1 (07:50):
Whenever answer.
Yeah.
We could honestly have a wholeanswer or a whole episode on
derivatives.
It's too complicated, honestly.
All right, dad, let's get intosome questions now that we know
all the terms and the lingoterms, and we know enough of the
terms of the lingo to getaround.
All right.
All right.
(08:11):
There's 700 years worth of lingoin investing.
We do not have time for thatanyway.
All right.
Simple question.
The basis of all this, whyshould I invest?
What is the benefits?
Speaker 2 (08:24):
Okay.
Investing helps you make yourmoney work more for you.
You know, you can, there's lotsof things you can do with your
money.
You can spend it and get animmediate benefit of what you
buy, but does that help youreach some of your longterm
goals and objectives?
(08:44):
Let's say that you want to buy ahouse.
Well, you're not going to,you're not going to be able to
buy a house if you spend allyour money and don't have money
for having anything saved fordown payments.
And, and, and, and that comewith that.
So by investing your money, youput your, that those funds to
work in, in assets that cancompound and compound at a
(09:08):
faster rate than just keepingthem in your mattress at home or
in your cookie jar, or sometimeseven more than a savings
account.
Yeah.
Compounding means that the moneythat you put away, not only does
it earn some gain, but if youkeep it in there over time, the
earnings makes earnings and thatallows your funds to grow, uh,
(09:33):
much more rapidly.
Speaker 1 (09:35):
That seems useful.
That seems useful.
All right.
How, how much risk is involvedin investment?
Cause I know we said that wasthe main difference between like
a savings account and investingearlier, right.
Speaker 2 (09:47):
And can span a wide range of risk.
Some investments have a verywide range of volatility.
Let's just think about, um, gainthe price of GameStop over,
Speaker 1 (10:00):
Wait, hold on, hold on, hold on.
Volatility means
Speaker 2 (10:03):
Price, movement up and down.
Um, we'll just keep it that way.
Price movement up and down couldbe high.
One day could be low the nextday.
If you think, look at the storyof the stock game stop a few
months ago, um, it was worthlike$4 a share.
And then it went up to
Speaker 1 (10:25):
400, a moon GameStop to the moon.
Speaker 2 (10:28):
Or even if you want to talk about Bitcoin, Bitcoin,
Bitcoin has been 20,000 back,the 40,000 and now is up to 60.
Speaker 1 (10:41):
Right?
Crazy.
And so a lot of movement
Speaker 2 (10:45):
That is a lot of fluctuations.
Some people don't like that kindof fluctuate[inaudible] um,
they, they liked the upside andwho wouldn't, but they have a
hard time sleeping with thedownside.
And so, uh, you have tounderstand your ability to
(11:05):
tolerate swings and each type ofinvestment has its own certain
risks.
You know, even across stockclasses, there are certain
stocks that w w um, swing wildlyversus others that really don't
swing at all.
Like utilities, well, utilities,utilities, don't don't swing a
(11:28):
lot, but then you've gotsomething like, um, any new and
emerging technology stock andthat could swing wildly.
Speaker 1 (11:37):
Yeah.
Even Tesla has a lot ofmovement.
So they're hearing is understandwhat you're doing, right?
Like what you're investing inand ask yourself before, can I
tolerate this amount of pricefluctuation?
Yeah, absolutely.
Speaker 2 (11:52):
And yeah.
So understanding, accepting, andin certain cases, like with the
options, uh, managing the riskand reward for each investment
is part of the process ofinvesting.
Okay.
Speaker 1 (12:06):
What is diversification and why is that
important?
Speaker 2 (12:10):
Okay.
So I'm going to start with the,uh, an old saying, you've heard
the phrase, don't put all youreggs in one basket.
Yes.
So why is that?
Because if you fall that you gotyour, all your eggs in one
basket and you fall, you'vebroken all, all your eggs.
You've got, you got nothingleft.
So if you put your eggs indifferent baskets and you know,
(12:33):
two or three fall, you still gotother eggs.
Yep.
Okay.
Okay.
The versification is a tool ofinvesting in different types of
companies, different types ofassets at different durations.
So that if something happensthat impacts one part of your
portfolio, it doesn't wipe outall of your portfolio.
(12:57):
Okay.
And so when we talk aboutdiversification, we're really
talking about the versificationof the risk.
You don't want to minimize risk,right?
So you don't want all the assetsto have the same kind of risk.
Now, there, there, there aresome folks that invest out there
say, yes, I believe in thiscompany or this industry, and
(13:18):
I'm going all in.
And you know, when they'reright, they can, you know, they
can reap a lot of reward, butwhen they're wrong, they're
going to be wrong.
And so again, you're going tohave to get a handle on what's
the right diversification forme.
(13:39):
Um, and, and depending on howmuch you're going to know and
study that, that company or thatindustry, or that asset, how
much risk you're willing totake, how much diversification
you need around that.
Speaker 1 (13:52):
All right.
That's our show.
Our second part in our investingseries, be sure to join us
again.
Next time when we round out theseries with the third part, and
if you have any questions for usat all, you can email
us@efespodcastatgmail.com andfollow our Instagram at EFCs
podcast.
Thank you so much for listening.
Take care, everyone.
Hello, and welcome to everyday finance and economics
with the sicklers the podcastwhere we discuss what you need
to know about personal financeand economics, and give you
practical advice on how to getstarted and be smart with your
money
Speaker 2 (00:22):
Where your hosts Glenn and Christina Sigler.
So Christina, what's going on inthe economy this week,
Speaker 1 (00:28):
What matters this week and probably for the
foreseeable future.
Dad is semiconductor chips.
They are in every electronicproduct from bones to cars, to
TVs and game consoles.
Every, every electronic productyou have.
And there aren't enough of them.
At first, it was just atemporary delay in supplies at
the beginning of the pandemic,you know, as, as there was with
(00:49):
a lot of products, but sincepeople have been demanding more
electronic devices since they'vebeen staying at home.
So even though now production isback to normal, there still
aren't enough chips for demandbecause demand has just gone up
for them companies that usethese ships.
And there are a lot across, alot of different sectors are
having to delay the launch ofproducts or even cut back on
(01:11):
production altogether.
The economic term for this weekis the sec.
It's an acronym and it standsfor the U S securities and
exchange commission.
It was founded by presidentFranklin Roosevelt after the
stock market crash in 1929 tohelp restore investor confidence
in the stock market.
It's an independent agency ofthe federal government and has
(01:33):
three main goals, protectinvestors, maintain fair and
orderly markets and facilitatecapital formation, which
basically means encourage assetslike cash to be invested instead
of being used for personalconsumption.
All right.
We have another part of ourinvesting series here for you
today and let's get into theepisode.
Speaker 2 (01:55):
Alright so to recap.
So yeah, there's lots of stuffand we've covered many of them.
We've covered stocks, we'vecovered bonds, we've covered
ETFs.
Um, there's some slightdifferences between retirement
investments versus nonretirement investments and in
the United States, uh, the, oneof the big issues with that is,
(02:20):
uh, for retirement advantage, uh, investment, you, you can
invest in a lot of the samethings, but you get a tax
advantage because you can havemoney put into a mutual fund or,
or ETF or whatever you're doing,and you can have it done pre-tax
and, um, you won't be taxed onthat money until you decide to
(02:44):
take it out.
Yeah,
Speaker 1 (02:46):
We learned about this in financial
Speaker 2 (02:48):
And then the other side of that, there, there are,
uh, other, uh, uh, investmentscalled Roth Roth, 401ks Roth, a
Roth IRA where you can put themoney in after tax and then not
get it, and then not, not, notget taxed on any payout.
(03:10):
And so there's differentstrategies that you use based on
your income level, you know,that you use a Roth or non or
not a traditional 401k or IRA.
Um, you know, so retirementfunds retired investment funds.
Again, we we've gone back overthose.
(03:31):
Those are the non tax advantage,uh, bank products, certificates
of deposit, money, marketsavings.
Uh, those are those types ofproducts, cryptocurrencies,
which we've talked about beforeBitcoin doge coin, things of
that.
Um, and then derivatives, we'vetalked a little bit about
(03:53):
derivatives, uh, when we talkedabout futures, um, but
derivatives are really, um,assets that are valued based on
another asset.
Ooh.
And so that's what a futurescontract is and that's what
options are.
(04:15):
Um, um, it's, you know, anoption for, I want an option to
buy, um, Amazon stock threemonths from now at a, you know,
at a price of, you know,$300.
Oh,
Speaker 1 (04:29):
This is like, okay.
So if we're going to like it,this to something else layman's
terms, right.
You're betting on someone else'sbet.
Speaker 2 (04:38):
Yeah, yeah, yeah, yeah.
Okay.
You're betting that, that, youknow, so the difference, uh, so
a future is an obligation to you.
You have a contract to buy orsell, depending on which side of
fugitive, uh, yeah.
At a specific time and date inthe future of, you know, a
(04:58):
hundred barrels of oil, that's afutures contract and option is
the right to buy a, the option.
Yes.
You have the option becausethere's something called being
in the money being added, themoney, save you say, I want an
option to buy Amazon, uh, threemonths from now at$300 today to
(05:27):
prices$250.
And so you're betting that itwill go up and you're betting
that it will go up a lot.
That'll be more than$300, but ifit's not more than$300, why
would you buy yeah, youwouldn't.
(05:47):
And so you're going to pay that,that right.
To buy costs a little bit ofmoney doesn't cost as much as
the entire stock, but costs alittle bit of money.
Speaker 1 (05:59):
This is interesting.
Speaker 2 (06:00):
Okay.
So, so those are options andthere's options to buy and
there's options to sell.
Um, and, and then there's thingsalso derivatives called swaps
and what, uh, so when we talkabout the debt instruments, um,
the bonds, the bonds and stuff,so say, I ha I need a steady
(06:25):
fixed rate for, for my business.
And you have variable rate stuff, uh, or excuse me, you have
fixed rate stuff and I havevariable rates up, but I need to
swap it out because something'schanged in my business.
You and I can, we can, you and Ican swap instruments
Speaker 1 (06:46):
When you talk about fixed rate and very you're
talking about the interest rate.
Okay.
So fixed interest rate andvariable interest rate, and we
need to swap because somethinghappened to me.
Speaker 2 (06:56):
I, I see my business becoming, uh, either more, you
know, based on, you know,depending on what side I'm on,
I, my payments need to be eithermore stable or they have a lot
of movement and they move withwhat you move in the way that
your instrument works.
And so I will work out some sortof swap with you to change, you
(07:19):
know, to change, you know, howmy, how my revenue stream is
coming in so I can match what Ineed.
Speaker 1 (07:26):
Right, right.
Okay.
Okay.
Speaker 2 (07:29):
It's it's so think of it as a way to exchange one kind
of cash flow for another, asteady stream for variable
stream of payments.
Speaker 1 (07:40):
Okay.
Okay.
That makes sense.
Speaker 2 (07:44):
Right.
And that, and those are the, the, the five minute answer on
derivatives.
Speaker 1 (07:50):
Whenever answer.
Yeah.
We could honestly have a wholeanswer or a whole episode on
derivatives.
It's too complicated, honestly.
All right, dad, let's get intosome questions now that we know
all the terms and the lingoterms, and we know enough of the
terms of the lingo to getaround.
All right.
All right.
(08:11):
There's 700 years worth of lingoin investing.
We do not have time for thatanyway.
All right.
Simple question.
The basis of all this, whyshould I invest?
What is the benefits?
Speaker 2 (08:24):
Okay.
Investing helps you make yourmoney work more for you.
You know, you can, there's lotsof things you can do with your
money.
You can spend it and get animmediate benefit of what you
buy, but does that help youreach some of your longterm
goals and objectives?
(08:44):
Let's say that you want to buy ahouse.
Well, you're not going to,you're not going to be able to
buy a house if you spend allyour money and don't have money
for having anything saved fordown payments.
And, and, and, and that comewith that.
So by investing your money, youput your, that those funds to
work in, in assets that cancompound and compound at a
(09:08):
faster rate than just keepingthem in your mattress at home or
in your cookie jar, or sometimeseven more than a savings
account.
Yeah.
Compounding means that the moneythat you put away, not only does
it earn some gain, but if youkeep it in there over time, the
earnings makes earnings and thatallows your funds to grow, uh,
(09:33):
much more rapidly.
Speaker 1 (09:35):
That seems useful.
That seems useful.
All right.
How, how much risk is involvedin investment?
Cause I know we said that wasthe main difference between like
a savings account and investingearlier, right.
Speaker 2 (09:47):
And can span a wide range of risk.
Some investments have a verywide range of volatility.
Let's just think about, um, gainthe price of GameStop over,
Speaker 1 (10:00):
Wait, hold on, hold on, hold on.
Volatility means
Speaker 2 (10:03):
Price, movement up and down.
Um, we'll just keep it that way.
Price movement up and down couldbe high.
One day could be low the nextday.
If you think, look at the storyof the stock game stop a few
months ago, um, it was worthlike$4 a share.
And then it went up to
Speaker 1 (10:25):
400, a moon GameStop to the moon.
Speaker 2 (10:28):
Or even if you want to talk about Bitcoin, Bitcoin,
Bitcoin has been 20,000 back,the 40,000 and now is up to 60.
Speaker 1 (10:41):
Right?
Crazy.
And so a lot of movement
Speaker 2 (10:45):
That is a lot of fluctuations.
Some people don't like that kindof fluctuate[inaudible] um,
they, they liked the upside andwho wouldn't, but they have a
hard time sleeping with thedownside.
And so, uh, you have tounderstand your ability to
(11:05):
tolerate swings and each type ofinvestment has its own certain
risks.
You know, even across stockclasses, there are certain
stocks that w w um, swing wildlyversus others that really don't
swing at all.
Like utilities, well, utilities,utilities, don't don't swing a
(11:28):
lot, but then you've gotsomething like, um, any new and
emerging technology stock andthat could swing wildly.
Speaker 1 (11:37):
Yeah.
Even Tesla has a lot ofmovement.
So they're hearing is understandwhat you're doing, right?
Like what you're investing inand ask yourself before, can I
tolerate this amount of pricefluctuation?
Yeah, absolutely.
Speaker 2 (11:52):
And yeah.
So understanding, accepting, andin certain cases, like with the
options, uh, managing the riskand reward for each investment
is part of the process ofinvesting.
Okay.
Speaker 1 (12:06):
What is diversification and why is that
important?
Speaker 2 (12:10):
Okay.
So I'm going to start with the,uh, an old saying, you've heard
the phrase, don't put all youreggs in one basket.
Yes.
So why is that?
Because if you fall that you gotyour, all your eggs in one
basket and you fall, you'vebroken all, all your eggs.
You've got, you got nothingleft.
So if you put your eggs indifferent baskets and you know,
(12:33):
two or three fall, you still gotother eggs.
Yep.
Okay.
Okay.
The versification is a tool ofinvesting in different types of
companies, different types ofassets at different durations.
So that if something happensthat impacts one part of your
portfolio, it doesn't wipe outall of your portfolio.
(12:57):
Okay.
And so when we talk aboutdiversification, we're really
talking about the versificationof the risk.
You don't want to minimize risk,right?
So you don't want all the assetsto have the same kind of risk.
Now, there, there, there aresome folks that invest out there
say, yes, I believe in thiscompany or this industry, and
(13:18):
I'm going all in.
And you know, when they'reright, they can, you know, they
can reap a lot of reward, butwhen they're wrong, they're
going to be wrong.
And so again, you're going tohave to get a handle on what's
the right diversification forme.
(13:39):
Um, and, and depending on howmuch you're going to know and
study that, that company or thatindustry, or that asset, how
much risk you're willing totake, how much diversification
you need around that.
Speaker 1 (13:52):
All right.
That's our show.
Our second part in our investingseries, be sure to join us
again.
Next time when we round out theseries with the third part, and
if you have any questions for usat all, you can email
us@efespodcastatgmail.com andfollow our Instagram at EFCs
podcast.
Thank you so much for listening.
Take care, everyone.
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