 Personal finance practice problem using OneNote. Even investments, stock portfolio calculation. Prepare to get financially fit by practicing personal finance. You're not required to, but if you have access to OneNote, would like to follow along. We're in the icon left-hand side, practice problems tab and the 12-1-1-2 even investment stock portfolio calculation tab. Also, take a look at the immersive reader tool, the practice problems, typically in the text area too, with the same name, same number, but with transcripts. Transcripts can be translated into multiple languages and either listened to or read in them. We're thinking about investments in stocks here. Stocks representing and ownership interest in a corporation. Corporations being separate legal entities that have their ownership interest broken out into standardized units of shares or stocks. We're also usually talking about publicly traded companies, those which are traded on exchanges, making them more transparent and accessible to individuals, giving us access to things like the financial statements to do analysis. Also, remember that you wanna keep your strategies distinct if you're investing in individual stocks, to investing using tools such as mutual funds and ETS. The concepts we're using here may apply to both as we're thinking about basically how often we should be putting money into, say, our investment strategy. So in other words, if we were to be investing in individual stocks or say a mutual fund, say for retirement, for example, we might ask ourselves, well, how often should I be putting money into the investment and what is the timeframe on which I should be putting money into the investment? Now, as we think about this, we have to think, well, I wanna apply my standard strategy, which is gonna be that I wanna buy low sell high, so I wanna buy at the dips, at the low points, so that I can then sell at the high points and generate revenue, of course. But when you're thinking about the long-term strategy, remember that we're hoping in the long-term, we're gonna have more of a straight line that's gonna be an increase in the long-term timeframe. It might look something like this. If we zoomed in on the shorter term, then you're gonna have a lot more jagged stuff going on such as this. And obviously we would like to be purchasing at the dips and then if we were to sell in the short-term, sell at the highs, but we're gonna be waiting long-term in any case. So even though we're waiting long-term, in other words, we would still like to be buying at basically the low point to kind of maximize our investments. But we can't really read the market all the time and the question would be, well, what's the best strategy for the average investor? One strategy most or many investors will take is to say, hey, look, I'm just going to be investing periodically, possibly from paycheck to paycheck, which of course might be weekly, semi-monthly or monthly or bi-weekly, for example. And then I'll probably hit some of the points where I'm in the middle or at the bottom or at the peak, but because I'm investing at a fixed timeframe, hopefully I'll hit, I'll even out and I'll be on the curve for that long-run curve. Now that's the easiest strategy for most people because it allows them to basically invest in such a way that fits into their budget as well and they're also not agonizing over when they're going to invest in stocks. Oftentimes, if you try to pick and choose the peaks and troughs, people get stuck in these areas where they're over-analyzed the market, they're going to panic themselves sometimes and you end up, just because of the fear factor involved, you end up doing the opposite of what you're supposed to do, buying at the top and then selling at the low because that's when the most panic is involved in the market. So you might try a strategy of picking intervals and just such as your paycheck interval and investing on that time horizon. Let's see what that would do, for example, if we analyze our portfolio. So let's say that we've got the investment in company stock per year. So we're going to say it's an investment per year. You could do the same thing with smaller periods. So like a bi-weekly, so the ideas we're going to be putting this fixed amount 7,000 in and the amount that we're going to be putting in is fixed but the number of shares that we're buying in a stock in this case, but you can also be buying in mutual fund shares, for example, or ETS will vary even though the amount of money we're putting in is fixed because the price will change as of the timeframe that we buy them. So we're going to say here that in X4, we had 86 was the price for the shares that we're purchasing, that we're investing and again, you might think of this as an investment and like a 401k plan or something like that buying shares in essence of a mutual fund because remember, if you're part of a 401k plan then your actual underlying investments are typically no different than you might be investing if you were outside of the mutual fund such as outside of the IRA or 401k plan, I mean which would be that you're investing in stocks or typically mutual funds oftentimes. The fact that you're under the umbrella of a 401k is a tax thing which is gonna have an impact on your gains and whether or not you can sell it when you're gonna be calculating your gains and the only reason you put them under that umbrella is not really because the actual investments are different than what you could have outside of them but because they're actually restricting your investments so that they give you a tax benefit in order to tell you not to take your money out till retirement. So in any case, so now we've got 86 in year one, 74 in the next year and then 57, so it's actually going down, right? And then it goes back up to 77 per share. So we're gonna say, all right, well that means that if the investment per year was 7,000 and we had four years of investment then we're gonna have a total investment over that four year timeframe and again you could think of it as a weekly timeframe. You can change the timeframe, same concept. We would have 28,000 over the four year timeframe. So that would be fixed investment dollar amount but if we think about the amount that we're gonna invest each timeframe, it's gonna be 7,000 is what we're gonna invest each year but then the prices are changing 86, 74, 57 and 77. So what does that mean to the number of shares that we're actually purchasing? Well, we've got the 7,000 upfront divided by 86. So in the first year we bought 81,40. We bought it kind of at the peak here. We bought it at a high point but then it went down. So the price went down and by the next time period and the stocks were only selling for or the mutual fund or the ETF was selling for 74. So now that usually would be a buying time. We'd say, okay, well now we're gonna buy at that point typically but we're not thinking like that. We're just putting the same amount in each timeframe as it passes divided by 74. That means we're buying more shares because we bought with the same dollar amount but now the price has gone down. So therefore we bought more shares and then the next time frame it went down again. So we're not gonna panic. So notice if you were trying to pick the peaks and troughs here, you would probably be thinking psychologically like, wow, I was up here, I'm totally losing money and now I'm down here and what am I gonna buy again at this point in time? It looks like I'm going into recession at this point and then you'd probably maybe not buy at that low period which, because you never know when the bottom hits. You never know when you're gonna hit that and obviously you're gonna be panicked at that point in time because you've been losing money. That's what happens. That's the psychological effect. So if you're too involved as a non-professional investor if you're driven by emotions, you're probably gonna be at the wrong end of the spectrum a lot of the time and you might end up actually selling the stocks at that point in time. But if you're thinking, okay, I'm on the long-term horizon and if you really think that of course that you're in a recession and you should get out at this point, there could be times when you can make a call like that but I'm just saying oftentimes in a normal rise and falls over the market, if your time horizon is like 15 to 30 years or something like that, then sometimes the strategy would just simply be to to keep going with the strategy to keep investing because now you're buying at the bottom. So we'd be at the 7,000 divided by 57 and so now you're buying at 122 shares about and then if the price goes back up to 77 then in the next year then you're still spending the same 7,000 so that hasn't changed divided by 77 and you get 90. So you can see what the idea here is that the amount's gonna be the same but the amount of stocks that you're buying is gonna differ and if you set a strategy like this it'd be kind of like an automatic strategy where you put the investment and you just buy it whatever the price is at that point in time hopefully you're buying something that has diversification possibly like a mutual fund or ETF or something that's balanced or something like that. So we got the 389.71 is basically the number of shares. So if we took then the total investment of the 28,000 over the four years, 7,000 times four divided by the 389 and obviously it's rounded here then we would have the 71. So we bought them on average for the 71 or 72 dollars here. So that's good, that's just a general idea of how you kind of conceptualize your investment strategy, one common investment strategy and that you're putting a fixed dollar amount in on a periodic basis and the shares that you're buying which could be individual stocks but if you're just buying one thing it's more likely gonna be a balanced mutual fund or ETF or something like that. The number that you're gonna be buying is of course gonna change depending on the price at the point in time that you buy it.