How Does The Fed Raise Interest Rates?

If you’ve been watching financial media lately, there has been plenty of discussion regarding the Federal Reserve raising interest rates.

So…how exactly does the Fed do that, and what effect can it have on the stock market?

For starters: the Fed doesn’t actually increase the interest rates directly.

The Fed has something called a discount window.  The discount window is where banks, such as Chase and Bank of America, go to borrow money in order to maintain their reserve requirements.  The reserve requirement is the amount of funds a bank must have on hand at all times.

So what happens is that the Fed will increase the discount rate they charge banks.  The banks then take the increase and pass it on to us, the consumers, by raising their rates.  That, in essence, is how the Federal Reserve increases interest rates.

A rate increase can cause sell-off in the stock market as investors, attracted by higher rates on bonds, certificates of deposit (CDs) and savings accounts, move their money into these “safer” places to avoid risk.

As I stated in yesterday’s post and in my book, events like this don’t matter when you’re investing for the long-term.  Hold, hold, hold.

 

Buy One Share For Christmas!

I spend a good deal of my time around people that have children that are under the age of five.  The other day, I overheard a coworker talking to another coworker about a gift a family member wanted to buy.  It was a toy Ferrari car.

As I parent, I understand the feeling we have when we buy our child a gift that makes them happy!  Believe me, I get it.

But if a family member or friend asks, “What should I buy your child for Christmas?”  Ask for cash to invest in stocks.  I beg you.

The toys we buy our children bring short-term happiness.  When we are 20 or 30 years old, the gift that we had to have as a youngster will be less than insignificant.  However, a $100 investment made when the child is a year old could be worth tens of thousands – even six figures! – when the kid is 20.

Trust me the potential of having $100,000 at 20 will trump any gift you received the last 20 years!

No idea where to start?  My short guide, The Stock Market is For Everyone, will get you started with everything you need to know.

 

Wealthy Joe Investment Returns 81%!

As I’ve mentioned here before, we decided to take the sales from my book, The Stock Market is For Everyone, and buy shares in businesses we believe in.

Though our sales have been slow, we have stuck with this strategy.

Since last October when the book came out, we’ve generated $96 after fees.  The equity balance as of this past Friday is $174.81.  That’s a return of 81% –  not bad!

We will continue to invest and share the results with our readers every quarter.

The stock market works!

The Stock Market is for Me: AnneMarie’s First Year

I wrote my book, The Stock Market is for Everyone, and started this blog to educate, inspire and inform the average Joes and Janes out there who know nothing about investing or the stock market.  

It has been nearly a year, and I’m happy to know that several of you have taken my suggestions and are now invested!  I’d like to feature your stories in future posts so that together we can inspire even more people to begin their journey to financial freedom.

AnneMarie is a beginning investor who shared her story here last year.  She’s back today to talk about what her first year as a stock market investor has been like:

ANNEMARIE’S STORY, A YEAR LATER

Hi, everyone!

I’m pleased to be returning to the Wealthy Joe Investing blog to talk about how my investing is going.

When I left you last fall, I had been investing for a couple of months using the Robinhood app.  I held stock in two companies and my portfolio at the time was worth a few hundred dollars.

Today, in addition to my Robinhood account, I have a Roth IRA through TD Ameritrade.  Between the accounts, I hold stock in eight companies.  Both my accounts have made money since I opened them, and the value of my entire portfolio is a little over two months of the net salary I make at my 9 to 5 job.

I fund my accounts via a percentage of my biweekly paycheck (usually around 10 percent), through side work, and using the Dollar-a-Day method.  I didn’t experience some windfall that caused me to have money to invest; my freed-up funds largely came about through habit changes like preparing my own meals instead of ordering takeout.  This was all money I would have had anyway.  I simply made the choice to use it to invest in my future financial freedom instead of engaging in meaningless consumption.

I LOVE investing.  And it’s not because of the returns.  Yes, the stock market rises over time, and it’s definitely the best place to be putting away money for my future.  But that’s not why I love investing.

I love investing because when I buy stock, I become a part owner of a company.  As a shareholder of eight companies,  it’s in my interest to follow them, to read about what they’re doing, to be able to explain to others why I’ve invested in them.  That is the absolute most exciting part of investing for me.

Two of the companies I own shares in are Myovant Sciences (NYSE: MYOV) and Roku (NASDAQ: ROKU).  Myovant is a biopharmaceutical company that is testing an investigational treatment for uterine fibroids, endometriosis  and prostate cancer.  Roku is the leader in TV streaming devices.  I am excited about what both businesses are doing and about the growth potential of each.

As a result of becoming invested, I’m learning things I never knew about before, and never thought I’d be interested in.  As a shareholder, I feel as though I am a direct participant in growth and innovation that is transforming our world.

Investing in the stock market is good for me financially, intellectually, and psychologically.  It’s hands down the best decision I have ever made, and I hope that those of you who haven’t started yet do so.  The time is now!