Online Class: Investing 101 — Stocks, Bonds, and Mutual Funds

Investing or "being in the stock market" does not guarantee that you will make money. In fact, if you remember the famous "tech boom" that took place in 2000 and 2001, you may recall that many investors lost a lot of money because of that market which grew incredibly and then collapsed. What you'll learn in this course will help you avoid the mistakes that many investors made then.

When the economy is good everyone makes money. During the tech boom of 2000 and 2001, the market was flooded with "newbie" investors who dumped all of their money into stocks without any real research or knowledge (based mostly on tips they heard from their brother's neighbor's friend's cousin!). Because of the number of people in the stock market, prices naturally rose and it seemed like EVERYBODY made money without even trying. However, when stock prices got a little shaky, many of those inexperienced investors then pulled out and without realizing it became the cause of their own downfall!

What they needed was a basic instructional guide --which is what you'll have through taking this course. While you may not make a fortune by investing with what you learn from this guide (although you might!), you will learn how to make smart investment choices that are based on a solid foundation of knowledge (not rumor) and you will be able to weather the storms that will come. Once you've learned the important investing details, you can then build on this knowledge with specialized courses to become even more successful.

A Short Introduction to the Economy

Although you and I might dub an economy either good or bad, in general, economists have found that the economy moves in 4 phases. We'll look at the 4 phases:  growth, peak, contraction and trough, but understand that the description here is a generalized description and so many other factors are involved.

The "growth phase" is a phase where buyers are clamoring for goods, which requires those goods to be made, which requires manufacturers to build more (and hire more people to build those goods). Those newly hired people now have more money to buy more goods--feeding the cycle. It is a very good phase - everyone's favorite part of the economic cycle - and the reason why everyone was making money during the tech boom. Newspaper headlines most often read "Help Wanted."

At some point, though, inventories catch up to demand and people are buying goods as fast as they can be produced. Money is good. Everyone is happy. This is called the "peak phase".  Newspaper headlines most often read "It Will Never End!!!"

Then, because inventories have caught up to demand, prices drop a little (because the product is no longer hard to get). Manufacturers don't need to employ people to work double overtime to catch up with orders, so hours are cut back. Since hours are cut back, people have less to spend. Anticipating a shortage of money, they save more than they normally do by curbing their spending. This is the "contraction phase". When other factors are present it is sometimes called a recession and has even been the start of the Great Depression in 1929. But in general, all economies go through contractions normally. Times are tight but they should not be confused with recessions or depressions. Newspaper headlines most often read "Unemployment Grows."

The fourth phase is the "trough phase". Demand for goods is at its lowest so manufacturers are closing their doors and laying people off. So no one has money to spend on extra items. Instead they save their money for things they desperately need. Newspaper headlines most often read "Will It Ever End???"

Economists expect the economy to go through all four stages. This is normal and healthy. At first we might wonder why we would want to go through a contraction and a trough. They are not always pleasant (although they're not that bad as long as they don't get to the recession stage). But we do need them. Why? Because of inflation.

Ultimately, we need a contraction to help the economy rest a little. Just like our bodies can't operate at full capacity 24 hours a day. To help avoid financial ruin for many people, government bodies like the Federal Reserve in the USA (and similar organizations in most other countries) make adjustments to the amount of money in the economy and to the interest rates in order to help manage these 4 stages. Peaks that don't get too high and troughs that don't get too low. You may have heard of the term "soft landing" which is what economic decision makers try to do when they know a contraction is expected. Like an airplane, they make decisions to help bring the economy in for a soft landing so that it can be ready to take off again shortly.

But here's something that most people don't know:  an economy is only as healthy as the amount of money that is flowing. During the growth and peak phase, there is a lot of money flowing: just about everyone has a job and they're spending like crazy. During the contraction phase, people are concerned about their job security and they begin saving money in case they get laid off or because they think their wages might be cut. Because so many people do this, money is taken out of the economy and stored away (in a savings account or under a mattress). Although it sounds counter-intuitive, one way to improve a falling economy is to spend more money. In order to get it out from under the mattress and into the economy!

Disclaimer

In this class, we're going to look at specific types of investments to help you understand (and hopefully profit) from them. But you need to understand a few things first: