Simple wealth hacks to get you started
Much of my work, including the study of the stock markets, is based on Harrison’s Applied Game Theory (HAGT), a system for making wise decisions in group interactions. It might be helpful before we explore investing and wealth creation in greater detail if we begin with a short introduction to the basics of HAGT. Below is an article (a 6-minute read) as well as a more in-depth video embedded in the article. Both were created so they would be understood by a 12-year-old.
The Best Introduction to Game Theory, Simple and Easy to Understand — Written for a 12-Year-Old
Q. Lewis, what is the meaning of game theory?
Always remember as you study investing that one of the first things you need to do if you are going to be an educated stock investor, or for that matter, any kind of investor is to see yourself as an investment portfolio. You have value, and you personally have economic value, and what that value is will rise and fall daily based on many different variables.
Let’s begin at the very beginning with the stock market.
The Stock Market is both a physical facility and a discrete entity) of stocks (also called shares); these may include securities listed on a stock exchange as well as those only traded privately.
People buy stocks and attempt to strategize so that whatever stock purchases (investments) they make return a healthy profit.
Two of the most popular approaches to stock investing are hedge funds and index funds.
· A hedge fund is an investment fund that pools capital from accredited individuals or institutional investors and invests in a variety of assets, often with complex portfolio-construction and risk-management techniques. It is administered by a professional investment management firm, and often structured as a limited partnership, limited liability, company, or similar vehicle. Hedge funds are generally distinct from mutual funds, as their use of leverage is not capped by regulators, and distinct from private equity funds, as the majority of hedge funds invest in relatively liquid assets.
· An index fund (also index tracker) is a mutual fund or exchange-traded fund (ETF) designed to follow certain preset rules so that the fund can track a specified basket of underlying investments. Those rules may include tracking prominent indexes like the S&P 500 or the Dow Jones Industrial Average, or implementation rules, such as tax-management, tracking error minimization, large block trading, or patient/flexible trading strategies that allows for greater tracking error, but lower market impact costs. Index funds may also have rules that screen for social and sustainable criteria.
An index fund’s rules of construction clearly identify the type of companies suitable for the fund. The most commonly known index fund, the S&P 500 Index Fund, is based on the rules established by S&P 500 or the Dow Jones Indices for their S&P 500 Index. Equity index funds would include groups of stocks with similar characteristics such as the size, value, profitability, and/or the geographic location of the companies. A group of stocks may include companies from the United States, Non-US Developed emerging markets or frontier market countries.
Additional index funds within these geographic markets may include indexes of companies that include rules based on company characteristics or factors, such as companies that are small, mid-sized, large, small value, large value, small growth, large growth, the level of gross profitability or investment capital, real estate, or indexes based on commodities and fixed-income.
Companies are purchased and held within the index fund when they meet the specific index rules or parameters and are sold when they move outside of those rules or parameters. Think of an index fund as an investment utilizing rules-based investing. Some index providers announce changes of the companies in their index before the change date and other index providers do not make such announcements.
If you are a beginning investor with stocks index funds are the way to go.
The main advantage of index funds for investors is they don’t require a lot of time to manage as the investors don’t have to spend time analyzing various stocks or stock portfolios. Many investors also find it difficult to beat the performance of the S&P 500 Index due to their lack of experience/skill in investing.
Author: Lewis Harrison is an Independent Scholar with a passion for knowledge, personal development, self-improvement, and problem-solving. He is the creator of Harrison’s Applied Game Theory. His website is AskLewis.com
You can read all of his Medium stories at Lewis.firstname.lastname@example.org.
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