8 Punchy Points From Learn to Earn

1. Save whatever amount you can afford, on a regular basis.
2. Debt is saving in reverse. The more it builds up, the worse off you are.
3. Short-term investments have one big disadvantage. They pay you a low rate of interest that may not keep up with inflation.
4. Antique cars are investments, if they are kept in a garage and rarely driven, but new cars subjected to everyday use lose their value faster, even, than money does.
5. When you buy a bond, you know in advance exactly how much you’ll be getting in interest payments, and you won’t lie awake nights worrying where the stock price is headed.
6. Hundreds of successful companies have a habit of raising their dividends year after year. This is a bonus for owning stocks that makes them all the more valuable. They never raise the interest rate on a bond!
7. It’s not always brainpower that separates good investors from bad; often, it’s discipline.
8. If you ever begin to doubt that owning stocks is a smart thing to do, take another look at Warren Buffett’s record.

Go Deeper In Learn to Earn

Learn to Earn By Peter Lynch -Book Summary

The Basics of Investing

Invest Now: What Are You Waiting For?

Don’t wait until you’re in thirties, forties, and fifties to start saving money. By the time they realize they ought to be investing, they’ve lost valuable years when stocks could have been working in their favor. Their money could have been piling up.

Instead, they spend what they have as if there’s no tomorrow. Many of their expenses are unavoidable. They’ve got children to support, doctor bills, tuition bills, insurance bills, home repair bills, you name it. If there’s nothing left over, there’s not much they can do about it. But often enough, there is something left over, and still they don’t invest it. They use it to pay the tab at fancy restaurants, or to make the down payment on the most expensive car in the showroom.

Before they know it, they’re heading off into the sunset with nothing but a social security check in their pockets.

This fate can be avoided by saving early when one has no responsibilities, and living home /freeloading with parents/guardians.

The more you salt away now, while you’re on the parental dole, the better off you’ll be when you move away and your expenses shoot up.

Save whatever amount you can afford, on a regular basis.

Many young people become slaves to the car payments. It looks cools to own a flashy car but that kind of cool is very costly in the long run.

Putting Your Money to Work

Money is a great friend, once you send it off to work. It puts extra cash in your pocket without your having to lift a finger.

Warren Buffett, one of the richest people on earth got there by saving money and later putting it into stocks. He started out the way a lot of kids do, delivering newspapers. He held on to every dollar he could, and at an early age he understood the future value of money. Think long term.

The A-plus situation is when you’re saving and investing a portion of your paycheck. The C minus situation is when you’re spending the whole thing. The F situation is where you’re ringing up charges on your credit cards and runningup a tab. When that happens you’re paying interest to somebody else, usually acredit-card company. Instead of your money making money, the company’smoney is making money on you.

It’s OK to pay interest on a house or an apartment, which will increase in value, but not on cars, appliances, clothes, or TV sets, which are worth less and less as you use them.

Debt is saving in reverse. The more it builds up, the worse off you are.

Table of Contents

• The Basics of Investing
• Putting Your Money to Work
• The Pros and Cons of the Five Basic Investments
• Invest for the Long Term
• Mutual Funds
• Picking Your Own Stocks
• Who’s Rich and How They Got That Way

The Pros and Cons of the Five Basic Investments

There are five basic ways to invest money as give in the Learn To Earn;

1. Savings Accounts, Money-Market Funds, Treasury Bills, and Certificates of

Deposit (CDs)

All of the above are known as short-term investments. They pay you interest. You get your money back in a relatively short time. In savings accounts, Treasury bills, and CDs, your money is insured against losses, so you’re guaranteed to get it back.

(Money markets lack the guarantee, but the chances of losing money in a money market are remote.)

Short-term investments have one big disadvantage. They pay you a low rate of interest that may not keep up with inflation.

Inflation is a fancy way of saying that prices of things are going up.

The first goal of saving and investing is to keep ahead of inflation.

Savings accounts are great places to park money so you can get at it quickly, whenever you need to pay bills. They are great places to store cash until you’ve got a big enough pile to invest elsewhere. But over long periods of time, they won’t do you much good.

2. Collectibles

Collectibles can be anything from antique cars to stamps, old coins, baseball cards, or Barbie dolls. When you invest your money in such things, you are hoping to sell them at a profit in the future.

There are two reasons this might happen: The things become more desirable as they get older, and people are willing to pay higher prices for them; and inflation robs cash of its buying power, which raises prices across the board.

The trouble with investing in things is they can get lost, stolen, warped, stained, ripped, or damaged by fire, water, wind, or in the case of antique furniture, termites.

There is insurance for some of this, but insurance is expensive.

Learn to Earn, lesson one for all potential collectors, particularly young collectors, is that buying a new car is not an investment.

See also 26 must read financial books

Antique cars are investments, if they are kept in a garage and rarely driven, but new cars subjected to everyday use lose their value faster, even, than money does.

Nothing will eat up your bankroll faster than a car will—unless it’s a boat.

3. Houses or Apartments

Buying a house or an apartment is the most profitable purchase most people ever make. A house has two big advantages over other types of investments. You can live in it while you wait for the price to go up, and you buy it on borrowed money.

A person who won’t save money to buy an apartment or a house isn’t likely to save money to invest in stocks. It’s routine for families to make sacrifices so they can afford to own a house eventually.

4. Bonds

A bond is a glorified IOU. It’s a record of the fact that you’ve loaned your money to somebody else. It shows the amount of the loan and the deadline for paying it back.

When you purchase bonds you’re simply making a loan.

The longer it takes for bonds to pay off, the greater the risk that inflation will eat up the value of your money before you get it back. That’s why bonds pay a higher rate of interest than the short-term alternatives, such as CDs, savings accounts, or the money market.

All else being equal, a thirty-year bond pays more interest than a ten-year bond, which in turn pays more interest than a five-year bond, and so on.

When you buy a bond, you know in advance exactly how much you’ll be getting in interest payments, and you won’t lie awake nights worrying where the stock price is headed.

There are three ways you can get hurt by a bond.

The first danger occurs if you sell the bond before the due date, when the issuer of the bond must repay you in full. By selling early, you take your chances in the bond market, where the prices of bonds go up and down daily, the same as stocks.

The second danger occurs when the issuer of the bond goes bankrupt and can’t pay you back , government, for example, will never go bankrupt—it can print more money whenever it wants.

The biggest risk in owning a bond is risk number three: inflation. We’ve already seen how inflation can wreck an investment. With stocks, over the very long term, you can keep up with inflation and make a decent profit to boot. With bonds, you can’t.

5. Stocks

Stocks are likely to be the best investment you’ll ever make, outside of a house.

When you buy a bond, you’re only making a loan, but when you invest in a stock, you’re buying a piece of a company.

If the company prospers, you share in the prosperity. If it pays a dividend, you’ll receive it.

Hundreds of successful companies have a habit of raising their dividends year after year. This is a bonus for owning stocks that makes them all the more valuable. They never raise the interest rate on a bond!

When people consistently lose money in stocks, it’s not the fault of the stocks. Stocks in general go up in value over time. In ninety-nine cases out of one hundred where investors are chronic losers, it’s because they don’t have a plan. They buy at a high price, then they get impatient or they panic, and they sell at a lower price during one of those inevitable periods when stocks are taking a dive.

Invest for the Long Term

You don’t have to be a math whiz to be a successful investor in stocks. If you can read and do fifth-grade arithmetic, you have the basic skills. The next thing you need is a plan.

The stock market is one place where being young gives you a big advantage over the old folks.

The earlier you start investing, the better. In fact, a small amount of money invested early is worth more in the long run than a larger amount invested later.

If you’ve decided to invest in stocks above all else, avoiding bonds, you’ve eliminated a major source of confusion, plus you’ve made the intelligent choice. When we say this, we’re assuming you are a long-term investor who is determined to stick with stocks no matter what.

People who need to pull their money out in one year, two years, or five years shouldn’t invest in stocks in the first place.

Twenty years or longer is the right time frame. That’s long enough for stocks to rebound from the nastiest corrections on record, and it’s long enough for the profits to pile up.

It’s not always brainpower that separates good investors from bad; often, it’s discipline.

Stick with your stocks no matter what, ignore all the “smart advice” that tells you to do otherwise.

People are always looking around for the secret formula for winning on Wall Street, when all along, it’s staring them in the face: Buy shares in solid companies with earning power and don’t let go of them without a good reason. The stock price going down is not a good reason.

Don’t try to time the market. Nobody can outsmart the market.

People also think it’s dangerous to be invested in stocks during crashes and corrections, but it’s only dangerous if they sell.

Mutual Funds

In a mutual fund, your only job is to send money, which gives you a certain number of shares in the fund. Your money is lumped together with a lot of other people’s money. The whole pile is handed over to the expert who manages the fund.

You’re counting on fund manager to figure out which stocks to buy and when to buy them and sell them.

As soon as you sign up with a fund, you automatically become an owner of the dozens, even hundreds of companies the fund has already bought.

Whether you invest fifty dollars or $50 million, you still own a piece of all the stocks in the fund.

A typical fund allows you to get started with as little as fifty or one hundred dollars, with the chance to buy more shares whenever extra cash comes into your possession. How much and how often you contribute is up to you. You can take the guesswork out of it by investing the same amount every month, three months, or six months. The interval isn’t important, as long as you keep up the routine.

Many funds pay a cash bonus in the form of a dividend. It comes your way on a regular basis—four times a year, twice a year, or even twelve times a year. You can spend this money however you want—on movie tickets. Or you can do yourself a bigger favor by using the dividend to buy more shares. This is called the “reinvestment option,” and once you’ve chosen it, your dividends are reinvested automatically.

The more shares you own, the more you stand to gain from the future success of the fund, which is why your money will grow faster if you throw the dividends into the pot.

The best fund manager can’t protect you in a crash whether you do the investing or a professional does it, there’s no such thing as a crash-proof portfolio.

Picking Your Own Stocks

Not all your stocks will go up—no stock picker in history has ever had a 100 percent success rate. Warren Buffett has made mistakes, and Peter Lynch could fill several notebooks with the stories of his. But a few big winners a decade is all you need. If you own ten stocks, and three of them are big winners, they will more than make up for the one or two losers and the six or seven stocks that have done just OK.

It’s dangerous to put money into stocks before you figure out how to pick them, you should put yourself through some practice drills before you risk cash.

When investors talk about “growth,” they’re not talking about size. They’re talking about profitability, that is, earnings.

This is the starting point for the successful stockpicker: Find companies that can grow their earnings over many years to come.

It’s not by accident that stocks in general rise in price an average of about 8 percent a year over the long term.

That occurs because companies in general increase their earnings at 8 percent a year, on average, plus they pay 3 percent as a dividend.

A dividend is a company’s way of paying you to own the stock.

Who’s Rich and How They Got That Way

Warren Buffett follows a simple strategy: no tricks, no gimmicks, no playing the market, just buying shares in good companies and holding on to them until it gets very boring. The results are far from boring: $10,000 invested with Buffett when he began his career forty years ago would be worth $80 million today.

If you ever begin to doubt that owning stocks is a smart thing to do, take another look at Warren Buffett’s record.

F. Scott Fitzgerald once wrote, the rich “are different from you and me,” but you couldn’t prove it by the Forbes list. It turns out there are all kinds of rich people: short, fat, tall, skinny, good-looking, homely, high IQ, not-so-high IQ, big spenders, penny-pinchers, tight-fisted, and generous. It’s amazing how many people keep up their frugal old habits after they’ve made it big.

Sam Walton, the Wal-Mart billionaire, could have bought a fleet of limousines out of his pocket change, but instead, he continued to drive around in a beat-up Chevy. He stayed with his wife in his two-bedroom house in their hometown of Bentonville,Arkansas.

Warren Buffett still lives in a house he bought 50 years ago. Multibillionaire, Gordon Earle Moore, a founder of Fairchild Semiconductor and a cofounder of Intel, arrives at the office in his old pickup every day.

If you enjoyed Peter Lynch Learn To Earn, see Peter Lynch Beating The Street.

Learn to Earn: A Beginner’s Guide to the Basics of Investing and Business By Peter Lynch and John Rothchild was published by Simon & Schuster (January 25, 1996). The book contain 272 pages.

Learn to Earn by reading more books on personal finance.