If You Had $500 To Invest…
The M&M Method
I recently started doing more and more live Facebook and Instagram calls with people in the financial industry because so many people lack personal finance knowledge.
You can watch the video below, but I am going to explain to you what a mutual fund is and why it’s important.
I could easily have just Googled “what is a mutual fund?” then just pasted it here. I’m not going to do that.
I’ll explain to you how my financial advisor explained it to me when I was 12 years old. My dad made me give him my grass cutting money to “invest” — whatever that meant.
Picture a bowl with a bunch of M&M’s inside it. You have green, blue, red, and yellow ones inside this big bowl sitting on your kitchen table.
Let’s say the green ones are tech stocks, like DocuSign, Zoom, Square, Mastercard, AMD, NVIDIA, etc.
Blue ones are Energy stocks, like Chevron, BP, Halliburton, Chesapeake Energy.
Red is Retail stocks such as Pelatron, Groupon, Home Depot, GM, Starbucks, and others.
Orange is Industrials like JetBlue, Delta, Southwest, 3M, Hertz, and others.
Yellow are the Finance ones, like your JPMorgan’s, American Express, MetLife, Goldman Sachs, and more.
And there is a HUGE mix of M&M’s inside this bowl, right.
Well, that bowl serves as your mutual fund. Inside the bowl (your mutual fund) you have a mix of a TON of different colors that represent basically a company within each sector (the colors) and each different M&M of the same color is a different company.
If one of those M&M’s — let’s say a random orange one is American Airlines. Well as I am writing this in 2020, American Airlines stock prices plummeted due to COVID.
Let’s say in the same bowl, you have a random green one and that is Zoom. Well during 2020 and coronavirus time, Zoom skyrocketed their earnings and reports, because more people worked from home.
Since Zoom skyrocketed and American Airlines plummeted, you get more of an average in terms of return on your investment. The thing to note is that you have a TON of other M&M’s (companies) in your bowl (mutual fund).
So, if one or a few companies do poorly during a quarter, a year, a decade, it doesn’t mean your fund is doing horrible either. This is called “diversifying” and not “putting all your eggs in one basket.”
If you want to see a live video explanation check out below:
I plan to write short and quick articles around things like this. If you’re interested in more content please join my private Facebook Group and if you want to follow my home buying journey or buy your own home, schedule a call with me on my website.
