Before I started getting serious about my finances, I thought the term “diversify your portfolio” was just some term a lot of fancy nerds used to sound smart to their buddies. I didn’t know shit about money, but along the way I found that most financial terms are actually really fuckin’ simple concepts.
Fast forward a couple years, a few deployments, and a whole lot of financial dumbassery later, and I finally figured out that investing isn’t actually complicated and doesn’t require magic — it’s just making your money work for you instead of against you. So here’s a crash course, Barney-style, in some of the key investing terms that can help you build wealth.
Asset
An asset is shit you own that holds economic value. Most of the time, it increases in value over time. This includes shit like stocks, bonds, real estate, gold bars and other precious metals, some collectibles, some precious art etc.
Assets are things you own that build wealth.
Liability
This is shit you have that loses value. It’s a financial obligation, and costs money over time. This is basically everything that’s not an asset. All your clothes, electronics, fuckin tupperware, IKEA furniture. That’s all a liability. It loses value or costs you money.
One big item that is generally considered a liability is vehicles. Now a VERY small number of vehicles are considered collectibles and grow in value to a point that offsets maintenance and upkeep costs. There’s like a 99.9% chance that your car doesn’t fit this bill.
I repeat, your fuckin’ car is a liability. We have a separate post about cars and how they fuckin destroy your finances. Feel free to check it out.
Liabilities are things you own that do not help you build wealth.
Stock
So, what the fuck is a stock exactly?
Simply put, a share of stock is a small piece of a company that you can purchase. If you buy a share of stock, that makes you a part owner of that company, also known as a shareholder. If the company does well, and grows, your share of stock increases in value. If the company does shitty, your share of stock will decrease in value. If the stock price goes up, you can now sell the share you own for more than you bought it for, and you just made money! If the stock goes down and you decide to sell it, unfortunately you have to sell it for less than you bought it for, which sucks ass because now you just lost money.
Bond
In the same vein, what the fuck is a bond?
A little different than a stock, a bond is issued by governments, corporations, and municipalities. They are issued at a set price, with a periodic interest payment that is of a set rate. Since they are predictable, they are less risky than a stock, however the upside is quite a bit shittier than the potential of stocks. You can expect to make much less money from these mediocre performing yet stable securities.
When the economy shits and markets tank, typically bond markets will save you (at least in part) from taking massively shitty losses, which is why it’s important to keep at least a part of your portfolio in bonds. A lot of people keep around 20% of their portfolio in bonds or bond ETFs.
ETFs (Exchange-Traded Funds)
Exchange Traded Funds, or ETFs, are basically just like a stock, traded like a stock, but made up of a whole bunch of other stocks (or a bunch of bonds, or a bunch of other securities). This offers built in diversity (more on that below).
Instead of buying one, big horse to pull your sleigh, you buy a team of dogs to pull your sleigh instead. Because if you buy one horse, and it gets sick as fuck and keels over, you aren’t going very far. If you have a team of dogs, however, a few of the dogs can pull the sleigh along even if one dog freezes and another dog is taking a shit. This is basically ETFs.
Some examples of ETFs include VOO (tracks the S&P 500, which is made up of small pieces of 500 of the leading companies on the US stock exchange), or BND (which is made up of pieces of lots of investment grade bonds).
A lot of people invest heavily in ETFs, if not completely. ETFs are great because you can trade them throughout the day like a stock, and they provide a lot of risk protection through diversification.
Index Fund
Simply put, Index funds are pretty much the same idea as an ETF, except they are priced once at the end of the trading day. There are a couple other differences, but hey, this is the Barney Style edition.
They provide built in diversification and that generally helps you make more money and lose less.
Portfolio
Your portfolio is all the assets you own. This one’s pretty simple not much to say here.
Diversify Your Portfolio / Diversification
Translation: Don’t put all your eggs in one basket.
If you put all your cash into one stock because “it’s trending on Reddit” or because your buddy said it’s “guaranteed to moon,” congratulations — you just learned the fastest way to cry in the corner while your money disappears.
If you ask a hundred people what will happen to a stock or any asset in any market, or when their prediction will happen, you will get a hundred different answers. The hard truth is, nobody fuckin’ actually knows. And I mean nobody. Not your buddy. Not the ‘experts’ on TV. Literally no one. And that’s an important thing to always remember.
A few years back, there was a company called Enron. If you look at a chart of their stock price history, everything looked great, and the value of their stock steadily rose over time. It was a promising company. But behind the scenes, the head office was doing all types of sketchy shit and lying to the world about their finances. All of a sudden, when the truth came out, the stock price took a fucking nosedive and exploded on the ground in a million pieces, landing squarely at $0.00. That’s right, completely fucking worthless.
The company had encouraged their employees to put all their money into buying Enron stock ( i.e. don’t diversify, just only buy our company’s shit).
When the dust settled, a bunch of people went to prison and one executive is no longer with us. Countless employees that actually listened to those slimeballs in the head office lost every dime they had. Many of these people were nearing retirement age, and were basically financially destroyed with not much time to recover. It was extremely sad. It’s a textbook case of why diversification is important.
It’s truly an interesting and horrible case, and if you’re interested, you should dive into the story of Enron further. There’s a documentary about it. There was actually one guy that made out like a bandit from the whole thing by the name of Lou Pai. He was calculated enough to not allow any legal shit to get pinned on him, and with the help of pleading the fifth, waltzed happily into the sunset with about $250 million bucks.
Although Enron is an extreme case, many ‘promising’ stocks take a nosedive. It happens every day.
Diversifying means spreading your money across different types of investments — stocks, bonds, index funds, real estate, etc. — so if one or two goes tits-up, you don’t lose everything. Some will go up, some will go down, but if you own enough different kinds of shit, it’s more likely to steadily go up over time.
Dividend
This is the money a company gives you just for owning a piece of it. I like to think of a dividend as basically a company paying you ‘rent’ on each share of stock you own.
Some companies don’t pay dividends on their stock, but some pay relatively a lot. Let’s say you own one share of Cockadoodle Rubber Chicken company, and their stock price is $100. You hold the stock for an entire quarter. They sell a fuck ton of rubber chickens and are doing quite well financially, and the company decides to issue a 4% dividend that quarter to its shareholders as a “thank you” for investing in their company. 4% of the $100 share is $4.00. Congrats, you just got $4.00.
Some companies issue a dividend every quarter.
By the way, a dividend is separate from the growth of the stock, so in our example, let’s say Cockadoodle Rubber Chicken company’s stock grows in value to $120 dollars a share.
You got $4.00 in dividend, and $20.00 in stock growth for a total of $24.00. Shit man, if you keep doing this, you’re going to get rich!
Dollar-Cost Averaging
Big words, simple idea: Don’t try to time the market.
Let’s say you have $1000 you’d like to invest. You are waiting for the market to dip before you jump in. But this doesn’t happen… the market keeps going up and up and up… at this point you just fucked yourself by missing out on the gains. The day you buy in with your $1000, as fate would have it, the market tanks and you lose a shitload of your money. You tried to time the market and got burned…
Dollar-Cost Averaging is the solution to preventing this shitty scenario.
Now, you take your same $1000 and you say fuck timing the market, and you slowly and systematically invest $100 every month for 10 months. You buy some dips, you buy some peaks, but it all averages out to a good mid point.
This is Dollar-Cost Averaging. Just simply investing a small amount over and over consistently over time.
Risk Tolerance
This one’s personal. It’s how much financial bullshit you’re willing to stomach before you cry yourself to sleep in the corner.
Some people can handle wild swings in the market, buy risky stocks, and not panic. Others need something steady — bonds, index funds, or just straight-up keeping it in a high-interest savings account. Know yourself, and how much shit you can handle.
Asset Allocation
This is what % of money you have in whatever various investments.
Asset allocation is basically spreading your money across different types of investments: stocks, bonds, real estate, maybe crypto if you’re feeling adventurous. The goal is to reduce risk and make sure your money isn’t sitting in one basket getting roasted while other assets are doing fine.
Capital Gains
This is money you make when you sell an investment for more than you paid for it.
Bought a stock for $100, sold it for $150? That $50 is your capital gain. Congrats — you just made money while sitting in your barracks chair eating ramen. Uncle Sam wants his cut, though, so expect taxes on that win.
If you win, the government wants some, but if you lose, they don’t share in the losses. Funny how that works, isn’t it? Anyway, capital gains tax is bullshit, but it’s a fact of life.
Compound Interest
This is the “money on top of money on top of money” magic trick.
Basically, the money you earn makes more money. High interest, dividends, reinvestment — it all stacks like a fuckin’ financial Jenga tower. The earlier you start, the taller that tower grows, and the less you have to stress about blowing all your cash on dumb shit.
Bull Market
This is when the market is going up. Everyone’s happy, stock prices are rising, and you feel like a financial genius.
Just remember — bulls eventually get tired, and when they do, they flip into a bear.
Bear Market
Opposite of a bull. Everything’s down, your portfolio is bleeding, and everyone is crying in the parking lot.
Don’t panic. If you’ve diversified, held your ground, and invested for the long term, you’ll survive. If not… well, welcome to the poor house.
Inflation
Money losing value over time.
Basically, your $5 energy drink last year costs $5.50 this year. Or $10 if it’s imported from Belgium. Inflation eats your buying power, which is why investing and saving matters.
The US dollar has lost 96% of it’s value since 1913. This is mainly due to the government printing money like a drunken clown and not really giving a fuck about your dollar. The nice way to put this, I guess, is “an increase in the money supply.”
So, if you keep your money in a bank account making no interest, you are effectively losing money every day by a drop in its purchasing power. The only way to beat inflation is to invest your money and hopefully offset the inflation through the gains.
Liquidity
This is how quickly you can turn an asset into cash without losing your ass.
If you want to turn a house into cash, you have to hire some real estate guy, have cleaners come in and mop up after your nasty ass, list the property, sell it, and deal with some banker’s bullshit to actually get the money. This could take several months. This is low liquidity.
If you want to turn a share of stock into cash, you simply need to sell it, transfer it to your bank account, and go to the fuckin’ ATM. Easy Peasy. This could take a day or two. This is high liquidity.
Portfolio Rebalancing
Even the best portfolio can get messy if you ignore it.
Rebalancing means adjusting your investments back to your original plan. Stocks went up? Maybe sell a little. Bonds tanked? Buy a bit.
Let’s say you have a goal of 80% stocks and 20% bonds (this is just an example). You started with 80/20, and the stocks went up and the bonds took a shit and now it’s looking closer to 90/10. You need to sell some stocks and buy some bonds to get back to 80/20.
Always keep an eye on your portfolio for a fucked up balance. A lot of people do a complete rebalance at least once a year.
Bottom Line
Investing isn’t rocket science, but it does require a little attention, some discipline, and the ability to not be a complete dumbass.
Learn these terms, understand what the hell they mean, and use them to make your money work for you. Start now, keep it simple, and avoid the hype stocks and flashy scams. Your future self (the one sipping a nice bourbon without worrying about rent or PCS moves) will thank you.