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Learn the fundamental building blocks of investing before you buy anything. ⏱️ Time: 15-20 minutes 💰 Cost: Free (education) 📱 Platform: Any device 👤 Best for: Complete beginners learning the basics 🦍 Recommended Companion: Sage (education and fundamentals)

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What You’ll Learn

  • What stocks, bonds, ETFs, and cash actually are
  • The differences between each asset type
  • Risk and return characteristics of each
  • Which assets are best for beginners
  • How to build a simple portfolio

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Why This Matters

Before you invest, you need to know:
  • What am I buying?
  • How does it make money?
  • What are the risks?
  • Which is right for my goals?
Imagine buying a car without knowing:
  • The difference between sedans, SUVs, and trucks
  • How engines work
  • What gas mileage means
  • Which car fits your needs
That’s what investing without understanding assets is like!

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The Four Basic Asset Types

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Quick Overview Table

AssetWhat It IsReturnRiskBest For
CashMoney in bank0.1-5%Very LowEmergency fund, short-term
BondsLoans to companies/govt3-6%LowStability, income, older investors
StocksOwnership in companies8-12%Medium-HighGrowth, long-term wealth
ETFsBaskets of stocks/bondsVariesVariesDiversification, beginners
Now let’s dive deep into each one.

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CASH (Savings Accounts, Money Market, CDs)

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What It Is

Simple definition: Money sitting in a bank account earning minimal interest. Types of cash:
  • Checking Account: 0% interest, daily access
  • Savings Account: 0.1-0.5% interest, easy access
  • High-Yield Savings: 4-5% interest, online banks
  • Money Market: 3-5% interest, limited transactions
  • CD (Certificate of Deposit): 4-5% interest, locked for set time

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How It Makes Money

Interest:
  • Bank pays you a small percentage annually
  • Example: 10,000at410,000 at 4% = 400/year
  • Compounded monthly or daily
Why so low:
  • Banks use your money to lend to others
  • They pay you tiny interest
  • They charge borrowers much higher rates
  • They keep the difference as profit

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Pros and Cons

Pros:
  • ✅ Zero risk (FDIC insured up to $250k)
  • ✅ Instant access to money
  • ✅ No market volatility
  • ✅ Guaranteed return
  • ✅ Easy to understand
Cons:
  • ❌ Very low returns (0.1-5%)
  • ❌ Usually loses to inflation (3-4%)
  • ❌ Opportunity cost (missing stock gains)
  • ❌ Won’t build significant wealth

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When to Use Cash

Perfect for:
  • Emergency fund (3-6 months expenses)
  • Money needed within 1 year
  • Down payment being saved
  • Security and peace of mind
Not good for:
  • Long-term wealth building
  • Retirement savings
  • Growing significant money
  • Beating inflation

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Example

Sarah’s Emergency Fund: 
Amount: $10,000
Account: High-yield savings at 4.5%
Annual return: $450
Purpose: Cover unexpected expenses
Time horizon: Keep indefinitely

This is CORRECT use of cash.
She's not trying to grow wealth here,
just preserve capital safely.

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BONDS (Fixed Income Securities)

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What They Are

Simple definition: You loan money to a company or government. They pay you interest and return your money later. Think of it like:
  • You’re the bank
  • Company/government is the borrower
  • They pay you interest for the loan
  • They promise to pay you back
Types of bonds:
  • Government Bonds (Treasury): Safest, lowest return (3-5%)
  • Corporate Bonds: Medium risk, medium return (4-7%)
  • Municipal Bonds: Tax-free, state/local govt (3-5%)
  • Junk Bonds: High risk, high return (7-12%)

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How They Make Money

Two ways: 1. Interest Payments (Coupons)
  • Paid every 6 months typically
  • Example: 10,000bondat510,000 bond at 5% = 500/year
2. Price Appreciation
  • Bonds can trade above/below face value
  • If rates fall, bond prices rise (and vice versa)
  • Can sell before maturity for profit/loss

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Example Bond

10-Year US Treasury Bond: 
Face Value: $10,000
Coupon Rate: 4.5%
Maturity: 10 years

Year 1-10: Receive $450/year (semi-annual payments)
Year 10: Receive $10,000 back (principal)

Total return over 10 years: $4,500 interest + $10,000 principal

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Pros and Cons

Pros:
  • ✅ Predictable income (fixed interest)
  • ✅ Lower risk than stocks
  • ✅ Priority in bankruptcy (paid before stockholders)
  • ✅ Diversification (negative correlation to stocks sometimes)
  • ✅ Capital preservation
Cons:
  • ❌ Lower returns than stocks (3-6% vs 10%)
  • ❌ Interest rate risk (rates up = bond prices down)
  • ❌ Inflation risk (fixed payments lose value)
  • ❌ Opportunity cost (missing stock gains)
  • ❌ More complex than stocks

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When to Use Bonds

Perfect for:
  • Older investors (50s-60s+)
  • Conservative portfolios
  • Reducing portfolio volatility
  • Steady income needs
  • Balancing stock risk
Not good for:
  • Young investors (20s-30s)
  • Aggressive growth goals
  • High inflation environments
  • Maximum wealth building

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Portfolio Example

Age-Based Bond Allocation: 
Age 20-30: 10-20% bonds
Age 30-40: 20-30% bonds
Age 40-50: 30-40% bonds
Age 50-60: 40-50% bonds
Age 60+: 50-60% bonds

Rule of Thumb: Bond % = Your Age
(30 years old = 30% bonds, 70% stocks)

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STOCKS (Equities)

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What They Are

Simple definition: You own a tiny piece of a company. If the company grows, your piece becomes more valuable. Think of it like:
  • Owning a slice of a pizza
  • If the pizza business grows, your slice is worth more
  • If the business shrinks, your slice is worth less
  • You can sell your slice anytime
Key concept: Ownership
  • Stocks = equity = ownership
  • You’re a part-owner (shareholder)
  • You share in profits and losses
  • You have voting rights (usually)

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How They Make Money

Two ways: 1. Capital Appreciation (Stock Price Goes Up) 
Buy AAPL at $150/share
Sell AAPL at $180/share
Profit: $30/share (20% gain)

This is the main way most people make money.
2. Dividends (Company Shares Profits) 
Own 100 shares of KO (Coca-Cola)
KO pays $1.76/share dividend annually
You receive: $176/year in cash

Some companies pay dividends, others don't.
Growth companies (TSLA, NVDA) usually don't pay dividends.
Value companies (KO, JNJ) usually do.

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Types of Stocks

By Size (Market Cap):
  • Mega-Cap: $200B+ (AAPL, MSFT, GOOGL)
    • Safest stocks, slower growth
  • Large-Cap: $10-200B (UBER, COIN, SHOP)
    • Stable, moderate growth
  • Mid-Cap: $2-10B (Many established companies)
    • Balance of growth and stability
  • Small-Cap: $300M-2B (Emerging companies)
    • Higher risk, higher growth potential
  • Micro-Cap: Under $300M (Very risky)
    • Extremely volatile, penny stocks
By Style:
  • Growth Stocks: Fast-growing, no dividends (TSLA, NVDA)
  • Value Stocks: Undervalued, dividends (F, BAC)
  • Dividend Stocks: High dividend yield (T, VZ)
  • Blue-Chip Stocks: Large, stable, established (JNJ, PG)

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Example Stock Investment

Buying Apple Stock: 
Company: Apple Inc. (AAPL)
Price: $175/share
You buy: 10 shares
Cost: $1,750

What you own:
- 10/15,000,000,000 of Apple (tiny fraction)
- Rights to future profits (dividends)
- Rights to future growth (stock appreciation)

If AAPL goes to $200:
- Your 10 shares worth: $2,000
- Profit: $250 (14.3% gain)

If AAPL drops to $150:
- Your 10 shares worth: $1,500
- Loss: -$250 (-14.3% loss)

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Pros and Cons

Pros:
  • ✅ Highest long-term returns (10% annually)
  • ✅ Ownership in real companies
  • ✅ Infinite upside potential
  • ✅ Liquidity (sell anytime)
  • ✅ Dividends provide income
  • ✅ Historically beat inflation
Cons:
  • ❌ Volatile (can drop 50%+ in crashes)
  • ❌ Requires research and knowledge
  • ❌ Can lose 100% if company fails
  • ❌ Emotional rollercoaster
  • ❌ No guaranteed returns
  • ❌ Tax implications on gains

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Historical Returns

S&P 500 (500 largest US companies): 
100-year average: 10% annually
Last 50 years: 10.5% annually
Last 30 years: 10.7% annually
Last 10 years: 13.2% annually

$10,000 invested in 1994:
Today (2024): $136,500
That's 13.7x your money!
But it’s not smooth:
  • 2000-2002: -40% (dot-com crash)
  • 2008: -37% (financial crisis)
  • 2020: -34% (COVID crash)
  • 2022: -18% (inflation/rates)
The key: Hold through the crashes. They always recover.

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When to Use Stocks

Perfect for:
  • Young investors (20s-40s)
  • Long-term goals (10+ years)
  • Wealth building
  • Retirement savings
  • Aggressive growth
Not good for:
  • Short-term money (< 3 years)
  • Emergency funds
  • Risk-averse investors
  • Money you can’t afford to lose

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ETFs (Exchange-Traded Funds)

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What They Are

Simple definition: A basket of many stocks/bonds bundled together as one investment. Think of it like:
  • A fruit basket instead of one apple
  • One purchase = own hundreds of companies
  • Instant diversification
  • Professional management
Popular ETFs:
  • SPY: S&P 500 ETF (500 largest US companies)
  • QQQ: Nasdaq 100 ETF (100 largest tech companies)
  • VTI: Total Stock Market ETF (entire US market, 3,500+ stocks)
  • VOO: S&P 500 ETF (Vanguard version, same as SPY)
  • BND: Total Bond Market ETF (bonds)

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How They Work

Example: VOO (Vanguard S&P 500 ETF) 
You buy: 1 share of VOO for $450
You own: Tiny piece of 500 companies

Top holdings in VOO:
1. Apple - 7%
2. Microsoft - 6.5%
3. Amazon - 3.5%
4. NVIDIA - 3%
... + 496 more companies

If you bought each individually:
- Would need $450 × 500 = $225,000!
- ETF lets you own all 500 for $450

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Types of ETFs

By Asset Class:
  • Stock ETFs: SPY, QQQ, VTI
  • Bond ETFs: BND, AGG, TLT
  • Commodity ETFs: GLD (gold), USO (oil)
  • Real Estate ETFs: VNQ (REITs)
By Sector:
  • Tech: XLK, VGT
  • Healthcare: XLV, VHT
  • Finance: XLF, VFH
  • Energy: XLE, VDE
By Market Cap:
  • Large-Cap: SPY, VOO
  • Mid-Cap: MDY, IJH
  • Small-Cap: IWM, VB
By Geography:
  • US: VTI, SPY
  • International: VEA, VXUS
  • Emerging Markets: VWO, EEM
By Strategy:
  • Dividend: VYM, SCHD
  • Growth: VUG, VOOG
  • Value: VTV, VOOV

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Pros and Cons

Pros:
  • ✅ Instant diversification (hundreds of stocks)
  • ✅ Lower risk than individual stocks
  • ✅ Low fees (0.03-0.20% annually)
  • ✅ Professional management
  • ✅ Easy to trade (like stocks)
  • ✅ Perfect for beginners
  • ✅ Tax-efficient
Cons:
  • ❌ Can’t outperform the market (by design)
  • ❌ Still volatile (stock ETFs drop with market)
  • ❌ Less exciting than stock picking
  • ❌ Annual fees (even if small)

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ETF vs Individual Stocks

Individual Stocks:
  • Higher risk, higher potential reward
  • Requires research and time
  • Can lose 100% if company fails
  • More volatile
  • For experienced investors
ETFs:
  • Lower risk, market returns
  • No research needed
  • Can’t lose 100% (diversified)
  • Less volatile
  • For all investors, especially beginners
Most experts recommend:
  • Beginners: 80-100% ETFs
  • Intermediate: 60-80% ETFs, 20-40% stocks
  • Advanced: 40-60% ETFs, 40-60% stocks

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When to Use ETFs

Perfect for:
  • Complete beginners
  • Lazy investors (in a good way)
  • Retirement accounts (IRA, 401k)
  • Core portfolio holdings
  • Long-term wealth building
  • Risk-averse investors
The simple portfolio: 
100% in VTI (Total Market ETF)

That's it. Own the entire market.
Historically returns 10% annually.
Beats 95% of active investors.
Warren Buffett recommends this!

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Building Your First Portfolio

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Portfolio Examples by Age and Risk Tolerance

Age 25 - Aggressive Growth: 
80% VTI (Total US Stock Market)
10% VEA (International Stocks)
10% Cash (Emergency fund)

Expected return: 9-10% annually
Risk: High (can drop 40% in crashes)
Time horizon: 40 years to retirement
Age 35 - Moderate Growth: 
70% VTI (Total US Stock Market)
15% VEA (International Stocks)
10% BND (Total Bond Market)
5% Cash

Expected return: 8-9% annually
Risk: Moderate (can drop 30% in crashes)
Time horizon: 30 years to retirement
Age 50 - Balanced: 
50% VTI (Total US Stock Market)
15% VEA (International Stocks)
30% BND (Total Bond Market)
5% Cash

Expected return: 6-7% annually
Risk: Moderate-Low (can drop 20% in crashes)
Time horizon: 15 years to retirement
Age 65 - Conservative (Retired): 
30% VTI (Total US Stock Market)
10% VEA (International Stocks)
50% BND (Total Bond Market)
10% Cash

Expected return: 4-5% annually
Risk: Low (can drop 10-15% in crashes)
Time horizon: Income + preservation

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The Simple Three-Fund Portfolio

Perfect for beginners: 
60% VTI (US Stock Market)
30% VEA (International Stocks)
10% BND (US Bonds)

Why this works:
- Covers entire global market
- Low fees (0.05% average)
- Automatic rebalancing easy
- Historically 8-9% returns
- Beginner-friendly

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The Even Simpler One-Fund Portfolio

For the ultimate beginner: 
100% VT (Vanguard Total World Stock ETF)

This single ETF owns:
- 9,000+ stocks globally
- US, international, emerging markets
- Automatic global diversification
- One purchase, one holding, done.

Warren Buffett: "Just buy an S&P 500 index fund and hold it forever."

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Comparing All Four Asset Types

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Side-by-Side Comparison

FeatureCashBondsStocksETFs
Return0.1-5%3-6%8-12%7-11%
RiskNoneLowMedium-HighMedium
VolatilityNoneLowHighMedium
Time Horizon0-1 year1-10 years10+ years5+ years
LiquidityInstantModerateHighHigh
ComplexityEasyMediumHardEasy
Best ForEmergency fundStabilityGrowthBeginners
FeesNoneLowNoneVery Low
Tax EfficiencyLowLowMediumHigh

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Risk vs Return Chart

High Return ↑
           |
           |     Stocks •
           |
           |            • ETFs (stock)
           |
           |                 • Bonds
           |
           |                       • Cash
           |________________________________→ High Risk
Low Return
Key Principle: Higher risk = higher potential return (and vice versa)

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Common Questions

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”Which asset is best?”

There is no “best” - it depends on:
  • Your age
  • Your goals
  • Your time horizon
  • Your risk tolerance
  • Your experience level
General rules:
  • Younger = more stocks/ETFs
  • Older = more bonds/cash
  • Long-term = stocks/ETFs
  • Short-term = cash/bonds

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”Can I lose money in ETFs?”

Yes, in the short term. But historically:
  • Any 10-year period: Positive returns 94% of the time
  • Any 20-year period: Positive returns 100% of the time
The key: Don’t sell during crashes. Hold long-term.

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”Should I pick stocks or buy ETFs?”

For beginners: ETFs 100% Why:
  • Lower risk
  • Easier
  • Requires less time/knowledge
  • Historically better returns than stock pickers
  • Warren Buffett-approved
When you’re ready for stocks:
  • After 6-12 months of ETF investing
  • After learning fundamentals
  • Start with 10-20% in individual stocks
  • Keep 80-90% in ETFs

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”What about crypto, real estate, commodities?”

Those are advanced assets for later. Start with:
  1. Build emergency fund (cash)
  2. Max out employer 401k match
  3. Invest in ETFs (stocks)
  4. Add bonds as you age
After mastering basics: 5. Individual stocks (if interested) 6. Real estate (if have capital) 7. Alternative assets (crypto, commodities, etc.) Don’t skip steps 1-4!

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What’s Next?

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Your Action Plan

Today:
  1. ✅ Understand the four basic asset types (Done!)
  2. ✅ Decide which assets fit your goals
  3. ✅ Ask Sage in Ape AI: “Which assets should I invest in based on my age and goals?”
This week: Next steps:
  • Learn about brokerages and accounts
  • Set up paper trading
  • Make your first practice investment

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Ask Sage for Personalized Advice

In Ape AI, ask Sage: 
I'm [age] years old and want to start investing for [goal].
Should I focus on stocks, ETFs, bonds, or a mix?
What's a good portfolio allocation for me?
Sage will:
  • Recommend asset allocation
  • Explain why for your situation
  • Provide specific ETF/stock suggestions
  • Create a beginner-friendly plan

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Success Checklist

✅ I understand what cash is (and its limitations) ✅ I understand what bonds are (loans to companies/govt) ✅ I understand what stocks are (ownership in companies) ✅ I understand what ETFs are (baskets of stocks/bonds) ✅ I know which assets fit my age and goals ✅ I know ETFs are best for beginners ✅ I’m ready to choose a brokerage and open an account
Remember: Stocks and ETFs are for growing wealth. Bonds and cash are for stability. Young investors should focus on growth. Older investors should balance growth and stability. Start simple with ETFs! 📊 Next: How to Choose a Brokerage →