Pave Introduction

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Introduction to Pave & Its Mission

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Today, we're giving you a glimpse into what Pave Academy is all about, introducing you to Pave Finance, its mission, and the brilliant minds behind it all. So, grab a seat, and welcome to Pave Academy.

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For most people, the world of investing can seem overwhelming and complex. That's where Pave Finance comes in. Pave Finance is an innovative app that provides everyone with top-tier investment advice, which used to be exclusive to the 1%. Our mission? To level the playing field and empower individuals like you to take control of their financial future.

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At the heart of Pave Finance is a team of dedicated experts committed to democratizing access to expert financial advice. Our content is created and driven by Pave's internal teams, who provide authoritative and knowledgeable guidance and have over 200 years of combined financial experience at Bank of America, McKinsey, Goldman Sachs, Merill Lynch, Morgan Stanley, HSBC, and numerous hedge funds. Our team has managed billions of dollars across these roles and is excited to share our learning and knowledge with you!

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What Is Pave Academy & What to Expect

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Our courses start with the basics, like the differences between investing and saving, and get more advanced, like building retirement plans. As you progress through Pave Academy, the content becomes more sophisticated, preparing you for a satisfying investing journey.

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Honoring our commitment to democratizing access and empowering users through the Pave app, Pave Academy aims to teach the importance & best practices of investing for a DIY approach.

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We're excited to have you here at Pave Academy, and we look forward to helping you pave your way to financial success.

What Is Investing?

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Definition of Investing & How It Works

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Let's start with the basics and talk about what investing is. Put simply, investing is placing your money into assets – like stocks, bonds, or real estate – with the hope that they'll grow in value overtime.

Now, choosing the right investments for your money can be difficult. Some are riskier than others, and there are never any guaranteed returns. If investments do see returns, they are usually generated in two ways – capital appreciation and income.

Capital appreciation is when your investment's value goes up. Whether you think an investment is good only matters if others agree with you and also invest in that asset. When that occurs, its value rises.

On the other hand, income comes from interest, dividends, or rent payments. Income, as a source of an investment’s return, means your investment accumulates income continuously. This continuous return can then be distributed to you with scheduled payments.

Investing can be a bit of a rollercoaster ride, and sometimes, your money might take a tumble. Market volatility can often be a source of anxiety, and the fear of loss can prevent people from even starting an investment plan. However, with patience, a little strategy, some smarts, or an app like Pave, you can invest to help achieve your financial goals!

The Benefits of Investing

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How Investing Can Help Build Wealth

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Let’s dive into our third topic, how investing can benefit you. Investing is a powerful tool for helping you reach your long-term financial goals. Whether those goals are saving for a down payment on a house or building a nest egg for retirement, investing can help get you there. By investing your money wisely, you can potentially earn higher returns than you would with a traditional savings account.

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The Power of Compounding and Potential Returns on Investments

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To understand how this works, let's talk about the power of compounding. Compounding is when your money grows on an initial investment and interest earned. The longer you invest, the more that interest can add up, and the more your money can grow.

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For example, you invest $1,000 in a mutual fund with an average annual return of 8%. If you let that investment grow for 30 years, it could be worth over $10,000! And if you keep adding to that investment over time, the potential for growth can increase. However, no mutual fund grows at 8% in a straight line. There will be losses along the way, but diligent, informed investing can help mitigate those moments.  

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Investing & Long-term Financial Goals

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Life is unpredictable, and unexpected expense scan come up at any time. But if you have investments earning returns, you have a source of funds to help you account for the unexpected. While you shouldn't look at your portfolio as a source of quick cash, knowing you have a reserve can provide a sense of comfort. However, the value of investing revolves around long-term compounding, so make sure to replenish your portfolio when you are back on stable footing.

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Investing can come with risks, but the potential rewards are worth it. So, continue your journey, and we’ll help you learn more about the fundamentals of investing.

The Risks of Investing

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Explanation of Investing’s Associated Risks

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There are some pretty apparent risks when investing. None of us can predict the future, and not having control over the direction of an investment when it is losing money in a volatile market is uncomfortable. Unexpected issues, such as war, inflation, or economic weak ness, can appear seemingly out of nowhere. However, it’s important to remember that by assuming those risks, the investments you enter into can give you rewards. Your goal should be to manage risk instead of avoiding it entirely. Let’s talk about some ways to do that.

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The Importance of Diversification

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Remember the saying, "Don't put all your eggs in one basket?" Well, that's solid financial advice on why diversification is essential.

Let’s say you invest with one idea and one asset. In that case, there is a risk that the instrument you pick may not appreciate if other investors disagree with you, or in the case of a stock, if that particular company happens to have something unfortunate occur to it that causes its stock to fall dramatically. It is best to spread out these individual risks with assets that are reactive to insulate you from one unfortunate event that can put a huge dent in your savings. For example, in investing, you want a mix of stocks, bonds, and other assets to maximize your chances of success.

A solid strategy for managing risk is to invest for the long term. The stock market can be unpredictable in the short term, but over the long term, if you make intelligent investment decisions, you significantly improve your chances of reaching your investment goals. By staying invested for the long term, you can avoid making impulsive decisions based on short-term market fluctuations.

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Overview of Strategies to Minimize Risk

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It's also important to have a plan in place for managing risk. This might include allocating a particular percentage of your portfolio to different asset classes and rebalancing your portfolio regularly to maintain that allocation.

In general, investments that carry a higher level of risk also offer the potential for higher returns. But this doesn't mean you should always chase after the highest possible returns. Instead, you should consider strategies like

• Diversifying your portfolio.
• Investing for the long-term.
• Having a plan for managing risk.

These investment strategies will allow you to take advantage of the potential rewards of investing while minimizing the downsides.

The Difference between Saving & Investing

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Definition of Saving & Investing

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This topic deals with the difference between saving and investing! Understanding the differences between both is an integral part of any financial plan.

Let's start by defining our terms. Saving is what you do when you park your money in the bank – it’s safe but not growing much. On the other hand, investing is like planting and nurturing a seed– it's growing and hopefully turning into something more fruitful over time.

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What Makes Saving Unique

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So, what are the differences between saving and investing? Saving is all about preserving your money for future use, while investing is about putting your money to work to earn a return. It’s important to note that savings are designed to safeguard your money and help it grow at as mall rate (the interest the bank pays you) so that inflation does not erode its value.

Inflation is why people sometimes say, "a dollar today is worth more than a dollar tomorrow.” Inflation is the market reality that your money's purchasing power shrinks over time. Let’s say you earn $100, spend $20 for groceries now, and save the rest. If inflation makes those groceries cost $25 next year, you pay more for the same goods. That means your dollar is not going as far as it did. As a result, each dollar buys fewer items, and the value of your money declines.

One way you can keep track of inflation is a measure that is released monthly. That measure is the Consumer Price Index(CPI), and it averages the prices of a particular group of goods and services. The CPI hadn’t moved too dramatically for years, then, after the pandemic, it rose very quickly as a lot of goods were in short supply, and people had more money to spend on things. An acceptable level of inflation is around 2% a year and usually signifies a healthy, growing economy. Therefore, if you can make around 2% on your savings, your purchasing power or the value of your earnings stays constant when you factor in inflation.

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What Makes Investing Unique

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So, how does investing come into play?

As we have discussed, investing your money in stocks historically has exhibited higher returns than keeping it in a bank account, but it comes with more risks. Typically, there is some order to the chaos, as the higher the risk, the higher the reward. Investing your money usually carries a return, called a yield on your money. A widely followed stock market index is the Standard & Poor’s 500. Normally referred to as the S&P 500, it comprises the top 500 companies in the U.S. Stretching back over a century, the stock market’s price change year over year has averaged over 8%, and the return is even higher. While these numbers might differ significantly in any one year, the takeaway is that the investing return is higher than the cost of inflation, allowing your money to grow. Of course, there can be years when inflation is above the return of the S&P 500, but over the long run, historically, investors have earned positive returns after inflation.

Now, let’s look at how this could play out. Let’s say you decide to invest $1000 and that you are in it for the long run, wanting to save or invest it for 10 years.

For our 1st scenario, you can hold the $1000 hard cash. In this case, the $1,000 stays the same. However, inflation is still doing its sneaky work. To find the "real" future value, assuming 2% inflation over time, your money loses roughly $180, and you are left with around $820 in real purchasing power!

Let’s shift to our second scenario- You do not want your money to lose that much value, so you move the $1,000 into a savings account with a 1% rate of return.

In this case, you have $1,105 after 10 years.

While you have done better than holding cash, you still have to account for inflation, and you are still losing out unless you can make your money grow at the inflation rate each year for those 10 years.

If at the end of a 10-year investment period, your stock portfolio earned 8% annually, $1,000 ends up being around $2,200.  

Therefore, even after accounting for inflation, you still have over $1,800, so you end up with a decent profit, with your purchasing power significantly higher than any of the other scenarios.

Financial Goals & Types

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What Are Financial Goals & Why They Are Essential?

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Let’s explore various financial goals and how to set, track, and measure them. Financial goals are the pillars that help you navigate your way to financial success, and they can be tied to earning, spending, saving, and investing. These goals are essential because they clarify priorities, help you choose better strategies, improve accountability, and ultimately bring peace of mind. Your peace of mind is what we strive for at Pave.

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Different Financial Goals

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Financial goals come in all shapes and sizes. Short-term goals are usually measured as being one year or less. A good example is an emergency fund. In case of unexpected expenses, it’s essential to have money set aside that can see you through the immediate future.

Medium-term goals are between one and five years. An excellent example of this is a dream car or vacation that requires several years of diligent saving and investing.

Finally, long-term goals are more than five years away. The big one in this category is retirement. When the time comes, you want to ensure you’ve saved enough to enjoy the comfort and security of the hard-earned rewards. As you can see, your financial goals are all about timing.

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Setting Achievable Financial Goals

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Now that we know the different types of financial goals, let's talk about setting them. While SMART goals (Specific, Measurable, Achievable, Relevant, and Time-bound) are popular, there are other ways to create practical goals.

One approach is to prioritize your goals. Ask yourself what's most important to you and what will significantly impact your life. Focusing on the most critical goals ensures you’re using your resources effectively. Another method is to visualize your goals. Create a vision board, write a letter to your future self, or use an app to help you see the bigger picture. Visualizing your goals makes them more tangible, motivating you to work towards them.

Once you've set your goals, tracking and measuring them is crucial. Several tools and techniques can help you stay on top of your progress:

Spreadsheets: Use a spreadsheet to track your monthly savings or investment contributions. This way, you'll see your progress over time and can easily adjust your plan if needed.

Budgeting apps: Many budgeting apps allow you to set financial goals and track your progress. They can provide insights into your spending habits and help you adjust to reach your goals faster.

Financial check-ins: Schedule regular financial check-ins with yourself, a mentor, a partner, or family that might impact your goals. These check-ins allow you to review progress, celebrate wins, and adjust your strategy.

Milestones: Break your goals into smaller, measurable milestones. Celebrate each milestone as you achieve it, and use it as motivation to keep going.

Remember, setting and tracking your financial goals is an ongoing process. It's essential to be flexible and adapt to changing circumstances. As life evolves, so will your goals; you’ll need to adjust your plan accordingly.