How to get great advice: Feeling too intimidated to pick your first stock or fund? There are a lot of great -- and cheap -- services that will do it for you. Betterment and Wealthfront are good examples. They use computer models to figure out the best portfolio mix for you based on your age, income, goals and tax situation and they will invest your money for you.
Benjamin - The price of the stock does not matter. If you invest $10,000 into a stock trading at $5 or a stock trading at $100, your gain will still be the same. A 10% rise in either stock will give you $1,000 in unrealized gains (profits you have not realized because you have yet to sell the stock). So, find the best stock, regardless of its per share price. - Charles Rotblut
As a true beginner, I found this book rather frustrating. I liked that a minimal amount of time was spent on general investing advice, so that we could get right into stocks. At first I liked that this is a small book, 128 pages of content with a small page size and medium font, but soon realized that the information was packed too densely for me to be able to learn it. The bulk of the book is one equation on company statistics after another woven into a loose narrative. They said to follow along with the equations at home, but I would have needed more guidance than that, like a work book or at least some exercises. So the more I read, the more lost I got. I will, however, keep this as a reference book, as it has a good index, and I will be able to use it to look up terms and equations.
First and foremost: If you prefer professional guidance at any point, there are many reputable brokerage firms available online and in-person geared toward helping you make lucrative investments. However, you should keep in mind that firms and brokers are associated with separate fees, including commission, which can bring up your expenses considerably.
We believe that it is axiomatic that while capital flows will drive market values in the short term, valuations will drive market values over the long term. As a result, large and growing inflows to index funds, coupled with their market-cap driven allocation policies, drive index component valuations upwards and reduce their potential long-term rates of return. As the most popular index funds’ constituent companies become overvalued, these funds long-term rates of returns will likely decline, reducing investor appeal and increasing capital outflows. When capital flows reverse, index fund returns will likely decline, reducing investor interest, further increasing capital outflows, and so on. While we would not yet describe the current phenomenon as an index fund bubble, it shares similar characteristics with other market bubbles.
Traditionally, Americans have tended to stay close to home when it comes to their equity portfolios, but this is now changing as more investors realize the diversification and growth benefits of investing in the global economy. Indeed, U.S. companies constitute only about half the value of all world equities, and that piece of the pie is slowing getting smaller. Virtually every portfolio should have a good slug of international stocks.
Still, it's easy to debate whether a Roth IRA, a CD, an ETF or a mutual fund is best for your needs. That's why new investors may also want to seek out a financial advisor. While you might abhor the thought of paying fees for financial advice, the argument for turning to an advisor is that a professional is far more knowledgeable than a novice investing as a beginner, and can help you make far more money than what you spend in commissions or fees. Generally, you'll pay an annual percentage of your managed assets. Usually, it's around 1 percent, although some advisors charge less, and some charge as high as 2 percent. If you're unsure whether a prospective advisor is qualified, you can use FINRA BrokerCheck (brokercheck.finra.org), a search engine that provides information on current and former brokers and brokerage firms registered with the Financial Industry Regulatory Authority.
ETFs, on the other hand, trade like stocks, making them easy to add to your investment portfolio. There are no minimums for these securities, though their strategies vary equally. Many ETFs follow well known indexes from the S&P 500 or the Dow Jones Industrial Average. Others track collections of stocks that concentrate on industries like healthcare, technology or materials.
This is part of what led to the rise of index funds and exchange-traded funds. With these investments, as with mutual funds, you’re able to invest in the entire stock market or large segments of it (for example, all U.S. technology stocks), rather than just investing in individual companies piecemeal (and paying a commission each time you trade one).
Whether you save for retirement with a 401(k) or similar employer-sponsored plan, in a traditional or Roth IRA, or as an individual investor with a brokerage account, you choose what to invest in. It’s important to understand each instrument and how much risk it carries. Also, remember that you don’t need to have saved thousands to begin investing — even $500 can get you started.
Our second pick, Fidelity Investments offers new investors an easy-to-use website and quality on-site education. While Fidelity's learning center is impressive, the broker does a fantastic job with its in-house market research and financial educational articles, Fidelity Viewpoints. Of all the brokers, I share and bookmark Fidelity Viewpoint articles the most. As far as subject matter goes, the broker's retirement education is exceptional. Read full review
How frequently you plan to trade. At most brokers suitable for new investors, stock trading commissions run between $5 and $10. Low commission costs will be more important to active traders, those who place 10 or more trades per month. (Learn more about the ins and outs of stock trading.) Infrequent traders should steer clear of brokers that charge inactivity fees.
Do you know what to look for when it comes to stocks, bonds, mutual funds, ETFs, and so on? Do you understand the terminology and how to react to certain trends? Is the company you’re investing in worthwhile, with a dependable financial history and sustainable cash flow? These are just some of the factors you should be researching before you actually put any money on the table.
One of the problems with investing in individual stocks, however, is that it’s incredibly difficult to know which stocks will perform better than others. Unless you’re Warren Buffet or a similar Wall Street wizard (and, in fact, even they get it wrong much of the time), chances are good that you might as well just throw a dart at the financial section of the newspaper and buy whatever the dart lands on.
Why are voting rights important? Often, the matters you'll get to vote on will impact the value of your shares, either directly or indirectly. For example, if you're invested in a company proposing a stock split, the value of each share you own will be reduced as a result of that move (though you'll get double the number of shares) -- that's something you'll want a voice in. Similarly, you'll get to vote on things such as mergers and acquisitions and major structural changes within a company -- things that can impact cash flow and earnings, and therefore cause the value of your stocks to fluctuate.
Here's an example: You buy a five-year municipal bond for $10,000 with an interest rate of 2.35%. Thus, you lend the municipality $10,000. Each year the municipality pays you interest on your bond in the amount of of 2.35% of $10,000, or $235. After five years the municipality pays back your $10,000. So you've made back your principal plus a profit of $1175 in interest (5 x $235).
In terms of diversification, the greatest amount of difficulty in doing this will come from investments in stocks. This was illustrated in the commissions section of the article, where we discussed how the costs of investing in a large number of stocks can be detrimental to the portfolio. With a $1,000 deposit, it is nearly impossible to have a well-diversified portfolio, so be aware that you may need to invest in one or two companies (at the most) to begin with. This will increase your risk. The World's Worst Stock Investment Advice