Investing in the stock market is a do-it-yourself way to plan for a comfortable old age. There will be ups and downs in the market, of course, but investing young means you have decades to ride them out. It’s also important because benefits from Social Security account for only around 38% of U.S. seniors’ income, according to the Social Security Administration. That figure may well decline in the coming decades because Social Security has been paying out more to retirees than it has been taking in from taxes paid by workers.
To the inexperienced investor, investing may seem simple enough - all you need to do is go to a brokerage firm and open up an account, right? What you may not know, however, is that all financial institutions have minimum deposit requirements. In other words, they won't accept your account application unless you deposit a certain amount of money. With a sum as small as $1,000, some firms won't allow you to open an account.
Dave: 00:36 All right folks, we’ll welcome to the Investing for Beginners podcast. This is episode ninety-eight. Tonight we’re going to talk about why you shouldn’t be a lone wolf investor. And I’m going to have Andrew kind of take us from there. All Right, Andrew, why don’t you go ahead and chat.
Value investors seek to buy stocks that they believe are underpriced by the market. These companies may be out of favor because of the economic cycle, or because they have suffered setbacks such as disappointing earnings or unexpected competition. Whatever the reason, value investors are looking for stocks whose low prices are temporary. The idea is that current perceptions about the stock do not reflect its potential and that eventually the market will recognize the company’s true value.
There are additional conditions you can place on a limit order to control how long the order will remain open. An “all or none” (AON) order will be executed only when all the shares you wish to trade are available at your price limit. A “good for day” (GFD) order will expire at the end of the trading day, even if the order has not been fully filled. A “good till canceled” (GTC) order remains in play until the customer pulls the plug or the order expires; that’s anywhere from 60 to 120 days or more.
Ask yourself some basic questions: What will the market be for this stock in the future? Will it look bleaker or better? What competitors does this company have, and what are their prospects? How will this company be able to earn money in the future? These should help you come to a better understanding of whether a company's stock is under- or over-valued.
E*TRADE credits and offers may be subject to U.S. withholding taxes and reporting at retail value. Taxes related to these credits and offers are the customer’s responsibility. Offer valid for one new E*TRADE Securities non-retirement brokerage account opened by 12/31/2019 and funded within 60 days of account opening with $10,000 or more. Cash credits for eligible deposits or transfers of new funds or securities from accounts outside of E*TRADE will be made as follows: $1,000,000 or more will receive $2,500; $500,000–$999,999 will receive $1,200; $250,000–$499,999 will receive $600; $100,000–$249,999 will receive $300; $25,000–$99,999 will receive $200. New funds or securities must: be deposited or transferred within 60 days of enrollment in offer, be from accounts outside of E*TRADE, and remain in the account (minus any trading losses) for a minimum of six months or the credit may be surrendered. The credit will appear in your account within one week of the close of the 60-day window. Multiple deposits made to eligible accounts will be aggregated and will receive a credit on a pro-rata basis once the new account has been funded with at least $10,000. An account funded within 60 days of account open, with a minimum deposit of $10,000 will receive up to 500 commission-free stock and options trades executed within 60 days of the deposited funds being made available for investment in the new account (excluding options contract fees). You will pay $6.95 for your first 29 stock or options trades (plus 75¢ per options contract) and $4.95 thereafter up to 500 stock or options trades (plus 50¢ per options contract). Your account will be credited for trades within a week of the executed trade, after paying the applicable commission charge. You will not receive cash compensation for any unused free trade commissions. Excludes current E*TRADE Financial Corporation associates, non-U.S. residents, and any jurisdiction where this offer is not valid. This offer is not valid for retirement or E*TRADE Bank accounts. One promotion per customer. E*TRADE Securities reserves the right to terminate this offer at any time. Must be enrolled by December 31, 2019, the offer expiration date.
Buy undervalued assets ("buy low, sell high"). If you're talking about stocks and other assets, you want to buy when the price is low and sell when the price is high. If you buy 100 shares of stock on January 1st for $5 per share, and you sell those same shares on December 31st for $7.25, you just made $225. That may seem a paltry sum, but when you're talking about buying and selling hundreds or even thousands of shares, it can really add up.
Price trends are a key idea in technical analysis. You can set up a screener to view a stock's price relative to its high or low over a given time period. If the price is trending towards new highs, you might want to be a buyer. On the other hand, short sellers who aim to profit from a stock's decline would screen for stocks trending towards new lows.
During your wealth accumulation stage, consider over-weighing stocks that pay low or no dividends. Lower yielding stocks tend to be safer, have greater growth potential, eventually leading to bigger dividends later, and save you on taxes (by allowing you to defer tax on unrealized capital gains rather than paying tax on dividend, a form of forced distribution).
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Plan for retirement. $100 won't get you far in retirement, but if you are still young, that $100 could be much more in 20 years. It's always a good idea to invest in your employer's 401(k), especially if your employer matches contributions. Most employers withdraw the money right from your paycheck each pay period. You set the amount and your employer handles the rest.
Many financial institutions have minimum deposit requirements. In other words, they won't accept your account application unless you deposit a certain amount of money. Some firms won't even allow you to open an account with a sum as small as $1,000. Some newcomers don't require minimum deposits, but often they lower other costs, like trading fees and account management fees, if you have a balance above a certain threshold.
How much liquidity (i.e. resources that can easily be converted to cash) do you need for your shorter-term goals and to maintain a proper cash reserve? Don't invest in stocks until you have at least six to twelve months of living expenses in a savings account as an emergency fund in case you lose your job. If you have to liquidate stocks after holding them less than a year, you're merely speculating, not investing.
In fact, you can even earn money doing some of these things yourself. For example, lending securities is a common way that stock brokers make money. These securities are what the short sellers borrow when they sell short. Companies like E*Trade allow you to split the lending profits they would earn with them if you allow them to sell your securities. It's an added bonus that you can make some extra money investing with.
Overall commission costs can also be affected by new customer promotions. Brokers may give you a chunk of free trades, based on your deposit amount. If your deposit can get you a substantial number of free trades, that can write off otherwise higher per-commission costs. Ally Invest offers small incentives for deposits as low as $500. Fidelity Investments, meanwhile, has a higher barrier for entry — it takes a $50,000 deposit, but then you'll get 300 free trades.
1. Target Date Retirement Fund: A target date retirement fund enables investors to get instant diversification with just one mutual fund. These funds take your contributions and split them among multiple stock and bond mutual funds. In addition, there is no need to rebalance your investments as you age. Target date retirement funds adjust the allocation between stocks and bonds as the investor nears retirement.
With or without a broker, one great investment for beginners is to enroll in your company’s 401k plan. While enrollment itself is not technically an investment, the account can become a place for you to hold investments like stocks, bonds, mutual funds and cash. A 401k plan is great for beginning investors because it offers not only a place to prepare for retirement, but also an account that avoids income taxes until you withdraw the funds. Many employers offer matching funds, in which they will match the amount of money you deposit into your 401k account to encourage your retirement investment. This free money is just one way you can begin to build your financial portfolio.
The solution to both is investing in stock index funds and ETFs. While mutual funds might require a $1,000 minimum or more, index fund minimums tend to be lower (and ETFs are purchased for a share price that could be lower still). Two brokers, Fidelity and Charles Schwab, offer index funds with no minimum at all. Index funds also cure the diversification issue because they hold many different stocks within a single fund.
You must buy and sell Vanguard ETF Shares through Vanguard Brokerage Services (we offer them commission-free) or through another broker (who may charge commissions). See the Vanguard Brokerage Services commission and fee schedules for limits. Vanguard ETF Shares are not redeemable directly with the issuing fund other than in very large aggregations worth millions of dollars. ETFs are subject to market volatility. When buying or selling an ETF, you will pay or receive the current market price, which may be more or less than net asset value.
Online brokers make it painless to enter an order and place a trade to buy stocks. Once you have a brokerage account, you’ll just need to know the stock’s ticker symbol to place the trade. A ticker symbol is one to five letters in length, and identifies the specific stock you want to trade. For example, Amazon’s ticker is AMZN. Nike’s is NKE. Ford’s is F. And so on.
Learn a little bit about stocks. This is what most people think of when they consider "investing." Put simply, a stock is a share in the ownership of a business, a publicly-held company. The stock itself is a claim on what the company owns — its assets and earnings.  When you buy stock in a company, you are making yourself part-owner. If the company does well, the value of the stock will probably go up, and the company may pay you a "dividend," a reward for your investment. If the company does poorly, however, the stock will probably lose value.
If you're going to invest in stocks, you have a couple of choices. The easier method is to buy a mutual fund or exchange-traded fund that owns all of the stocks in a popular index like the Dow Jones Industrials or S&P 500. By doing so, you're essentially buying the whole universe of stocks within the index you choose, participating in the general growth of the entire market.
At $4.95 a trade, with no inactivity charge, and only a $50 full outgoing transfer fee, Ally Invest’s fee structure is about as low as you'll find. Even though a rash of brokers dropped their commissions in 2017 to be competitive with Ally Invest’s $4.95 flat rate, Ally keeps its edge with a zero account minimum and enticing discount for active investors — equity trades drop to $3.95 for users with 30+ trades each quarter or a balance of $100,000.
The direction of interest rates and inflation, and how these may affect any fixed-income or equity purchases.  When interest rates are low, more consumers and businesses have access to money. Consumers have more money to make purchases, so they usually buy more. This leads to higher company revenues, which allows companies to invest in expansion. Thus, lower interest rates lead to higher stock prices. In contrast, higher interest rates can decrease stock prices. High interest rates make it more difficult or expensive to borrow money. Consumers spend less, and companies have less money to invest. Growth may stall or decline. 
The easiest option is to buy what's known as an ETF (an exchange-traded fund) like SPY (SPY). It trades like a stock, but it means you own a basket of stocks. In the case of SPY, the basket is made up of 500 of America's largest companies. Sure, a few might struggle, but all 500 probably aren't going to tank at the same time, so it helps lower the risk.
Most online brokerage firms charge between $7 and $10 per trade. Though this does not sound like much, commissions can have a big impact on small accounts. For example, say you have $1,000 to invest in a single stock. Your buy and sell orders will each cost you $10, resulting in a transaction cost of $20. This equates to a 2% reduction in your actual returns. Once you start factoring in the costs, your profit may very well not justify the risk of trying to pick an individual stock, if you are investing a small amount in a taxable account.
If you’re looking at a decent source, you should be able to get an idea of the performance of the company over the past day all the way back to the past 10 years if the company has been on the exchange for a while. You’ll also be able to tell how active the stock is for a given period based on how often it gets traded. You figure this out by looking at the volume number.
If you wanted a single investment that has you covered from a performance and diversity standpoint you could always go with something like a Vanguard Lifecycle fund and pay as low as 0.15% in fees and that’s it. On a side note, we have a list of our favorite Vanguard funds and investments for beginners that you should probably check out if you know what’s good for you.