Jinen

Well, I am 22 years old and I really want to invest some money in the stock market. I want to start off small ($1000-$2000) and want to invest long term.

I was thinking about purchasing stocks for reputed companies to ensure some sort of security (e.g. google, microsoft, american express and so forth). I understand that I may not be able to purchase that many stocks for these companies since their value is really high. Is this a "smart" strategy or would you recommend that I invest in Mid-size companies??

Also, once I decide which stocks I want to purchase, how do I go about it? Do I create an account with certain websites such as e-trade and then just purchase the stocks that way? I am not really sure how the process works, so if someone could please clarify that for me, I would really appreciate that.

Is there anything else that I need to look at when starting to invest in the stock market? I am completely new with this and obviously, I plan on doing more research before I put any type of money down, but I thought that I'd ask some people on this forum for some advice...

Thanks, in advance...

ric

a $1,000 is a $1,000 whether it buys a single stock or a fraction of a stock or a thousand shares. Buying and selling fractional shares can sometimes be a problem, but in fact, if you decide to "dividend reinvest", you will end up accruing fractional shares in any case. And money is money, and your impulse to invest is great.

Some corporations will sell you their shares directly; that is its whole murky world in and of itself. I've never explored it.

THe world of discount brokerage houses has removed the mystique from trading, and there are a number of them out there. Schwab is the granddaddy of the discount houses, but I am sure this webpage will have a number of opinions. I'd punch in discount brokerage house into google and see who shows up to party. I went with Schwab few years ago, as they provide a substantive support of research for analysis purposes. In addition, Schwab takes a preset chunck out of my checking account each month and dumps it into a Schwab money market fund; I can then let that accrue and then use it to purchase stocks and mfs. Schwab charges a flat rate per transaction, it does keep the daytrading down. To that end, if you really get into it, Barrons and Morningstar are respected research houses. I subscribed, then unsubscribed, to a lot of the Money magazines - I found their language pretty unhelpful in the long run. With Morningstar and Schwab both online, I could spend hours poring over research data, then place my trades...............

You may want to consdier mutual funds, about which great controversy rages; they charge a management fee, so there are no overnight fortunes made with MF's. They emerged as a way for "the little guy" to buy securities, because many funds have a $100/$1000 threshold for purchase and will accept a continuing or rollover purchase with no limit (payroll deduction). However, you have a greater presumptive protection for the skill of the analysis based on the skill of the fund manager. again. both Barrons and Morningstar will rate various funds based on performance metrics. Some mutual funds are no-fee, meaning no buying service fee, some have a takeout fee, assessed when you sell, some do both.............. Many mutual funds can be purchased directly from the fund manager and you do not need to go through a broker, discount or otherwise. However, various fund families will place great pressure for you to buy within their family of funds, which may not provide you with the longrange diversity that you want.

I've invested in both individual stocks and mf's. Frankly, after the complexities of my wife's health combined with the challenges of managing her health and her financies, I took the whole shooting match into a financial advisor, and we are now invested in private (not generally availabe through public listing) mutual funds that are restricted based on the entry fee. We aren't getting rich, but we have a managed dividend income from the funds, much needed at the moment, and the capital is secure.....

If you go to Amazon.com and enter the search words for stock market investing, you will undoubtedly get a huge array of books..........buy the ones that are the least sensationalized and read them...

There are some financial advisiors who love working with small investors. You might think about finding one that works on a fee-base by the hour, rather than one that provides his services based on the sales of commodities. These folks, if they are good, can help you with estabishing your financial goals in a thoughtful and realistic way. TO that end, the lovely television commercials showing your financial advisor attending your son's wedding and planning your vacation home are pretty much a crock, and I would look for an independent financial advisor, myself. (actually found one, and work with him now.)

Doc.Booty

I've said it before several times. Everyone has their own investment strategy. Do you want to pick a secure investment, or can you stand to lose some of that $1000 you're putting in? The basic idea is the greater the risk, the greater the potential reward.

There are a ton of free stock market simulations out there. Find one and play it for a while, see how you do. If you really focus on it and put some thought into it you'll learn a lot and avoid losing money on simple mistakes. One such mistake i see a lot is people hear something like "Google's stock is up 15% over the past three days! Everyone is getting rich!" and then they go out and buy a ton of shares. But by that time they've missed the boat. Usually, anyways.

The simplest way to do it is to use an online broker like etrade, scottrade, etc. $1000 is enough to get started with them.

Find a stock you like and buy some. Keep in mind that you'll be charged a commission, so you might want to only buy one or two stocks for now. For example, with scottrade i'm charged $7 per trade. If i buy and sell two shares of a stock at $50, i will be out $14. In order to make that up the stock has to rise $7 per share. That's a 14% gain, which is quite a bit. And even after that 14% gain I'm still only breaking even. If I buy 10 shares the price only has to go up $1.4 to cover my commission. 20 shares would only require a $.70 increase. You get the idea.

jdone

Here is some advice I wish someone had insisted I take when I was in my early twenties. Before you invest a dime in the market, invest in this first.

READ THIS FIRST

Adam_Schwartz

It all depends on why you want to invest - if it's for your retirement, then I always say go with index funds and/or blue chippers and reinvest the dividends. I am not investing savvy, so I try to keep my investing strictly to 401k and IRA transactions. Maybe in a few years I will become more savvy to the markets, but until then I will just plan for retirement.

Jinen

Well I would like to save for several reasons:

1) House (Real Estate)
2) Family/Kids
3) Retirement
4) Kids College

I'm not married yet and don't have any kids, but this is all for the future...

ric

all great reasons to build up a nest egg. Read some of the less hysterical literature out there on investing - and know that your goals are all longterm. Conversely, at your age, you can afford more risk.

Zippee

"No load mutual funds charge a management fee, "load" funds charge a fee up front similar to a commission as do brokers when you buy a stock.

I'd go to one of the major investment houses (AG Edwards is my favorite) and talk to them and see if you can establish an account. If they are smart they will realize that while you are young and your investment is small right now, you can grow and be with them a long time. Yes, you pay commission when you buy through them but you get a lot of help and advise.

SpeedyV6

Correction: load funds charge a fee up front and charge a management fee.
Exchange traded funds like WEBS, SPDRs, QQQQ, HOLDR's are the way to go. Check out http://www.amex.com & buy the stuff through a discount broker. While you're at it you might want to do a on "efficient frontier"

Zippee

Some do, some don't. Read the prospectus.
You pay a commission on the trade.

Ain't no free lunch, anyway you go it's going to cost you a few bucks.

Adam_Schwartz

That's good you are thinking ahead. Not many do that. If you can get a down payment together early you'll be doing yourself a huge favor by avoiding rent payments.

I like the advice I find on Motley Fool - the advice is typically no-BS, sound advice. In terms of retirement investing, MF convinced me that index funds are a great way to go. But being young means you can invest in riskier funds.

SpeedyV6

Every fund charges operating expenses against the assets under management - no exception. The only exception is that not all charge a sales load.

VeniceBeachTSX

The fact that you would lump these three together under the banner of "security" suggest to me that you should not be investing in individual securities, because you have no concept of the risk attached to different company's stocks. You've picked one old-line financial company (relatively safe, and reasonably valued), one large technology leader with a great history but which by its own admission is entering a phase of slower growth (less safe, and possibly somewhat overvalued), and one very young company with lots of hype and name recognition but also in a business whose long term cash flow is impossible to even begin to estimate (quite speculative and possibly hugely overvalued).

A smaller company won't necessarily mean you can buy more shares. There are lots of small companies with high stock prices and lots of big ones with low stock prices. It depends on how many shares are out there.

With the amount you plan to spend, getting some kind of mutual fund or one of the index ETFs makes sense to me. You can get diversification without a huge investment. Generally speaking, I think mutual funds make sense as the core of your portfolio until you have at least six figures to invest. At that point it is possible to fine tune the balance by adding individual securities to the mix.

VeniceBeachTSX

And many of the ones that do charge a sales load make it a "disappearing load", which means that the longer you hold the fund the lower the load goes. That's fairly common for smaller funds that are looking for stable, long term investors who will not trade in and out frequently. Charge a high back-end load, but make it disappear gradually over 2-3 years. Some of these are not necessarily a bad deal if you plan to hold long term, because sometimes the load will be offset by lower management fees. If you're holding long term and avoid most or all of the load, then it can be a good deal.

SpeedyV6

Operating expenses are an entirely different matter from the sales load. All funds have operating expenses. Back end loaded funds do have a declining back end load which declines to zero but they recoup the load by charging even higher operating expenses against the assets under management.

Adam_Schwartz

I don't see any reason to buy a fund that has any type of load, unless that load is waved over time or you just really want to purchase that specific fund. But it seems like an unnecessary expense when there are so many no-load funds.

Prolanman

What's your tolerance for risk. Will it really hurt you financially if you loose the $1000 on an investment? Consider any type of investing educated gambling. Never put any more into the market than you can afford to loose. A risky, but potentially rewarding investment could be Sirius (Symbol:SIRI). The stock price is a little under $6 a share right now. The target price for a couple of years down the line is $20. In my book a decent return. Don't always go by Analysts Estimates or Fundamentals. There were many companies in the 90's that didn't look great on paper that stock prices went through the roof.

VeniceBeachTSX

As I said, if the load disappears over time, you can end up with a fund that is effectively no-load, and often has lower management fees as part of the deal.

I have seen a few, mostly smaller and privately run, funds that do this. Some of them are almost like hedge funds in disguise. They hit you with a high (but disappearing) back end load that tends to keep you committed to them for the long run, and the manager's primary payday comes from owning a big chunk of the fund itself, not so much from the management fees. There are some real gems out there that follow that pattern. Got to look hard though because they generally aren't promoted by any of the big brokerages or fund management companies.

I think your general premise is correct for most investors, but like any other rule, the "avoid any loaded funds" has many exceptions that can generate real profits if you're willing to seek them out.

VeniceBeachTSX

I find it interesting that you say "the target price for a couple of years down the line is $20," and at the same time suggest that one should not "go by Analysts Estimates or Fundamentals." Where do you think that $20 target came from if not from the same bunch of analysts?

Also note that many of those companies whose stock prices were through the roof in the 90's, are worth nothing today. And most of them had the full backing of all those same analysts and the same promoters who essentially said that fundamentals somehow didn't matter anymore. Many of them were great trades but lousy investments. (Many of them were great trades in both directions.)

SIRI could end up in exactly that category, since it's unclear how or when they'll ever make money. That's not to say that they won't survive or even profit. We just don't know and have no real basis on which to predict. And even if they do survive, they could turn out to be like this one, the darling of the dotcom age that made many millionaires of it's employees, but has never made a penny for the post-IPO investors in their common shares. New businesses like SIRI (and GOOG, and many others) are like that. You can win big or lose everything. They are speculative bets which should never be a big chunk of any portfolio.

Prolanman

As I said, don't always go by Estimates or Fundamentals. I didn't say never. I personnaly think $20 a share for this is on the low side. Sirius and XM are what HBO was 20 years ago. They're more than just another .com, they are technology companies with a product to offer. Sometimes speculative investing is the way to make big money.

It is true that many of those companies from the 90's that spiked are worth nothing now. How many people made money knowing when to get off the ride. Investing is educated gambling. People who make money in the market know that. How one plays the market is determined by their risk tolerance. I personnally have a balanced portfolio.

In the 80's I invested in Mutual Funds. The return then was very good. In the 90's i got more into stocks. My portfolio was tech heavy into the late 90's when I decided to diversify. I've have worked for a stock market data provider for more than 10 years now and have done fairly well with the information that I have at hand and the advice of some of those "Analysts".

Adam_Schwartz

So looking at back-end load funds, these funds typically will require you to pay a load once you sell the fund UNLESS you keep it for X years, right? So that is to deter frequent trading of the fund.

VeniceBeachTSX

Two types of loads: Front end and back end.

Front end requires payment of a sales commission up front.

Back end requires payment of the commission when you sell. Often these are "disappearing" loads, that decrease over time and sometimes decline to nothing. Pretty common in smaller funds whose managers want stable, long-term investors and don't want to have to deal with constant churn. It tends to keep investors in for the longer term.

SpeedyV6

The disappearing loads are backed up with a beefed up operating expense ratio. Once the load dissappears, after a few years, the shares revert to A shares which have lower annual operating expenses. The problem is you've paid outsized operating expenses for several years running. No load is the way to go.

VeniceBeachTSX

I can think of a couple off the top of my head where that's not the case, though it is a common practice.

As I said, for most investors, no-load funds or ETFs are the best way to go, but there can be exceptions to the rule, depending on one's specific situation and goals.