Your Questions About Investing For Dummies

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Chris asks…

How does a person begin to invest in the stock market?

What are the steps? What u need to pay for? What benefits? Can someone let me know cause been thinkin about investing in the stock market?

Justin answers:

There are a lot of different ways. For people just starting out an excellent way is to invest in mutual funds or index funds. Index Funds can be purchased like stocks, by entering an order with a stock broker. Mutual funds can be purchased directly from the mutual fund company.

First I suggest that you go to the library or book store and get a copy of “investing for Dummies”. It will answer many of your questions and it is not expensive.

The main advantage of mutual funds and index funds is that they provide a person with a diversified portfolio with a limited investment and diversification is good. 70% of mutual funds do not perform as well as the market in general. Consequently, index funds have become very popular. They attempt to mirror the return of the portion of the market they are attempting to index such as large cap stocks, mid cap stocks, small cap stocks, etc. There are hundreds.

Yahoo Finance has a good tool to screen mutual funds and here is a good site to evaluate index funds and closed end funds.

Http://www.etfconnect.com/

William asks…

What type of professional would I consult to help me invest in individual stocks?

I have about $700 dollars to invest on a monthly basis. I have been learning about stocks for a few months now but it really takes time to research a company’s finances and track performance. This is time that I just don’t have. Would I consult with an investment banker or someone who does financial planning?

Justin answers:

I understand your frustration. There are several problems with finding someone who will do this for you.

First, a professional charges a minimum fee for each transaction, therefore one fee for buying and one for selling. Assuming the minimum is $35 it will cost you $70 per stock. Therefore, you will need a 10% return before you begin to make any profit. It also narrows your choice of stock as you would need to limit your choices to stocks that are less expensive. Some ‘professionals’ are simply investment representatives who have been hired for their sales skills and have no background in financial planning. They will recommend whatever their company is pushing or whatever they have heard someone else is selling. Their sales skills will be top notch but their knowledge will be less than yours. Make sure that they have at least achieved the status of Certified Financial Planner and not just their license to sell. You will notice that some of these salesmen answer questions on this site as a way to promote their company.

Most of that fee goes to the company and very little goes to the advisor. As he is only performing one transaction for you in every month, he will make very little time for you. It is not worth his time and effort until your account grows to a substantial amount.

Many advisors do not have the education or inclination to research stocks and recommend them to clients. Large financial firms have research departments that recommend particular stocks that the advisor can choose from. These picks are usually large companies that are a safe bet.

You could, with minimal research, choose to buy either a mutual fund, where you pay a money manager to make the buys and sells, or an ETF which is like owning a piece of the market.

Many of the online brokerages have excellent research material available. With a little time and effort, you could do your own buys and sells at a much lower cost to you. As you would only be buying one stock per month, you could set aside one evening to do research and choose a stock.

The key to making money is to diversify and to have an exit plan. Diversification is more than buying different stocks. It means that you have investments that include cash, bonds, equities, etc. Chosen from different countries and in different fields. Your exit plan could include stop losses, options, etc. Always remember that “what goes up, must come down”.

There is a book called Investing for Dummies which is an excellent book to get you started. It would also be a good idea to use one of the accounts with play money so that you become familiar with procedure and the wisdom of your choices.

For a fee, you can consult with a financial advisor who charges you for their time but does not sell any products. They can set up a plan for you to help you get started, taking into account tax consequences, etc. You could make this an appointment that you keep on an annual basis.

You can also visit the websites of a number of financial planners in your area. What stocks do they have listed on their sites? What items do you buy on a regular basis? Are there any items that you have recommended to others? Do some research on the company that produces those items – would they be a good investment? Do you want solid blue ship stocks or a shooting star?

Thomas asks…

how does investing in stock work?whats the recommended book to read in order to learn how to do this?

am plannin on investing in stock but i have no idea how to do that.i mean i have never done this b4 so am just tryin to grow some couple of hundred dollars?can i start with 4 dollars?

Justin answers:

“Investing for Dummies” No disrespect intended but it is a good primer.
Investing in stock means you buy a small piece (stock) in a company. The price varies with the public’s desire to have those shares – more desire means the price rises. Investing in a single companey’s stock is a little risky (and the smaller the company usually means even more risk).
You may want to look into investing into mutual funds. Mutual funds are like a package of all different types of companey’s stock put together by a fund manager. This lessens the risk since you are more diversified. (If a few of the companies do poorly than several others within the mutual fund may do well offsetting the poor ones.
Stock you may buy in share increments and mutual funds usually by a dollar amount – say $1000 worth. Usually the brokerage firm you use for investing has a minimum purchase amount – unless you do it online yourself.

Charles asks…

How can I invest to increase my money? And what are the best things to invest in?

Many people say that investing is a great way to increase your money, however I have no clue where to go or what to do to invest.
Thank you all so much for your answers 🙂

Justin answers:

You’re getting a lot of self-serving responses, here. Try this formula instead.

An introductory book like _Stock Markets for Dummies_ is a good place to start. This will give you a basic explanation of most things there are to know about the mechanics of stock investing.

Investors Business Daily (IBD) is a solid daily resource (and its complement, www.investors.com ). It’s a better newspaper than the Wall Street Journal and it is built around a particular approach to trading. You could read _How to Make Money in Stocks_ by William O’Neil too–he’s the founder of IBD.

Search your local library for other books on stock investing. Try to absorb as much knowledge and understanding as you can.

After you have extensively researched and gained a solid foundation/education then look to open a brokerage account and paper trade–this is trading with play money before you put real capital at risk. You should do extensively before you eventually place your first trade live. Your early live trades should be with a very small position size. Only increase position size when you have done well to limit losses when the market has turned against you.

Robert asks…

How to get started with investing?

I’ve recently become interested in starting some small investments. The only somewhat applicable knowledge I have is from micro/macroeconomics classes in high school a couple years ago, but that’s not enough to really get a good start on investing. I’m not looking to invest in anything specific yet, but I do want to be knowledgeable about it and informed, so what are some good resources be it websites or books to go about starting?

Justin answers:

I got a book called
Investing for Dummies
^ not an insult – it was a great book
I already traded stocks and ETF’s – but this book had quite a bit on info I did not know
It also had a chapter on different discount brokers, what they offered and their fees

Michael asks…

How should i begin investing in the stock market.?

I’m interested in investing some money in the stock market and have never done it before so i wanted to know how to start abd how much i would need for my initial investment

Justin answers:

Actually a better book is “Stock Investing for Dummies”, author Paul Mladjenovic.

Http://www.amazon.com/Stock-Investing-Dummies-Paul-Mladjenovic/dp/0470401141/ref=sr_1_2?ie=UTF8&s=books&qid=1246322261&sr=8-2

$500 would be the minimum needed to open an account (at Scottrade.com).

How you invest depends on your age, your goals, and how much risk you are willing to accept. But, a good lesson is to “Buy what you know”. If you are familiar with Wal*Mart and like shopping there, you can buy their stock. Also, stay in tune with the President’s initiatives. Obama is all about clean energy, so think about investing in solar companies, or wind farms (harder to find), or things like that. And lastly, DON’T listen to Jim Cramer or people like me!! Lol

Ken asks…

Are there any good websites or books about investing?

I’m only 14 but looking to invest around $400, I know just a little bit about investing and was wondering what good websites or books are out there for beginners.

Justin answers:

Here’s some books that will help educate you about the investing world and the stock markets
Investing for Dummies by Eric Tyson
24 Essential Lessons for Investment Success by William O’Neil
Beating the Street by Peter Lynch
Common Stocks, Uncommon Profits, by Philip A. Fisher
From Riches to Rags, by I.C. Freeley
How to Make Money in Stocks” by William O’Neil
One Up on Wall Street by Peter Lynch
Stocks for the Long Run, by Jeremy Siegel
The Battle for Investment Survival, Gerald Loeb
The Intelligent Investor, by Benjamin Graham
The Interpretation of Financial Statements by Benjamin Graham
The Lazy Person’s Guide to Investing by Paul B. Farrell
What Works on Wall Street by James O’Shaunessey
You Can Be a Stock Market Genius by Joel Greenblatt
Your Money and Your Brain by Jason Zweig

Get into the habit of making daily visits to some websites like MSN Money and Yahoo Finance. (http://moneycentral.msn.com/home.asp , http://finance.yahoo.com/
Other website that can provide instructions and help with procedures and terminology are Investopedia – http://www.investopedia.com/ http://www.investorshub.com/
Visit some of the more professional websites like Zacks Research – http://www.zacks.com/ Smart Money – http://www.smartmoney.com/ Schaeffer’s http://www.schaeffersresearch.com/ Investors Business Daily – http://www.investors.com/default.htm?fromad=1
Naveller – http://navelliergrowth.investorplace.com/portfolio-grader/
Some of these web sites will have advertisers who are worth looking into also. And remember, if they offer free information, get it.

Good luck, even though you can not open a brokerage account or use a brokerage account until you are 18, there’s no reason why you can not start your education now.

James asks…

Is it good to invest in stocks at this economic times being a rookie ?

I am completely new to stocks
I never brought a single stock in my life
I never invested in stocks or in any other thing.

I have around 10K in savings and wanted to know if investing this in stocks is a good decision or not?
especially at this economic downturn in USA.

I live in Chicago USA

Any best site where you suggests for a rookie stock purchaser like me ?

Justin answers:

If you want to get started, Fidelity is a good broker. You should read a copy of “Investing for Dummies”. That will get you started learning the basics.

This is not in my opinion a real good time, but there have been worse times. There have also been better times. There are what appear to be some real good bargains out there now, but that might be a mirage.

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