Teach me the stock market

I worked my arse off this summer, and made a lot of money for a teenager. Between that, a small scholarship, and a matured bond, I have nearly paid my entire year tuition room and board--and this is before I start reffing hockey games.

As it is, I currently have what I consider a lot of money just sitting in my bank account (a lot for a college kid). I'm interested in getting into the stock market. After listening to my dad talk about stocks for years, I already know the basic do's and don'ts, buy high and sell low, or somethin' like that. I think I'll be okay with what I choose to invest in, especially because it really isn't that much money.

What I need to know is how to do it... Should I find a broker? Use an online service? How much do these things cost? How do they work?

As always, thanks for the wisdom.

I'm certainly no expert on finances, but I do listen to old Clark Howard quite a bit. Roth IRA through a company like Vanguard (on-line, reasonable fees,) seems like a no-brainer, especially as you've already paid taxes on said money.

Great job getting an early start. Put the money in and DON'T berkeleying TOUCH IT. I.e., don't take it out till retirement...assuming that's what you're investing this money for in the first place.

Also, someone who does know a thing or two about investing would probably tell you not to put all your eggs in one basket. Diversity is good. On the flip side, being young, you can afford to be pretty aggressive in your choices. Some mutual funds will basically give you the option of putting a certain portion of your dough in "High risk, medium risk, and low risk" funds. Again, as a young'n, you can afford to put a bigger chunk in riskier stuff, with a possibility for higher return.

Then again, you probably shouldn't listen to me, as I'm an old guy who blows all his cash on dumb E36 M3.

Start reading the Wallstreet Journal every day!

I think something is going to go down in the natural gas market but what do I know.

mtn wrote: As it is, I currently have what I consider a lot of money just sitting in my bank account (a lot for a college kid). I'm interested in getting into the stock market. After listening to my dad talk about stocks for years, I already know the basic do's and don'ts, buy high and sell low, or somethin' like that. I think I'll be okay with what I choose to invest in, especially because it really isn't that much money.

OK, couple of things - I can't really help with the "where do I put my brokerage account" as I'd need to research that myself for the US.

That said, the important question here is - do you want to invest or trade? There's always a little confusion over the terms but I'd say that if you want to keep the money in there longterm and you only do a couple of deals a year, then you're investing. If you're changing your portfolio every day then you're trading, your goals will be different (short term profits vs long term profits) as will your cost base. The best thing you can do if you want to invest is either look at an index tracker or three or research the stocks you invest in carefully, buy them and don't look at them for the next five years.

Personally I wouldn't do either with money that I'd need in the next 5-10 years which is why I'm only trickling small amounts into my dealing account and put the rest into savings accounts.

Another tip that I found useful was to do a little paper "trading", ie build a pretend portfolio without actually buying the stocks and track that in something like Yahoo Finance so you can get a feel for the whole thing.

Oh, and if you're looking at trading - the best advice ever I heard from a trader in response to "what do I need to do to make a living off trading" was "get a day job".

Just remember you're buying companies. Most important thing to do is avoid buying ones that aren't making money, are making money but you can't figure out how (would have kept a lot of people from investing in Enron...), or make crummy products. Second most important thing is avoid paying too much for them. A mutual fund like what Poopshovel suggested may be the way to go if you're more interested in a good way to grow your money than being hands-on. You can find mutual funds you buy directly, without a broker, and have very low fees, just make sure it's buying stuff that makes sense.

I lost ~$200,000 at the last downturn, maybe I'm not the guy to ask....

A mutual fund that is geared to mimic the changes in the S&P 500. This is one:

http://finance.yahoo.com/q/ta?t=5y&s=IWV&l=on&z=m&q=l&c=&c=%5EGSPC&c=%5EDJI

Use a cheap on-line broker service like e*trade or Scotttrade.

what poopshovel said... a Roth IRA the money grows TAX FREE at age 59 1/2 when you can start taking it out without penalty you pay no taxes on the growth .... continue putting the max allowed ( at this time that's $2000/yr) you will be able to retire with well over $ 1,000,000 regardless of any 401k's or brokerage accounts you may accumulate as you go

as far as stocks / funds I would research the heck out of anything you plan on buying... learn for web sites like the Motley Fool and places they recommend

The limit for Roth is $5000, not $2000.

In addition to the Roth account I have with American Funds, I have a Roth account with Sharebuilder. There may be better online brokers, but I already had an ING savings account I wanted to link to. Setting up the Roth was very easy and I can use it buy anything that sharebuilder has access to. Currently I have that account all in Apple, which I am not complaining about lately :)

Do you need to have the money accessible (liquid) or is this the start of your long-term planning?

I'm a Financial Education Specialist. I teach between 2 and 5 financial education classes per week. Here the schpeel I give my students word for word:

Stocks are worthless. Let me repeat that, stocks are worthless. One more time now, stocks are WORTHLESS. They are a piece of paper that a company sells with a promise to pay out a yearly dividend. They never have to pay the dividend. They never have to buy the stock back. And as a stockholder you basically have no rights when they go bankrupt. Ask the people who own GM stock.

If you really want to risk investments in unsecure, non-insured ways I recommend bonds. They are secured debt, you have more rights than stockholders (ask the bondholders at GM), and they have to give you the money at the end. This means you buy the original bond and hold onto it until maturity. Day trading bonds is like playing Russian roulette fully loaded.

If you're going to buy bonds, look into US Treasury bonds. They may not pay the most, but they will pay.

My personal advice is to invest in CD's, classic cars, real estate, and hen's teeth. They are all a better investment then stocks.

Remember, stocks are worthless.

I don't know much either than I"m young and have my 401k going 25% into 4 different funds, one is my company's stock plan.

The other three are the most aggressive returns of the plans I could choose from (I'm willing to tolerate the risk at 27, I know one is a foreign money exchange and another is a BlackRock high yield bond fund), so far this year I've earned a 14% return on my 401K.

I do noload index funds and very low fee ETF's through scottrade. I like my investments to go on automatic, for example $50 a month to go to a certain fund. It is an absolute beeotch to set this up through scottrade, so I'll probably be dumping them soon.

I don't buy the stocks aren't real argument. Same with the Our currency isn't backed by gold and therefore it's worthless argument. If someone is willing to pay money for something, anything; that item has worth.

btw.. start early.. I stared in my mid 20's and I don't think I have enough saved up for my current age. I'll just have to make up for it by getting a gigantic salary and a parachute made of gold.....

914Driver wrote: I lost ~$200,000 at the last downturn, maybe I'm not the guy to ask....

So, what were some of your lessons learned?

I'm guessing that you were not really well diversified (had a few individual companies, not several mutual funds), and perhaps that you unloaded stuff when the market was down. Am I close?

I had paper losses too, but I stayed in (in fact I bought a little more when things were down). I've recovered 2/3 of the "losses", and gained a lot of shares, so my accounts will be back up to their original value long before the market gets back to where it was.

Josh wrote: The limit for Roth is $5000, not $2000. In addition to the Roth account I have with American Funds, I have a Roth account with Sharebuilder. There may be better online brokers, but I already had an ING savings account I wanted to link to. Setting up the Roth was very easy and I can use it buy anything that sharebuilder has access to. Currently I have that account all in Apple, which I am not complaining about lately :)

you are right...my bad... it's $ 6000 for us old farts...

P71 wrote: Remember, stocks are *worthless*.

Sure they are. So are dollar bills, but I don't mind having a few.

914Driver wrote: I lost ~$200,000 at the last downturn, maybe I'm not the guy to ask....

Well, if you started with a million, I'd call that pretty damn succesful.

mtn:

Congrats on saving a bit!

BoxheadTim was right- do you want to invest or trade?

I'm big on investing. I think (day) trading is kinda dumb.

Well, I have met a few people who made money trading in a way that we'd probably consider day trading. I've also got some idea of their mathematical abilities and the computing firepower (both hard- and software, the latter usually created by themselves) they use in the process. Trust me, Joe Average Investor won't have much in common with those guys. Plus, they have different goals.

While I don't agree with P71 on some of his comments re stocks, he has got a few very valid points - stocks make you a part owner of the company so if the company falls off the edge of the world, so does the value of what you hold.

I think a couple of important points are that you should invest in what you understand; If you're a classic car or bike expert, it makes sense to use that expertise and put some money into one of those. Keep in mind that you're looking at making money that way so you'll have to keep the investment into it below the resale value, which rules out most resto projects. If you look at, say, stocks, mutual funds or ETFs, you have to understand exactly what you are buying. Especially with ETFs and managed funds, there are a lot of little stumbling blocks that you are likely to find only if you read through the small print very carefully.

Whatever you do, set the time aside to become reasonably proficient in it before you risk large amounts of money (that's large to you, not large to Goldman Sachs). If you lack the time or interest to do that, you might be better off sticking it into CDs etc.

I'm not a financial advisor or investment professional, so take my suggestions like everything else you find on the internet, with a large grain of salt. I do have a little understanding about trading which helps given that I write various kinds of trading software for a living . That said, most of my "investments" have two or four wheels, half of them don't work and the rest of the money is either a house that is losing value or in various tax-efficient savings accounts. OK, I do have a little money in stocks via an index tracker ETF, but that's it...

What investments funds have you guys found to be the best for return at this time?

aussiesmg wrote: What investments funds have you guys found to be the best for return at this time?

12-packs of beer. You still lose all of your money but at least you're happy about it.

Seriously though, if you want to be a part-owner of a company buy their bonds! They're rated like a credit rating, they're secured debt, and they have to pay you for them! And when the company goes under (which is happening a lot right now) you tend to get more of your money back.

Stocks were invented for boards to pay themselves profits in the form of dividends. If you're not buying a stock for dividends you are doing it incorrectly. Think of it like a car, you buy a car to drive it. So if you buy a car and leave it in the garage and never drive it do you really make any money? Think of all those ridiculous "9 original miles" Anniversary and Pace Car Corvettes you see at auctions that barely bring more money than the nice quality drivers. Not to mention the drivers cars were actully used and enjoyed.

Rangeball wrote: Do you need to have the money accessible (liquid) or is this the start of your long-term planning?

Both. I plan on starting an IRA, I knew I was going to do this within the next two years before I even started this thread.

Otherwise, the liquidity stuff is really where I need advisement. And FWIW, I only plan on putting about 10% of what I have into liquid forms.

For taking a look at the whole picture:

http://www.amazon.com/Complete-Idiots-Guide-Personal-Finance/dp/1592578837/ref=sr_1_1?ie=UTF8&s=books&qid=1251669924&sr=1-1

Order has been placed

mtn wrote: Order has been placed

Cool.