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How do I Stock Market?

ErandusErandus Registered User
edited October 2008 in Help / Advice Forum
DISCLAIMER: Please no advice about now being an unsure time to invest. I am aware of the current financial issues in the US.

Lets say that hypothetically I want to waste a little money on the stock market. I don't want to do anything fancy. I just want to buy $X amount in some stocks, and some day sell them. What is a simple way to do such a thing? E-Trade? I'm not looking for a vast portfolio where I need a financial advisor and up to the minute updates. I have a little money that is fully disposable right now, and I have never gotten into this sort of thing. I just want to spend a little money in and see if it goes anywhere, and some day take it out for hopefully profit, or laughs if it all goes away.

Educate me on simple basics.

Erandus on
[SIGPIC][/SIGPIC]
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Posts

  • cloudeaglecloudeagle Zhu-Li, do the thing! Registered User regular
    edited October 2008
    I know that you put that disclaimer on there, but seriously, things are NUTS right now. Stocks are going violently up and down in ways that have little relation to how the company's actually performing, since people are acting out of fear. Even investing in a perfectly good company at the moment could cause you to lose money due to the damn investors acting like meth-addled lemmings.

    Personally, I'd suggest a good mutual fund. You money is spread around into a number of stocks, which lowers your risk. Also, since the market is down, you'll be buying more shares of the mutual fund, which means your investment will increase that much more when the market goes back up.

    Honestly, individual stocks are vastly more risky than mutual funds, even when the market is calm.

    3DS: 0344-9335-6762
  • ErandusErandus Registered User
    edited October 2008
    The advice is fully noted. I haven't decided what to do with the money. Let it be known that the money I'm talking about is not what I personally would consider "a lot" and it's not money I need. I'm not banking on it for retirement or anything. This is disposable money and I haven't decided what to do with it, but the main point is I realized that while I have an interest in the stock market, I have no idea on very basic and simple levels how one invests into stocks outside of asking a financial advisor to do it for you.

    If I were to very simply want to throw in a little money, and move it around occasionally based on my whims, and likely lose it all, where can I do such a thing with minimal transaction fees and confusion?

    [SIGPIC][/SIGPIC]
  • ImprovoloneImprovolone Registered User regular
    edited October 2008
    I have a few Schwab accounts, but I've also heard good things about e-trade.

    Voice actor for hire. My time is free if your project is!
  • cloudeaglecloudeagle Zhu-Li, do the thing! Registered User regular
    edited October 2008
    All right then. E-trade is fine for online stock trading, assuming you already know which stock you want to get. They'll charge you X amount of money per trade, so I'd do it all in one go.

    3DS: 0344-9335-6762
  • grungeboxgrungebox Registered User regular
    edited October 2008
    Caveat: I only buy mutual funds, mostly for the reasons listed above, so take my opinions with a grain of salt.

    Assuming you are 100% sure you can lose this money, you should probably avoid etrade. There are cheaper online brokers out there. Zecco is free for up to 10 trades a month if you have $2.5k (and I think $4/trade otherwise), and Sogotrade is around $3/trade. Scottrade is I think $7/trade. I have never used any of those, but I have a friend that has stocks through Scottrade and is happy. Also, Wells Fargo and Bank of America offer relatively cheap stock trades if you have $25k in holdings, I believe. I think Wells Fargo might even be free.

    Quail is just hipster chicken
  • DeShadowCDeShadowC Registered User regular
    edited October 2008
    Now is actually a great time to invest assuming you're planning on keeping them for at least 5 years.

  • ErandusErandus Registered User
    edited October 2008
    Yep, I'm not planning on day trading or anything retarded like that. I'm just lookin into options. If I were to invest anything right now, it would be staying where I put it for years.

    [SIGPIC][/SIGPIC]
  • DaenrisDaenris Registered User regular
    edited October 2008
    I have an account with Sharebuilder from ING. It's free to open, no minimum balance, and trades are like $10 each. Really, I suspect any of the online trading sites are going to be similar. If you search for comparisons you should be able to find a list that compares them on trade costs and minimum balances, which are the biggest differences between most of them. I don't have a link to the site, but I looked at something like that before going with Sharebuilder.

  • DogDog Registered User, Administrator, Vanilla Staff admin
    edited October 2008
    I'm going to second what cloudeagle says, buying single stocks is not a wise investment. Do a mutual fund. Because of the economic situation you will get much more bang for your buck and your money will be diversified into a large number of different things. While the potential for huge gains isn't there, the potential for huge losses isn't there earlier.

    The last thing you want to do is drop a couple grand into a stock and watch it tank to the ground because the company had a bad quarter. A mutual fund is more likely to recover from that kind of situation.

  • ShogunShogun Hair long; money long; me and broke wizards we don't get along Registered User regular
    edited October 2008
    Now is actually not a bad time to invest. Many companies are way undervalued right now, but do understand that the volatility of markets and economies across the country and the globe are what could affect your decision to invest as well as the monies you end up investing.

    I'd like to know what your goals are with this money. Even if its fully disposable play money you still should have some idea of what you'd like to see happen with it.

    steam_sig.png
  • ErandusErandus Registered User
    edited October 2008
    This thread is as much hypothetical "I don't even know how one actually executes an investment of monies into our stock market aside from paying someone else to do it" as it is "hay guyse where do I put my money now?"

    I'm considering an investment, and stocks are one place I'm considering them, and I realized I have no idea how to... do.. that. :D

    I'm not about to pour thousands into the stock market blindly, so don't worry. I'm just curious in general how it's done without a financial advisor.

    [SIGPIC][/SIGPIC]
  • ScrubletScrublet Registered User regular
    edited October 2008
    Erandus wrote: »
    This thread is as much hypothetical "I don't even know how one actually executes an investment of monies into our stock market aside from paying someone else to do it" as it is "hay guyse where do I put my money now?"

    I'm considering an investment, and stocks are one place I'm considering them, and I realized I have no idea how to... do.. that. :D

    I'm not about to pour thousands into the stock market blindly, so don't worry. I'm just curious in general how it's done without a financial advisor.

    If THAT's all you're asking for here, you pick a site with decent transaction fees and an interface that works for you, and you shove money in. It's very easy...any system that takes your money is :) But you do not sound remotely like someone who should be investing in stocks over some of the other professionally managed options brought up earlier here.

    subedii wrote: »
    I hear PC gaming is huge off the coast of Somalia right now.
  • ErandusErandus Registered User
    edited October 2008
    Scrublet wrote: »
    But you do not sound remotely like someone who should be investing in stocks over some of the other professionally managed options brought up earlier here.

    No, I'm probably not a person who should be doing any such thing as investing without help. I'm not sitting here with a stack of cash desperate to sign up for an e-trade account so I can start buying stuff up, either. I am satisfying curiosities and broadly beginning the process of deciding what to do with some money.

    [SIGPIC][/SIGPIC]
  • DogDog Registered User, Administrator, Vanilla Staff admin
    edited October 2008
  • TreelootTreeloot Registered User
    edited October 2008
    Here's what I had to do to sign up for a Scottrade account:
    (If you choose to go with Scottrade, PM me your email address for a coupon code that can get both of us free trades)

    Fill out the form online. It has basic questions like your name, address, and social security number.

    Take a check to my local Scottrade branch office to be deposited in my account. If you don't have a Scottrade office near you you can mail in a check or transfer the money directly from your bank account.

    Wait for the check to clear before buying.


    It's a pretty easy process.

  • ScrubletScrublet Registered User regular
    edited October 2008
    Erandus wrote: »
    Scrublet wrote: »
    But you do not sound remotely like someone who should be investing in stocks over some of the other professionally managed options brought up earlier here.

    No, I'm probably not a person who should be doing any such thing as investing without help. I'm not sitting here with a stack of cash desperate to sign up for an e-trade account so I can start buying stuff up, either. I am satisfying curiosities and broadly beginning the process of deciding what to do with some money.

    I would recommended starting from the absolute basics and google "Investing 101". Make sure you understand all the terminology of investing. For example, you asked here about stocks. Make sure you could read a company's financial statements and pick out some of the important things. This will help you whether you decide to go stocks, or mutual funds, or whatever. Going to several different sites all giving basic overviews will help because each of those overviews will hit some things the others didn't.

    If this is really something you're interested/curious in, you'll enjoy your experiments a lot more with background knowledge then if you open an e-trade today and invested some money randomly. Also, you may find this becomes a hobby for you as well as something to make some money off of. Search around your area for investment clubs, and you may be able to get some experience fromother people who started with the level of interest you currently have.

    subedii wrote: »
    I hear PC gaming is huge off the coast of Somalia right now.
  • ErandusErandus Registered User
    edited October 2008
    I appreciate all the solid advice. I have a lot of reading to do. :D

    [SIGPIC][/SIGPIC]
  • FeralFeral Who needs a medical license when you've got style? Registered User regular
    edited October 2008
    Erandus wrote: »
    Scrublet wrote: »
    But you do not sound remotely like someone who should be investing in stocks over some of the other professionally managed options brought up earlier here.

    No, I'm probably not a person who should be doing any such thing as investing without help.

    I'm going to repeat what others have said and say that buying individual stocks over a mutual fund is foolish.

    If, hypothetically, you were to go about doing it, you would open up an account on an online trading website (E*Trade, Ameritrade, and Scottrade are some examples), deposit some money in, and start buying stocks. You would pay a fee for each transaction - usually $7-10 - and some services will charge you if you do not maintain a minimum balance with them. Keep in mind that there is usually a 15-30 minute delay when making a transaction.

    However, there really is no point to stock trading on your own. It's high-risk and over time a layperson is highly unlikely to beat a mutual fund. If you're young and you want high rewards over a long term (20 years or more), invest in a small-capital high-risk high-yield mutual fund with low management fees. If you want a less risky, medium or short-term investment, invest in an unmanaged index fund.

    When you talk about this subject online, you will get people saying, "Hey, stock picking can work!" Yes, it can work in much the same way that making money from poker can work. However, you're going up against professionals who do this all day every day, who can react to changes in the market much faster than you can. Over any arbitrary period of time, you are simply statistically more likely to make money on a good mutal fund.

    every person who doesn't like an acquired taste always seems to think everyone who likes it is faking it. it should be an official fallacy.
    the "no true scotch, man" fallacy.
  • RUNN1NGMANRUNN1NGMAN Registered User regular
    edited October 2008
    Go to a casino and play some blackjack. The chances of making money are much better and they give you free drinks.

  • ErandusErandus Registered User
    edited October 2008
    RUNN1NGMAN wrote: »
    Go to a casino and play some blackjack. The chances of making money are much better and they give you free drinks.

    I like the cut of your jib, son.

    [SIGPIC][/SIGPIC]
  • cloudeaglecloudeagle Zhu-Li, do the thing! Registered User regular
    edited October 2008
    robothero wrote: »

    Hell fucking yes. These guys are aces. In the last three months my mutual fund with them lost just a couple dozen dollars. Compare that to my 401k, which lost 22% of its value during the same time (rather not say what the dollar figure was there, aside from "ouch.").

    Actually OP, I can respect wanting to give the market a try, but if you're genuinely wondering what to do with your money, I can't stress enough how important it is to start saving for your retirement now. The younger you are when you start putting your money back, the more money it'll make in the future. You'd be shocked as to how much more money a person putting away a small amount per month starting at age 25 will have vs. a person putting away the same amount per month at age 30.

    3DS: 0344-9335-6762
  • DogDog Registered User, Administrator, Vanilla Staff admin
    edited October 2008
    I'm slightly biased because I actually work for Vanguard, but I'd probably invest my money through them regardless.

  • cloudeaglecloudeagle Zhu-Li, do the thing! Registered User regular
    edited October 2008
    Well, I don't work for them and I'll shout them from the rooftops. Somehow keeping my losses low while significantly boosting the number of shares in my fund has that effect on me.

    3DS: 0344-9335-6762
  • Limp mooseLimp moose Registered User regular
    edited October 2008
    Go here http://www.fool.com and read the following. It will require you to sign up for a free account. GIVE THEM YOUR EMAIL IT SOOOOOOO WORTH IT!

    HOW TO INVEST http://www.fool.com/investing/beginning/how-do-i-invest.aspx?source=iibedihpb0000001


    WHAT SHOULD I INVEST IN http://www.fool.com/investing/beginning/what-should-i-invest-in.aspx?source=iibedihpc0000001

    Then just continue to read. This is some of the best free financial advice you can find. Also their forums are amazing! Anytime you are going to make a large purchase READ READ READ. These guys will save you vast amount of dollars.

    Not to mention they have free accounting software. Their mint program will do accounting for you and keep track of all your spending. The fool showed me that I was spending over $400 a month at a particular bar i frequented. I had no idea it was that much and resolved to go less and banked an extra $200 bucks a month that I had been spending on drinks.

    I cannot recommend these guys hard enough.

  • DixonDixon Registered User regular
    edited October 2008
    Shogun wrote: »
    Now is actually not a bad time to invest. Many companies are way undervalued right now, but do understand that the volatility of markets and economies across the country and the globe are what could affect your decision to invest as well as the monies you end up investing.

    I'd like to know what your goals are with this money. Even if its fully disposable play money you still should have some idea of what you'd like to see happen with it.

    This is pretty good, around january will prob be the best time to invest once the stocks stop bottoming out. That why you see all the gold commericials people are looking to buy into physical investments while the currency goes to shit, so it depends what you invest into but sometine with a physical value would be best

    26fc6af3297009c3.png
  • nomenome Registered User
    edited October 2008
    Since you said you would like to buy and hold I would recommend against etrade. They charge a inactive fee every quarter and their commissions aren't all that great. Go with Scottrade which has no maintenance fees or inactive fees or anything like that. They also only require $500 to open a cash account. If you want I can give you a referral and give us both 7 free trades.

    If you want to buy into a mutual fund go with Vanguard. They have the best index funds. This may be better then buying individual stocks if you don't know what you're doing. However, they require a $3000 minimum to buy into a fund.

    For a good place to learn the terms and the basics check out http://www.investopedia.com/ Start by reading up on index funds.

    Edit: Removed reference to Zecco. After reading their forums I don't think I'll be recommending them anymore. Lots of complaints about the platform and customer service.

  • GameHatGameHat Registered User
    edited October 2008
    If you're in it for the long run, no crazy day-trading or anything like that -

    I'm talking long run as in 10+ years

    - buy stock in an index fund. Look for one that has a low expense ratio.

    The big fraud of mutual funds is this: even the ones that purportedly "beat" the market on average charge pretty high expense ratios - several percent per year.

    This expense ratio demolishes your returns.

    Index funds in general seek to mirror the market. Because you aren't paying nearly as much to an "expert" to pick winners, much more of the returns will go to you. This of course only works on a long term time scale - had you bought an index fund in 2005 and were looking to cash out in 2008, you'd be hurting badly.

    But on the long term, index funds usually return close to the total market return. For the US, if you could match the massive S&P you might see, over the long term, returns of 11%. Not bad.

  • TreelootTreeloot Registered User
    edited October 2008
    Limp moose wrote: »
    Go here http://www.fool.com and read the following. It will require you to sign up for a free account. GIVE THEM YOUR EMAIL IT SOOOOOOO WORTH IT!

    HOW TO INVEST http://www.fool.com/investing/beginning/how-do-i-invest.aspx?source=iibedihpb0000001


    WHAT SHOULD I INVEST IN http://www.fool.com/investing/beginning/what-should-i-invest-in.aspx?source=iibedihpc0000001

    Then just continue to read. This is some of the best free financial advice you can find. Also their forums are amazing! Anytime you are going to make a large purchase READ READ READ. These guys will save you vast amount of dollars.

    Not to mention they have free accounting software. Their mint program will do accounting for you and keep track of all your spending. The fool showed me that I was spending over $400 a month at a particular bar i frequented. I had no idea it was that much and resolved to go less and banked an extra $200 bucks a month that I had been spending on drinks.

    I cannot recommend these guys hard enough.

    The Motley Fool has all kinds of crappy advice especially on their forums.

    If you want a real investing forum, check out diehards.org or FatWallet's finance forum.

  • grungeboxgrungebox Registered User regular
    edited October 2008
    Treeloot wrote: »
    Limp moose wrote: »
    Go here http://www.fool.com and read the following. It will require you to sign up for a free account. GIVE THEM YOUR EMAIL IT SOOOOOOO WORTH IT!

    HOW TO INVEST http://www.fool.com/investing/beginning/how-do-i-invest.aspx?source=iibedihpb0000001


    WHAT SHOULD I INVEST IN http://www.fool.com/investing/beginning/what-should-i-invest-in.aspx?source=iibedihpc0000001

    Then just continue to read. This is some of the best free financial advice you can find. Also their forums are amazing! Anytime you are going to make a large purchase READ READ READ. These guys will save you vast amount of dollars.

    Not to mention they have free accounting software. Their mint program will do accounting for you and keep track of all your spending. The fool showed me that I was spending over $400 a month at a particular bar i frequented. I had no idea it was that much and resolved to go less and banked an extra $200 bucks a month that I had been spending on drinks.

    I cannot recommend these guys hard enough.

    The Motley Fool has all kinds of crappy advice especially on their forums.

    If you want a real investing forum, check out diehards.org or FatWallet's finance forum.

    Diehards.org is awesome.

    Quail is just hipster chicken
  • DjeetDjeet Registered User regular
    edited October 2008
    If you want an index fund type investment (to take advantage of the low management fees and avoidance of single-stock risk) and can't/don't want to meet the fund minimum (I think fidelity's S&P 500 index minimum investment is $10K) then look into ETFs. iShares S&P 500 index (IVV?) has a real low expense ratio (less than Vanguard's) and you purchase shares like stock, so there's no minimum investment (well, 1 share minimum) and you move in and out at the cost of a trade. You'll also get the limit or market price instead of the day's close price.

    If you're sure a stock is going to move in a direction, you might be better served in purchasing options instead of taking either a long or short postion in the stock. If you bet right you can execute the option. If you bet wrong you let the option expire, and you're out the cost of the option. Here are the wiki links to Calls and Puts.

  • TreelootTreeloot Registered User
    edited October 2008
    Djeet wrote: »
    If you want an index fund type investment (to take advantage of the low management fees and avoidance of single-stock risk) and can't/don't want to meet the fund minimum (I think fidelity's S&P 500 index minimum investment is $10K) then look into ETFs. iShares S&P 500 index (IVV?) has a real low expense ratio (less than Vanguard's) and you purchase shares like stock, so there's no minimum investment (well, 1 share minimum) and you move in and out at the cost of a trade. You'll also get the limit or market price instead of the day's close price.

    If you're sure a stock is going to move in a direction, you might be better served in purchasing options instead of taking either a long or short postion in the stock. If you bet right you can execute the option. If you bet wrong you let the option expire, and you're out the cost of the option. Here are the wiki links to Calls and Puts.

    Options are a very risky thing to play around with.

    I have IVV in my portfolio. SPY is another S&P 500 index ETF that's older and more highly traded than IVV. IVV and SPY both have expenses ratios of about .1 compared to Vanguard's .14 S&P 500 expense ratio. If you invest more than $100,000 in Vanguard S&P 500 index, you can get their "Admiral shares" or whatever it's called where the expense ratio is .07.

  • DjeetDjeet Registered User regular
    edited October 2008
    Why do you say options are risky? Holding a long or short position in a stock exposes you to considerable more risk than holding an option.

    Long Edit:
    OK, I'll try to make a more informative comment. Say WidgetCo stock currently trades for $9.90 and you feel it's going to go up soon. You buy 100 shares for $990 and hold them. It spikes up 20%, you think that's fairly priced or overpriced so you get out, netting $198 profit. OR, it craters down 20% and you decide you've had enough and exit, losing $198.

    OR You buy call options at the $10 strike that expire on date X for $0.20/share. You buy 100 call options for $20 and you wait. Stock spikes up 20% before the expiration date, you execute your option (buying 100 shares at $10) and then sell the stock for a profit of $188 (you must subtract $20 for the option purchase to give the true net gain of $168). OR, the stock craters 20% by the expiration date; you of course let the option expire and are out the $20 option purchase.

    At the cost of upside potential, Call options mitigate downside risk.

    The same is the case for Puts.

    The above information assumes 0 transaction fees AND that if you choose to exercise the option you carry out the complete trade so that you're back to cash with no obligation (execute call and then sell the stock, or execute put and then cover the stock). Executing options and then holding a long/short position certainly exposes you to risk, but no more than just taking the long/short position initially. Executing puts without immediately covering them particularly exposes you to risk (but that's because you can be leveraged, just like in any short position). Additionally, trading "in the money" options can let you take advantage of a bet in movement and avoid some transaction fees.

  • ElJeffeElJeffe Super Moderator, Moderator, ClubPA mod
    edited October 2008
    Djeet wrote: »
    If you want an index fund type investment (to take advantage of the low management fees and avoidance of single-stock risk) and can't/don't want to meet the fund minimum (I think fidelity's S&P 500 index minimum investment is $10K) then look into ETFs. iShares S&P 500 index (IVV?) has a real low expense ratio (less than Vanguard's) and you purchase shares like stock, so there's no minimum investment (well, 1 share minimum) and you move in and out at the cost of a trade. You'll also get the limit or market price instead of the day's close price.

    If you're sure a stock is going to move in a direction, you might be better served in purchasing options instead of taking either a long or short postion in the stock. If you bet right you can execute the option. If you bet wrong you let the option expire, and you're out the cost of the option. Here are the wiki links to Calls and Puts.

    This sounds sort of what I might be interested in right now. I want to start a mutual fund. I have, conservatively, a few hundred upfront and $100/mo to add to it. Is that a reasonable amount of money to get started? Mostly I want to take advantage of the market conditions, but I don't have a few grand to throw at the situation just yet. And by the time I do, it's very possible I'll have missed out on some of the lucrative market craziness. (Like, it'd take me a good year or more to amass enough for, say, the Vantage minimum.)

    [While watching popcorn in the microwave]
    Maddie: "Look Riley, the bag's as big as your head now!"
    Riley: "Hahaha, yeah!"
    Maddie: "Look, now it's as big as your butt!"
    Riley: "Omigosh, it looks just like my butt!"
  • DjeetDjeet Registered User regular
    edited October 2008
    ElJeffe> The only problem with say a $500 investment into an indexed fund like IVV (or some other ETF) is the trade fee. If the purchase fee was $10, thats equivalent to a 2% upfront load. Also when you sell that trading fee is like a backend load. If you have a small amount you want to put to work, and also a regular monthly or bi-monthly contribution you can promise, you may still be able to get into a fund that has a significant minimum investment, provided it's an IRA or 401K account. I haven't set this up, but if you look at the fees and minimums of a fund you should see an amount for entry via a monthly contribution from an IRA. I'll try to get back to this when I have a chance to research it.

    Edit1: Fidelity calls it "automatic account builder" I thought Vanguard did the same, but I cannot find it so I might be wrong (I think it's worth asking about though). If you can guarantee the regular inflow of money to the fund I'd give this serious thought and talk to someone at the financial house in which you're interested. Just understand that if you cannot regularly contribute to bring your investment up to the minimum holding amount you may be assessed fees, and if you have to liquidate to MM funds without holding the fund for a certain amount of time (30-90 days) you may be subject to early trade fees.

    Edit2: And I'm not saying that even with the effective 2% frontend load, that buying into an ETF is a bad trade (it wouldn't necessarily be if the market was oversold); it's just something to know beforehand, because your tiny 0.1% management fee is dwarfed by the 2% entry fee. If you are convinced that the broad market is going to go up, but just don't have the $3K or $10K to get into a fund, buying an equivalent ETF gets you in.

  • poshnialloposhniallo Registered User regular
    edited October 2008
    Are these websites only available to those living in the US?

    I'm in a similar position and I'd like to use something like Vanguard eventually but I live in Japan.

    I speak Japanese but it's distracting when thinking about something complex, so I'd prefer to use English all the way.

    I figure I could take a bear.
  • nomenome Registered User
    edited October 2008
    Treeloot wrote: »
    I have IVV in my portfolio. SPY is another S&P 500 index ETF that's older and more highly traded than IVV. IVV and SPY both have expenses ratios of about .1 compared to Vanguard's .14 S&P 500 expense ratio. If you invest more than $100,000 in Vanguard S&P 500 index, you can get their "Admiral shares" or whatever it's called where the expense ratio is .07.

    Quick question. Is there some reason you have IVV rather then SPY in your portfolio? I just checked real quick and SPY has much more liquidity and tighter spreads then IVV. IVV seems to track its index better for yesterday but beta is .99 compared to SPY's 1.00 so this is probably a fluke. Just curious.

    Edit to add I believe Vanguard allows foreign investors. http://global.vanguard.com/

  • TreelootTreeloot Registered User
    edited October 2008
    nome wrote: »
    Treeloot wrote: »
    I have IVV in my portfolio. SPY is another S&P 500 index ETF that's older and more highly traded than IVV. IVV and SPY both have expenses ratios of about .1 compared to Vanguard's .14 S&P 500 expense ratio. If you invest more than $100,000 in Vanguard S&P 500 index, you can get their "Admiral shares" or whatever it's called where the expense ratio is .07.

    Quick question. Is there some reason you have IVV rather then SPY in your portfolio? I just checked real quick and SPY has much more liquidity and tighter spreads then IVV. IVV seems to track its index better for yesterday but beta is .99 compared to SPY's 1.00 so this is probably a fluke. Just curious.
    http://global.vanguard.com/

    IVV can take control of its dividends received immediately, while SPY's dividends are held in non interest paying accounts until the end of each quarter because it's structured differently. This is a pretty minor difference that won't probably won't matter much over the long haul. IVV and SPY are both good choices for long term investments.
    Djeet wrote: »
    Why do you say options are risky? Holding a long or short position in a stock exposes you to considerable more risk than holding an option.

    Long Edit:
    OK, I'll try to make a more informative comment. Say WidgetCo stock currently trades for $9.90 and you feel it's going to go up soon. You buy 100 shares for $990 and hold them. It spikes up 20%, you think that's fairly priced or overpriced so you get out, netting $198 profit. OR, it craters down 20% and you decide you've had enough and exit, losing $198.

    OR You buy call options at the $10 strike that expire on date X for $0.20/share. You buy 100 call options for $20 and you wait. Stock spikes up 20% before the expiration date, you execute your option (buying 100 shares at $10) and then sell the stock for a profit of $188 (you must subtract $20 for the option purchase to give the true net gain of $168). OR, the stock craters 20% by the expiration date; you of course let the option expire and are out the $20 option purchase.

    At the cost of upside potential, Call options mitigate downside risk.

    The same is the case for Puts.

    The above information assumes 0 transaction fees AND that if you choose to exercise the option you carry out the complete trade so that you're back to cash with no obligation (execute call and then sell the stock, or execute put and then cover the stock). Executing options and then holding a long/short position certainly exposes you to risk, but no more than just taking the long/short position initially. Executing puts without immediately covering them particularly exposes you to risk (but that's because you can be leveraged, just like in any short position). Additionally, trading "in the money" options can let you take advantage of a bet in movement and avoid some transaction fees.

    Options trading is a zero sum game. Whenever someone makes money from buying an option, someone else has essentially lost that amount of money. Once you add in trading fees, overall people lose more than they gain from buying and selling options.

    Additionally, option sellers (investment banks) are generally considered to be more market savvy than those buying options, so those selling them typically come out farther ahead than those buying them.

  • DjeetDjeet Registered User regular
    edited October 2008
    Treeloot wrote: »
    Options trading is a zero sum game. Whenever someone makes money from buying an option, someone else has essentially lost that amount of money. Once you add in trading fees, overall people lose more than they gain from buying and selling options.

    And this is different from trading in other securities how?
    Additionally, option sellers (investment banks) are generally considered to be more market savvy than those buying options, so those selling them typically come out farther ahead than those buying them.

    When investing there is always risk of loss. And it's true that no matter if your options bet is right or wrong, the options writer gets his rake/vig. This is no different then paying a fee when buying an ETF or stock though. BUT trading options is inherently less risky than trading stocks because all you're risking is the option cost, whereas in long/short positions you are risking considerably more. Edit: assuming that you're trading, if you're pursuing "buy and hold" all options can do is perhaps assist you in timing, however I wasn't assuming the options trader would be doing an execute and hold, but rather an execute and sell/cover, or just buying and selling of the option.

    I think everyone would agree that if you don't want risk, stick with CD's, MM, or government bonds. I'm not sure what you're getting at, as you seem to be saying the downside risk of holding options is greater than that of holding positions, which I'd like to understand the reasoning behind. Edit: If you're saying don't play options because they're risky, then you're also saying don't buy stocks because they're risky?

  • nomenome Registered User
    edited October 2008
    Treeloot wrote: »
    nome wrote: »
    Treeloot wrote: »
    I have IVV in my portfolio. SPY is another S&P 500 index ETF that's older and more highly traded than IVV. IVV and SPY both have expenses ratios of about .1 compared to Vanguard's .14 S&P 500 expense ratio. If you invest more than $100,000 in Vanguard S&P 500 index, you can get their "Admiral shares" or whatever it's called where the expense ratio is .07.

    Quick question. Is there some reason you have IVV rather then SPY in your portfolio? I just checked real quick and SPY has much more liquidity and tighter spreads then IVV. IVV seems to track its index better for yesterday but beta is .99 compared to SPY's 1.00 so this is probably a fluke. Just curious.
    http://global.vanguard.com/

    IVV can take control of its dividends received immediately, while SPY's dividends are held in non interest paying accounts until the end of each quarter because it's structured differently. This is a pretty minor difference that won't probably won't matter much over the long haul. IVV and SPY are both good choices for long term investments.

    You learn something new everyday. I never knew this about SPY or IVV. For traders like me the more liquidity the better so this doesn't really affect me. Just another bit of random info that gets stored away with all that other stuff in the back of my mind.

    Djeet I wasn't going to sidetrack the thread by talking about options but you just keep going on about them. Options are not something you would recommend to a beginner who has never even traded a stock before. Options are risky because of the leverage and the time value decay. Everyday you hold that option it loses value. The decay also accelerates as the option nears expiration day. Not to mention according to the CBOE 35% of options expire worthless every month. How many publicly traded companies go bankrupt every month? I can guarantee it is not 35%. You also don't mention the tendency of options to gap up or down overnight. You could wake up in the morning to find your options lost 25% of its value because volatility dropped (this has happened to me). Bottom line options are not for beginners. The OP should stick to index funds and maybe ETFs until he learns what he is doing.

  • TreelootTreeloot Registered User
    edited October 2008
    Djeet wrote: »
    Treeloot wrote: »
    Options trading is a zero sum game. Whenever someone makes money from buying an option, someone else has essentially lost that amount of money. Once you add in trading fees, overall people lose more than they gain from buying and selling options.

    And this is different from trading in other securities how?

    These guys do a good job explaining why trading options is a zero sum game and why buying stocks isn't.

    http://www.theessentialsoftrading.com/Blog/index.php/2007/06/22/the-zero-sum-game/
    http://www.stockjargon.com/dictionary/z/zerosum.html

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