The new forums will be named Coin Return (based on the most recent vote)! You can check on the status and timeline of the transition to the new forums here.
The Guiding Principles and New Rules document is now in effect.
So, I want to invest in some stocks.
Hypertime
Arlington, VARegistered User regular
Arlington, VARegistered User regular
Not much, just around $3,000 and it'll just be about 10 shares or so in one company. Does anyone have experience with online discount brokers like Ameritrade or Etrade? Any positives or negatives? I don't plan on too many transactions, so I don't think I'll run into too many fees. Any advice would be a great help.
Your mom.
Hypertime on
0
Posts
edit: also, if you're just looking to play around, and not get serious with it, then e-trade and ameritrade usually offer your first few transactions free, so I'd do that. If you think there is any chance of actually getting into stocks though, and you want good advice and someone to look after your investment, use a brokrage firm.
For the OP, my grandpa bought me about $2500 in 3M stock in '92, I believe. They were an xmas gift "for the rest of my life" or at least until college, and he popped another $500 in there in '94. He died a year later, so they just sat for 5 more years. By 2000, that sum had gone up to a little under $5000. "hooray, I earned money" i thought at the time.
Now that I'm older, I realized that I had all the growth of a regular ol' CD with none of the security. In other words, I had earned about 6 or 7% interest, but only because 3M had some good years towards the end. If I had "cashed out" in 97 or 98 I would've earned probably 3% (worse than a CD). Conversely, a CD is FDIC insured, so it's about as stable as can be.
Another point of comparison that it's not all rosy, when he passed away I inherited $3000 in an Oppenheimer mutual fund. It rose and rose with the rest of the tech boom of the late 90's, earning about 7% interest. Then after 2001 (the year I cashed it out to pay for my last year in college), it performed for shit. My parents kept theirs and saw 2% loss each year for 4 years until they got rid of it.
The point of these stories is that if you just want to support a company, buy their stock. If you're just looking to sock $3k away in a place where it will earn money for you, I'd suggest a CD (to earn over 5%) or, if you want strong liquidity, open an ING or HBSC account (both of which are high-interest savings accounts, over 4%) or open a Charles Schwab checking account which is *also* high interest but lets you use any ATM in the country w/ no fees (they pay for the fees) and you can also get checks.
If you're looking to invest for retirement or for long-term savings, there's many options, but there's few reasons to put only $3k in stocks, especially nowadays.
I'll agree with this, put like 2500 in savings or a good mutual fund with some security, and dump 500 into some fun stock just so you can say you have it.
Honestly I would run a paper portfolio (www.investopedia.com has a great simulator you can play around with) for 6 months so you can get a handle on the market and see where your investments paid off and where they didn't. If you feel confident in your ability and are reading research / etc. you should then either hit up TD Waterhouse or Fidelity's brokerage site - you could do Ameritrade as well. I'm not sure what the brokerage fees are but TD shouldn't be that bad.
But I wouldn't put any money down until you're comfortable with noting why you are entering a position, why you are staying in it, and why you exited, and what your return was during said investment. 6 months is still a really short time to run such an experiment, but it seems like you're eager to get started
EDIT - Also I can't in good conscience tell you to invest 100% of your risk capital in one company. It's your money, but you're assuming a lot of risk with such a concentrated holding.
I was considering a mutual fund, but my research and gut tells me that Apple will hit $250 or $300 (not accounting for a split) in the next three to five years. The $3,000 is a chunk of money that I'm willing to risk and can let sit for a while if the stock hits a downturn. Basically, if it disappeared I'd be a bit peeved, but I wouldn't be hurting.
Essentially, I'm planning to get in on the post-Macworld '08 dip and keep my stock investment for at least two years.
If I were investing $10,000 or more for a longer period, I would've definitely gravitated towards mutual funds to defer risk and hopefully come out with a nice return. As it stands now, I have more personal confidence that Apple will hit substantially higher numbers today given their current performance (especially retail, notebook and iPhone sales) and future outlook than I do over a fund manager over a broad spectrum of relative unknowns (to me at least).
You seem to be fairly educated in this case, and there are a couple of different sites that would let you do this for really cheap (like, $4 or something) since you plan to hold on to the stock for awhile (mostly sites that only let you trade on Tuesday). However, something to consider is that your contributions to your 401(k) are tax-deductible (if you haven't made the maximum contribution). What tax bracket do you intend to be in next year? Say your highest bracket (and therefore where this contribution would go) is 25%, and your 401(k) has an average annual growth of 7%. Since it's tax-deductible, your contribution to your 401(k) only costs you $2250. Buying Apple stock, however, is going to cost you a little over $3000. At the aforementioned 7% interest rate, the $2250 you contribute to your 401(k) would turn into about $4200. In order to match that level of growth, the Apple stock would have to average a 13% annual growth rate. Oh, and while the dividends you pull in on your 401(k) wouldn't be taxable (until after you retired, anyhow), all the dividends you got from the Apple stock would be hit with a 15% income tax. Keep in mind that, over time, this difference becomes smaller, but you'd have to stick with that Apple stock for a very long time indeed before you'd only need it to match the 7% generated by your 401(k). Over a three-year term, Apple would need around a 16% growth rate to match the 401(k) at 7%.
If you come in at a lower tax bracket, or have already hit the max for your 401(k) contribution, obviously a lot of this isn't going to apply. If you're in a lower tax bracket, or your 401(k) pulls in less than 7% average annual growth, the difference will be less pronounced (though, if your 401(k) pulls in less than 7% on average annual growth, you need to switch 401(k) plans); if you're in a higher tax bracket, or your 401(k) pulls in more than 7% average annual growth, the difference will be more pronounced.
While what Thintos wrote is certainly true its important to note that when you withdraw from your 401k, even if you're of retirement age, you will then have to pay taxes on the withdrawl making the majority of the comparison he made moot. Whether you're taxed when you put the money in or when you take it out, it turns out to be the same result... assuming you're being taxed the same rate at both times. This is why roth IRAs are generally considered to be for younger people (its assumed you're in a lower tax bracket when you're younger than you'll be when you retire).
However, you could certainly take into account what tax bracket you're in now, and what bracket you'll likely be in when you retire, and how you expect taxes in general to change over that time.
I think what I wrote is true, I could be mistaken and I hope someone would tell me if I am.
So once you're retired you're still earning money on your saved money, and you're also withdrawing some of the principle. If you've planned it out well, and had the desire to, you could certainly make more money once you retired than while you were working (after all, if you want to travel or something once you're retired it would make sense to plan it out so you'll need more money, now that you can travel/do things 52 weeks a year).
Add into the whole compound interest thing on your investments and the general rule that taxes go up over time and its not so hard to imagine you'll be withdrawing more per month/year than you were putting in.
However, it IS a risk (while the IRA is not a risk... I believe an IRA is FDIC insured which means that no matter what happens, you WILL get your money). If you're willing to potentially lose the entirety of your investment, and are doing it mainly for entertainment, I say go for it. If you're not in a financial position where, in the worst case scenario, you can lose that money... don't do it, and throw into Certificates of Deposit or your IRA.
I invest small amounts of money in the stock market, mostly for fun in high-risk stocks. It's important to realize that you may lose it all, and not put in more than you are comfortable with... but I find it to be thrilling, especially with the high risk ones. Companies that are at the cusp of either total disaster or complete success are poor investment choices compared to a stable IRA, but they can be fun to watch... and rewarding if they manage to succeed. (of course, they can also wipe out your investment overnight)
Your choice of Apple is stable enough, however. It's not a company that is going to go out of business anytime soon, though their P/E Ratio is fairly high which suggests that it may currently be overvalued (due to stock hype or other factors). My gut feeling is that, if we hit a recession this year, the bearish outlook on Apple may be cut down.
If you're looking for a modestly safe investment that isn't FDIC insured, it's hard to go wrong with an index fund (unless the entire market crashes). An index fund is basically a fund that invests money in a set of stocks: an NYSE index fund, for example, invests in every stock used in the NYSE listing. When you invest in these funds, your investments' value rises as the value of that exchange or group of stocks rises. Outside of large recessions (which, I must forewarn you, some believe is coming this year), index funds for popular stock exchanges tend to rise consistently.
I also highly reccommend Ameritrade. I used a 4$/trade company in the past, but what those companies don't tell you is that they charge 4$ to buy but 20 to sell... and then they charge you fees if you purchase or sell a large number of shares, that can double (or more) the sale and purchase price. Ameritrade doesn't do that, and they also frequently offer new user incentives like a month of free trades, etc...
If you want this money though, and don't want to wait until retirement to get it (as you would with an IRA), do the following:
Begin a series of investments in Certificates of Deposit (CDs). These are FDIC insured, provide comparable interest rates to IRAs, and mature in 1-5 years (depending on the type you purchase). There are many wealthy people who use CDs to make sure that they recieve a steady source of interest-based revenue. What you do is place an even amount of money in a 1 year, 2 year, 3 year, 4 year and 5 year CD. When the 1 year CD matures, invest in a new 5 year CD. When the next year matures, invest again in a 5 year CD.
Granted, one would generally want to have more money than $3k to begin an investment ladder with CDs, but it is an option available to you.
I had forgotten to take into account the tax breaks that come with investing in an IRA, you have a good point on that. But it must be understood as well that those tax breaks are forefit if he has to dip into that money before retirement.
EDIT: On further contemplation, I think it's out of line to say "you do not know what you're talking about." His stock of choice (Apple), for example, grew 127% this year. According to your calculations above, if he had bought Apple at the start of the year he would have gained a significantly higher return on the stock.
Admittedly, this year wasn't a great year for index funds (which was the example I gave). Its 4% was easily beaten by the growth of an IRA, and I admit that completely. But look at the average growth over time. Look at if you put that money into an IRA 10, 20, 30 years ago or more versus putting it in something like an index fund based on DJIA stocks. From 1990 to today, for example, the index has grown 381%. It's an impressive outpacing of even an optimistically high yield IRA.
But I'm not slamming what you're saying. Putting money into an IRA is like (EDIT 2: "printing your own money," I meant to say here... I wasn't paying attention
The lack of taxes gives you a good 'edge' over a normal account and you'll want to do that first.
With Deductible IRA you don't pay taxes now (Tax deduction), but you pay taxes when you withdrawal.
With ROTH IRA you pay taxes up front, but pay no taxes when you withdrawal.
Both grow Tax free (assuming you reinvest all earns)
Basically, do you think you'll be earning more now or when you retire? If you are just starting in the job market and have very low tax bracket then get a Roth IRA; but if you are at the peak of your career and in a high tax bracket then get a Deductible IRA. [this of course doesn't include the extra "growth" a Deductible IRA receives since their is more principle being added [since there are no taxes] which can in some cases off set or outpace a Roth IRA delay tax payments].
Also the "gotcha" about a Deductible IRA is that it works best when you have a High Tax Bracket; but the downside is that once you make more then [about] 100K a year [ie. high tax bracket] then you can't legally get only (only roth). That is how they get you.
So I'll leave you to figure out what is best in your case, but worth some good research since you returns can vary a lot on just those factors while assuming same rate of return and principle.
If you already have those maxed (and a HSA and college savings account if applicable) then I would suggest something like a "sharebuilder"... throw in $3K to start then every month you can add X amount of dollars to purchase shares in your portfolio. Most of them let you buy Indices/ETFs. ING has a good sharebuilder as will most other discount brokers.
(Standard Disclaimer: this assumes you know about risk and have all your "needed" money in safe investments like CDs, short term bonds, savings, etc, etc - not my fault if you lose all your money)