Stock market for Dummies?

17 years ago

I need your help here, O Financial Gurus!

I have a strong desire to play the stock market (yes I say "play", as I'm trying to approach this as one would a trip to Vegas- I'm only taking what I can afford to lose, and will see it as a great bonus if I come out ahead)

That said, I don't have much income. I work part-time so that I can be home when my children are home, and my husband is the breadwinner. I can probably afford to invest $100 a month, but that's it. I'm starting with $125, and have opened an account with Etrade. But there's a few things I'm not clear on:

How much is it going to cost me to buy stocks, given how little I have to invest?

What does "Buy to Cover" mean?

When you go to "buy" it gives you options- market, market on close, stop, limit, limit stop, trailing stop $, and trailing stop %. What do these mean?

Is there a limit minimum on how many shares I can buy? I've always steered clear of investing because I thought that the market would not want to deal with the piddly amounts that I could afford to spend, and have therefore invested nothing, and now at 33, and with the market down, I thought I'd try my luck. Please help me, all of this is a little confusing!

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Comments (11)

hendricus
17 years ago
I'm with Sharebuilder and the cost to buy or sell stock is $9.95 per transaction. There is no minimum to buy stocks it just costs $9.95 each time.

Limit is the $ figure you put down if you think the stock is going up or down.

You would probably buy on market, the price it is right now.

With $100 month I keep it in Sharebuilders cash account which pays me savings interest. When I have enough 300-600 dollars I pick a company I like and then buy.

Hope this helps. Hank
randy427
17 years ago
The Etrade website states how much it costs per transaction to buy stocks ($12.99 for small accounts I believe).
I recommend you read 'Investing For Dummies' which I haven't read but would probably answer your questions and a LOT that you haven't thought of yet.
There is also 'Etrade for Dummies' and 'Etrade for Beginners'. These and other books are found at many public libraries, as well as on-line in new and used condition.

You didn't ask, but I would not approach this as I would a trip to Las Vegas. That is 99% sure way to walk away with no money. In your place I would invest via the dollar-cost-averaging method in mutual funds.
P.S. I'm not affiliated with the website below, but he makes a lot of sense.

Here is a link that might be useful: Ric Edelman - Financial Advisor
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patti 47?? (who doesn't look a day over 36), I've been called a "dope", at times. Does that count? Susan on, What kind of stuff does your financial advisor sell? Does s/he recommend financial investments that s/he doesn't sell? As you are reasonably young, do you carry mainly equity-based assets? Mainly mutual funds, stocks, or what? If you carry some mutual funds or stocks, have you considered having some of the certificates issued for ones that you plan to own for a numbr of years, your core assets, to use as collateral if you make a loan to buy a vehicle, etc? If you ask your credit union, bank or other lender, I'll bet that they'll offer a lower interest rate if you use such assets as collateral, in addition to the car. Are you achieving major tax reductions on current investment income? Quite a bit of deferral of tax load? Quite a few RRSPs? Have you read some of my materials referring to some of my reservations about using them, especially for younger investors? If you carry substantial RRSP assets, is a portion of them of the self-directed kind, and, if so, and of substantial size, does your carrier manage them without an annual admin. fee? I enjoyed that for a number of years (got into such a plan under an earlier carrier that was bought out). But when rolling over the RRSP into a RRIF, the later carrier told me there'd be an annual fee. When I returned a while later saying that I'd found some other carriers that would manage the fund with no fee ... they found a means by which they could do that, as well. I didn't feel it necessary to reveal to him that I found the offer made by the others less attractive. As Grandma used to say, "One should tell the truth ... but it isn't necesssary to shoot one's mouth off and tell all that one knows". (A bit of a free-style rendering of Grandma's words, here). (My hope here is that you answer these questions within your own mind/family, not to me [it isn't my business, unless you choose to make it so], or here in public). Good wishes, everyone, for increasing your knowledge of how money works, over the years. ole joyful P.S.: Commentary on RRSPs: http://ths.gardenweb.com/forums/load/saving/msg011934521024.html?4 o j P.P.S.: Investment portfolio 16 years: 5-year growth rates 16.58% - 36.61% (difference slightly over 20%); 10-year growth rates 19.67% - 29.37% (difference slightly under 10%): http://ths.gardenweb.com/forums/load/finance/msg0206395613737.html?1 o j
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The idea, as I understand it, is to become smarter as the years go by. When I was a kid, we always had a car (including a couple built by companies that went out of business later: "Star"? "Willys-Knight"?) but some people went around in horse-drawn buggies. Do you still go around in a buggy? To invest one's assets only in guaranteed-dollar assets reduces risk, yes ... ... over the short term. But over the longer period, especially in the current low-interest rate environment, interest-earners get slaughtered. In the personal money management business in which each of us participates, most of us except very low earners have a partner whether we like it or not. Every year, that partner has a question, and a statement, for each of us who earn more than a minimal amount ... ... "How much did you earn?" and "We want part of it". The income tax people are required partners in our personal money-management business. Another way of looking at it is that there are two rats that eat your cheese. Except for very low income earners, the income tax people want part of our annual earnings. But that's not the only problem - there's the other rat's depradations. That rat eats the value of part of our assets, each year. If you put $10,000. into the bank 15 years ago, they'd pay you rent on the money each year - that's taxable that year. But that's not the only eroder of value that you face. Since the depression of the 1930s, the value of each of those saved (but many of us say, not invested) dollars shrinks every year that it's used in such a fashion. If you put that $10,000. into a bank 15 years ago, it would have bought a nice new car ... but, in the ordinary course of things, if you took it out now, it wouldn't: it'd buy a lot less, due to inflation.So those who earn interest must add part of the annual earnings to the principal in order to maintain purchasing power. The owner of the money gets what's left .. and never forget ... the rats eat first! Forty-two years ago I used about $4.20 to buy a share of a Canadian bank and they paid me a dividend (taxed, in Canada, a lot lower than interest earnings) of about a dime or 12 cents a year. Over the years, the value of the shares grew. Despite their having had some involvement with the Enron crisis, a few years ago, even so, had I sold those shares in June 2007 they were "worth" (whatever that means) $107. And, as the value of the stock grew, the dividend rates did, as well - to $3.08 per year in mid-2007 - on that original investment of $4.20 or so. In the fall of 2007 they increased it to $3.48 (which increase was, please note, almost 10% of the originally invested amount). That bank was also involved doubly, so I hear, in the U.S. stinky mortgage fiasco, as they had direct exposure, and backed a company that insured those mortgages! So the value of the stock fell - through the 90s, 80s, 70s and 60s, over a period of months. Eventually it got down to around the low 40s, last Nov. ... but still paying that dividend of $3.48 annually, over 9% - as, noted above, low tax rate, and even lower due to recent changes in calculation rate. Could you have found a GIC that would, after 40 years, produce an annual rate of return of over 75% of the originally invested amount?? My grandpa bought a 250-acre farm near an Ontario village in 1917 - sorry, I don't know how much he paid. Dad took it over shortly after his marriage in 1925. Mom got sick in '34, Grandpa died in '35, Mom died in '42. Dad had trouble breathing in this part of the country so moved to farm on the Prairies in '46, I left home in '48. Dad sold the Ontario farm in 1947 - for $15,000.: our family had owned it for 30 years. The family who bought it later agreed with hydro for an easement to install some electric towers on the land, later sold about 50 acres to the province when they built a multi-lane divided expressway through the area (largely to assist the large trading business back and forth between Canada and the U.S.). They sold the remaining 200 acres in 2007, after owning it exactly 60 years ... for about $2.4 million. That's in addition to it having provided an income for a family of about 6 - 8 kids for several years, then for two families for several years, later for the family of one son. Would they have done better to have "invested" that money in the bank? Many of us say that "owning" is better than "loaning" (and the bank makes more on our money than does the owner). End of rant. ole joyful
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At age close to 80, living on less than my pensions, my assets are about 80% in stocks ... and I bought some more, a couple of weeks ago. I wasn't watching on Mon., but if I had would likely have bought something solid. Go to "Yahoo", click on "Finance", at top left there's a box labelled, "Get quotes", enter "BRK-B", then click on the box. You'll get a repoort of the open, high, low and close of the smaller Berkshire-Hathaway stock for the latest day, with current and average volume, and there's a chart of the price progression during the latest day on the right. Under the chart box, click on "6m" or "1 y" to find chart showing closing prices, daily or 3 days, for the recent 6 months or 1 year. If you'd like to see the price action during those days, above the chart there's a choice of "Bar" (which click on) or "Line" (or another for candlestick). Or try "JNJ" or "BAC" (Bank America). Or try "TD.TO" (Canadian bank, TD Canada Trust) or "ABX.TO" (Barrick Gold) or "ENB.TO" (Enbridge) or "TRP.TO" pipelines, "ECA.TO" (EnCana -natural gas), "NXY.TO" (Nexen - petroleum), "POT" (potash, a major fertilizer), all but the first are major resource providers, plus giving you some assets based in non-U.S. dollars. But - if the U.S. economy gets a cold, the Canadian one usually gets pneumonia. However, those resources are sought in many parts of the world. If you'd like to see a list of open, high, low and close, plus volume, and dividend rates (for some) click on "Historical prices" near top left. What's better than putting your money into the bank? Buying the bank! Let others' money work for you. Good wishes for wise use of your resources. ole joyful
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duluthinbloomz4
17 years ago
"Buy to Cover" means you agree that you will purchase the stock at the current market price; however, because there is a lag between the time you agree to purchase the stock and the actual transaction, a price difference could occur. You could end up paying more than anticipated for each stock, or a lower amount per stock, which is what you are hoping for.

I'd select the option of buying at market. The number of shares you can purchase is dependent on the amount of funding you have available in your Etrade account. If you have $125 available and a stock you're interested in costs $46.05 per share, you can buy 2.1744 shares or slightly less because of the Etrade fee. If the stock is priced at $3.50 a share, you can buy approx. 35.7144 shares.

You might do well to fund up your account for a while, then in the meantime study up on stocks you have an interest in before making your first buy.

Another good way to get your feet wet in the market is direct buy. Check your next electric/utility bill when it comes - the local power companies usually have a space right on the bill to buy their stock simply by sending in a minimum amount (usually $10). The need for energy isn't going to go away and most are diversifying into wind, etc.. Many of these energy stocks pay nice dividends - and you can opt for dividends to be reinvested to purchase additional stock shares to kind of painlessly bulk up your portfolio. Another nice thing is they don't charge fees.

It's nice you're getting your feet wet with stocks reasonably and with discretionary funds. Taking a measured plunge won't make you "nuts" with all the yo-yoing.

Whatever you do, save all the statements, confirmations, etc. back up computer files. Create a file folder, put them in a box - just don't discard. These buys will be your cost basis - and they will be needed. Maybe not today, but definitely someday.
bethesdamadman
17 years ago
duluthinbloomz4: "'Buy to Cover' means you agree that you will purchase the stock at the current market price; however, because there is a lag between the time you agree to purchase the stock and the actual transaction, a price difference could occur. You could end up paying more than anticipated for each stock, or a lower amount per stock, which is what you are hoping for."

Where on earth did you ever come up with that???

That is not anywhere close to being correct!

That's not even in the same neighborhood of correct!

"Buy to cover" has to do with closing out a short position in a stock, it has nothing whatsoever to do with any so-called time lag between the time an order is placed and then closed.

OP: You don't need to be concerned with that phrase; it is not something you will be doing. In fact, based on your limited experience, I doubt that your brokerage firm would allow you to trade options even if you wanted to.
User
17 years ago
investopedia.com has a fairly good online dictionary for investment terms.

I agree with bethesdamadman about buying to cover being applicable to covering shorts....except buy to cover can apply to any short position, not just one that's in stocks.
duluthinbloomz4
17 years ago
Yes, sorry to the OP that I really was wrong on that one. Thanks for hitting me over the head with it, though.
fandlil
17 years ago
I do not think it makes sense for you to invest in stock of individual companies. You make money in the stock market in the long term by investing in a DIVERSIFIED instrument, so you do not suffer a big loss if a company you have invested in takes a hit. It is not realistic for you as an inexperienced investor to figure out what companies to invest in. Even the experts can't "pick the winners" all the time. For this reason, you are much better off to invest in something called an index mutual fund. That puts your money in the whole stock market (or a part of the market like big companies or small companies), and how your money is invested is determined by mathematical formula, so you don't have to worry about whether the fund manager knows how to pick winners. The other advantage of index funds is that they are cheap, so more of your money gets invested and less goes to pay expenses.

If you are interested, you should check out the Vanguard and Fidelity Mutual Fund companies. They are the two biggest in index funds. Remember, in the long run, nobody can beat the averages, so with index funds you get the averages, which is pretty good.
jakkom
17 years ago
My take is similar to haus_proud - invest in good diversified low-cost no-load mutual funds if you want to make some money over the long run.

If you want to throw money away, you might as well save up for a splashy casino and showtime roll in Las Vegas, or a round-the-world cruise on the QE2. You're trying to run before you can walk....money isn't a god to be worshiped, but if it takes you effort to earn it, then treat it with respect and learn how to handle it properly.

The small investor already is handicapped when competing against the 8,000-lb gorillas of professional and institutional investors. These people are paid to live, eat, and breathe the financial world. It's like driving your personal car onto the Formula One racing track and expecting to make it into the top ten. You might, but only if there were only nine pros in the race!

There's a minimum for investing in most funds, so check that out before you start. Some brokerages will lower the minimum if you sign up for automatic monthly minimums transferred via ACH from your checking or savings acct.

And be aware that there is a difference between the "suitability" standard of brokerage advice, and the "fiduciary" standard of advisor advice. Learn the difference so that you can put all advice into the proper perspective - which is, what works for your individual risk profile and financial situation.

Good luck to you going forward.
Chemocurl zn5b/6a Indiana
17 years ago
You make money in the stock market in the long term by investing in a DIVERSIFIED instrument, so you do not suffer a big loss if a company you have invested in takes a hit.
Also known as not putting all of one's eggs into one basket.

I for one am going to buy a few stocks with some extra money that have historically paid good dividends and have a good rate of return, among other things.

By reading you too can learn in time how to pick some winners. Some will likely 'win' more than others and there will also be some losers, but the main thing is that you are diversified, besides not 'needing' to sell them anytime soon.

As OJ says, stocks are now on sale.

Sue
fandlil
17 years ago
Yes, stocks are on sale right now. But the blood letting is not over. we could see a further nose dive before the dust settles. I for one am staying in the sidelines until I see a sustained recovery taking hold.
dreamgarden
17 years ago
Vanguard Treasury Inflation-Protected Securities (VIPSX) mutual funds look good (safe?), but you still might want to look before you leap into the market....

Stocks to fall AT LEAST another 40%! HereÃ¢ÂÂs why Ã¢ÂÂ¦
by Martin D. Weiss, Ph.D. 02-09-09

A link that might be useful:

www.moneyandmarkets.com/stocks-to-fall-
at-least-another-40-here%e2%80%99s-why-29613

Stock market for Dummies?

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hendricus

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