Your Questions About How To Invest

Steven asks…

How do you invest in the stock market?

Me and my friend are 15. We are trying to plan how we will make money in the future. We are going to get a job and save up to either start a small business or invest in the stocks. I don’t really know anything about the stock market. How much money do you need to do it. If you could just explain how it works it’d be great.

John answers:

To Start Investing

It takes a long time to learn the stock market and it would help if you read some books from your library and information online. It would also help if you did some practice trading with play money. You can do this by using a watch list in Yahoo Finance > My Portfolio. Just pretend you bought some shares of your choice.

No one can tell what you should invest in the market. You need to decide what’s right for you at the present time. Before you start investing, the first thing you need to decide is what risk level you want to take. CDs backed up by the government has about 3-4% annual return for the long term with a low risk. Bonds or Bonds Funds has about 5-7% annual return for the long term with a medium risk. Stocks or Stock Mutual Funds has about 8-10% annual return for the long term with a high risk and are more volatile than Bonds. A person can make more than 10% annual return with the right investment. Usually the more risk you take, the more return you will have, but not always.

The stock market is basally made up of stocks and bonds. Investment managers pick a group of stocks to make a mutual fund or a group of bonds to make a bond fund. They even put a mixture of stocks and bonds together and call it a Growth & Income Fund.

1- MUTUAL FUNDS: Mutual funds have a group of stocks (could be around 100+) invested in different sectors, and manage by a professional. Managers have lots of schooling for investing in stocks, around 8 years. So I think managers can pick stocks better than I can. There are lots of different kinds of mutual funds and they have different risk level. There are 100s of funds that does not charge any fees to buy it’s shares and they are called Noload Funds. There are also some funds called Load Funds that charge about 5% of your investment. You can make a buy or sell order anytime of the day for mutual funds shares but it will not go in affect until the close of the day. Most funds has trading restriction and you may not be able to trade more than 4 times a year. That’s because it makes it hard for the fund to make a good return if there is to much trading in the fund, causing the fund manager to make more buys and sells and keep more cash on hand. Mutual funds are meant for long term investors.
2- STOCKS: Stocks is more volatile than funds unless you spread you money in several different areas and know witch area will do best. There are 10 stock sectors and over 100 sub-sectors to choose from. Stock trading restriction is only a few days, not like mutual funds. If you own stocks, you will need to keep up with all the company’s business so you don’t get stuck with a bad stock. That could take a lots of time. If a person buys just a few stocks he probably is hoping to make a bigger return but he may be taking more risk. If that’s the case, look at the leverage ETFs that represents a large group of stocks. That could be another choice.
3- ETFs (Exchange Traded Funds): ETFs are like a mutual fund but trades like a stock and that is the main differences between ETFs and stocks and mutual funds. There are some ETFs that represents Index’s. An Index is like S&P or DOW. Index’s operate just like a mutual fund with a group of stocks in deferent sectors, manage by professionals. You can’t buy Index’s because they are not for sell. A company owns them. But you can buy a mutual funds or an ETF that has the same stocks as the Index they represent. There are a lots of different kinds of ETFs for someone to choose from. There are some that represent almost every kind of sub-sector. And there are some that have 1x leverage, some have 2x leverage for aggressive investors, and some has 3x leverage for more aggressive investors. If you wish you had more money to invest, the 3x is like having three times the amount of your money in the market. You will make more in an up market but lose more in a down market. One example; S&P500 1x vs S&P500 3x:
S&P500 1x …… 2010 = +12.8%…..4/29/11 YTD =…+8.4%
S&P 3x (UPRO) 2010 = +36.4%…..4/29/11 YTD = +26.9%

To buy stocks or funds, you need a broker account. You can open an account online or in a broker house and it is free to open. You can find several good discount brokers that charge $8.00 and under per stock trade and no fee on Noload Funds. If you only have a small amount of money to invest, it may be best to start in Noload Funds because of the broker fees. Most broker websites have good research tools. Some popular broker websites are Fidelity, TD Ameritrade, E-trade, Scottrade and others. You need a min. Of $500 to open an account in Scottrade and $2,500 for Fidelity. Other sites may very on the min. And you need to be at lease 18 years old. If you not 18, you might could get your Dad to open an account for you.

Self-taught from 24 years of experience. Click my pic if you need more help.

Mark asks…

I want to invest no more then 1000 dollars in stocks! How should I start?

I want to buy from 4 companies the minium to invest in each is 250. Does that mean I can buy like 7 shares for 280 and I am all set. What if their value falls under 250 , will i get fined?

John answers:

To answer your last question first; you will not be fined for the stock price going below your purchase price. The only consequence is that your investment is worth less.

The number of share you receive for $250 is entirely dependent on the stock price at that moment. If you received 7 shares for $280 it means the stock is trading at $40 per share. If the stock trades at $10 per share you’d receive 25 shares.

Based on the mention of minimums to invest, it sounds like you are talking about Direct Stock Purchase programs.
Here is some useful information on such plans:
http://www.ehow.com/how_5289072_enroll-direct-stock-purchase-plan.html

Make sure you also enroll those stocks in a Dividend Reinvestment Plan (DRIP):
http://www.ehow.com/how_5289084_enroll-dividend-reinvestment-plan.html

James asks…

Does anyone know good stocks to invest in and how are mutual funds good to invest in?

I wanna know what stocks are starting from low and are starting to climb up before it reaches its peak. Like gold minning, technologies, biotech, energy, computers, websites,natural resources, good chinese and indonesia stocks too. If chinese and vietnamese currency is good to invest in and mutual funds to. I know house market is down but do u think its good to buy b/c its pretty low stocks from before.

John answers:

Long Term Stock to hold, I have found Proctor and Gamble (PG) to be a relatively stable and productive investment.

Mutual Funds are good because they invest in the stocks of numerous companies, thus diversifying your investment.
I own many.

For a risky short term gain, I’ve made $700.00 in CCTC in a month and a half with a $500.00 investment.
Sold part of my shares today to get my $500 investment out. Now I play with the $700 I made.
Very Risky Investment though !
It might be at it’s high now. Who Knows?

If you can’t afford to lose any of your investment, go to a bank C.D. Or Money Market Account.

I don’t know about foreign currency or investing in the housing market.
Good Luck.

DRIP’s are not safe! They are purchasing stock in a company w/o a Broker but directly from the company. Cheaper Yes, safe No. You can’t sell quickly either.
Reinvest dividends let’s you build more shares which is good.
Good place to start, like I did.

Susan asks…

How should I invest my money to make more money in a short amount of time?

I’m 22 years old, and wanting to purchase a house in the next year or two. I have money in savings right now which is making terribly low interest. What would be my best move? I’d like to invest the money short term, but I’d like to make a good amount of money doing so. Is that possible and how? CD’s and Money Market accounts just aren’t gonna give me the results I want.

John answers:

As someone has already mentioned, the only way for you to make a lot of money in a short amount of time is through taking on investments with greater risk in order to be exposed to possible greater returns. However, if you’re wanting to purchase a house in the next year or two, you obviously don’t want to risk losing your possible deposit.

Beware of any “shortcuts” some people might suggest to the road to getting rich, as if it really worked a lot more people would do it.

In the short term, your best options are probably to try and earn some more money rather than earning interest or capital gains from investing your money.

In the long term your options are a little bit broader though.

I know this advice may not seem that helpful, but at least it may save you from possibly losing money by taking bad advice elsewhere.

Laura asks…

How do I invest in international stock markets?

I am looking to invest in international stocks can anyone tell me how I can do this mostly online.

John answers:

Investing directly on foreign exchanges is extremely risky, far more costly, and you can only trade on their hours. You have local economy and country risk, government risk, currency risk, interest rate risk, company risk, etc.

If you want to invest in foreign markets and you don’t live there, est to buy country specific ETF’s.

Here are some:
http://seekingalpha.com/article/17957-risk-outlook-for-country-specific-etfs
http://www.fool.com/investing/etf/2007/06/12/emerging-market-etfs-a-sampler.aspx

Article on risk
http://www.quantext.com/GlobalRisk.pdf

Good Luck!

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