Friday, May 2, 2008

The best way to get started in stock investing

This post came about from an experience I had at work today showing the coworker I share my office with the best way to get your feet wet in stock trading. I've dealt with many online traders and even after their merger with ING (which turned out to be a change for the better) I led her to Sharebuilder.com

This wasn't because of any kind of kickback I would receive (actually, there's a better $50 added to you account kickback you can get that's much better than I can offer you, check the article at hustlermoneyblog.com), but if you're planning on making reoccurring transactions and don't have a limitless budget, this is definitely the way to go.

First, with the market state right now I'd definitely recommend the dollar-cost averaging that the monthly reoccurring transactions will provide. If the market falls, you'll gain more shares so when the market turns around, you'll be in a good position to make a lot of money. I'm not one of those "the sky is falling" market pessimists, but I do have my doubts about what will happen in the next year or so. If you're looking for short-term gains this isn't the approach for you, but if you're looking long-term, i.e. retirement, you might want to give this a serious look.

Next, for the budget that can't afford purchasing 100 shares of a stock flat out, this is where Sharebuilder won me over. If when you sign up you choose the automatic investment plan (required for the $50 bonus btw), not only are your stock purchases only $4, but you can buy fractional shares. This means you can buy by dollar amount and not share price amount. How do they do this? Well, they pool all of the money from those investors that want to purchase the stock and then split the stock evenly by the purchase price. This way you can purchase a fractional share of even Berkshire Hathaway (currently $133,600 a share) and be a true shareholder.

You can still do trades on the fly ($9.99 since the ING buyout, used to be $14.99) and options trading, but if you're getting started I'd stay away from both...they'll come at a later time.

I may put out some of my stock picks in the future, but incase they fall through I'm not comfortable doing so at this time. I will follow Warren Buffett's tip and tell you that index funds are the best way to get started. Kiplinger's is a great magazine for indications on what funds to look at and general personal finance information, so I'd highly recommend checking it out if you're looking for some funds to invest in.