Basics of Investing

Archive for October, 2008

Question: best online investment website?

I’m about to turn 18 and want to do a lot of Online Investments but i am wondering which site would be best. i know etrade has the 100 free trades and i would be investing enough to qualify but just wondering if there is a better deal out there or a better place for any reason, also if you have any stock tips those will be appreciated as well

thank you

Answer: Please try and avoid all the stock tips posts. They are usually penny stock hype and speculators. You’ll save a lot of money by avoiding that, and get on track to learning Investment Basics.

A lot of people seem to encourage Forex (currency trading). That is one of the most difficult trading environments because you are trading against world government’s managing their currency who can move the market by increasing or decreasing their own country’s interest rates, or change the money supply in their own economy.

You’re also competing with billion dollar corporations who are hedging their currency with overseas sales. A small time investor with a few grand can easily get wiped out. Further, FOREX is not investing, it is speculating. One is speculating on the movement of currency. The odds are better in Vegas.

Why I don’t like sharebuilder.com
1. You have to pay $12.00 a month, $144/ year. How does this cost build wealth? It’s another bank fee.

Let’s say you buy 1 share of stock. The stock has to go up $12 a month every month and never go down and you only break even with the $12 monthly fee – actually you’re down a few bucks cause of the transaction fee. How again does this build wealth?

2. Then, they say you can only buy shares on Tuesdays? What is up with that? The company collects all pending transactions and sends them in a single transaction to the market (market order) when/time? which market? – one they are the market marker? Is that going to be the best price?

If they are a market marker in the stock, they are also making money on the spread (the price between the bid and ask). That is how most of these low commission firms make money. Or, they make money by directing trades to a single exchange and get a (legal) “kick back.” I hope the directed trades are a fair price.

They are not going to send one share of stock to some other market marker where they have no financial interest in. Wait, in who’s interests are they representing again?

They will send collective shares (in a single lot) and split the shares in the sub accounts (your account).

I think the only person in this transaction who builds wealth is the bank.

It would be cheaper to have a discount broker such as etrade, scott trade, schwab, fidelity, etc, and buy the shares when you want to. Enroll in a DRIP (Dividend Reinvestment Investment Plan if the stock pays dividends). DRIP’s are usually free.

A better and far cheaper program is to pick an index fund such as the S&P500; dollar cost average on an automatic monthly or bi-monthly investment plan using a no load fund. You are far more diversified, owning 500 companies, you collect monthly dividends that can and should be reinvested, and 80% of fund managers underperform this index. So why not just own the index that manager can’t consistently beat?

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