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By Richard K. Noots
So, you want to start investing? That’s OK, so do lots of other people. Unfortunately, people often get into this game without knowing thing one about it. Today though, we are going to change that. Depending on how much you have and what you want to invest in, there are a few things you need to be made aware of.
First thing is first, you want to make sure that you have at least one thousand dollars specifically for investing. This should be money you’ve already checked off as a loss and don’t need. If not, you should probably stay away from investing until then. One thousand is generally about the minimum you should start with, although it still can be difficult with that low amount of money. However, our guide will assume that you at least have this money, so get prepared to invest!
#1) Where to Start
There are two options when looking at who to handle your money: Full Service Brokers and Discount Brokers. However, full service brokers usually require a huge minimum deposit to even set up an account, with some of them even requiring an amount of fifty-thousand dollars. These guys also dole out advice and pretty much act as an assistant to any of your investing needs.
Discount brokers are much cheaper, however in some cases $1,000 just isn’t enough. Regardless, these guys pretty much just give you a medium to begin investing, and don’t really offer anything else. That means you’ll be learning everything on your own.
You can also purchase stocks directly through the company, with a process called Direct Stock Purchase Plans, or DSPP. However, most of these have a required purchase amount, sometimes between five hundred and one thousand dollars. So, definitely do some research before picking one option.
Online trading, like through Sharebuilder can allow a cheaper (or none) deposit to get started. The catch on this though is the often have more fees, or just more expensive fees at times.
Finally, there are mutual funds, bonds and government bonds. These are usually between 500 to 1,000 in cost, but can be purchased directly from your bank (in the case of the first two). Treasury bonds always have a minimum requirement, but it can be as low as one hundred dollars.
#2) Understand How Commissions Work
Investing is not as simple as using your own money and getting more money in return. Something many people are initially unaware of when entering the field of investing is the fact that each trade you make will cost you some amount of money. Although the fees may not be too bad (sometimes only five bucks a trade), if you become trade-happy you could end up spending way more on fees than you initially anticipated.
Mutual Fund fees are actually somewhat tricky, but are generally the same amount with each one. So, for a beginning investor, it could be advantageous to use this option to build up small amounts of money on the side, if one were so inclined. The term for this is Dollar Cost Averaging, and many people begin with this technique.
Diversification is basically not putting all your eggs in one basket. You invest in multiple different companies, and this way one’s downfall does not affect the other. However, if you have only a thousand to invest, you really won’t get the chance to do this. Instead, you may be able to invest in one or two companies overall.
However, investing in a couple different stocks and a mutual fund is usually a great way to start off for any beginning investor. The reason why is a mutual fund generally has multiple stocks and investments underneath it’s belt, so just getting one really helps with diversification of your portfolio.
All in all, investing is no easy feat. This is something that not only requires time and money, but also much research. Do not expect to go in with a thousand and come out a millionaire with little-to-no work. You’d have a better chance of putting your money in a lottery if that’s the case. Instead, take your time and study the companies and other funds you’re considering investing in. The more knowledge you have, the more your chance for survival increases in this wacky Wall Street world.
Have any investment tips for our readers? Feel free to share below, and tell us any successes you may have had! We’re always eager to learn here at Danjur.