I have $1000 to get stsrted but given the cost of some of these shares I would not get many shares which means growth would be limited, how do I get started?
Diane, What you have even less of than money is market savvy. That's the problem you need to fix first.
Hi Dianne,You have $1000. Where should you get started.IMO, you should start with exactly what you're doing right now. Save more money.You have the right impulse. But you're not done with step number 1. Step number 1 is saving enough money to get it to work. $1000 is not enough to buy single stocks. You seem to sense this yourself when you wonder if you'll be able to buy enough shares of a single stock for your investment to work. This is close to the right question to ask but not quite all the way there. The number of shares you buy is less relevant than the size of the dollar commitment and the number of companies that you own. Your problem at this level of investment is that you can't assemble a diversified portfolio. This isn't an easy task for someone with experience. It's very difficult for inexperienced investors. You'll want somewhere around ten different companies that don't overlap in risk. They might come from different sectors. They might differ in their exposure to overseas markets. They might have different growth potential. Some might be boring-- some might be high fliers. The point is that their differences make is less likely that your stocks will all slide down in conjunction. That diversification-- their differences-- is what makes is less likely that your entire portfolio can slide back in conjunction. It's your safety net. You just don't have enough to assemble a safe portfolio. Why?Trading costs primarily. Let's say you do buy shares in ten different companies. That's $100 each. Your commission on that trade might be $5. When you sell that stock, you'll pay another $5 commission to sell it. So, your $10 down on that $100 investment just on trading costs. The stock will have to go up 10% just for you to break even! That won't work for anyone. You can't make money that way for anyone but your brokerage firm. You need to be buying stock lots that keep your costs down to 1% of the purchase price. Preferably lower...Your first step is to save more money. Step two is to consider a market tracking ETF, rather than individual stocks. These ETFs are pre-assembled portfolios that contain hundreds, even thousands of stocks. They are held in a trust and you buy a little piece of this trust-- a little piece of a pre-assembled portfolio. Lots of them exist these days. Not all are safe. Stick to ones that track indices like the S&P 500 unless you understand the nuances of the ETF you're buying. Big and boring may not be sexy, but it does the job most efficiently in the long run. You want to be in it for the long haul, not a flash in the pan.Better yet, many brokers now offer these ETFs with no trading fees:https://www.stockinvestor.com/24145/5-brokerages-can-trade-e...And I suspect that you will find other brokers with free ETFs as well. A strategy like this can solve your other problems as well. One is timing. What if the market goes down from here? Will you panic? Will you pull out and take your losses? You need to be able to stay the course. The best way to avoid the timing risk is to systematically keep buying. Buy $100 of that ETF every month. Save more money and keep putting $100 in a month forever. "dollar-cost averaging" is the buzz-word for the strategy of systematically buying on a schedule. If the market goes down, it's not catastrophic. It's just a great buying opportunity. Your lost money might feel bad, but the great deal you're getting on new shares will offset that. And when the market recovers, it can do so spectacularly. People who bought at the bottom of the Great Recession had a great ride up and made a lot of money. If you had followed a disciplined regimen of dollar cost averaging through that recession, you automatically would have bought some spectacularly cheap and now very valuable shares of that ETF.A plan like this also fits your low cash level, allowing you time to accumulate cash for next month and the month after that. Those ETFs can be bought for free, with no commissions to steal your money. If you can do this in an IRA or 401K even better, since even the tax man won't get a bite. Just make sure this isn't your lunch money. Anything you're investing must be kept in, for things to work. If you can't keep it there and buy more even as the market slides, the strategy can't work effectively. Don't put that money in unless you can afford to lose control of it for five years. Because you might have to wait out a tough patch for it to recover if that market slides. But recover it will. If you wait...Finally, read the post that I wrote above yours. Much of what I said in reply to the poster before you applies in your case as well. The two of you are in the same boat-- just beginning. You have the right impulse. You're just not done with step one yet. Keep to the task and save more cash.Peter
Arindam wrote:What you have even less of than money is market savvy. That's the problem you need to fix first. Very true. And market savvy can only be acquired through experience; often experience in the form of mistakes that can be quite costly. But you can only get that experience by trying the game. IMO, people should build a safe base and learn as much as they can about the game, acquiring tools they can use later. Build a sound base and learn how to speculate or work the fringe of the market for more cash when they're old and gray. At the very least, most strategies take precise timing. When faced with panic or greed, most people flinch.Keep it simple at the start...
Peter, DCA doesn't avoid 'timing risk' --as you assert, but failed to prove-- because it is is a timing strategy, and it typically fails because it depends on longer time frames than most people have the patience for, never mind the the tiny little fact that getting back to even as much as 20 years later doesn't factor in the erosive effects of inflation. There are only two ways to make money in markets as a long: 'buy low and sell high' and 'buy high and sell higher'. The first depends on 'mean reversion, aka, classic, Ben Graham-style, value investing. The second, on 'momentum', aka, 'growth investing, whose best exemplar is Wm O'Neil. (If you're a short, then reverse the process. Sell what's over-valued or sell what's being sold, and then cover lower.) How much experience can be gained from once a month buying? Not enough, fast enough, to matter. Diane needs to be doing turnover, a lot of it, so she gains a sense of how markets work. That means making lots of small, commish-free bets, which isn't even one-third of what investing requires but what everyone want to focus on, the buying. There's also the selling, plus the god awful amount of back-office work that needs to be done. But here's the grim reality. Likely, she's got a day job, plus a commute, plus a family life. So her time to learn the investing/trading game is even more limited than her funds. So, at best, she's a weekend warrior with 4 hours/week max to do her research and set up her orders, and the current market is toppy, and the economy is fragile, if not down right fraudulent, and not a good time to be deploying new money. Arindam
Arindam,[N]ever mind the tiny little fact that getting back to even as much as 20 years later doesn't factor in the erosive effects of inflation. A bit of hyperbole?Even if you BEGAN a DCA schedule into the S&P 500 at the worst possible date imaginable (7/1/2007, at the bull market peak prior to the crash), you were back to even in 2010. $100 invested monthly from 7/2/2007 to 1/4/2010 would have produced an ETF port worth $3142.57 with cumulative investment of $3100.00 over those 31 months. That's a little bit shorter than 20 years. And of course, if you continued the strategy through the subsequent bull market you would have done quite well. That $7300 investment through 2010 would be worth a little under $15,000 today with not a dime contributed after 1/2010. The bull run would substantially improve those returns. There are only two ways to make money in markets as a long: 'buy low and sell high' and 'buy high and sell higher'. This is true. This is the only way to beat the market. But beating the market, armed with limited knowledge and capital is not very likely for Dianne, is it? In the absence of actual experience and the time to spend on getting that specialized knowledge I'll side with Buffett and pick the market tracker.How much experience can be gained from once a month buying? Not enough, fast enough, to matter. Diane needs to be doing turnover, a lot of it, so she gains a sense of how markets work. That means making lots of small, commish-free bets, which isn't even one-third of what investing requires but what everyone want to focus on, the buying. There's also the selling, plus the god awful amount of back-office work that needs to be done. No experience can be gained from mechanical once a month buying. But she can't realistically gain that experience with the sum that she has. The frictional costs of any transaction would erode $1000 in a matter of a dozen trades. So what's her alternative? Do nothing? Or trade it away to nothing? It's best to save it, while putting it to work in a conservative manner. The simple task of at least following the market and seeing how exciting and harrowing it can be affords some experience. And she can go about reading and further educating herself, moving eventually to a more sophisticated and potentially more lucrative strategy in the future. DCA provides a mechanism to reinforce the importance of monthly saving, while simultaneously providing an incentive to watch the market more closely and learn at least some of the ropes.But here's the grim reality. Likely, she's got a day job, plus a commute, plus a family life. So her time to learn the investing/trading game is even more limited than her funds. So, at best, she's a weekend warrior with 4 hours/week max to do her research and set up her orders, and the current market is toppy, and the economy is fragile, if not down right fraudulent, and not a good time to be deploying new money. I agree that this is a dangerous time to be buying. But what is she really asking? I suppose we need to know more about her. Is she 21 at the start of a long life with loads of future income? If so, she should get started while doing some learning. But if she's 65, short on capital and just anxious to climb on board a hot 2017 market, she should probably stay away from this market. If it's the first, dollar cost averaging in, preferably to her 401k or IRA is a pretty solid start for a newbie. You are free to assert otherwise with no evidence of your own as much as you like.Peter
Peter, I notice you list The Intelligent Investor in your book list, which is where $5 bucks of her $1k ought to go for a used copy, along with a buck or so for an investing/trading journal. The rest really is up to her, placing bets and figuring out what intrigues her enough to do the work to make it success. I could tell her how I turned $14k into $1.24 million (only which 21% of which is real estate) and why I think B&H, DCA, and MPT are nonsense. But no one can trade another man's game, and how I made my money won't likely work for her. Arindam
But no one can trade another man's game, and how I made my money won't likely work for her. That is most certainly the most accurate thing that you've said.
Peter, The most accurate thing I said was that The Intelligent Investor is a book worth studying --not just "reading"-- and that its lessons, if taken to heart and applied to markets --and to oneself-- can be a path to wealth. There are, of course, other worthwhile books where a beginner could begin their long journey. But Graham's book provides the overview that beginners need and does so with a dry wit most fail to appreciate. In their details, markets are constantly changing. But not in their essentials, because human nature never changes. So investing/trading success is really about managing Fear and Greed, Hope and Despair, and having the humility to admit when one is wrong and the discipline to fix the problem. That means chewing through a lot of money until one has found a niche that suits one's personality, means, and goals. I've put in my years, and the market gods were kind to me. Now I can coast and do other things like build boats and offer advice that should be ignored, because each person's path to wealth can only be their own. "There are no roads but by walking." Arindam
Diane,Welcome to the Fool. In addition to the advice you got regarding beginning your journey into stock investing, I'd also recommend schooling up on how to get the maximum return on your cash while you're saving up. Where is this $1,000 right now? What kind of return are you currently earning on it?You can get a 2.2% return on that money if you put it in a high yield savings account like synchrony.com or ally.com. You can get even higher than that (around 2.4% right now) if you invest that money into one month or three month US Treasury Bills, and the interest from the treasury bills will be shielded from state tax as well, boosting its effective yield even higher. You can buy treasury bills with no commission both at Fidelity and at Schwab, as well as buying directly from the source at treasurydirect.gov, though I'd recommend a retail brokerage account in case you want to easily sell before maturity.Will this make you rich? No, but maximizing the return on your cash is an important building block in your investing knowledge, and earning $22 a year on your $1,000 for little effort is much better than earning $2 a year. In the mean time, read up on the stock market, investing, and investigate index fund investing and why that's probably a good way to go unless you want to devote a lot of time to this. Post questions here as you have them.Mike
I have $1000 to get stsrted but given the cost of some of these shares I would not get many shares which means growth would be limited, how do I get started?Growth is not limited by the number of shares you can buy. If you make 10% one one share priced at $1,000 or 10% on ten shares priced at $100 each it's the same dollar amount to you. Different companies split their share counts up differently. Some have billions and billions of shares and relatively small per share stock prices (ex. Bank of America) and some have fewer shares with higher per share stock prices (ex. Amazon, Google). Think of it as a pie. You can cut the pie into four large pieces or 16 small pieces. Eating one large piece of the four part pie is the same as eating four small pieces of the 16 part pie. You didn't get four times as much pie when you ate the four pieces of the 16 part pie.Mike
“You better cut the pizza in four pieces, because I’m not hungry enough to eat six.”— Yogi Berra
Hi Guys,Like Diane I am new and looking to learn. I prefer to learn by doing while I continue saving to have more opportunity to buy into the market. I'm curious what your thoughts are about microinvesting as a tool for learning? Of course I get that small investments equal small rewards but I want to practice theory and research application, following my instincts, and training myself to be okay with losses. Thoughts?Thank you,Amberbtw since you wondered about Diane I am 38, employed FT, and don't need investments for income. I just recently got my MBA and after finishing I found I miss learning and being challenged so I downloaded a few microinvesting apps (Stash, Robinhood, and Acorns).
Amber, Despite all the PC nonsense about there being no differences between women and men, the differences in attitudes and abilities are easily documented and profound, never mind that the differences between one investor/trader and another are unbridgeable chasms. Thus, whatever advice anyone offers another needs to be vetted, if not ignored, in favor of finding one's own path. That said, there are some very superior female traders from whom a lot could be learned even by someone who self-indentifies as an 'Investor' and whom are very easy to like. The best of them --in terms of accessibility-- is Linda Raschke, who has a ton of YouTube videos, plus a website. E.g.,https://www.youtube.com/watch?v=wsH6fWVP3Z8Arindam
AceintheHole17 (aka Amber),You wrote, Like Diane I am new and looking to learn. I prefer to learn by doing while I continue saving to have more opportunity to buy into the market. I'm curious what your thoughts are about microinvesting as a tool for learning? Of course I get that small investments equal small rewards but I want to practice theory and research application, following my instincts, and training myself to be okay with losses. Thoughts?Welcome to The Motley Fool.Most people should simply put their long-term savings / investments into a target date fund. Given your age, something like a Target Date 2050 fund would probably be appropriate. For instance, take a look at this one: https://personal.vanguard.com/us/funds/management?FundId=069...That fund takes all the guess work out of picking stocks and choosing an asset allocation. You can also buy into it as funds become available without worrying about transaction costs. That fund is currently 90% into US and broad international equities. The other 10% is in cash, US and international bonds. The fund will adjust its mix over time. By 2050 it will become more conservative with a roughly 50/50 mix.If you think that's too conservative or too aggressive for you, we can discuss ways to adjust the risks you are taking... Finally, btw since you wondered about Diane I am 38, employed FT, and don't need investments for income. I just recently got my MBA and after finishing I found I miss learning and being challenged so I downloaded a few microinvesting apps (Stash, Robinhood, and Acorns). A lot of people that want to get into investing and creating a portfolio mistakenly confuse this objective with picking stocks and the need to pick a broker that enables this. It's just simply not necessary to pick individual stocks to invest successfully. A brokerage account can be useful as your sophistication increases. But if you are just starting out, start by buying low-cost mutual funds - preferably low-cost index funds or a target-date or strategy fund that invests in a pool of such funds. It's simple and disciplined and much more likely to make you money over the long-term … while trying to learn how to pick stocks is more likely playing craps - especially if you are new to it.- Joel
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