So I want to start investing. . .

Factual Questions
1

So here’s the deal: I’m a high school student with a part-time job. I’ve got some extra cash and figure that this is probably the ideal time to start investing; I’m not counting on this money for survival, so I can afford to put it in high-risk stocks and see what happens. We’re talking about relatively small amounts of cash ($500-$1000 initially, plus whatever I can afford to take from subsequent paychecks); what’s the best way to go about this? I’m under the impression that a broker wouldn’t make much sense with this little cash. Am I right about that? What’re the advantages and disadvantages of online trading? Anything else I’ve missed?

Thanks in advance.

2

www.Mydiscountbroker.com is good. A lot of online traders have a minimum start up amount that might be to much to start out with. If you want risk with gain then go into small or micro cap stocks. IGNORE all the research out there from the big trading houses. They have absolutely no interest in providing you with accurate data and an inherent interest in making the market always look sunny. No body ever got rich from seeing what everyone else does. Your in a position to benefit from this in a long term fashion. Take it seriously and buy a few books on it. After all what’s $60 in books if it saves you $600. Remember that with about $1000 dollars the price you pay to trade the stocks may cut into your profit significantly. Buy for long term growth and hold them.

3

And ameritrade has bought them out. So much for the end run around minimum start up amounts.

4

Online trading advantage: Very low cost per transaction compared to having a broker do it for you.
Disadvantage: You have no idea what you are doing so if you stick money in “high-risk” investments, you will most likely lose money (if not all of it when the company folds, it’s called high-risk" for a reason).

At your age, a good idea is going to your bank and talking to them about opening a Roth IRA. If you can sock away one or two thousand per year, you will retire very well off. Making compound interest work for you is a very smart move.

Another smart move is investing in a drip(DRP, divident reinvestment plan) account. Again, nothing flashy, just a solid way to make your money work for you and to retire wealthy. A good place to start is www.drip.com

Research the topic of investing on sites like
www.investopedia.com and www.fool.com

Those are my opinions on the matter based on my investment experience and having an MBA. I am sure someone with a great way to get money out of Nigeria will be along soon.

5

Online trading with a small amount of money probably doesn’t make sense, the commissions will eat you up. If you have read the news lately, you will see most of the mutual fund companies are crooks (something I have known for years, but could never prove). Sorry, but I put banks in bed with the mutual fund companies.

So with your age and limited funds, I would probably go with the DRIP idea too. For what it’s worth (free advice) I would choose HPQ (Hewlett-Packard), INTC (Intel), JNJ (Johnson & Johnson), MMM (3M), or UTX (United Technologies). I know there is a tendency to want to “get rich quick”, but you have to fight that feeling. Even if you did make a ton of money in a short amount of time, Uncle Sam would take a BIG bite out of it. Slow but sure is the best strategy of investing. Many financial people will tell you since you are young you should put more money in high risk investments. From my experience, all this means is you will learn by losing most of your investment that the “slow but sure” strategy works best in the long run.

I would also go with the IRA idea, put the maximum you can into an IRA every year, this will keep your profits and dividends tax free. Don’t worry about not being able to withdraw your money until you retire, it’s always there if you need it, you can withdraw early if you need to.

If you were in your late 20s or early 30s I would suggest buying a house. But at your age, I wouldn’t want to get tied down. Make sure you keep enough cash on hand to enjoy life too.

If I had to suggest one place that can take care of all of your investment needs: http://www.fidelity.com

6

Um, this appears to be an online dating site.

7

Ouch. Well, maybe he wants to find his significant other while researching investments?? :smack:

The correct link is www.dripcentral.com

8

Another voice recommending (Roth) IRA. They are designed to work the best for people as young as you.

9

You might also want to check out BuyandHold.com and sharebuilder.com

BuyandHold now charges a monthly fee, so it’s less attractive an option. AFAIK sharebuilder does not. But I think they both reinvest dividends for free, and you can buy fractional shares, so all of your money (less commission) gets invested. You just don’t get real-time trading for the lowest commission.

10

I’m very fond of Share Builder

It will allow you to invest a little each month and buy small amounts of shares or partial shares.

The DRIP sites previously mentioned are good too.

11

That’s kind of like saying you should IGNORE research done by pharmaceutical companies because they have an inherent interest in selling you drugs. Yes, of course they do, but that doesn’t mean you should ignore them.

I’m a Financial Advisor in private practice, obviously doing a little pro bono work here. Catalyst - Most of the advice in this thread is good: read (suggestion: The Warrenn Buffett Way by Robert Hagstrom.); get a trial subscription to the Wall Street Journal (don’t read the whole thing every day, just the front page and the front page of section C (look for the weekly(?) “Getting Started” column); call the bank where you have a checking/savings acct and ask to make an appointment with an investment advisor; Roth’s are generally a good idea for young people just beginning to earn).

Here’s something new: walk into an office of one of the big brokerage houses (…resisting…urge…to…plug…my…self…) and ask to talk to the ‘broker of the day’. They’ll give you a least a half-hour. Then walk into a different brokerage firm and do the same thing. Then do it with a third.

Ask experts. They’re out there.

You will find people who claim all doctors are quacks, all lawyers are ambulance chasers, and all financial advisors are con artists (just like you’ll find people who claim all the big trading houses have absolutely no interest in providing you with accurate data). Yes, there are unethical members of every profession, and they give the rest of us a bad name.

Go talk to a few of them, reference what they say back to what you have read, and use your gut instinct to go with the one you trust the most (hint: not the one with the flashiest clothes).

12

Before you talk to a broker from a company such as Edward Jones or American Express, remember one thing, they are **salespeople **. Treat them with the same caution you would a car salesman. Do not get the idea in your head that they are some form of guru on financial matters. They are trained extensively on how to make sales. Education or financial knowledge is not a criteria for becoming a broker, only the ability to pass the series 63 exam and make sales. Fred the garbage man can become a broker if he works at it and then handle your money. The above post mentions doctors and lawyers but they have to go to school for multiple years to get into those professions, stockbrokers don’t.

I am not trying to slam brokers or financial advisors or whatever their company calls them people usually get a false impression of them. When you deal with them, people are often given the impression that they have a level of knowledge about financial matter that they don’t. Anyone wanting to test this, go apply for one of these companies. If you can cold call people, have a large “natural market” (read as family) and can pass the series 63 exam, you have a job.

If you go this route, try to find one who is a certified financial planner( http://www.cfp.net). The problem is finding someone good who will handle your account with such limited funds. Once a broker who is good at it gets to a certain level, he/she will start dropping low-end clients on new recruits and stop taking new business.

As for the advice about buying books, there is a cheaper way if you have 5 minutes to spare. Go to the library and check out books on investing.

13

That is not correct.

Yes, if Fred can meet the requirements then he’s allowed to. So? If Fred has the desire and the ability he can also be a doctor. Or a lawyer. Or an auto mechanic. Or whatever it is you do for a living. Really.

On your trip to the library to check out investment books, see if they have Series 7 and Series 66 exam prep books (it’s the 7 and the 66 we need to pass, not the 63). Flip through them and see what the minimum level of knowledge is. If you can pass (the national pass rate for the 7 is roughly 70% so I hear, no cite), then you get to join the club. Once you’re in… only 1 in 6 are still in the business after 6 years (according to my firm, which I won’t cite as so not to advertise). 70% get the chance, only 17% of those make a career of it. This is not an easy profession, we do have a level of knowledge many (many) do not, and it’s no walk in the park to get here.

No. I don’t pretend to have a level of knowledge I don’t, the key is knowing more than the client. Not everyone needs a financial advisor. It’s not rocket science. But speaking from experience, you’d be amazed what the general public doesn’t know. I’m not saying Fred the Garbage Man can’t learn what I have, I’m saying in many cases he simply hasn’t yet.

If you think the doctor/lawyer comparison is a stretch, how about financial advisor vs. an auto mechanic? The requirements to join that profession are lower than mine, but that fact doesn’t measure the relative value of the profession/service/advice. A good (and honest) mechanic is worth their weight in gold, and a long-term customer relationship with one is worth even more. (Conversely, a bad doctor is a quack no matter what credentials they hold.)

I don’t believe my mechanic knows everything there is to know about my car, all I know is she (yes, she) knows more than I do. No, I don’t know all there is to know about everything financial-related, but I do know more than most of my clients (which is why they need me).

And like I said - individual investing (especially starting out) isn’t rocket science. Some people won’t need the services of an advisor (just like some people can replace their own brake pads).
(Trade secret, shhhh!!) Yes, new advisors are trained to sell. One misconception is that they are only trained to sell. Not so.

Margins are getting squeezed so thin (ROA (to grid) was 2%+ 20 years ago, now it’s <0.5%) that I can’t make a living selling a one-time product or service. I need to build long-term relationships with my clients and serve their financial needs for years. I do that by doing right by my clients. Sure, I could push a product on them they don’t need, but how many would I retain with that approach? Zippo.

Yes, we provide a service to people who need us. No, not everybody needs us. Yes, we get paid for what we do.

Sorry for the hijack.

**Catalyst **- yes, be suspicious of every doctor, mechanic, and broker you ever talk to. Some might try to sell you things you don’t need. Others really do care about doing the right thing. It’s up to you to figure out the difference, or even if you need their services in the first place. But before you make that first investment, or change your oil for the very first time, or take out your own appendix, I suggest you read something about it and talk to someone who’s already done it. Perhaps even someone who does it for a living.

14

Thanks to all who have replied so far. It’s more obvious now than before that I’ve got some reading to do. It looks like most of you are suggesting either a DRIP or a Roth IRA. How do the two compare? Links to sites with more information would be appreciated.

Thanks again.

15

That’s a huge blunder on my part. I have no idea why I was thinking series 63. You are correct, series 7 and 66. I am ashamed.

Anyway, the topic of “Is a financial advisor worth having” is GD material which I’d be happy to debate to no end but this is not the place.

Catalyst, at this point, if you can max out your contribution, I would go with an IRA. That’s the opinion of a person you don’t know and will never meet so you can take it with a few hundred grains of salt. IRA contributions have a cap on the amount you can invest in them per year($3000 now, increasing to $5000 in 2008, if you make the minimum income) and also have a maximum income level after which you can not contribute. No matter what happens later on, that money will be sitting there earning you compound interest. I’ll again suggest a bank as a good place to find out about an IRA. If you have a Regions bank in your area, then my advice is go there and get an information packet.