Friday, July 6, 2007

"How do I start investing?"


Hi. I'm new to the market and I'm interested in investing.
How do I start?


Congratulations on wanting to get involved in the stock market and investing!

All investors need to start somewhere, and books are a good way. I would recommend starting with "Investing for Dummies" by Eric Tyson and "Personal Finance for Dummies" by Eric Tyson.

Once you learn the basics of investing and the stock market, you can continue reading more books including the recommended books in this link.

In addition, you can start watching former Hedge Fund Manager Jim Cramer, on his CNBC show "Mad Money." While his antics may seem crazy to some, he has a lot of substance and has a good message. He had a very impressive record as a hedge fund manager. He even has a loyal following among Generation Y.

Continue to read magazines and newspapers such as "The Wall Street Journal", "Money", "Smart Money", and even "Barron's" or "Investors Business Daily".

Once you are ready, you can start choosing a brokerage account. Two popular ones are:
  1. E*Trade
  2. TD Ameritrade

They offer many kinds of accounts, and you buy and sell stocks, and mutual funds. The minimum to open each account is $1000.

Mutual Fund Route

If you choose to go the mutual fund route, look through your brokerage mutual fund list, and only choose mutual funds that have no-load or no transaction fee. You can then visit and look for 4 or 5 star mutual funds.

In order to have a diversified portfolio, you can have three mutual funds:
1. Diversified International Mutual Fund
2. Large Capitalization USA Mutual Fund
3. Small Capitalization USA Mutual Fund

If you don't have that much money to start with, you can start with one mutual fund. And as you have more money to invest, you can start investing in another mutual fund, and so forth until you have three mutual funds.

You can also choose index mutual funds. The advantage is that the fees that you pay (called the expense ratio. You don't really notice it, but it is taken out automatically from the price of the mutual fund. shows you the expense ratio) is much lower than an actively managed mutual fund. Also, advocates of Indexing such as Vanguard founder John Bogle say that Index funds outperform a great percentage of actively managed mutual funds so why not invest in Index funds with a lower expense ratio?

Exchange Traded Fund (ETF)

Exchange Traded Funds, or ETFs are essentially mutual funds, most of which are indexed rather than actively managed, that trade in the stock market just like stocks. For example, the DIA ETF represents the 30 stocks in the Dow Jones Industrial Average. You pay commissions to buy and sell, just like a regular stock. You can buy them from many brokerages out there.

One of the largest ETF companies out there is Barclays iShares.

Investing in Stocks and ETFs

If you wish to invest in stocks and ETFs, congratulations. You are saying that you have the time, and the inclination to study stocks. I would recommend reading lots of recommended books I mentioned, and continue learning about the market.

Also, continue to live life. Sometimes, the best investment ideas you have are in areas you already know. Maybe you see that Chipotle Mexican Grill (CMG) is always full, or that everyone seems to be shopping at Gamestop (GME).

Good luck to you, and I hope you enjoy the journey, and make lots of money in the process.

Info on Getting Started investing a sum of money.

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