"How do I start investing?"

Question:

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

Answer:

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 Morningstar.com 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. Morningstar.com 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.

Investing Book Recommendations

There are so many investing books out there, so how does someone new to the market start investing?

Books are a good way to learn. If you want a broad overview, you should start with the infamous Dummies series, and get Investing For Dummies, 4th Edition (Eric Tyson). Investors have to start somewhere, and the Investing For Dummies is a good start. (Alternatively, you can also buy and read "Personal Finance For Dummies" by Eric Tyson).

Okay, if you now know the basics, and know about 401ks/IRAs, stocks, ETFs, mutual funds, and have a general idea about the market, what should you read next?

Right now, there are many investing styles ranging from Growth to Value to everything in between. Some of these styles are very different from each other, and each philosophy may have very different rules. So where do we start?

I believe to get a good overview of the different styles, you should read these four books and decide for yourself what kind of investor you can become:

1. GROWTH: How To Make Money In Stocks: A Winning System in Good Times or Bad, 3rd Edition (William O'Neil)
   
2. ?: Jim Cramer's Real Money: Sane Investing in an Insane World (Jim Cramer)
   
3. ?: One Up On Wall Street : How To Use What You Already Know To Make Money In The Market (Peter Lynch)
   
4. VALUE: The Essays of Warren Buffett : Lessons for Corporate America (Warren Buffett)
   

To start out, I would recommend reading both Jim Cramer's "Real Money: Sane Investing in an Insane World" and Peter Lynch's "One Up On WallStreet", Millenium edition.

Jim Cramer's book is a more contemporary look at investing, and goes into detail about the basics of stock investing, rules, cycles, stock sectors, creating a discretionary portfolio, spotting bottoms, and spotting tops, just to give a small sample.

Peter Lynch is the Legendary investor who managed Fidelity's Magellan to outstanding performance. Invest in what you know. He groups stocks into six categories such as "Slow Growers", "Stalwarts", "The Fast Growers", "The Cyclicals", "Turnarounds", and "Asset Plays". He helps investors in the process of choosing great stocks, and even multibaggers (make many times your original investment). Even if the book was written in 1989, this book is still a timeless classic. The Millenium edition has an interesting introduction by Peter Lynch himself in 2000, during the height of the dot-com bubble.

To get two very different takes on investing, you should read both William O'Neil's book (founder of Investors Business Daily , and a die hard growth investor who likes strong earnings growth and great charts), and Warren Buffett's book (Value Investor extraordinaire who made people rich through Berkshire Hathaway (BRK.B)). You'll see how two legendary investors look at investing in two different ways. But both succeed!

There are other recommendations to the right as well, but you may want to first try the books above first.