General Question

scubydoo's avatar

How do I get started with the stock market?

Asked by scubydoo (751 points ) December 26th, 2007

I’m interested in getting started with the stock market. I’m interested in many aspects of stocks. I’m wanting to get into mutual funds as well as individual stocks. I asked up here before for advice on investments. thanks to those who answered. and thanks early for any advice on this thread. I think have a Very basic understanding on stocks. please correct me if im misunderstanding anything because I’m truly new to investing. I understand that you purchase them for their current stock market price and depending on how the market does, determines how much they are worth when you sell them. I guess one of my main problems with the stock market is that I’d be buying something that i cant hold in my hand and say “hey I own this”. can anyone help me to understand how stocks and ownership works? lets say I find a stock I’m interested in and it costs . say $10 per share of xyz stock.. lets also say i have $100 to spend. that means I can purchase 10 shares correct? what do I need to do to start up an account online? A fluther user in my lst question advised to use scottrade and said it had a $500 minimum and that other investment firms would require $1500—$2500. so does this mean that to start out with the stock market I’d need $500 or more just to start purchasing stocks? Is there another way to get started? I guess to start off I’d have around $200–300. Im currently saving money to get started. I’m still trying to read as much as I can but investing in stocks is something I’ve never done before and want to know what to expect before I get started. Also once I actually find a site to join and purchase my first stock, what happens next? back to earlier example, say I am able to purchase the 10 shares of xyz stock, do i receive anything or not? and also what about selling the shares? lets say I held onto them for 2 years and the price moved to $50 per share, making my ownership total of xyz worth $500 and I wanted to sell them. What is this process like? what do I need to expect to do and happen? Also and advice on how mutual funds work and their prices is greatly appreciated also. I do however know that they put money into several different stocks to help the mutual fund as a whole. I thank you in advance for any help.

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13 Answers

jgoose's avatar

there are alot of questions here, so i’ll leave the ones that i dont know much about alone. a good way to get a taste of the stock market is to start in a mutual fund, you are still buying shares but for the most part they are much lower risk than individual stocks. typically your local bank branch will have a person who is trained as an investment advisor, who will give you questionnaires and talk to you about what your goals are, what your time frame is, how much risk you are willing to accept, etc and give you recommendations on what investments to consider. in my experience, the advice is almost always to get into a mutual fund. some advice from personal experience though, be sure to read the fine print. some of these funds charge a fee if you take your money out too soon, and some charge a sizeable annual account service fee, which should be taken into account when you look at an otherwise attractive outlook for the fund.

robhaya's avatar

When purchasing individual stocks make sure you buy using a limit order and not a market order. A limit order allows you to purchase a given stock at certain price and not to exceed that price. For example, I want to purchase a share of an IPO currently at $100 a share. I place a limit order of $90 for the IPO. This transaction/purchase of the IPO will not occur until the price hits $90 or lower. This protects me from over paying for the stock, which can happen if you place a market order. A market order gets executed at the current trading price.

If a brokerage requires a minimum to open an account, that is the amount money you need in order to start using the account. Take into account there are trading fees that get charged against that account as well. So if you buy 10 shares @ $10 = $100 for the stock, there is also the trading fee to purchase of anywhere from $8.95—$15 per trade that gets charged to your account. Same fees apply when selling the stock. For selling you can do sell limit order which says don’t sell this stock until it gets to this price or higher.

Mutual Funds are always a good way to get started without a lot of capital and not a lot of effort on your part. Service fees, are things to lookout for in any fund. I would also look for mutual funds that have been managed by the same person for a long time. Always do your research on what type of fund you want to invest in.

What are your financial goals?

Another thing you might consider is opening up an electronic savings account with an online bank like ING Direct. There is no minimum to open the account and you’ll earn 4% on the money you put into the account. This might be a better alternative, until you have enough money to open a brokerage account.

Good Luck!
R

cwilbur's avatar

The most important bit of advice anyone ever gave me about the stock market: Don’t put money into it that you are not completely, totally prepared to lose.

Your best bet is to sit down with an investment counselor and discuss this, with an eye to what your goals for your money are. Do you want long-term growth? Do you want short-term high profits, with the associated high risk of losing it all? All of the major investment banks have local offices, and it is the job of the people in those offices to inform and advise you about investments.

You’re focused on the stock market, and on day trading websites; you’re certainly welcome to learn by trial and error, but this is real money you’re playing with, and you’re probably going to lose a lot before you start figuring it out. It’s likely to be cheaper to talk to a good investment advisor first.

Also, if you don’t already have six months of expenses in a low-risk savings or money market account, you really should be putting your money there instead of risking it on stocks. This is the sort of thing a good financial advisor will tell you.

gailcalled's avatar

check out past answers to this question. And as cwilbur so wisely says, w/o a lot of knowledge and info, you might as well go to Las Vegas.

here

cwilbur's avatar

You’d be better off going to Las Vegas; day trading websites don’t have free drinks, showgirls, or comped rooms.

skfinkel's avatar

Whenever I invest in the stock market, I always remember that this is money I may not ever see again, and I have to be willing to lose it. While in the long run stock investment is good, you just need to remember how risky it is. Index funds are less risky, but not as fun and scary as picking a stock. But they go as the market goes. Since the market historically goes up over time, so will index funds, if you hold them long enough. Other mutual funds also spread the risk among a lot of stocks, but don’t have the pizazz of buying individual stocks.

Index funds and most mutual funds will not give you the kick that an individual stock does, and if that’s what you are looking for, just realize that you can win big (if you sell at the right time) and also lose big. My advice for individual stocks would be not to listen to big brokers who might just be trying to dump on trusting investors a stock their company over-bought. So, find some advice where no one gains (motley fool is good), or find a company you love and check out their information (all available on the web—I use fidelity.com), and then hold your breath and plunge in.

I guess one more thing: If you have a limited amount of money and no real source for more, I would stay away from the stock market completely.

Did somebody say Las Vegas?

scubydoo's avatar

Well I understand the idea that its money i could gain or lose. And I do have other savings accounts, such as cd’s, roth ira, money market account. Im just really interested in pursuing the stock market. I dont have any experience with it. as it is with a cd for example, I put money into an account and get a statement every month saying what my account has earned. im just confused on how buying stocks works. basically Im wondering if I receieve any statement when I purchase a certain stock or does it just show up virtually in my online account? Also Im wondering about basic start up prices. does it take at least $500 minimum to start trading or just to purchase a few stocks? or does it just cost the amount of the stocks plus the trading price? Im not too interested in purchasing a few stocks and trading them a few days later. Im mainly more interested in trying my hand on picking a few stocks to hold onto for a while. Any advice on basic start-up prices or how much i’d need to get started is greatly appreciated. once again I thank you all for your help

ironhiway's avatar

You need 500 minimum to open the account and yes like your other accounts you will get a statement. As for practice I’ve put together a list of sites that will allow you to practice trading while your putting your 500 together.

http://vse.marketwatch.com/Game/Homepage.aspx
http://www.stocktrak.com/
http://www.tradeover.net/
http://www.stocks-game.com/
http://www.smartstocks.com/marketnews2.html
http://www.fantasystockmarket.com/howtoplay.asp

Once you have your 500 in the account you can add as much or little as you like. Most shares trade in blocks of 100 shares but you can trade less. When you trade a stock buy or sell you will get a confirmation.

cwilbur's avatar

The minimums and start up costs depend on your brokerage and your agreement with them. It’s likely that the minimum you can invest will be in the $500—$1000 range, but IT DEPENDS. Find the broker you’re interested in dealing with, whether it’s an in-person brokerage or an online brokerage, and ask them what the deal is. You’ll probably need to talk to several.

This is not the sort of thing you should expect to have good luck with if you just ask a collection of random strangers online. You have no way of evaluating their advice to see if it’s any good or not. Just as you’d be a moron to write a paper based only on reading Wikipedia, you’d be a moron to make investment decisions based only on reading Fluther. Look at the websites for the day trading houses you’re interested in. Call up someone from Edward Jones or Met Life or Morgan Stanley or Charles Schwab and ask questions. That’s where the answers to your questions are found.

kiti's avatar

Study the market very well, keep practicing, and then decide which stock market is suitable for you and which one is not.

So you should obtain information as much as possible about stock markets, then choose the best one for you.

If you were comfortable with a certain kind of stock market, you would understand the language of that market. As a result, you would make good money easily without falling into trouble.

La_chica_gomela's avatar

If I were you, I would read the book, On My Own Two Feet by Manisha Thakor and Sharon Kedar. It helped me understand how to make the stock market work for me SO SO much. It’s written to the point of view of women, but I think it is THE BEST book out there for how to ACTUALLY invest in the stock market, if you’re a normal person, not some billionaire. It has a lot of other great info about how to get your finances in order and keep on the right track. It’s only $10 on amazon, and TOTALLY WORTH IT when thousands of dollars are on the line that you would possibly be investing.

It was assigned in a personal finance class I took in college, and I’ve seen one of the authors on CNBC, which was really cool.

If you follow the advice of the book, you can avoid having an experience like cwilbur described. Investing in the stock market is always a gamble, but if you follow the advice of the book you can maximize your return while minimizing your risk. It’s all about index funds, like Vanguard’s S&P 500 fund.

When you invest in an index fund, like S&P 500 Index funds, basically, you can put in $500 or $1000, and you own a little tiny bit of every single one of the top 500 performing stocks on the New York Stock Exchange. Historically, these go up about 10% per year, and have every year since the stock market opened. So, you can’t count on making 10% every year, but if you leave it in long enough, you will.

Hope that helps. Best of luck to you!

steve22's avatar

@robhaya “Another thing you might consider is opening up an electronic savings account with an online bank like ING Direct. There is no minimum to open the account and you’ll earn 4% on the money you put into the account. This might be a better alternative, until you have enough money to open a brokerage account.” are you talking about a regular saving account. because I’ve never heard of a saving account that gives %4.

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