- Which stocks should I buy?
- What are mutual funds? How can I tell them apart?
- Which broker should I use?
- How do I know when I should buy or sell?
- Do I have enough money?
Many people mistakenly believe that investing is complicated. It’s not. It’s a lot easier than most people think it is, and you can get started with $1,000 or less. But first, a word of caution:
Pay attention to your fees and taxes.
Let’s say that you buy 100 shares of ABC stock at $5, for a $500. A month from now, you notice that ABC stock has doubled. You made $500, right? Not exactly…
If you bought the stock from a broker who charges you $10 per trade (once to buy and again to sell), you’ll lose $20 from your profits. Then you’ll have to pay short-term capital gains tax (which you pay if you buy and sell within a year’s time) which can be as high as 39.6%. Short-term capital gains tax is taxed at your ordinary income rate, so it varies, but your 100% gain can be brought down to about 60%.
I love low transaction costs, which is why I recommend TradeKing. They charge less than $5 per trade and have wonderful customer service. If you’re buying and selling often, the savings really add up!
What if I only have $100?
Everyone has to start somewhere, but the first $100 will be the hardest (and most rewarding) money you’ll ever invest. The most important thing is to just get started. If you invested $100 in Coca-Cola in 1908, it would be worth over $25 million today! Of course, you probably won’t live another 108 years, so you’ll have to get into the habit of saving more than just $100.
I’m not going to lie to you – investing with such a small amount of money is tricky because the brokerage fees will eat up such a huge percentage of your money. Even with TradeKing, a simple buy order is 5% of your money. That’s why you should check out free brokerages such as Loyal3. Loyal3 doesn’t charge you anything to buy or sell stocks, nor do they force you to have a minimum balance.
Loyal3 is great for beginning investors, but you’re severely restricted by their offerings. You won’t get well-diversified portfolio of an ETF, but you will have the ability to buy great companies such as Disney, Apple, Coca-Cola, and Nike. You can even purchase fractional shares! So even though Apple stock is currently $103, you can start with as little as $10.
Not comfortable with stocks?
If you don’t feel comfortable investing your money in the stock market, that’s okay. You can put your money into an online CD or money market account, where it isn’t easily accessible. The idea is to remove it from your readily available money and remove all temptation to spend it. Plus, with options like a money market account, you can at least earn some interest.