My Preferences (all of the following was written in 2000, so may be outdated in some areas)
Investing Online
There are many sources for online investing information, many sites that offer market access, and many newsletters and other advisory pages on the Internet. I've only been investing online for a few years, so I can't offer the experience and expertise that some of these many sites can. What I can offer are some fairly simple, straight-forward suggestions on how to get started in online investing. I've tried to minimize discussing alternatives, just presenting one way that works. If you try it and like it, great!
Before I start, there are two really basic points to be made. First, you should know that stock trades cost differently if you use different methods with the same brokerage firm. If you call and talk to a human to do the trade, it'll cost you somewhere in the range of $50 and upwards, depending on the number of shares. If you call and use the automatic phone service where you answer everything by punching phone buttons, it'll cost you about half that much. If you do the very same trade on the webpage, it'll cost you half of that (1/4 of the 'talk to a human' cost). Second, if you have some IRA money you can roll into your new brokerage account (Step 2 below), it makes everything alot easier. If you're using taxable money, you have to keep track of every buy and sell, then put it all onto a Schedule D when you file your taxes -- AND pay taxes on the profits. The advantages of using IRA money are several: You don't pay taxes on your profits until you withdraw the money; If your stock goes down, waiting is no problem because the money's not going anywhere anyway; and, you've probably got alot more in your IRA account to play with than you have in your pocket. The only disadvantage that comes to mind is that you're not able to claim your losses -- of course, if you leave the money in until the stock goes back up, there are no losses (see MY RULE about 3 paragraphs down). Now, the steps to investing:
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Step 1: Find a place where you can quickly get quotes, easily generate historical charts, get company news, learn about IPOs, watch for splits, and the other 1000 things you need to know to intelligently invest online. In my opinion (and that of many others), the best site for all that is Yahoo! Finance -- click the picture to the right to go look it over. I just happened to start my investing using Yahoo and later heard from several informed sources that it's the most popular on the web.
Step 2: Open a brokerage account. Here you really have a large number of options. I looked over many of them, read the opinions of various experts, weighed all the information, then picked the cheapest one --- Ameritrade. $8 per trade if you just go with the market price and don't try to limit what you'd like to spend for a stock you're buying or receive for one you're selling. I've been perfectly satisfied with Ameritrade -- my trades have been handled swiftly (buys and sells of 100 shares or less have always been filled within a few minutes) and I have no complaint with their service. To open an account, click the Ameritrade name above, go fill the form out online, print out the form, and send them a check.
How much do I need to invest, you ask?
Well, that's a toughie ... I can only give my opinion. I've found that if you have less than $2000, you're probably not going to do much trading. Unless you're very lucky, you'll buy a stock, watch it drop some, then wait a long time for it to come back up to make you a profit. $6000 is a fair size account if you can afford it -- that allows you to buy a worthwhile number of shares in 2-3 stocks, such that one or more of them will hopefully go up to compensate for the one that goes down. To really do some flexible trading, you really need $20,000 or more. Of course, you have to do what you can afford, so that probably puts a lid on it right away. The main rule that most experts seem to agree on is that you only use money that you can afford to be without for awhile. This is because the stock(s) you buy may very well go down and you may not want to sell until they go back up. MY RULE is to not sell any stock at a loss -- this, incidentally, goes against what many experts recommend -- that is, sell if your stock drops a certain percent. The thought is that you might be able to find another stock to invest in that will do better instead of letting your money languish in a losing position. I contend that you can't really tell if another stock is better, so may very well sell one that's about to rise to buy one that's about to fall.
Well, that's the basics. Go to Yahoo! Finance and spend a few hours wandering through all of the information available. You'll be surprised how quickly you can learn the basic terminology and find your way into the market. The first thing you'll probably want to do on Yahoo is to set up a watch list of stocks you're interested in. Watch lists are easy to create and they give you a really quick way to get a snapshot of your favorite stocks.
One final suggestion -- if you're really hesitant about jumping into the trading world, try one of the various market contests that seem to be popping up all over the net. Most of these work just like the real thing, giving you a specific amount of cash to work with, then charging you for each trade just as the real brokers do. Good luck and happy trading! By the way, if you find this discussion to not be basic enough or if you have any comments on my opinions, feel free to go put an entry in the guest book on my Home Page.
Step 3: After you've found your favorite source for reference information and you've set up a brokerage account to trade in, you'll probably want to hear a bunch of informed opinions on which way the market is going, what stocks are hot and not, and what to expect in the future. The best place I've found for all that is the CNBC television channel. I turn it on every morning before the market opens, then watch/listen off and on during the day when I get a chance. Having the information pushed to you from the TV sometimes is much more effective then trying to pull it out of your reference source. If you don't get CNBC, try the website as the next-best alternative. Click the CNBC logo to the right to go check it out. Another good source is CNNfn (later called CNN Money) - click logo on right.
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2013 Update: I just read all below and I think it still provides good advice for someone just starting out in trading online. I've long since stopped trying to abide by "my rule" of never selling at a loss. After the internet bubble burst in 2001, I had to sell some at a loss or watch them go to zero (and some did). I've also long since stopped actively trading, but pretty much just hang onto what I have and make only an occasional trade (at age 72).
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