Investing for Beginners

[popowich]

Hello,

If you want to learn more about investing but have no previous experience, then this is the thread for you! Follow along and please feel free to participate in the discussion. We are not professional financial advisers. This is a discussion designed to benefit the members reading this thread, and is created by those who already enjoy saving, investing, and living a financially responsible lifestyle.

The first step is figuring out where and how to start investing. If you have $20-$50 a month, where can you efficiently invest this amount of money without getting crushed by fees. The first though across our minds was ShareBuilder.com (http://ShareBuilder.com). After some consideration I'm thinking a no fee monthly deposit into a DRIP account hosted by Mellon Investing (https://vault.melloninvestor.com/jsp/enroll/Search.jsp). Eric is thinking along the lines of putting it into a savings account for now. I think the plus side of the DRIP is that in addition to there being no fees, the dividends are automatically reinvested and used to purchase more shares of your stock. If we go this route, what company do we invest in? Do we use a service, or invest directly with a company? I'll stop putting words in Eric's mouth now and give him a chance to reply.

-Raymond

[esnagel]

A quick reply...

I like ING Direct for a savings account. They can automatically deduct from your checking account, so it's a no-brainer. Forces you to save.

You can invest directly with Verizon (http://investor.verizon.com/stock/direct_invest.aspx) or with National Fuel (http://phx.corporate-ir.net/phoenix.zhtml?c=90873&p=irol-stockpurchase). Those are just two that came to mind.

Just watch for fees, especially at low investment points.

[popowich]

One of my first stock investments was a DRIP account for Home Properties (HME) (http://finance.yahoo.com/q/bc?s=HME&t=5y&l=on&z=m&q=l&c=). At the time there were no fees having $50/month taken from my checking account, and on top of the increase in share price it paid a nice 6% dividend. It looks like that particular stock took a turn for the worse this past year. I owned it from around early 2000 through the summer of 2004. If I had been able to stick with it an extra year or two it would have been worth anywhere from a nice down payment on a house or car, to owning a car, depending on the type of car or truck you are looking at. In real dollars putting away $50-$100 month it would have been worth over $10,000 over that time if I stuck with it the extra couple years. I ended up selling earlier to get a new roof. It's bad when it rains in your kitchen when it is raining outside. Anyways, once you get used to putting away $20-$50/month and you don't miss the money in your budget, it makes it that much easier to bump yourself up to $50-$100/month from there. Seeing the balance grow is a great motivator. Don't forget to consider the minimum initial investment required if any when looking at your DRIP options.

-Raymond

[RocCityDad]

Please explain what a DRIP account is. :thanks:

[popowich]

A DRIP is a Dividend ReInvestment Plan.

When your stock pays out it's dividends, instead of being converted to cash and mailed to you as a check or deposited into your account, the dividends are used to purchase more shares of the stock. The following is some information from the DRIP information (http://www.fool.com/school/Drips.htm) page on fool.com.

-Raymond

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What Are Dividend Reinvestment Plans (DRPs)?

Companies offer DRPs as a way for their shareholders to buy stock directly from the company (usually through a transfer agent) in very small to large amounts, and usually on a monthly basis if desired. These plans get their name from the fact that they also reinvest dividends paid, using these dividends to purchase more stock. Thus the name "Dividend Reinvestment Plan." The specifics of whether or not you have to reinvest the dividends depends on the plan.

Advantages of DRPs

You don't need a large amount of money to start. Usually owning one share is all that is required to enroll in a DRP.
DRPs are a cost-effective way for Fools to put stock dividends to better use -- purchasing more shares of the company -- than simply spending the money or having it sit in a money market account. Most DRPs allow dividends to be reinvested at no fee.
Most companies allow investors to purchase additional shares through a Dividend Reinvestment Plan for nominal fees -- or often no fee at all. These stock purchase provisions, sometimes called Stock Purchase Plans (SPPs) or Optional Cash Purchase Plans (OCPs), allow an investor to send in as little as $10 to $50 at a time to purchase additional stock.
About 100 companies have DRPs that allow investors to purchase stock at a discount to the current market price. These discounts can range anywhere from one to ten percent.
DRPs "force" investors to buy stock on a regular basis and hold on to that stock. As a result, investors adopt a long-term horizon and often invest small amounts of money on a regular basis -- money that they usually don't even miss. Nearly 200 companies also offer the option to make periodic DRP investments through automatic debits from bank accounts. Kinds of DRPs

Company-run: Many companies take it upon themselves to run their own DRPs. These are often the companies that allow you to buy directly through them without requiring you to first own a single share, although this is not always the case. The company-run DRPs are administered from corporate headquarters, normally as part of the overall shareholder relations effort. Some companies may even offer Individual Retirement Accounts (IRAs) along with the DRP.
Transfer agent-run: As managing DRPs can be cumbersome, most companies have turned to third parties, called "transfer agents." Transfer agents are financial institutions that run DRP programs for many companies. Because they can use the same resources for a number of customers, transfer agents can often provide DRP management services at a lower cost than the company could achieve by itself. Some of the larger transfer agents include Boston EquiServe, L.P., First Chicago Trust, and Chase Mellon.
Brokerage-run: Some brokerages will allow shareholders to reinvest dividends at no cost, even if the company in question does not have a formal DRP itself. However, these brokerage-run "simulated" plans apply to dividends only and do not permit optional cash purchases as most company-sponsored DRP plans do -- and optional cash purchases are a large part of what makes DRP plans so attractive. (click here (http://www.fool.com/Dbc/Tables/Compare.htm) to compare the offerings of several different brokers).Summary

DRPs are a way to begin investing with a very small amount of money and to keep investing monthly (or as frequently as you can afford) in small or large amounts while avoiding brokerage commissions and reinvesting dividends. In the long term, it's a great and "patient" way to grow money. You have dollar-cost averaging working for you and you're investing, ideally, in great companies that you don't foresee selling at any time. That's very Foolish.

[VinnyBrooklyn]

I use sharebuilder who was just bought by ING Direct. They have three levels of accounts and I use the middle one which is $12 a month and you get 6 investments a month. Kind of worthless as I only invest 4 times a month so I feel like I am losing 2 trades a month.

Their bottom trading plan is $4 per investment so that would be $16 the way I invest. I own 4 or 5 stocks in my portfolio and add more whenever one stock goes down a bit that becomes my investment choice.

[popowich]

Here is a information on why to use a savings account instead of paypal (http://www.discussny.com/showthread.php?t=1450) for short to medium term savings.

In a nutshell, even though the rate is slightly lower, the account is insured and there is less risk of your account being frozen.

-Raymond

[popowich]

I use sharebuilder who was just bought by ING Direct. They have three levels of accounts and I use the middle one which is $12 a month and you get 6 investments a month. Kind of worthless as I only invest 4 times a month so I feel like I am losing 2 trades a month.
Their bottom trading plan is $4 per investment so that would be $16 the way I invest. I own 4 or 5 stocks in my portfolio and add more whenever one stock goes down a bit that becomes my investment choice.

Even if you are not using the full number of trades, for the number of trades that you are doing it's still a better rate than my $7 per trade with Scottrade.com. The above deal wouldn't be good for me though since I generally do less than one trade per month.

-Raymond

[VinnyBrooklyn]

If I wanted to make a real time trade at sharebuilder its only $9.99 it came down from $14.99 so that makes me happy. Sharebuilder also has a 4% + money market if you keep your money in the account instead of buying stocks.

I am currently reading Jim Cramers latest book which has all sorts of info on savings accounts and IRA's and stuff. Very eye opening stuff.

[popowich]

I occasionally watch his show. I tend to stick with the fool.com newsletter picks. I did make one Cramer pick several months ago. I picked up AYR (http://finance.yahoo.com/q/bc?s=AYR&t=1y) on 8/29/2007 and I'm down 31.83% on it since that trade. I understand one trade in not nearly enough trading to gauge the worth of the advice, I just wish I had landed on a better choice. It was sporting a 7% dividend at the time, and currently looks to be a 12% dividend. Eric, how about adding an amazon link for the Cramer book? I'll pick up a copy and get you the credit. :)

-Raymond

[VinnyBrooklyn]

Actually what I just read in Cramers book (Mad money for life) says to stay away from high paying divendend stocks as they can fluctuate too much. I make more money when I see Cramer going against what he teaches. When he breaks from his own rules he normally makes a mistake. Jims mistake = my gain.

I don't buy many stock he recomends I just follow his line of thinking and find my own stocks.

[Raven]

Looks like I am a step ahead. I started ING awhile ago. They take out every two weeks. I don't have much in there though, cause I had to draw out already. :mad: I will need help with the next step. I will put back into ING what I took out this paycheck.

A quick reply...

I like ING Direct for a savings account. They can automatically deduct from your checking account, so it's a no-brainer. Forces you to save.

You can invest directly with Verizon (http://investor.verizon.com/stock/direct_invest.aspx) or with National Fuel (http://phx.corporate-ir.net/phoenix.zhtml?c=90873&p=irol-stockpurchase). Those are just two that came to mind.

Just watch for fees, especially at low investment points.

[esnagel]

Here's a few Jim Cramer books (http://www.whooshusa.com/search.php?q=jim+cramer&nSDCCatIDList=c14&nSDCSubIDList=&x=732&y=11&b=products). Or Cramer's books on Amazon.com (http://www.amazon.com/gp/search?ie=UTF8&keywords=Jim%20Cramer&tag=didd-20&index=books&linkCode=ur2&camp=1789&creative=9325)

[VinnyBrooklyn]

Watch tv make money is good for the stock market and how to make money. The new book Stay mad for life is really good for iras and buying stocks long term and IRA's and 401 k plans. I still have 70 pages left to read in stay mad and I cant put it down.

In the book he tells you what parts of the market to invest in and what to stay away from.