How do I Start Investing?
Probably the number one question that I am asked is, “How do I Start Investing?” The person asking this question is not asking for specific investment advice. Instead they are literally asking how they go about investing their money. The individual probably has a few thousand sitting in their checking or perhaps savings and does not know how to actually start investing. They have heard of ETRADE, Fidelity, and similar companies, through various ads, but really have no idea what these companies do. This is not the fault of the individual but of the school system that refuses to teach any type of financial awareness.
The series of articles presented here are designed to take an individual with zero investment background and get them started on the right course. In order to do that I will start with articles that explains the very basics and work are way up through the financial universe. Eventually we will design a portfolio that will allow you to beat the majority of professional money managers.
Now to answer the question, “How do I Start Investing?”
The very first step is to do some research on the various discount brokerages. When I say discount brokerages I am referring to the likes of Scott Trade, Fidelity, and Vanguard. What these companies do is act as an intermediary between yourself and the rest of the market. When you setup an account with them they will allow you to purchase various investment products such as stocks, bonds, ETF’s, mutual funds, CD’s ext. After you have purchased the investment product they will hold the investment, in your name, until you wish to sell it. In today’s world this means that everything can and usually is accomplished online.
When comparing the various brokerages there are a few aspects you should scrutinize:
- How is the company’s customer service? If you call them is the customer service knowledgeable, helpful, prompt, friendly ext.
- What are the trading costs? That is, how much do they charge for you to trade a stock? Granted, I don’t recommend owning individual stocks but if you plan on building a portfolio of ETF’s this information is paramount.
- Any specific account Fees? Some brokerages will charge you simply to have an account with them. In general we don’t like paying money for something we can get for free!
- How is their Mutual Fund Selection? Specifically how big is their NTF (No Transaction Fee) mutual fund list. The more mutual funds offered that don’t have a transaction fee the better.
In the end I can only recommend companies I have first hand experience with and know to be reputable. If you wish to build a mutual fund portfolio only one company is truly in the spot light, Vanguard. Vanguard's mutual funds are almost exclusively indexes and are extremely competitive in regard to expenses. On the other hand if you wish to build a portfolio with ETF’s then you can go with any discount brokerage. In this instance I would recommend Fidelity, TDAmeritrade, or ETrade.