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" data-orig-size="1880,1253" data-image-title="smiling man in blue suit sitting by the table" data-orig-file="https://smallivy.com/wp-content/uploads/2017/10/pexels-photo-7821936.jpeg" data-image-description="" class="wp-image-24407" width="1880" data-medium-file="https://smallivy.com/wp-content/uploads/2017/10/pexels-photo-7821936.jpeg?w=300" role="button" data-permalink="https://smallivy.com/2024/06/22/how-to-find-a-broker-and-start-investing/pexels-photo-7821936/" alt="" height="1253" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"}" data-large-file="https://smallivy.com/wp-content/uploads/2017/10/pexels-photo-7821936.jpeg?w=723" tabindex="0" />Photo by RDNE Stock project on Pexels.comIf you’re interested in investing, you’ve probably spent some time looking at different websites and blogs on how to invest, and you’ve probably found several sites. There are some sites that give information on different investing strategies. Even more talk about how to do important things like diversify. Once you’ve spent some time learning, hopefully reading a few books on investing, and you have your financial house in order (no debt beyond your home, $9,000 to $12,000 in a bank account for emergencies, 10-15% of income going into the 401k at work and/or an IRA, and a budget to help control your spending), you may be ready to take the plunge and actually invest.
The question then becomes, now what? Today we’ll talk about the process of getting set up to start investing.
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Mutual Fund Investing
If you’re investing in mutual funds, it is pretty easy. You just go to one of the mutual fund provider’s sites, such as Vanguard or Fidelity. You then create an account with a username and password and enter your information like your address, social security number, and email address. You can setup an account, send in funds, and then choose and buy funds, all from the site. The process will only take you about 15 minutes and you can reach out for technical help if you need to.
(If you’d like to learn more about how to decide how much you should put in different types of assets, Sample Mutual Fund Portfolios gives lots of information and examples of how to make allocations for all sorts of different goals, including retirement.)
Investing in funds is easy because when you buy a fund, you’re actually buying a whole basket of stocks. This means that you don’t need to choose which stocks to buy. Either a fund manager does this work for you (in the case of a managed mutual fund) or you just buy an index fund, which buys a whole segment of the market. You can lose money if you hold these for short periods of time or trade in and out, but you won’t lose everything. That is a big reason many people buy mutual funds – ease of use, in addition to automatic diversification.
SmallIvy Book of Investing: Book1: Investing to Grow Wealthy
Individual Stocks and ETFs
If you’re looking to invest in ETFs or individual stocks, it is a little harder, but not much. What you will need then is someone called a broker. This is an individual who works with one of the big brokerage houses who has access to the stock exchanges. In the past people invested through a broker and called in orders. Back in the 1970s and 1980s there was no internet, so you would call in orders over the phone and see prices in your newspaper or on the business news. Today the internet has made investing a lot more do-it-yourself and you have access to a lot more real-time information, but you can still get help if you are willing to use a full service broker and pay more.
Using a full service broker, in addition to having a person helping you pick stocks and make trades, the account will have all kinds of extras. For example. you will have access to research on stocks and other tools. But you will pay a good amount when you trade. Typically, if you were to buy shares of a stock for $3,000 say, you would probably pay $60 to $80 for the trade to be made. The amount you would pay would increase if you bought more shares, but the percentage would drop. This is expensive, but then if you don’t trade very often, it really doesn’t matter much whether you pay $60 or $6. If you need the help and don’t get it, you’ll lose a lot more from bad investments then you will spend on commissions.
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A cheaper way to trade is to use an online broker. Here, you would enter orders through a website and pay a lot less, like $25 per trade or maybe even $5 per trade, depending on the brokerage firm. One example of a discount broker is Charles Schwab. Some places, such as Vanguard and Robinhood, aren’t even charging a commission anymore. You would not have a specific individual you would deal with, but probably a help desk you would call if needed. In general, there would be few frills like stock research.
A good article ranking online brokers is available through reviews.com here. They evaluated several different brokers to find online brokers that offered both low trading prices and extras like stock research. They really do a nice job of going through the online brokers and providing some great suggestions.
Now just because you may be able to trade for $4.95 per trade through an online broker (or even for “free”), doesn’t mean that you should be constantly trading. Study after study has shown that those who trade a lot will have dismal returns when compared to the returns the markets provide. When you are buying and selling short-term, you are basically just flipping a coin and betting on heads or tails. It is only buy investing for long periods of time and just leaving things generally alone that you will be nearly assured of receiving returns near those provided by the markets, on the order of 10-12% per year on average (when averaged over a long period of time).
Picking Individual Stocks
Adding a few individual stocks in a brokerage account to a core of mutual funds in an IRA or 401k account can boost your returns. But you need to buy the right kinds of stocks and buy them in the right way. These should be companies that you buy for the long-term. You should pick these companies based on the business, including things like a solid record of profitability and growing earnings, low or no debt, room to expand, and steady growth in the share price. Try to pick just one great company each in a few different industries, rather than spreading the money around to several different companies.
Want to learn the secrets to investing and really turbocharge your returns? Check out the second book in The Small Investor series, Investing to Win. This book presents 40 years of investing experience. Someone starting with zero knowledge of investing and the stock market could take this book and learn all that they needed to invest and do well. It would also be useful to someone who has invested and traded stocks for a while but who is really not getting the kind of returns desired.
Investing to Win
Find stocks you plan to hold for 10-15 years, buy a significant amount (build up to 500 to 1000 shares, buying a few hundred shares at a time on dips), then ignore the noise. Just concentrate on earnings growth and whether the company is expanding their business. Don’t worry about analyst ratings, stories about where the economy is going in the next year, or stories about consumer sentiment. Hold as long as the company is doing well, sell off a few shares if the position gets too big, and other wise just leave things alone. Do this and find a great company or two, and you may be able to beat the markets with your individual stock picks.
Have a question? Please leave it in a comment. Follow me on Twitter to get news about new articles and find out what I’m investing in. @SmallIvy_SI
Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.
