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Thread: Online investment companies

  1. #1
    God/dess Zabrina's Avatar
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    Default Online investment companies

    Does anybody use or know anything about the online investment companies like sharebuilder, eTrade or any of the rest? Would you recommend those companies to someone who is very new to investing and wants to start slowly, with smaller amounts of money? I've looked around at them and it seems that with monthly, or per trade fees its very hard for a small time invester to turn a profit. Where do most inexperienced, small timers get started?

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    God/dess montythegeek's Avatar
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    Default Re:Online investment companies

    Use the same thinking about these fees/costs as you do with your checking account fees--$5/month is a whopping fee when you have $25 in your checking account but small when you have $1000 in your account.
    One perfectly reaonable way to get started is to set up the account and for a few months/quarters invest in something LIKE an S&P 500 index fund. There is no commission on that investment (just any overall account fees, like checking) and build up your investment nest egg. When you have $5K-$10K those per trade costs are looking a lot smaller in relation to the amount of money invested.

    This wait before you get active in trading is also time for you to learn more what you are doing and a protection against one position being an "all the eggs in one basket" condition.

    There are other fee structures at different places too. Some times it is true that the people who have higher fees for medium size transactions end up having lower fees for small accounts. The folks with $10/trade ads are targetting a certain type of clientele. I would also suggest that someone getting started not make a lot of trades simply because they are prone by inexperience to change their minds to frequently and transaction fees will eat you alive.
    In short 0-$8K - index fund/mutual fund
    $8-20 half index fund and less than 5 stocks
    $20-$40 K broaden your stock picking to up to 10 stocks but keep 25% in a safer place.
    More than that and you are on your own, but keep part of it as "not actively traded."

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    Banned Melonie's Avatar
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    Default Re:Online investment companies

    I agree with Geek ... unless you are prepared to purchase stocks in lots of 100 shares (i.e. $2,000 for a $20 stock, $10,000 for a $100 stock), the trading commissions can constitute a significant cost factor. Purchasing mutual funds which are "subsidized" by the particular online brokerage service you choose are not charged a commission. However, these mutual funds have an embedded "administration cost" which siphons off 1-2-3% of the fund's profits and which can constitute an even larger cost factor. Also, I'm not a big believer in mutual funds since they tend to "water down" potential gains by spreading your investment over 100 different stocks (some of which will be big winners, some will be big losers, and some won't do much of anything). However, they are a good way to get invested in otherwise difficult sectors such as foreign stocks, real estate investment trusts etc.

    I use two different brokers with online trading capabilities. The first is e-trade (originally Datek), which trades stocks, bonds and options on US and Canadian exchanges only but at comparatively low commission costs. The second is Wachovia, which charges higher commissions but which allows me to trade stocks on European, Asian, South American, South African exchanges and even Hong Kong China. I'm a firm believer in the old adage that "there is always a bull market somewhere in the world - the trick is finding it, getting in and getting out" ! At the moment some 50% of my stock investments are in Chinese companies trading on the Hong Kong exchange.

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    Member percyw's Avatar
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    Default Re:Online investment companies

    I have been with Schwab for maybe 10 years. Buying and selling mutual funds only. They have a great web site with plenty of info on top funds without fees.

    If you buy and sell a lot of stock I hear Schwab's commissions are a little high.

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    Senior Member guywholikesdancers's Avatar
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    Default Re:Online investment companies

    Online commissions are so low nowadays that they're hardly a factor. Suppose I buy a thousand shares of something at 1.75. I can sell at 1.84 and make $78 profit after
    commissions (11$ each way via ameritrade). Let's say it takes a month. That's a 4.4% ROI in a month, which is a pretty reasonable return. If you keep rolling that into new trades it can add up to nice change pretty quick. Unfortunately I just don't have the time for that right now.


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    Senior Member guywholikesdancers's Avatar
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    Default Re:Online investment companies

    It's important to note that the short-term trading approach I outlined earlier takes practice. I did nothing but paper trades for over a year before I first put real money in the market-- hundreds of them, meticulously recorded as though I were using real money. I used real time quote services to get prices, and recorded the exact time and dollar amount of each "buy" and "sell", assuming an initial account of $1000. At first I lost money big time, so I'm extremely glad I wasn't using real money. I made a rule that I wouldn't start using real money until I posted a 50% ROI per
    month for three months running, which took about a year and a half. Then I entered with a real thousand, and did quite well. However, a year or so later my business took off and my real income got attractive enough that I stopped paying a lot of attention to the markets.

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    Banned Melonie's Avatar
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    Default Re:Online investment companies

    as a corrolary to guy's comments, not only does it take some practice to avoid getting "killed" by short term trading schemes, but you must always be prepared to take some losses along with the winners. There are just too many unexpected variables in the equation which affect stock prices but which are unrelated to the actual performance of the company you bought stock in (i.e. Fed Reserve interventions, OPEC production quota changes, corporate accounting fraud charges of the week, terrorist incidents). Fortunately, many of the same "people reading skills" which are a good dancer's trademark can be very useful in short term stock trading.

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    Senior Member guywholikesdancers's Avatar
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    Default Re:Online investment companies

    >> you must always be prepared to take some losses along with the winners.

    What Melonie said. I ran my $1000 into $10000 in less than a year, but if I hadn't taken out 3 grand to give to someone as a gift I would have lost the whole thing; as it was I just lost the remaining 7k, in about another year. I like to think that came from not paying very much attention as my business picked up, but maybe it was just my luck turning.

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    God/dess doc-catfish's Avatar
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    Default Re:Online investment companies

    I would suspect that most inexperienced investors don't want to be spending a lot of time pouring over financial data trying to figure out when to buy or sell in which case an index fund is really the only way to go.

    After getting my student loans paid off, I recently purchased a couple of funds at Vanguard. No sales commissions and expense ratios (many of which are less than 0.3%) are a fraction of what you'll pay at other mutual fund companies. Their 500 Index Fund (the largest mutual fund in the world I believe) currently has an ER of 0.18%, plus a $10 annual maintenence fee if your account balance is below $10K. You might want to check there at least for research purposes.
    Former SCJ now in rehab.

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    Veteran Member SexyBooty's Avatar
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    Default Re:Online investment companies

    Mariah check out HYIPS.

    there are many online investments that can give you great return.

    Most people would rather be certain they're miserable, than risk being happy.

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    Veteran Member SexyBooty's Avatar
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    Default Re:Online investment companies

    You can also trade at options express, but earlier in the other i posted where you could get easy 10 % a month but some people just dont know. Just check out the best HYIPS and you can monitor them everyday yourself.

    allright;-)
    Most people would rather be certain they're miserable, than risk being happy.

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