Considering I've made less than $5k in life, I've never really paid attention to investing/multiplying money. Any fellow SDNers invest? Since I've got a lot of free time now, I feel as though why not learn now. I probably won't have time later on in life.
Any med students invest in stocks?
- Thread starter hyrule
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Sure. I spend 30-60 min/day (usually during lunch break) analyzing what the market is doing (what I think it's doing, lol), updating watch lists, and sometimes buying.
I still think Investors Business Daily is the best system for beginners and people who don't trade a lot. Mainly because:
-Teaches you to buy stocks based on fundamental (earnings, strength, etc.) and technical (charts) signals
-Teaches you to cut loses early (-7-8%) and don't look back.
-Like the 3:1 profit/loss ratio
-Good research tools
-Teaches you how to read market direction (tough to do lately)
That said, I have made some modifications to the system, but still use it as my base. Most buys are made around lunch and and I set a high/low exit point after (bracket order) and then basically walk away and rarely look at the stock again. With my 3:1 plan, I can be wrong 3 times and right once and be perfectly fine. Plus I don't have to stare at a computer all day.
Used TDAmeritrade for my broker and recently switched to Etrade this year which has worked well. Also used fidelity in the past.
You won't make anything off of $5000, but some brokers and sites like Investopedia have paper trading accounts where they give you 100,000 "monopoly" dollars to practice and try out some strategies.
Hope that gets you started 😀
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Although IBD is a good place to start, I would completely eliminate trading from your thoughts until you start to get a better grasp of some basic concepts. It's not a world you want to enter blindly. Some other good resources are Barron's, SmartMoney, WSJ (although info often overlaps as they are all owned by NewsCorp) and SeekingAlpha. I also agree that Investopedia is a great resource. Wading through all their info can be daunting at first.
Once you do feel comfortable with trading, decide how much you are willing to lose or how much you don't need in the next 2 years, whether that be $100, $500, or more. Find a brokerage firm that will allow you to trade based on your demographics. If you are trading very small amounts, I'd suggest looking for somewhere that will allow you to trade commission free, as it will allow you to avoid paying a huge percentage of the smaller trades to commission. The problem is, unless you have an extensive finance background, you are likely to learn the most from experience. So, I'd suggest starting with a small amount of money and working up from there once you begin to get more comfortable.
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I did until a month ago. I liquidated everything to cover the first year. I used a Vanguard indexed fund. I know enough that it's a rare broker that can beat the actual market to make the costs worth it. I could play the market, but it's simply the not worth my opportunity cost to do the research when the market will still give me pretty good return. Once I hit $10,000 with Vanguard, everything got converted into Admiralty shares with minimal transaction costs. I started investing about three years ago (when the stock market was crap), and got a ~20% return for basically doing nothing.
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I invest in mutual funds and have a Roth IRA set up for my eventual god-knows-when retirement fund lol. It's a lot safer than trying to invest in individual stocks... lost a lot of money with the WorldCom scumbags (though I would've given anything to invest in Apple around 11 years ago... where I would be then, sigh).
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Don't. Stocks are an outdated vehicle for the average consumer. Get baskets of stocks, either mutual funds, an index, ETFs, etc.
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I've done plenty of investing. I find it to be very enjoyable, so I can easily spend a couple hours a day reading and learning about new stocks and the overall market. It can be fun to find great companies and invest in them and see your effort pay off (and just as good of a learning experience when you lose money).
I still have a handful of great stocks that I'm invested in, but I've moved on to trading options mostly now. $5000 in stocks won't get you very far very fast, but it can do a lot for you in options trading. That being said, I would highly discourage you from trading options until you learn A LOT more about investing through experience. Like mentioned earlier, open a paper account at any online broker to get experience.
If it's not something you see yourself doing everyday, you can just invest in an index fund or mutual fund for very low maintenance investing.
With a little bit of luck and a lot of time spent learning, I'm planning to use what I've made in investing/trading options to fund part of med school.
I still have a handful of great stocks that I'm invested in, but I've moved on to trading options mostly now. $5000 in stocks won't get you very far very fast, but it can do a lot for you in options trading. That being said, I would highly discourage you from trading options until you learn A LOT more about investing through experience. Like mentioned earlier, open a paper account at any online broker to get experience.
If it's not something you see yourself doing everyday, you can just invest in an index fund or mutual fund for very low maintenance investing.
With a little bit of luck and a lot of time spent learning, I'm planning to use what I've made in investing/trading options to fund part of med school.
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??? This comment makes no sense. You say stocks are outdated, but then suggest a mutual fund or index fund? I'm confused at what you are trying to suggest here...
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Its a rough world to try and be a part of while in medical school. Your gains aren't going to be all that great, and with cap gain tax are even less. To be honest, starting with Etrade, Scottrade, or TDAmeritrade is risky because you are playing with other people who have a wealth of research and do this for a living.
In theory you'll never be ahead because all the economic gain to be had on most stocks is lost within milliseconds (note: you can make money, but it is relative to your purchasing power).
A discount broker/broker that is in control of a wrap account (fee-based) is the better decision if you're looking to get into the market. They have access to private equity groups, alternative investments, funds, bonds, and general equity that the average person simply doesn't. In addition, they have the time and knowledge to create a diversified portfolio (for instance not putting all your money into healthcare such as vanguard) to better protect yourself against huge losses.
If you do choose to go the personal route take the Jim Cramer path and DO your homework. Choose a few stocks (some manageable number) and take at least an hour a week on each of them to check up on the company. For example: Late 2002 I invested in ABB Ltd. because they had a great business model in the energy sector with orders to fill until at least 2008, knowing this I checked up on them once a week for an hour and in April of 2008 decided to sell my shares. This was a huge winner, but it has been coupled with losses so much that I went brokerage instead because it was just too much work.
However, as Arc said, if you make ANY W-2 taxable money consider placing some of it in a ROTH IRA (up to $5000 per year). It is the best deal under the sun as divorce, lawsuits, the government (save for the taxes/penalties), and bankruptcy can never touch any money placed aside for retirement. And the sooner the better as compounding interest will never cease to amaze you and a simple 10% cut off a paycheck can turn into serious money 30-40 years later.
In theory you'll never be ahead because all the economic gain to be had on most stocks is lost within milliseconds (note: you can make money, but it is relative to your purchasing power).
A discount broker/broker that is in control of a wrap account (fee-based) is the better decision if you're looking to get into the market. They have access to private equity groups, alternative investments, funds, bonds, and general equity that the average person simply doesn't. In addition, they have the time and knowledge to create a diversified portfolio (for instance not putting all your money into healthcare such as vanguard) to better protect yourself against huge losses.
If you do choose to go the personal route take the Jim Cramer path and DO your homework. Choose a few stocks (some manageable number) and take at least an hour a week on each of them to check up on the company. For example: Late 2002 I invested in ABB Ltd. because they had a great business model in the energy sector with orders to fill until at least 2008, knowing this I checked up on them once a week for an hour and in April of 2008 decided to sell my shares. This was a huge winner, but it has been coupled with losses so much that I went brokerage instead because it was just too much work.
However, as Arc said, if you make ANY W-2 taxable money consider placing some of it in a ROTH IRA (up to $5000 per year). It is the best deal under the sun as divorce, lawsuits, the government (save for the taxes/penalties), and bankruptcy can never touch any money placed aside for retirement. And the sooner the better as compounding interest will never cease to amaze you and a simple 10% cut off a paycheck can turn into serious money 30-40 years later.
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How does it make no sense? Simply because you don't understand a statement doesn't mean it makes no sense. Owning one security comes with inherent volatility. Owning a basket of securities spreads that volatility out. Indices, ETFs, and mutual funds spread out that risk, for a fee, for a fraction of the cost the average consumer would need to spend to assemble that same basket of securities.
A broad based ETF or index is never going to go bankrupt or trade radically up or down (black swan events aside). Any single security will have major up and down days and is always at risk of bankruptcy. If you pick a random security, versus its index, you'll get the same long term average gain, but with all of that risk. Sure, you can try and trade or time the market, but OP is talking about investing, not gambling. And can we really expect a medical student to keep up with all of the information the big wall street guys have? Do we really expect someone with $5000 to pay trading fees and pick a few stocks? No. Go with a basket of securities and let some professional do the work for you.
To the OP, I believe tdameritrade and most online brokerages have no fees trading for various popular ETFs. I'd look into that as the $10 or whatever a trade costs will eat huge into your bottom line.
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Sorry in advance for the long post. I used to be an investment banker, and a lot of my family works in finance, so I feel that I'm qualified to give a good answer to the OP's question. Some folks here posted some good advice, but there are a few things that should be cleared up.
First, get yourself a copy of The Intelligent Investor by Ben Graham, Warren Buffett's old boss. Possibly the most important book you'll read, because it will explain to you why:
- you should diversify
- you shouldn't expect consistently high returns (at least not much higher than the S&P 500 after fees)
- you shouldn't fret over business cycles
- you should use dollar cost averaging (investing a little bit on a consistent schedule)
- there is a big difference between speculating/trading (short-term) and investing (long-term).
So my biggest take-home points would be to:
- construct a highly diversified portfolio
- buy and hold
- don't sweat the ups and downs of the market, including the recent crash/recovery
- don't expect average returns above 10%/year
- invest within an IRA.
OP, if I were you I would put my money in a low-cost mutual fund that invests in world stocks and bonds, and do so up to the maximum amount you can in an IRA. Check out morningstar.com to look at mutual fund types and fees. Add money to it on a schedule, and don't sell until, say, you want to pay for your kid's college, or whatever. Basically don't touch it for a long time.
As far as one commenter's 20% annual returns - that's great, but it's largely a function of the recent market recovery (as he implies), and it's unlikely he'll see 20% average returns over his entire lifetime. But if he does, that's great!
The advice to invest within an IRA is great advice. It's a legal tax shelter, and outside of an IRA, taxes take a significant chunk out of any gains you might make (though capital loss writeoffs can allow taxes to help you mitigate losses).
Some commenters mentioned mutual funds and ETFs and their advantages over individual stocks. Both are excellent because they provide diversification, but mutual funds benefit (or suffer) from active management, who may or may not make good stock picks and who definitely charge a pretty penny compared to ETFs. ETFs are cheaper, but you don't benefit from active management (or have to worry about it, depending on how you look at it). I personally am okay with mutual funds, as long as their managers have a good track record and their fees are low. I also take seriously my family's broker's (conservative) advice. He's a smart guy, and it's his job to know about this kind of thing, but ultimately I make the final decisions. I recommend finding an adviser like this who you trust, but remember that your decisions are your own. Good luck!
First, get yourself a copy of The Intelligent Investor by Ben Graham, Warren Buffett's old boss. Possibly the most important book you'll read, because it will explain to you why:
- you should diversify
- you shouldn't expect consistently high returns (at least not much higher than the S&P 500 after fees)
- you shouldn't fret over business cycles
- you should use dollar cost averaging (investing a little bit on a consistent schedule)
- there is a big difference between speculating/trading (short-term) and investing (long-term).
So my biggest take-home points would be to:
- construct a highly diversified portfolio
- buy and hold
- don't sweat the ups and downs of the market, including the recent crash/recovery
- don't expect average returns above 10%/year
- invest within an IRA.
OP, if I were you I would put my money in a low-cost mutual fund that invests in world stocks and bonds, and do so up to the maximum amount you can in an IRA. Check out morningstar.com to look at mutual fund types and fees. Add money to it on a schedule, and don't sell until, say, you want to pay for your kid's college, or whatever. Basically don't touch it for a long time.
As far as one commenter's 20% annual returns - that's great, but it's largely a function of the recent market recovery (as he implies), and it's unlikely he'll see 20% average returns over his entire lifetime. But if he does, that's great!
The advice to invest within an IRA is great advice. It's a legal tax shelter, and outside of an IRA, taxes take a significant chunk out of any gains you might make (though capital loss writeoffs can allow taxes to help you mitigate losses).
Some commenters mentioned mutual funds and ETFs and their advantages over individual stocks. Both are excellent because they provide diversification, but mutual funds benefit (or suffer) from active management, who may or may not make good stock picks and who definitely charge a pretty penny compared to ETFs. ETFs are cheaper, but you don't benefit from active management (or have to worry about it, depending on how you look at it). I personally am okay with mutual funds, as long as their managers have a good track record and their fees are low. I also take seriously my family's broker's (conservative) advice. He's a smart guy, and it's his job to know about this kind of thing, but ultimately I make the final decisions. I recommend finding an adviser like this who you trust, but remember that your decisions are your own. Good luck!
Damn, most of the stuff posted so far is way way above my head. I might check out the Investopedia website.
I wasn't looking to actually start investing right away... just to learn about how it works, the terminology used etc.. the very basics.
I wasn't looking to actually start investing right away... just to learn about how it works, the terminology used etc.. the very basics.
I've lost so much money in mutual funds and made so much money picking stocks. I'm never going back to funds again. Morningstar ratings are garbage. A 5 star rating means it has a good track record. If you invest in a 5 star rated fund, expect it to start tanking and the rating to get changed. The ratings change when the stocks start doing bad, they are fickle and mean nothing other than current returns. Look at what the fund is invested in and the strategy of the manager if you must use funds.
If your 401(k) limits you to funds, then pick and index and forget about it.
Trading fees are less than the cost of lunch now. It doesn't take a genius with a lot of stock market research to understand that stocks like Johnson and Johnson or Coca Cola are good bets. I have doubled my money in Coca Cola in the past few years.
Don't invest in shipping, biotech, consumer electronics, internet anything, you should be safe.
Large, diversified companies in important sectors (energy, healthcare, defense) are good bets.
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Funds really aren't all that bad. For instance, look into First Eagle Global Fund or the Roosevelt Multi-Cap Fund. Both of these are highly diversified and have gotten fantastic return in the long run. If you're looking for sound investments that will grow your money over time these types of financial vehicles are the way to go.
To make "fast-money" you're going to have to day/short term trade, and that's a rough game when you're not constantly watching the shop. People are always going to need food, medical care, energy, and waste removal so these are the safer bets if you go that route, however, unless you're willing to risk money on some potential winners (which can also fail) the gain you're receiving isn't all that great because as fritz said everyone knows the big companies are good and thus there is little gain to be had there as they are perceived as having no true risk (think government bonds). You are making money just not at the levels you could be and I see this (for instance earning 3% vs. earning 5%) as a 2% overall loss and therefore a bad strategy. Doubling your money (a 100% increase) is great, but wouldn't you rather increase it by 150-165% if you could.
To make "fast-money" you're going to have to day/short term trade, and that's a rough game when you're not constantly watching the shop. People are always going to need food, medical care, energy, and waste removal so these are the safer bets if you go that route, however, unless you're willing to risk money on some potential winners (which can also fail) the gain you're receiving isn't all that great because as fritz said everyone knows the big companies are good and thus there is little gain to be had there as they are perceived as having no true risk (think government bonds). You are making money just not at the levels you could be and I see this (for instance earning 3% vs. earning 5%) as a 2% overall loss and therefore a bad strategy. Doubling your money (a 100% increase) is great, but wouldn't you rather increase it by 150-165% if you could.
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Funds are fine for the long term. I'm talking like 15+ yrs. It's also nice to just pay the fee and let someone else do the work, because you'll have no time. You have to be putting money into them too to have enough of an investment to make a decent profit.
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Everything you said in this entire thread could have been shortened down to one word, "diversify". Yes, you shouldn't throw your entire portfolio into one stock.
ETFs are a great tool since they are basically mutual funds that trade like stocks. You can get in and out of most with the ease of a stock, but still be diversified.
My number one rule though is to CUT YOUR LOSES EARLY on anything you buy. Be in 5, 10, 15%, don't let a stock go down to -30% praying it will go back. Don't try and catch a falling knife.
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No, it makes no sense - hence the reason I don't understand it. You tell him NOT to own stocks, then you go on to say "own a basket of stocks." That's contradiction, plain and simple.
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No it is not a contradiction. Stocks and ETFs/mutual/indices are very different tools used for very different purposes. I advised the OP not to own individual stocks. An individual investor with only $5000 need not pay the transaction fees needed to diversify when one can simply pick an already diversified basket of stocks (or bonds or metals or whatever) many of which trade for FREE with no transaction costs.
If you want more clarification on specifics, feel free to ask but your attitude is puerile and I've attempted to explain it.
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OP Read this book. This is all you need to know for now.
The Bogleheads' Guide to Investing
The Bogleheads' Guide to Investing
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I see what you're saying. I misinterpreted your original statement. I understood it as you talking down stocks as an asset class, then telling him to look into mutual funds/ETFs.
And I certainly didn't intend for my tone to come across as condescending. Apologies.
Thanks for the awesome metaphor. (Condescending tone intended)
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There's nothing wrong with owning individual stocks. Even with $5,000, the costs associated with buying, say, 10 stocks isn't that much. You could purchase 10 different stocks for less than $50 in commission fees. One up day in the market would more than offset that cost.
Find a good set of growth stocks and go with them. People often get concerned with high P/E ratios and get spooked. It's all about supply and demand though. A lot of the high-fliers continue to skyrocket in price simply because investors are giddy about the "story" of the company. As long as you monitor your positions and get in after pullbacks, it's not too difficult to do well investing in momentum growth stocks.
Once again, though, if you want more of a set-it-and-forget-it approach to investing, an ETF or mutual fund is the way to go. Personally, I enjoy investing/trading too much to let someone else manage my money and take a cut of the profits. 🙂
Find a good set of growth stocks and go with them. People often get concerned with high P/E ratios and get spooked. It's all about supply and demand though. A lot of the high-fliers continue to skyrocket in price simply because investors are giddy about the "story" of the company. As long as you monitor your positions and get in after pullbacks, it's not too difficult to do well investing in momentum growth stocks.
Once again, though, if you want more of a set-it-and-forget-it approach to investing, an ETF or mutual fund is the way to go. Personally, I enjoy investing/trading too much to let someone else manage my money and take a cut of the profits. 🙂
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