Fortunately, you have many choices when it comes to finding good stock brokerage firms. Some firms are very expensive because they offer a lot of hands-on help with investment professionals. If you don’t feel comfortable making your own investments, this might be the best approach.

Some investments, including CDs, mutual funds, and bonds, can be purchased through a bank. If you want to start a 401K, you need to talk to your employer about setting one up. If you want to invest in almost any other security, such as corporate bonds, stocks, currency, commodities, etc., you’ll need a broker.

Discount Stock Brokers

Discount stock brokers have been around for a few decades. They offer trades for much lower fees because you’re expected to do all the research and choosing yourself. If you plan on doing this anyway, a discount broker is the best way to save more on fees. The less you pay for fees, the more money you have to invest.

Online stock brokers have recently become more commonly used. These discount brokers are able to charge even lower rates, and they add the convenience of online investing. You can invest right from your own home.

What to Look for in a Broker

Decide if you want to work with a full service or online broker. Once you’ve decided, make a list of the top brokers in that category. The broker I use is Sharebuilder.com. You can learn more about Sharebuilder here.

Put the brokers side by side for comparison. Compare each aspect of each broker for a fair comparison.

How much do trades cost? What types of investments do they trade? What research tools do they offer? Which one has been around longer? What kind of reviews does each get?

Getting a review from existing customers is important because it gives you a more honest look into the company. For example, if the trades are slow, the broker isn’t going to tell you that, but someone who has invested with them will.

Security

Make sure the broker you choose has strong security in place. You are planning to give them your money. You need to be able to trust them. There should be actions in place that make their website secure. With all the internet crime these days, internet security is important.

Once you’ve chosen a broker, set up your account and start investing. Most online brokers will require you to fax or mail copies of some documents. This will take it a little longer to complete the process, which is why it’s a good idea to set up a brokerage account as soon as possible.

How to Get Money to Invest

Before you can do anything, you need cash. You can start with $100, if that’s all you have. However, over time you should try to invest on a regular basis, as much as you can. Before you start actually investing your money, you’ll have a few other things to do. In the meantime, get money to invest.

Set up a budget to cut back on spending. This will let go of more money for you to invest. Get a part time job, start a business, etc. Do what you have to in order to bring in extra money each month to go toward investing.

Gain Know-How

Knowledge is power. In the case of investing, ignorance is failure. Never start throwing your money around. This is an unnecessary risky gamble.

Go to your local bookstore or library and browse the finance section. Look for general, basic books on investing. As you learn more, look for more detailed, specific books on securities you’re most interested in. Educate yourself.

Learn to Diversify

Diversification is important. You’ll notice this quickly when you see the word popping up all over your investment reading material. To diversify means to purchase a wide variety of different investments. It minimizes risk to help maximize your return. Do not skip this step. Without proper knowledge, you wouldn’t know to do this. Again, that’s why it’s so important to learn all you can.

Practice

Most people learn and then start. It’s a good idea to get your money into investments as soon as possible, but I believe hands-on, risk-free experience is good, too. Learn about mutual funds first and put your money in one of those or a high interest savings account until you feel comfortable enough to invest it.

While you’re learning investment principles, set up a fantasy portfolio at Wall Street Survivor. It is a free game that gives you $100,000 of fantasy money to invest in the stock market. You won’t earn real cash, but you can win real cash prizes. You’ll also gain valuable experience while you learn.

Do It

Practice is a good step, but don’t let it take over all your time. Start investing real money as soon as possible, even if it’s just in mutual funds or exchange traded funds. Learn how to research and analyze corporations so you can start buying stocks. If you’re interested in other investments such as bonds or commodities, start buying as soon as you can.

There’s a fine line between being prepared and making money. You need to get the basics down in order to cut out costly mistakes, but don’t wait until you know everything because that day will never come. You’ll always be learning. After all, the money is in investing, not in learning.

What are Dividends?

When you buy stock, you become a shareholder in the company. As a shareholder, you are entitled to assets of the company. A corporation may decide to share those assets in the form of dividends.

Dividends are paid out from the income of a company. A corporation can choose to reinvest their income or pay some of it to stockholders. Dividends are usually paid on a quarterly basis per share.

For example, a corporation may choose to pay its shareholders $0.50 per share. If you own 100 shares, you’ll be paid $50. If you own 2,000 shares, you’ll be paid $1,000.

Why do Corporations Pay Dividends?

Dividends are a way to share the wealth. Some stocks don’t grow as much as others because they are older and more established. These are often used as income investing stocks because investors can receive regular income in the form of dividends.

Some investors believe that dividends aren’t worth the trouble. They believe they aren’t significant for investors and that the money is better off being spent within the company for future growth.

Others argue that dividend paying stocks raise the price because investors know they will have some stability in earnings. Receiving regular dividend checks means stockholders will make money, even if the stock price is down or they aren’t selling. Also, if corporations that have regularly distributed dividends for years suddenly stop paying, the stock price could suddenly stock when people who depend on dividends start to sell.

Ultimately, dividends are a way for investors to make more money on their investments. Some people choose to reinvest their dividends to buy more stocks, and others use the dividend income to support themselves. Stockholders are owners of the company, and for many, it only seems fair that they should share in the profits at some point or another.

How to Make Money with Dividends

If you want to create regular income with dividends, the best way to do this is to buy shares of stock in companies that have historically paid regular dividends. Some brokers will allow you to have the dividends automatically reinvested, or you can have them sent to your account for withdrawal.

Another popular investment option is a dividend reinvestment program, otherwise known as a DRIP. This is a program set up with the company where you purchase stock and the dividends are automatically reinvested for you to purchase more shares. This is good for those looking to save money on trading costs and have their dividends reinvested.

What is Dollar Cost Averaging?

Instead of buying investments in large lump sums, dollar cost averaging is a strategy where you invest in smaller quantities more frequently over a longer period of time. Just by investing on a regular basis, you are practicing dollar cost averaging.

Benefits of a Dollar Cost Averaging Investment Strategy

The benefit of investing this way is that your cost per share is lower. One way to pay less for stock is to buy all at once and hope it’s low, but it could easily drop lower later on. There is no guarantee and too much risk with this strategy.

By investing regularly, you are averaging the lows and the highs. The more frequently you invest over a longer period of time, the less you will pay for your stock.

This thrives on the principle of ‘buy low, sell high’. Buy when the price is low so that when you sell at a higher price, you have the largest capital gains possible. Getting an average market price will bring down the cost as low as possible.

Does this mean you should spread out your current investments over time? To an extent. If you want to invest a large sum of money, I wouldn’t recommend investing it over two years because the average price of it now could be much lower than 2 years from now.

This principle is more sound for investors who are adding to their investments regularly. In other words, instead of putting $100 a month into a savings account and investing once a year so that you can invest $1,200 a once, invest that $100 a month every month so you can get the lowest average price possible.

Of course, don’t invest too little. If your investments are too low, you’ll end up losing a larger sum of your investment to fees. Make sure your fees don’t make up more than 1 to 2% of your investment.

Dollar Costing Averaging Example

Let’s say you’re able to invest $200 a month. You decide to set up a dollar cost averaging plan to invest in stock A. Right now that stock is selling for $20. Let’s say the price of the stock is as follows over the next 12 months:

• $21
• $22
• $22
• $19
• $18
• $20
• $20
• $21
• $22
• $22
• $23
• $25

The average price here is $21.42. If you invested $200 a month, you’d own approximately 113 shares with a total value at $25 per share of $2,843. The shares cost $2,400 for a capital gain of $443.

On the other hand, let’s say you bought invested $200 the first month, $1,000 on the sixth month, and $1,200 the last month. You invested the same amount, $2,400. You’d own about 107 shares worth $2,688 for a capital gain of $288.

As you can see, your stocks are worth $155 more by using dollar cost averaging and you own 6 more shares.

This is an example showing you why waiting for a lump sum probably isn’t a good idea. Also, this is just an example. If you don’t believe me, find a stock, look up the prices over the last 12 months, and calculate your own real-world example. It will help you better understand the concept and convince you that it’s the way to go.

If all you get out of dollar cost averaging is a plan of regular investing, you’ve succeeded. Investing on a regular basis means investing more and making more money in the long run.

What is Diversification?

Diversification is a useful way to manage risk by spreading out assets across many different investments. Diversification has a lot to do with asset allocation. It is the driving force of it.

Diversification helps to minimize unsystematic risk. The investment choices that are doing well will help to offset the poor performing investments. Ideally all your investments will do well, but diversifying helps to cover you just in case some don’t.

Most investment experts won’t agree on exactly the right way to diversify or how much diversification is enough. Some will say you need to own at least 25 different stocks to be well diversified, others say 5. Some say you should be diversified across different securities such as stocks, bonds, and commodities.

Ultimately, you need to determine your own risk tolerance and allocate your assets toward investments that will help you complete your own goals. This means taking the time to learn about investing, learn about the different types of securities, and learn how they all affect each other.

What you diversify in is just as important as diversifying overall. For example, if you buy 25 stocks in the automotive industry and the auto industry heads down, all your stocks will drop. You need to learn how different industries and investments affect each other so that as many of your investments as possible are high.

Benefits of Diversification

The most important benefit of diversification is risk management. A proper investment diversification strategy will minimize your risk without having to give up all possible high earnings. For example, you can invest some money in conservative choices and some in riskier choices. Doing both will balance out the risk and still give you a chance to be more aggressive.

Diversification helps balance the volatility of investments as well. Using the auto industry example above, having only some investments in this industry and allocating assets to other industries as well will increase the likelihood that less of your money will be bounced around. Volatility is a measure of a securities stability. The more diversified your portfolio, the more stable it is.

It’s easy to see people make a lot of money with an investment and then jump at it only to catch it while it’s high and lose money. Diversification helps encourage a long-term portfolio that will stand the test of time and earn you consistent returns.

Asset allocation is all about balancing out risk and reward. It’s using careful balance with diversification to ensure you earn the most money possible while watching your risk.

What is Risk

Risk comes about from an action or activity that has the possibility to lead to a loss. For example, if you buy 100 shares of stock A, you are taking the risk that you could lose money with it. You buy the stock hoping you’ll make money from it. Can you handle the amount of risk that comes with that investment?

Not all investments have the same amount of risk. Government bonds have the least amount of risk among investments. The problem is that while they are very low risk, they also have a much lower return. Risk and return correlate with each other. The higher the risk, the larger the potential return. The lower the risk, the lower the potential return.

How Much Risk can you Take On?

The amount of risk you can take on depends on so many variables that it’s impossible to say exactly what is acceptable as a whole. For example, you need to consider your age, your goals, the amount of money you’re investing, how comfortable you feel with risk, what the money will be used for, etc.

This is where asset allocation comes in. It allows you to spread out your risk and invest in varying amounts and types of risk. If you are an aggressive investor with a higher tolerance for risk, you can manage more of your asset allocation to riskier investments than a conservative investor would.

What are your Goals?

The goals you plan to complete through investing are very important. How you allocate your investments will determine how quickly you reach those goals. Also, your goals may need to be adjusted based on your circumstances. For example, if you have a family to support, you won’t be able to invest as much as a single person. Also, you can’t retire in 5 years if you still have lots of debt and barely enough money to make your debt payments.

Setting goals is important, no matter how minute they are. Goals will help you allocate your money. If you want to retire early, you’ll know you need to allocate more of your assets toward aggressive investments. If you don’t want to retire early, you can afford to be more conservative.

Once you know what your goals are and how much risk you are okay with, you can begin to choose a variety of investments. If you’re still new to investing, take some time to learn about the different types of investments, and learn about the risks associated with them.

Invest

Finally, when you have an idea of what types of investments you want to invest in, take action. You won’t accomplish anything in investing until you actual make investments. Be proactive and maintain your investments. They shouldn’t be ignored. Keep an eye on them and adjust as necessary until you’ve reached your goals.

High Yield Savings Accounts

A savings account is an account where you can deposit your money and earn a small interest rate. If it is placed in a bank with FDIC insurance, your money is safe from the bank closing because the government will back you up, as long as you have under $250,000 in your account.

A high yield or high interest rate savings account is different from the typical savings account you get through your local bank or credit union. The yield is much higher which means you can earn more money. You won’t make a lot of money through savings account interest compared to other investments, but it can easily be triple the rate of a traditional savings account.

High yield accounts are most common through online banks. Some of the best online savings accounts offer great rates and convenience.

I have had a savings account with ING Direct for 5 years and I have been very happy with them. Admittedly, the interest rate has gone down considerably since I opened it, but it is still more than 3 times the rate of my local bank rates.

I also like that I can have one account with sub-account titles. It’s like having a bunch of accounts all in one place, but I don’t have to go through a long process to open each one up. It’s easy to transfer the money instantly among those accounts, and it takes just a few days to transfer the money to my own bank. Some of the accounts I have include a general savings account, clothes, car, gifts, etc. It helps me budget and save more easily.

To get cash from your account even faster, you can set up an Electric Orange checking account and transfer directly to that account instantly. You get a debit card which means you can get cash at an ATM, use it for purchases, and you can mail checks.

Learn more about ING Direct and sign up for a Savings account here or an Electric Orange account here. It’s free and fast to join. Plus, right now you can earn a $50 bonus for signing up for an Electric Orange checking account.

Certificates of Deposit

A certificate of deposit, usually shortened to a CD, is a savings certificate that guarantees interest for a certain amount of time. The money can’t be touched until it reaches maturity unless a penalty is taken.

CDs typically have higher interest rates and can range from 90 day lengths up to 10 years. The longer the maturity, the higher the interest rate. However, having a longer length CD also means you can’t get a higher rate if the rates go up between now and then.

Savings accounts are typically better for an emergency fund or cash reserves because they are more liquid and can be accessed at any time. CDs can usually be accessed too, but you’ll lose some of the interest you earned.

Should you Put your Money in a CD or Savings Account?

If you don’t need the money for a while and you have emergency cash you can get to quickly, a CD is a better option, but only if it is returning more than the savings account. ING Direct also has CDs, but you have to get a higher length CD to get more than what the savings account is offering right now.

Finally, if you don’t need the money for a long time and you’re not worried about a little more risk, you might as well earn more through other investments such as stocks, bonds, or mutual funds.

When do you want to Retire?

The average retirement age is around 65-years-old. Some people retire a few years earlier, some a little later, and others don’t retire. Without proper planning, you could end up being one of the ones who doesn’t retire, not because you love your job but because you can’t retire.

Do you want to retire early? The more money you earn, save, and invest and the less money you plan to live on during retirement, the earlier you can invest. For example, if you have an aggressive investment plan during your early years and you live on a very small amount of money, you’ll get to the point where you can support yourself without a full time income earlier.

How Much Money will you Need for Retirement?

The amount of money you will need during retirement will likely be a percentage of what you need now because your expenses will go down, unless you plan to spend more during retirement on vacations, toys, etc. Use a retirement calculator to determine how much money you will need to save each month in order to have enough money during retirement.

How to Invest for Retirement

Investing is crucial during retirement. Retirement income investing should include tax-advantage accounts and possibly other investment accounts if you’re going for a more aggressive savings plan.

Open up a 401K, IRA, or both. A 401K will allow you to contribute pretax dollars toward retirement which you can withdraw after age 59 1/2. A 401K is set up through your employer, and some employers will match part or all of your contributions. For example, if you decide to contribute 10% of your income equal to $4,000 and your employer matches it, they will also contribute $4,000.

A traditional IRA works the same way as a 401K with pretax dollars, and a Roth IRA lets you contribute after tax dollars. However, with a Roth IRA, you don’t have to pay taxes on any of the earnings when you withdraw it. If you invest in an IRA, or both types, you can only contribute a maximum of $5,000 a year.

If your employer offers a pension plan, this will mean you don’t have to invest and save as much. A pension is something you pay into while you work, and when you retire, you’ll receive payments up to a certain percentage of your income. Usually, the longer you stay with your employer, the larger your pension will be.

Social security is another payment you will start to receive in your 60s. Most people can’t survive on this amount, therefore you should set up a plan for other savings as well.

You can supplement your retirement accounts with other investments as well such as mutual funds, stocks, bonds, etc. Set up a brokerage account online or purchase bonds through your bank.

Before you Start Investing

It’s very important to start investing for retirement, but if you have a lot of consumer debt (credit card debt, student loan debt, auto loan debt, etc.), you should invest a minimum amount for retirement and put the rest toward paying off your debt.

Once you’ve paid off your debt, you can begin more aggressive retirement investing. Also, start building an emergency fund worth 6 months of living expenses. This is used for emergencies such as medical expenses, car repairs, etc.

In order to pay off your debt fast and save more for retirement, you should also set up a budget. A budget will dictate how much money you can spend on categories such as rent, food, clothes, entertainment, gas, etc. It’s an effective tool to help you cut back your spending so it can go to more important places including retirement.

Retirement planning is important for every age whether you’re 25 or 65. Don’t let it pass you by. For more information about investing and retirement planning, pick up a copy of these books:

Of course, there is a little more to it than that, but for the most part, growth stock investing is a pretty basic strategy. Whether or not you should use it in your own investment practice depends on personal preference and figuring out what you think will work best.

How to Start Investing for Growth

Growth stocks are most often young companies with the potential for faster-than-average growth. If you see a new company and you think it’s going to explode with good things, you probably expect it to earn more, get bigger, and become more expensive. When the price goes up, you make money.

Growth investing requires a lot of research. You need to find companies first and then learn enough about them to decide if they are good growth stocks.

How to Find Growth Stocks

Obviously, you can’t perfectly pin point which stocks are going to grow fastest. In fact, if you don’t know what’s out there, you can’t know anything. You have to be searching. This means looking through corporate news, watching up and coming stocks, etc. A growth investor isn’t someone looking for a good mutual fund for their retirement portfolio. They are active investors that put time into it.

How do I know if my Choices are Good?

So you’ve found 10 corporations that could be growth stocks because they sound so-so. Now what? What do you look at to find out if it really is a good choice?

Have they been growing in the past? If a company has been around for 10 years and hasn’t done much in that time, its chances of getting better, especially growing quickly, are slim. History tends to repeat itself.

You can also look at estimates for the future. Obviously, if someone says a company is going to grow by 50% over the next 5 years it must be a growth stock, right? These estimates should be taken into consideration along with other qualifications, but they shouldn’t be taken as truth. After all, they are just estimates.

How is the company doing as far as sales and earnings? If they are selling a lot, it doesn’t much matter if their profit is down. There is more to a company than just the popularity of it’s products. If they aren’t pricing their product right, a company could sell a ton and lose profits. Also, a widely fast-selling product could always sell more. Look at what management is doing.

Looking at what management is doing with a corporation means looking at ratios, calculations, and annual reports. This means you can’t spend 10 minutes looking through a stock statement and expect to get all the answers.

There are no perfect rules about how to find growth stocks, how to invest in them, and how to sell at the right time. Read books by experts to get an idea about what others are doing, then create your own strategies. The following books are a good start toward being a good growth investor:

I soon found out it wasn’t the best book for an 18-year-old novice to pick up because I couldn’t get through more than a page or two before I realized I had no idea what I just read. A common problem among beginners, I suppose. Fortunately, this book isn’t the only text that can describe value investing, especially in the simplest way possible.

What is the Value in Value Investing?

Value investing was established by Benjamin Graham and David Dodd. It is the principle by which you purchase stock that is trading for less than it’s true value, referred to as it’s intrinsic value which is calculated by adding the future earnings to it’s present value. It’s what the stock is actually worth.

If you buy stock that is trading for less than its actually worth and it reaches it’s actual worth in the future, you’ll be able to sell it for more than you paid and make money. Basically, buy stock low and sell high. That’s one of the most agreed upon strategies in stock investing.

Searching for the Gems

There are several ways a value investor may choose stocks including using price to earnings ratios. In order to find stocks like these to invest in, you have to search. Check out the SEC website to find new information on corporations. Value investing requires more work and research, but it is often worth it in the end.

Value Investing is a complicated topic. This is just a beginners overview, but if you are serious about using this strategy, it is important to better educate yourself. I recommend starting with the most basic book on value investing possible and eventually moving up to more complicated books such as the Intelligent Investor. Here are my favorite books on value investing for the beginner: