First Investments Made

Before I got started picking my own stocks, a friend turned me onto another investment web site known as Betterment.  Betterment, to sum it up, is made for those who don't want to have to think or worry about what they're investing in.  It uses index funds, along with bonds, to spread your money out among several companies, allowing you to choose the proportion of stocks and bonds you're investing in.

I wasn't planning on signing up for this, but as with almost anything financial-related these days, it was taking me a while to get my brokerage account up and running.  And my lack of patience was getting the best of me (obviously not the greatest trait for any investor).  I guess I just wanted to get my money working for me as quick as possible.  So I added my money to the account (the $250 minimum) and started out all in stocks.  I quickly tried timing the market, moving to all bonds when I felt the market was at the peak of its up, and switching to 100% stocks when I felt the it had hit the bottom.  The only caveat to this is that day trading rules allow you to only change your allocation once per day.  And even though I had that figured out, sometimes Betterment would not act as quickly as I would hope, even waiting until the next day in a couple instances.  I found this to be annoying because both of those times, I lost everything I had gained the previous few days because the market had fallen.

I cancelled this account just before my first month ended and Betterment would have charged me their fee.  I'm absolutely not telling you to avoid this service, because this may be a terrific option for many of you who don't want to be as involved in where exactly your money is going as I am.  It does a terrific job of putting your money to work for you.  If nothing else, do like I did and make use of their one month free trial.

During this same month, I researched several brokers, and each one had its own pros and cons.  The one I decided on was TradeKing, as it had one of the lowest costs per trade and it is supposed to do a great job of giving you what you need to make the tax side of all of this easier (obviously more on this coming next year).  As time goes on, hopefully I'll be able to give more feedback on who to recommend and who to avoid.

I had followed the stock market off and on ever since 2005.  Being a computer science major, tech stocks in particular interested me.  I would try to follow the news and take notice of what it did to the stock price.  What I noticed is that paying attention to each company, including the news surrounding it, sales at any given point, and new products in pipeline, allows you to generally predict where a stock is heading.  And then there's those companies who will have a curveball thrown at them (or in some cases, they'll be doing the throwing).  That's where you risk losing money, but you never know where to expect it 100% of the time.  And that's where that "diversification" term comes from.

Remember when you first heard "Don't put all of your eggs in one basket."?  I can't think of any finer example of this than in the stock market.  Diversifying means not only investing in several different companies, but also in different sectors of the market. So investing in all kinds of technology stocks would do me no good when all of that sector takes a hit.  Buying MSFT (Microsoft) and AAPL (Apple) would put me at risk when all of technology falls, but buying MSFT and MKC (McCormick, the spice company), would give me a little bit of a cushion.  Is it possible that both could fall?  Absolutely!  But putting part of my money into some salt & pepper would keep it safe from poor sales in the PC market.

Speaking of McCormick, it is part of a sector that many refer to as "consumer staples".  This includes companies that produce products that nearly everyone uses in one way or another, such as Clorox, Proctor & Gamble, and Phillip Morris.  These are thought to be safe stocks, since these products are probably in your house right now.  They offer fairly consistent prices, as well as dividends.

Dividends are payments that companies pay to shareholders as a reward for owning their stock, a way of sharing the profits the company made.  The price is paid per share, and generally is handed out every three months.  Not every company does dividends though.  If a company is new and isn't yet profitable, there's no profits to hand out.  Some companies prefer stock buybacks, essentially where the company will use profits to purchase their own stock.  This increases demand, which in turn should boost the price of the stock, bringing increased value to those owning it.  Many people prefer to use dividends to purchase additional shares of the stock, also increasing shareholder growth.

OK, enough lecturing like a college professor.  Time to move on to the fun part!