How many stocks should I own?
At least five. No more than 10-15.
You want diversity, but keep in mind, the more positions you have, the more you have to worry about and follow. Basically, I am describing the Law of Diminishing Returns.
How do I open an investment account?
If you want a self-directed, online account, I recommend Ally Bank for smaller investors. However, if you are able to maintain at least $20,000 with Bank of America, you can qualify for 30 free trades a month or more. See the BoA/Merrill Edge site for details, but that is a great deal.
Applying for an account is as simple as entering some information. Once approved, you fund the account via wire transfer or something similar.
Where do I begin?
First, read this disclaimer. Stocks can be extremely risky and not for everyone. Please understand your own risk tolerance before proceeding. Once you have read and understood the disclaimer, you may continue with the FAQ.
Also, Jim Cramer's book
Real Money remains a must-read for beginners.
What percentage of my wealth should be in stocks?
Well, certainly not 100%; you need some money to pay the bills! Even though I am a "trader", I am also a saver. Work is great and can be very fulfilling, but consumption, while necessary, is not the answer to growing wealth; saving is. In order to enjoy the fruits of your work, you must save.
no credit-card debt. The absurdly high interst rates on outstanding credit-card balances destroys your savings, and it will certainly wipe out any potential stock gains you might have. Until you get your credit-card balance to
zero, you are not allowed to trade stocks.
How closely should I mirror the portfolio (open positions)?
To be clear, I'm not recommending you follow my advice at all. See: disclaimer. This is an educational exercise. Having said that...
Generally speaking, it is best to follow the advice in the
trading blog as it happens. If you can get a better price that I did, and my view on the stock hasn't changed, good for you. That is good investing.
Should I borrow money to trade stocks?
NO. Absolutely not.
This is what's called "trading on the margin". Not only is this risky for obvious reasons, anyone that is borrowing to trade can be issued a "margin call" by the loaner. Essentially, that means your broker can force you to sell if the stock falls to a point where the broker is uncomfortable with the risk.
So, not only is margin trading more risky, you also have less control. This is bad.
OK, no credit-card debt; got it! What about my mortgage, car payment, and student loans?
Car payments tend to be higher-interest loans, as well as depreciating assets, so in general, I would highly recommend paying your vehicle(s) off before you open a stock account.
As for student loans and mortgages, it really depends on your income and savings. Certainly, recent mortgages have had historically low rates, but housing prices vary wildly.
How much savings do you have? How much are you comfortable putting away in a stock account and not touching for a long time? Remember, this has to be money you are saving beyond your regular expenses, "emergency fund", etc., because you don't want to touch it for years.
You must also consider the
opportunity cost of owning stocks. For example, if you're a carpenter, perhaps your time and money would be better spent owning rental real estate? Ultimately, every person has a unique situation. If you would like personalized advice about your situation, do no hesitate to
contact Everybody Trades.
Market orders or limit orders?
Always use limit orders. A market order is filled at any available price. Limit orders allow you to set the maximum price you're willing to pay.
always get as good or a better price than I do. Limit orders will ensure that you do. If a stock goes too high before you get a chance to buy it, so be it. Let it go. Be disciplined.
Is this a get-rich-quick scheme?
No. I believe in "slow and steady wins the race."
I tend to think long-term vs. short-term. If you're looking for "stock tips" that can't lose, you've come to the wrong place. I have no special, inside knowledge; just my own judgment and years of experience.
Get ready to be wrong a lot. The goal is to be right more than wrong.