Author Topic: When, where, and how of stock market investing  (Read 3898 times)

RFAAOATB

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When, where, and how of stock market investing
« on: August 30, 2014, 12:29:30 PM »
I am tempted to taking a bit of a gamble investing in the stock market and would like some advice of the particulars and the risk level it would be.

Specifically I want to jump in on the Alibaba or Lendingclub IPO with $1,000.  I do have some thoughts holding me back...

I am not already maxing out my tax advantaged retirement accounts.  I can max out my Roth IRA, and just started saving my pre tax account at a tiny level I will bump up soon.  Should stocks be only for people who are done maxing out tax advantaged accounts?  Is that a way to prevent the economically challenged from getting in on it?

Second, how do I analyze the risk of doing this.  While not every company is going to be Google or Disney, none of us can travel back in time to be sure.

If I decide to do this, I plan on signing up with zecco.com for 4.95 trades as opposed to Fidelity where my Roth IRA is that has 7.95 trades.   Are there any pitfalls I should look out for?

Are any of you going in on the IPO?

GGNoob

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Re: When, where, and how of stock market investing
« Reply #1 on: August 30, 2014, 12:56:52 PM »
Personally I want to jump in on both of those IPOs, but I will only do it if Loyal3 offers them. Easy way to get in on an IPO and you can use a credit card. Loyal3 also offers some other stocks, all of which can be purchased fee free with a credit card.

You should probably be investing in your retirement accounts with index funds before spending $1,000 on a single stock. First your 401k up to the employer match, then an HSA if available, IRA, then back to the 401k to max it out. If you have any money left after that, invest in a taxable account.

I think most people would recommend less than 10% of your net worth be used as "play money" to invest in single stocks, because there is a lot more risk involved. Currently I don't own any individual stocks, but I do have some money in LendingClub that I am liquidating to move to Vanguard to invest in index funds.

Before investing, consider doing your research (Bogleheads is a great resource) and consider developing an investment plan. Then try to stick to that plan for the long term. Developing (and sticking to) a plan and investing in index funds is probably your best bet for success.


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Dodge

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Re: When, where, and how of stock market investing
« Reply #2 on: August 31, 2014, 07:17:36 PM »
I am tempted to taking a bit of a gamble

Gambling has a negative expected return, I don't think you'll find much support here for gambling with any % of your net worth.

Malaysia41

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Re: When, where, and how of stock market investing
« Reply #3 on: August 31, 2014, 07:53:54 PM »
Is there a reason you can't purchase the LC IPO or Alibaba IPOs from your Roth IRA?  IRAs are great for holding individual stocks. 

If you start buying individual stocks you will want to diversify into at least 15 stocks that are not highly correlated.  Until you get diversified, only put in as much money as you are willing to lose.

I know a lot of people on MMM are die hards here with index investing.  Me?  I actively manage 5% of my stache in individual stocks.  Why so little?  Because it is just that - fun.  For serious returns, you either want to track an index (and spend 0 time analyzing) or you want to analyze the hell out of individual companies a la Warren Buffet.  It is all or nothing.  Everyone in the middle are fools.   (Yes, I'm a fool - but only with 5% of my investments). 

Lastly, learn about dollar cost averaging.  That, for me, has been a real winner that also helps me psychologically worry less about market timing.

m^3mmm333

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Re: When, where, and how of stock market investing
« Reply #4 on: September 01, 2014, 06:17:29 PM »
Here's a pitfall...

In an IPO, the insiders that own the company (i.e., they know everything about it) are selling there shares to you, a noob that is asking how to open an IRA account, at a price that they think is favorable to them. If it wasn't, why would they sell to you?

I don't mean to be a smart ass, but think about it...

Regards,

Wall St. Fancy Pants


Cecil

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Re: When, where, and how of stock market investing
« Reply #5 on: September 02, 2014, 02:26:36 AM »
In an IPO, the insiders that own the company (i.e., they know everything about it) are selling there shares to you, a noob that is asking how to open an IRA account, at a price that they think is favorable to them. If it wasn't, why would they sell to you?

Because they are trying to liquidate a very illiquid asset, and at the same time raise a significant amount of working capital for the growing company.

TomTX

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Re: When, where, and how of stock market investing
« Reply #6 on: September 02, 2014, 05:59:58 AM »
In an IPO, the insiders that own the company (i.e., they know everything about it) are selling there shares to you, a noob that is asking how to open an IRA account, at a price that they think is favorable to them. If it wasn't, why would they sell to you?

Because they are trying to liquidate a very illiquid asset, and at the same time raise a significant amount of working capital for the growing company.

Textbook answer. Two items:

1) Did RFA actually know that, or is he just jumping on the IPO bandwagon after dreaming about buying Google at IPO?

2) Reality is never that neat and tidy. There are often hidden issues, and post-IPO companies often have a stock price drop within a few years. I work a couple of blocks from Zynga - it's trading at less than a third of the IPO price in 2012.

Scandium

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Re: When, where, and how of stock market investing
« Reply #7 on: September 02, 2014, 07:45:15 AM »
If you have to get individual stocks (which I would discourage btw) jumping into IPOs seems like the worst way to go.

thedayisbrave

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Re: When, where, and how of stock market investing
« Reply #8 on: September 02, 2014, 09:58:14 AM »
IPO = It's Probably Overpriced

Max your tax advantaged accounts first.

RFAAOATB

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Re: When, where, and how of stock market investing
« Reply #9 on: September 02, 2014, 10:39:12 AM »
Indeed this may be a situation where greed and risk seeking behavior is clouding my better judgement, which begs the question I mentioned earlier:  Is individual stock investing best left to those who already max out their tax advantaged accounts, in essence a game for the rich?

Scandium

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Re: When, where, and how of stock market investing
« Reply #10 on: September 02, 2014, 10:43:52 AM »
Indeed this may be a situation where greed and risk seeking behavior is clouding my better judgement, which begs the question I mentioned earlier:  Is individual stock investing best left to those who already max out their tax advantaged accounts, in essence a game for the rich?
Yes, it's best left to the rich who don't mind loosing money and underperforming the market.