Online Trading Advice for a complete newbie

[sachio]

So hey I guys, during black friday there was a sharebuilder.com bonus offer. Make 2 trades (they cost about $9 each) before december 31st, and receive a $125 credit to my sharebuilder account. This is wonderful, but how on earth do I trade online? I've never traded, I have no idea what to buy, or if I make the wrong decision if it can hurt me. I basically have no idea of the nature of the beast which I have in front of me.

Can someone give me a recommendation of 2 trades to make? And how I should do them? Should I buy something like Gold stock, or can I buy some mutual funds or index funds or something like that? I believe I will be getting into this more in depth in the future, as it seems to be recommended by the mustachian code, but how do I start?

signed,
uneasy first steps

[iamlindoro]

Start by reading:

http://jlcollinsnh.wordpress.com/2011/06/08/how-i-failed-my-daughter-and-a-simple-path-to-wealth/

Then:

http://jlcollinsnh.wordpress.com/2011/06/02/why-i-can’t-pick-winning-stocks-and-you-can’t-either/

Then read:

http://jlcollinsnh.wordpress.com/2011/06/14/what-we-own-and-why-we-own-it/


They lay out the compelling argument that many mustachians (and Bogleheads) espouse, which is the diversification of index funds pretty much can't be beat by the average investor, so it's far better for most of us to go the index fund route.  That said, you can't buy Vanguard funds at Sharebuilder, so you'll need to decide what to do at the end of your reading.

[chucklesmcgee]

So hey I guys, during black friday there was a sharebuilder.com bonus offer. Make 2 trades (they cost about $9 each) before december 31st, and receive a $125 credit to my sharebuilder account. This is wonderful, but how on earth do I trade online? I've never traded, I have no idea what to buy, or if I make the wrong decision if it can hurt me. I basically have no idea of the nature of the beast which I have in front of me.

Can someone give me a recommendation of 2 trades to make? And how I should do them? Should I buy something like Gold stock, or can I buy some mutual funds or index funds or something like that? I believe I will be getting into this more in depth in the future, as it seems to be recommended by the mustachian code, but how do I start?

signed,
uneasy first steps

I'd start with a low-expense index fund, possibly the Vanguard Total Stock Market Index, or Vanguard Total Stock Market Index. Take a look at the fees. You could just deposit some money, and then buy and sell immediately, right? Unsure if sharebuilder has the best fee structure.

Unless you have a lot of cash to invest, frequent trading and the purchase of many individual stocks to remain diversified is going to eat up your account with fees. Arguing between active vs. passive investing generally is for a different thread, but I think active investors would probably still agree that you're going to need a fair amount of funds before it would be worthwhile to buy and sell individual funds.

[arebelspy]

Agree with the above two posters.

Don't think you can try to time or beat the market (as almost no one can) and buy individual stocks.  Go with index funds.

JLCollins' blog, linked above, is a great resource, and fairly short read even if you start from the beginning (a few dozen posts maybe, will take only a few hours to read them all).

[KingCoin]

Are you actually looking to start investing, or do you just want to get a free $107?

If it's the latter, just buy one share of SPY (an S&P Index Fund ETF). As soon as the trade is complete (it should happen basically instantly), sell one share of SPY. You're not likely to make or lose more than $0.10 on the trade, and you'll have fulfilled your 2 trade requirement. There should be some sort of tutorial on Sharebuilder that explains how to enter a trade.

If it's the former, I'd read the jhcollins posts and then A Random Walk Down Wall Street. If you're not sure about what portfolio strategy you want to pursue by Dec 31, you can just enter the two trades above in order to collect your bonus.

[sachio]

Thank you so much, all great advice. I will read these posts and hopefully they will give me a head start into eventually doing some more serious investing. To answer your question King, I would like to begin investing, but I also would just like to jump in and claim the prize, so to speak.

You said I should buy and immediately sell. Is there a potential risk to keeping it? I've studied forex trading and when that drops below a value, you simply lose all your dough. I can't end up 'owing' money, can I? I will simply have stock that's worth less that what I bought it for correct?

Before I ask too many more questions, I'll get to reading the suggested posts above. Thanks all so much for your help.

[arebelspy]

No risk other than it going down.  You don't have to sell if you aren't using leverage that has a margin call.

You could just buy shares in two separate transactions to get the bonus.