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Understand Investing

Why can't I just put my money in a savings account?

According to Nasdaq, making the leap from saving to investing is crucial in making sure you're financially prepared for retirement. Saving means socking money away, typically in a bank savings or mutual fund money market account, where you earn a relatively low rate of interest. Investing, by contrast, means owning assets, such as stocks or real estate, which over time produce far more substantial earnings than a savings account.

Is there a risk of loss?

Yes, there is always a risk of loss when a benefit of gain is present. A good tip for a beginner is to start out with what you can afford to lose. Watch the stock market for its ups and downs and begin to feel comfortable with its volatility. Besides, buying stocks is the best way for an investor to learn about the market, which will lead to wiser investments in the future.
Note: The worst thing that can happen to a new investor is to make great gains right away. This will cause the investor to think the stock market is a guarantee and causes many of them to invest all they have. Only increase your investments when you are comfortable with the market and its activities.

What can I do to increase my chances of making a good investment decision as a beginner?

The key to success is education, not luck! Reading this is a great way to begin learning the basics. If you would like to learn more you could visit the other Internet sites provided at the end of Investing 101 or check out the recommended books. You can also take a course at a local community college (beware that your professor could be a broker looking to sell you commissioned products). Also, consider joining the American Association of Individual Investors (www.aaii.org), a non-profit organization that can offer a great number of educational tools that will help you to prepare to invest.

What are the benefits of investing?

Investing offers people a way to guard themselves against inflation (inflation is the rate at which prices for everything from a loaf of bread, to a new car, increase over time). Investing is a way people can make more money than they lose through inflation. It allows individuals to save for such things as their child's college tuition, and their own retirement (let's face it, social security may not be there when you're ready to retire).

What are Microcap stocks (or smallcap stocks) and how can I receive information about them?

The term "microcap stock" applies to companies with low or "micro" capitalization, meaning the total value of the company's stock. Microcap companies typically have limited assets. They trade in the 'over-the-counter' (OTC) market and are quoted on OTC systems, such as the OTC Bulletin Board (OTCBB) or the "pink sheets." To receive information about these companies you can ask your investment professional if the company you are interested in files with the SEC (most microcap do not have to file) and request information from the broker about the business, its finance and the management of the company. You may also receive information by contacting the company directly.
When should I begin investing?

The sooner the better. In the world of investing according to www.moolera.com, time works wonders. Suppose the $1000 that was initially headed for the coffee can was diverted toward an investment where the money could grow at an average of 12 percent annually. Not including taxes or other expenses, at the end of the first year, that initial $1000 would now be worth $1120 ($1000 x .12 = $120). Now consider year two and the power of compounding. The beginning balance for year two is no longer $1000 but is $1120. That means that $1120 would now be earning a 12 percent return. At the end of year two that total balance would be $1254.40, $ 14.40 extra growth over the $120 the year before. This may not seem like a lot but consider that growth over a period of 10, 20, 40 years. This is what can drive a small investment into a large one over time.

Wow that sounds great! How do I get started?

There are three steps to get your self on the road of investing.

1.Choose An Investment Broker: You will soon find after making a few calls from the Yellow Pages that each broker offers different levels of services that includes different stock picking methods and commission schedules. Select the investment brokerage based on the service you need:

On-line Stock Broker: On-line stock trading offers the lowest commission and in most cases there is no broker to talk to. Investor logs on and enters a transaction using their keyboards. There is usually a customer service department available to answer questions you may have. Although convenient, this is not recommended for the beginning investor. For more detail about on-line stockbrokers visit one like E*Trade at http://www.etrade.com/.

Full Service Investment Brokers: This type of brokerage house will give the investor advice on what types of stocks, bonds, and commodities to buy. They also provide information on when to buy and sell. They may offer other services like financial planning, tax shelters or advise of new stock issues or special situations. Full service investment broker's commission is higher than a discount broker.

Discount Stock Brokers: This type of broker executes stock trades (at the customers direction) at a commissioned rate. The traders are still responsible for their own transactions. They will answer questions about transactions, and advise on the actual order, but not on which stock to buy or when. Some discount brokers will offer telephone and online trading.

2. Now its time to set up an account: Most brokerage firms require a minimum to start. This range is usually from $500-2500. However, once the account is open you are not required to keep a minimum balance. This means you have the freedom to invest your money or take it out of the account.

• Request an application for an account. If the broker asks you about things that you do not know about like mutual funds, options, etc. tell him or her that you just want an application for stock trades.
• If you run into language you don't understand while reading the application you may wish to see a financial planner or a CPA. 
• You may want to select a "sweep account". This type of account offers a daily interest rate on the money in the account waiting to be invested.
• Finally, the last two steps in setting up an account is to fund your account through check or "wire (takes up to a week). And wait for a password to access your account, this is usually mailed.

3. After choosing a broker and setting up your account you are ready to make your First Trade. Before you do this be sure you have taken the time to do your research. Remember your brokerage firm is there to help you! And be sure to always save your account statements. You will need them for tax purposes when you sell to show how much you originally paid for the stock.

Knowledge is Power. Here are some websites and books we recommend to learn more about investing:

www.NYSE.com

www.nasdaq.com

www.bloomberg.com

http://sg.finance.yahoo.com/

Also check out http://www.hedge-hog.com/  they have a great useful link option for information about brokers.

Congratulations! By reading through investing 101 you have begun the process of educating yourself about the stock market. Remember to be patient and don't let the stock market intimidate you.

Happy Investing!!