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Investing In The Stock Market

Thinking about investing in the U.S. stock market often conjures up images of powerful people moving huge amounts of money into and out of the market thereby increasing their fortunes.  Or, the image of the average American investor putting the little bit of money he has into just the right stock and becoming rich overnight.  It may even bring up images of the day trader who starts out with a small amount of borrowed money in the morning, and turns it into a small fortune by the end of the day.  Many people think of the stock market as a place where the possibility always exists of becoming very rich, very quickly.  In this article, I am going to discuss the differences and similarities between how many investors perceive stock market investing to be, and what it usually is really like.  Before we get started, please know that, although I am by no means a stock market investing expert, I am fairly knowledgeable on the practical aspects of investing in the United States stock market.  I have bought and sold stocks using cash, I have bought and sold stocks on margin, and I have utilized put options, call options, and other such stock derivatives.  I certainly have not "done it all" when it comes to investing in the stock market, but I have done quite a bit--enough to know how investing in stocks really works, and what to expect.  So, here we go...


I love the stock market!

First of all, I have to say that I truly do love the U.S. stock market.  In my opinion, it represents an unparalleled opportunity to get a good return on invested money, but only if it is done correctly.  Over the past seventy years or so, the stock market has averaged a return of between ten and twelve percent per year.  Of course, this is just an average.  The stock market may actually lose eight percent one year and earn eighteen the next.  But, longterm, it averages out to between ten and twelve percent.  That predictability and consistency is what makes the stock market such a great opportunity.  Plus, the market is available to just about anyone regardless of how much money they do or don't have.

I am not one of those people who say to never put money in the stock market.  But, I am one of those people who think that if you don't do it correctly, you are going to get financially hurt.  


Good news and bad news...first, the bad news:


Before I get into exactly how to go about investing in the stock market, I need to dispel some myths, burst some bubbles, get the stars out of your eyes, and get your feet firmly grounded with regard to stock market investing.  For that reason, I am first going to discuss some of the pitfalls and dangers of stock market investing.


How NOT to do it.

Seminars

Be very, very careful when it comes to courses and seminars about how to invest in the stock market.  Unless you have taken extensive coursework at the college level, these little one-day or weekend seminars will generally teach you just enough to cost you a lot of money very quickly.  These seminars are designed to make money for the promoter of the seminar, not for the people who attend.  Often, just attending the seminar costs a lot of money--hundreds, sometimes even thousands of dollars.  Then, once you're at the seminar, they try to sell you their books, software, audio lessons, recommendation service, etc.  Even if the seminar is free, they then try to sell you a better, more in-depth seminar that is not free along with the materials I already mentioned.  I once heard an advertisement for a particular stock investing seminar which touted a 20% return per month in the stock market if you use their system.  That's 20% per month, not per year!  If their system is so great, why are they wasting so much time teaching and selling it rather than just using it themselves?  Let me explain what I mean:  If their stock market system really could return 20% per month, then if they invested only $10,000 of their own (or borrowed) money, at the end of five years they would have over half a billion dollars!  And if they did it for ten years, they would have over $31,000,000,000,000!  If they truly did have a system that could return 20% per month, then they would be losing money by teaching it when they could be at home using it.  Why do they teach their system instead?  Because that's where they make the money, not by using the system.  After a few years, the company went bankrupt. What does that tell you about their system?  

Even if the claim were a little more believable, say doubling your money each year, they still would be losing money by wasting their time teaching instead of doing.  If they used only one hundred thousand dollars of the money they spend putting on the seminar and instead invested it using their system, they would have over $100,000,000 in ten years!  Yes, the seminar will probably teach you how to find a broker, open an account, and put in your buy-sell orders, but not much more.  You can teach yourself those basic things for free on the Internet or at the library.

And make sure that you totally ignore the testimonials.  Those will only be the people who got lucky or even made the money some other way but happened to have attended one of the seminars.  They'll say things like "I attended the XYZ seminar, and now I bring in three million dollars per year."  You notice that they didn't say they did it all using only whatever system is being taught.  Maybe they have a job that pays three million per year.  For every positive testimonial, assuming that is is even the truth, there are probably thousands of people who lost money using the exact same system from the exact same seminar.  They never tell you about those.

I hate to say it, but these seminars generally play on people's greed and laziness.  People think they are going to attend a weekend seminar, make tons and tons of quick, easy money, then spend the rest of their lives rich and living in luxury--and they think they'll do it all from the comfort of their own homes and with very little work.  "Just an hour a day" as one such seminar claimed.  Well it just isn't true.  You can't spend only one weekend of your life learning a stock investing system and then use it to become filthy rich with very little effort.  It just isn't going to happen.  What will happen is that you will have wasted the money you spent on the seminar, and will most likely lose all of the money you invest.  Please don't waste your money and endanger your financial future by attending these seminars.  If you want to learn more about investing, spend some time in a public library or take some adult education courses at a local college.  If you want to increase your chances of successfully investing in stocks, then use what you're learning in this article.  It works, and it's free!


Day trading

If you ever hear the term 'day trading' then run!  Day traders are people who supposedly invest a bunch of money in the morning and then sell off their stocks at the close of the market for big profits.  There are many seminars and online courses that teach various forms of day trading.  I truly believe that day trading is the number one, most dangerous way to invest in the stock market!  I came across a statistic recently stating that 80% of day traders have lost money by the end of the year.  From what I've seen, I think it is much worse than that.  I personally have never seen anyone make money consistently by day trading.  And even if there are 20% of day traders who make money, it doesn't say how much they made.  Maybe they cleared a few hundred dollars of profit for the entire year by day trading.  That would sill be a profit, which would put them in the 20% of 'successful' day traders, but would certainly not be worth the risk, effort, aggravation and time they spent day trading.  If you were planning a vacation and then found out that at that destination you would have an 80% chance of getting killed, would you still go?  I sure wouldn't!  But if you day trade, that is exactly what you are doing financially.  An 80% chance of getting killed!  Day trading doesn't work.  Day trading will almost assuredly cost you most, if not all, of the money you invest.  Don't do it!


Stock recommendation services

These often take the form of a website or newsletter that claims to be able to recommend stocks that are about to skyrocket in value.  The first problems I have with such services are the same problems I have with stock investing seminars.  If their recommendations are really that great, then why are they trying to sell them to me instead of using their own advice to become rich?  From time to time, I receive a mailing advertising some such company.  In the brochure, they show me some of their past recommendations and then show me how much they went up.  Then they tell me how much money I could have made if I had been one of their subscribers.  If their service is really that accurate and consistent, then why do they have to do bulk mailings to people they don't even know in order to sell their recommendation service?  If their system worked consistently, over time, then they would have more business than they could handle and would be turning customers away, not sending out bulk mailings asking me to send them money for their service.  

Over the longterm, no one can pick stocks that consistently and predictably shoot up in value--no one!  I know that Warren Buffet made billions by investing in the stock market, so I guess he must be fairly good at picking stocks, but he sure isn't sending me any mailings trying to get me to subscribe to his stock picking service.  Here's a little tidbit of information that will help to make my point:  There are professionals in this country whose job it is to pick stocks for various trust funds, mutual funds, investment conglomerates and so forth.  These are professionals who do nothing but eat, drink and sleep the stock market all day every day.  Some are able to pick stocks quite well, and some actually end up losing their clients' money in the stock market.  My point is this:  if you look at a list of the top five stock pickers in the entire country, and then look at the new list five years later, the lists will not be the same names.  In other words, the very top stock pickers in the entire country are never the same ones five years later.  If these professionals can't be consistent for even five years, then what chance does some little stock recommendation service really have?  The only way anyone could consistently and accurately pick winning stocks is if that person knew for sure every political, financial and news event that would happen in the future, and when those events would take place.  You could put all of your money in fast-growing oil stocks, for example, and have news come out the next day that a new alternative fuel has been invented and your stocks would plummet.  Since no one can accurately and consistently predict the future, no one can accurately and consistently pick winning stocks.  A stock recommendation service or newsletter may work well for a while, but it will not be able to keep it up indefinitely.  And by the time such stock picks begin to fail, your confidence may be so built up that you have huge amounts of money riding on them.  Stock recommendation services, websites and newsletters do not work consistently over time.  You may win for a while, but sooner or later it all comes to an end and often takes your money with it.  Don't waste your time or money on stock recommendation services.  I have tried four or five different ones over the time I was learning what I now know about the stock market, and every single one of those eventually failed.  All of them ended up costing me money.


Margin trading

Margin trading is when the broker with whom you have your account lends you money using the stocks in your account as collateral.  In other words, for marginable stocks, you can borrow up to a predetermined percentage of the value of the stocks.  You then use this money to invest in more stocks.  You can invest it in the same stock against which you borrowed, or in entirely different stocks.  The idea is that you can use the margin (borrowed) money to increase your profits by buying stocks even though you don't have enough of your own money to pay for them.  For example:  if I have $10,000 worth of stock and my broker is willing to margin that stock at 50%, then I can borrow up to $5,000 against that stock.  I use that money to buy more stocks and I now have $15,000 worth of stocks with only $10,000 of my own money invested.  For this privilege, the broker charges me margin interest on the borrowed money.  Since I now have more stocks than I could have had without borrowing on margin, the potential for increased profits is higher.  If the stocks I bought with the borrowed money go up and I sell them, then I pay back the money I borrowed and have made a profit using someone else's money.

One of the things you need to understand is that you are not exactly using someone else's money.  You are just borrowing money against your stock.  No matter what happens, you still have to eventually pay that money back.  Buying stocks on margin, selling them for a profit, paying back the margin money and keeping the difference as profit is called margin trading.  The purported advantage of margin trading is that it increases your potential profit, which it does; however, what too many people fail to fully take into account is that margin trading also increases your potential risk.  The advantages of margin trading are only there when the extra stocks you purchase go up.  If your stocks go down, margin trading becomes nothing but disadvantage.  In the example I gave previously, if your portfolio collapses completely, instead of losing the $10,000 you have in it, you lose $15,000 since you still have to pay back the margin money.  And don't forget that margin interest is piling up on any unpaid money for as long as it is unpaid.

Another disadvantage to margin trading is the margin call.  A margin call happens when the stocks against which you borrowed the money decline in value.  Since those stocks were collateral for the margin loan, your collateral has just lost value.  To make up the difference, you have to either put more money into your account to collateralize the loan, or pay back some of the margin money.  A margin call can happen suddenly and without warning at any time.  It could happen at the worst possible time when you don't have any extra money to put into your account.  If that happens, the broker can sell any and all of your stock, even at a loss to you, in order to pay off the margin call.  If the stocks drop in value so fast that even selling them doesn't satisfy the margin loan, you are still responsible to pay back the money you borrowed on margin--somehow.  

These disadvantages of margin trading make it a very, very financially dangerous practice.  The amount by which margin trading allows you to increase your potential profit is nowhere near worth the increased risk.  The way I see it, if you have extra money to invest in stocks, then put it into your account and invest it.  If you don't have extra money to buy more stocks, then don't buy more stocks.  The only reason that the average investor would need to use margin trading is if he wanted to buy more stocks, but didn't have enough of his own money to do it.  Well, if he doesn't have enough money to avoid margin trading, then he most certainly cannot afford the risk of margin trading.  The only way anyone should even consider margin trading is if he has the extra cash to pay off the margin if necessary.  And if he has the money to do that, then he should use it and not be borrowing on margin.  Margin trading is very dangerous and can ruin you financially very quickly.  Never, ever use margin trading.  

I used margin trading once so that I would know what I was talking about with regard to margin trading.  I did a very small margin loan just to make sure I wouldn't get into trouble.  I think I borrowed something like $200 on margin.  Even at that low amount, it was uncomfortable.  The margin interest shot up to 11% after I took out the margin loan, and that interest added up much faster than I would have imagined.  After a couple of months, the whole concept of margin trading became too scary for me and I paid off my margin loan.  If I ran into that much trouble on a $200 balance, what might have happened to me if it had been a $20,000 balance?  Never trade on margin.


Derivatives (put and call options)

Let's start with the call option.  When you buy a call option, you are paying someone a relatively small amount of money for the right to buy their stock at a set price.  If the stock goes up, then you exercise your option, buy the stock from them at the lower (set) price, then turn around and sell it to someone else at the higher price.  You get to keep the difference as your profit.  Let me give you a very simplistic example:

XYZ stock is selling for $20 per share.  The call option to buy the stock at $20 is $1 per share.  So, for a total of $100, you have purchased the right to force this person, whoever it may be, to sell you their XYZ stock at $20 per share.  All of this takes place on the electronic options exchange, so you never really know who the other person is and they don't know who you are.

Now, three months later, XYZ stock has gone up to $30 per share.  So, you exercise your call option and force whoever the other person is to sell you their XYZ stock for $20 per share.  They get to keep the $100 you paid for the call option.  You then sell the stock on the open market for $30 per share.

So, you bought 100 shares of XYZ stock for a total of $2,000 and sold it for a total of $3,000.  Your profit is the $1,000 difference minus what you paid for the call option (in this case, $100) and minus any commissions and fees for the transactions.

The advantage of the call option was that you only needed $100 to invest in 100 shares of XYZ, and not the $2,000 you would have needed to just go ahead and buy the stock.  Another advantage is that if the stock goes under, you only lose the $100 you paid for the option, not $2,000.

If XYZ stock had stayed at $20, or gone down, there would have been no point in exercising your call option and the person from whom you bought the call option would just keep your $100.

Probably the biggest disadvantage of call options, or any options for that matter, is that they are only good for a set period of time.  It may be weeks, months or even years.  The longer the time, the more expensive the option.  After the set time period, the option 'expires' and becomes worthless--you lose whatever money you paid for it.  So, if the stock for which you bought a call option doesn't go up within the set time period, you lose.

If you just buy a stock outright, you can hold onto it forever if you need to until it goes up enough for you to sell it and make a profit.  If, on the other hand, you buy a call option for the stock, that stock has to move within the set time limit or you lose the money you paid for the call option.  Thus, not only are you trying to pick a stock that will go up, you are trying to pick one that will go up in the set amount of time.  Just picking a stock that goes up is difficult enough--knowing precisely when it will go up is nearly impossible!  That is exactly what makes call options so risky.  Yes, you may have a bit less money tied up since options cost less than the stocks themselves, but you stand too good of a chance of losing all of the money you invested.  Besides, just because the options are cheaper, doesn't necessarily mean that you will have less money invested.  Quite often, people still invest the same amount of money, they just buy more options instead of fewer stocks.  If the stocks go down, your money is gone.

A put option works exactly the same way, but in reverse.  Instead of paying to force someone to sell you a stock, you are paying to force them to buy it from you at a set price for a set amount of time.  With a call option, you make money when the stock goes up.  With a put option, you make money when the stock goes down since you can buy it on the open market at a lower price, and force the other person to buy it from you at the higher option price.  Put options are dangerous for the same reasons that call options are dangerous--they can expire worthless and you lose everything you had invested in the option.

A lot of the stock market investing seminars teach people to use options instead of buying stocks.  In many ways, the risks are higher in options than they would be just buying the stocks themselves.  Yes, the profit margin is higher when an option works out, but the risk for loss is also much higher since options expire.  Over the longterm, average investors and many professionals lose money by trading options.  They are very risky, you have to know a lot about them to even have a chance, and the market conditions can take the value of options down usually much faster than with stocks.  Don't trade options and don't listen to anyone who tells you to do so.  They will tell you all of the good things about options, but will tell you little or nothing about the downside.  I traded options for a while.  I made a little bit of money on the ones that worked out for me, but lost a lot more money on the ones that didn't.  Overall, I would have been much better off to have just left that money in the savings account from which I took it.

Individual companies

Investing in individual companies is risky just because you have all of your investment eggs in too few baskets, so to speak.  If one or more of those baskets falls, you lose a lot of eggs all at once.  Publicly traded companies, such as Microsoft, Pfizer, Walmart, McDonalds, etc.  have stock available for purchase.  When you buy stock in only one, or just a few, companies, your money is only as safe as that company.  If the company is successful over time, you can make a lot of money when your stock goes up in value.  But, when a company goes bankrupt, all of their stock can quickly become worthless or nearly so.

That's the problem with buying stock in just a few individual companies:  if they go under, so does your investment.  Investing in individual companies is just a lack of diversification.  Diversification means your money is spread out.  If you own stock in 100 companies and one goes under, only 1% of your portfolio is lost.  If, however, you own stock in only three companies and one goes under, 33% of your portfolio may be lost.  If you own only 2 companies, then 50% of your portfolio is gone.  And, if you own only one company, then 100% of your investment is gone.  Without diversification, the risk is just too high, not to mention that it is gut-wrenching to watch a company struggle in which you have all of your money.  And the size of the company doesn't really matter.  Anyone remember Enron?  The largest energy company in the world, and it went under taking with it the portfolios of thousands of people.  Anything can happen:  lawsuits, natural disasters, loss of profitability, scandal or outright scams.  Any individual company can go under and its stock become worthless.  It happens every day.  Don't risk your investment money by having stock in only a very few companies.  If you can't afford to buy stock in at least 100 different companies, then you can't afford to buy stock in individual companies.


Hot tips

Tips on hot stocks and once-in-a-lifetime opportunities are dangerous for the same reasons as I described for stock recommendation services.  Oftentimes, the tip is coming from someone who knows no more about such things than you do, and possibly knows even less than you do.  If the tip is supposedly coming from some kind of professional, then you have to ask yourself why they are giving stock tips instead of just investing in the hot stocks themselves.

Hot tips that come via email or the Internet are often what is called a 'pump and dump.'  Someone, or a group of someones, buys a lot of stock in a particular company, usually a small, nearly worthless company, then via the Internet and email tell everyone it is the latest hot stock and they should buy it immediately.  If enough people fall for it and run out to buy the stock, the demand alone raises the price of the stock.  At that point, the person or persons who started the whole thing dump their shares at the higher, pumped up price and make a nice profit.  Once the demand subsides, the stock plummets back to where it originally was or even lower.

Hot stock tips don't work and are often just a scam or an attempt to bolster the price for the stock of a small, struggling company.  Don't waste your time and money chasing tips on hot stocks.


Borrowed money

Never, ever borrow money to invest in stocks, or anything else for that matter.  Investing borrowed money may amplify your potential profit, but borrowed money also amplifies the risk.  If I invest $10,000 of my own money and lose it, then I have lost $10,000.  If, however, I borrow another $40,000 to add to my $10,000 and lose it, I have lost $50,000!  My risk was five times higher just because I borrowed money to invest.

I don't care what kind of borrowing it is either.  Whether it's against your home, or a margin loan, or on a credit card, it is still borrowed money and still increases your risk astronomically.  I have even heard so called financial experts tell people that equity in their home is just wasted money that could be working for them instead of just sitting there doing nothing.  I guess mathematically it makes sense, but what is not being taken into account is the risk.  If I invest $5,000 of my savings and lose it, then I have lost $5,000 from my savings.  I can fairly easily, eventually, recover from that.  It would not likely ruin me financially.  If, however, I borrow against my house and lose the money in a bad investment, I could lose my house!  At the very least I will be making payments for decades just to get back to where I was.  When it comes to borrowing money to invest, there are a lot of people who will give you some really bad financial advice that could hurt you financially for the rest of your life.  Many people seem to think that they are financially clever by borrowing, or telling others to borrow, in order to invest the money at a higher interest rate.  The risk of investing borrowed money is just too high to be worth the potential return.  Trust me, the stock market is already quite risky if investing in stocks is not done correctly--you don't need to be adding to that risk by investing borrowed money in stocks, or anything else.  It can be a tempting idea to try to get rich by investing borrowed money, but don't fall for it.  It can cause you to struggle financially for years--maybe even for the rest of your life.



Now the good news:


Now that we have talked bout some of the dangers of stock market investing, and some of the ways NOT to do it, let's now talk about the best ways to go about investing in stocks.


Here's how to correctly invest in the stock market.

Invest for the longterm

Any investment in the stock market should be longterm--five years or more.  If you are going to need the money in less than five years, then don't invest in stocks.  If, however, you are going to leave the invested money alone for five, ten or even more years, then the stock market can be a wonderful investment if you invest in it in a wise manner.  Here are what I consider to be the only truly wise ways for the average, individual investor to invest in the stock market:


Mutual funds

Stock mutual funds, sometimes called equity funds, are a great way to get into the stock market.  There are various kinds of stock market mutual funds a few of which are listed here in order of most risky to least.  Even though I say risky, I mean compared to each other.  Any stock market mutual fund is safer than the things I described above.  From riskiest to least risky, they are:

Aggressive Growth mutual fund - Invests in small, speculative companies with a potential for explosive growth and high returns, or losses, on your investment.

Growth Stock mutual fund
- Invests in slightly larger companies which have a bit more stability, but still a potential for good growth and return on investment.  

Growth and Income mutual fund - A mix of larger, well-known, stable companies and smaller, high-growth companies.  Returns are a bit lower, but so is risk.

Income and Equity Preservation mutual fund - Invests in large, stable, established, well-known companies with dividends and slow but steady growth.

Index mutual fund - Invests in all of the stocks included in the index the fund is tracking.  In other words, a Dow Jones index fund buys shares of all of the stocks in the Dow Jones average.  A NASDAQ index fund buys shares of all the stocks in the NASDAQ stock exchange.  The S&P 500 index funds buy shares of all of the stocks in the Standard and Poor's 500.

Mutual fund companies and brokers have many different individual funds which fall into these basic categories.  You want to find a mutual fund of the type you have chosen, which has had fairly good returns over at least a ten year period.  Don't buy into a newer fund just because the current returns are high.  Remember, stock investing is for the longterm.  To find someone you can trust to help you find the best stock mutual funds for your needs, I recommend clicking on 'ELP investing' under 'Trusted Services' at Daveramsey.com.

Mutual funds are a fairly safe way to invest in stocks simply because of the diversification.  Each fund owns hundreds of stocks so that your money, no matter how little or how much it may be, is spread out over hundreds of different companies.  Historically, stocks have returned an average of ten to twelve percent per year.  That may not be as much as some of the risky investments I have mentioned, but it is all you need to get ahead and eventually become wealthy.  Remember that this is an average.  Your mutual fund may make money one year and lose money the next; but, over time it will average out to a ten to twelve percent annual return historically.


Exchange Traded Funds (ETFs)

Exchange Traded Funds, or ETFs, are basically just mutual funds that trade like a stock right on the stock exchange.  You can put in orders to buy and sell ETFs just as you would any stock.  Many of the same privileges you would have with an individual stock, you also have with many ETFs.  For anyone who is just totally addicted to the thrill and excitement of investing in the high energy, fast paced world of stocks, an ETF might be the way to go.  They go up and down daily, just like a stock, sometimes by quite a bit.  Since ETFs trade just like a stock, you can use many different stock-type strategies in buying and selling them.  You buy and sell ETFs through any stock broker just as you would buy and sell stocks.  ETFs are so much safer than individual stocks because the ETF holds many stocks at the same time.  An ETF can be made up of dozens, hundreds, or even thousands of different stocks.  ETFs move much more slowly than individual stocks, but they move faster than mutual funds, and the diversity inherent in ETFs makes them a lot safer than individual stocks.


A little bit of speculation

If you want to have a little fun, and you insist on trying some of the fast-moving hot stocks, then do it with no more than 5% of your investment money.  Take 5% of the money you have available for investing and use that money, and only that money, on the more speculative investments.  If you get lucky and make some gains, move about half of that profit back into your regular investment account and continue to speculate only with the money left.  Now this is important:  if you should lose that 5% in investments that go bad, you stop speculating and just do the safer and more conservative investments from then on.  Do not add more money to it and try again.  If you lose that original 5%, then you have proven that you are not good at speculative investing and that alone should be reason enough to stop high-risk, speculative investing and just stick with what works.


If you can't lose it, then don't!

Short but sweet:  if you can't afford to lose it, then don't invest it!  That's why you shouldn't invest borrowed money, or invest every penny you have in savings, or invest the equity in your home.  There is always a chance for loss in the stock market and if that happens, you don't want it to take you out financially.  That is also why as you get closer and closer to the time that you will need the money you have invested, you will want to adjust your portfolio for less risk.  You don't want to lose your entire nest egg the year before you're supposed to retire.  

This doesn't mean you can only invest money  you are willing to lose--no one wants to lose money--it just means not to invest money that would financially devastate you if you lost it.


If you insist, then paper trade first

If all of this has not convinced you, and you insist on breaking any of the guidelines I have given you, then do paper trades first.  Paper trading is where you give yourself an imaginary amount of money comparable to what you might really, one day, have to invest and keep track of imaginary stock trades on paper.  In other words, you follow real stocks and real companies, but you write down your trades instead of actually making them with a broker.  Any imaginary profit you make is added to the amount of imaginary money, and any losses are subtracted.  Be sure to include at least $50 worth of commissions each time you make a trade, and subtract it from your total.  You are not allowed to add money to your imaginary account except by earning it in your trades.

This exercise is a great way to learn without losing any real money.  Do it for at least a couple of years before putting any real money into it.  I think you will be surprised at how well some things work out, and how poorly others do.  If after a couple of years, your paper trades are really going well, then take no more than 5% of what you have put away in mutual funds and ETFs and use it as you would your speculation money.



A final thought:


The stock market can be a great place to get a nice return on your investment.  It can also be a great place to lose your investment.  There are some really great opportunities to make money investing in stocks, but only if you do it the way I have taught you in this article.  If you are a beginer stock market investor, especially if you have no money to invest, please get a copy of my eBook  Investing With Nothing: How to get started in stock market investing with no money to invest.

Investing With Nothing


This article copyright 2008 by Keith C. Rawlinson (Eclecticsite.com).  All rights reserved.
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