Saving And Investing In Stock
Can You Invest With $20 A Month?
The quick answer is yes you can ... but you probably don't want to do that and this is why. Each time you buy a stock you have to pay a commission. The commission is the same, usually but it varies from broker to broker, whether the stock costs $1 or $100 or if you buy 1 share or 100. If you spend $20 each month in the stock market you will (based on the $10 commission I pay) be able to buy $10 in stocks each month. This will total $120 in stock and $120 in commission at the end of the year. However, if you wait and save the $20 and buy stock only once a year you will be able to spend $230 in the stock market and only $10 in commission. This method would result in nearly 100% more stock and less than 10% of the commission than if you spent $20 per month. That's a pretty big difference huh?
Assuming you are young and have 20 years until retirement buying stock once a year versus once a month will result in significantly different retirement accounts. Buying once a month would result in $2400 in stock, buying once a year would result in $4600 in stock. Now, if you take into account dividends and capital appreciation over the course of $20 years the differences become even more amazing. With this in mind I'm sure it is easy to see why saving and planning are the pillars of investing.
Saving Versus Investing In Stock
Over the years several people have asked me the same question. Aspiring investors and traders are all wondering just how much it takes to get into the market. I think it is accepted that investing is important and that the stock market is a good place to do that. What I think is shameful is that less people know how to do it. If I had my way personal finance, investing and the stock market would be a class in high school.
Too many American teenagers leave school for the world with no real knowledge of money, finance or investing. If it was taught in school, and I mean really taught, I think things would be different. America would be a richer country because more of us would have significant savings and investment accounts. Saving and investing are what our great grandfathers, grandfathers and fathers did to build this country to what it is today. Sadly, the habit of saving and investing has lost in favor of consumerism and plastic junk.
How I Got Started
I remember when I first learned how to trade stocks. It was a Saturday afternoon, October 2005. I had the pleasure of being invited to a seminar in order to learn the easy 5 step stock and option buying strategy offered by a local investment firm. Prior to that day I had some knowledge of stocks, I kept a lose track of Redhat because a friend of mine had lost his shirt on it when the tech bubble burst. I also knew a little about dividends and that you needed a broker to buy stocks. I had also seen the movie Wall Street with Michael Douglas.
After sitting through the seminar I felt as thought the wool had been pulled from my eyes. A veil had been lifted, the secret that had been kept from my my whole life had been revealed. I was enthralled with stocks, options and trading. I went home and began my education, reading as many books as I could find and watching hours of CNBC. Now, more than seven years later, I am still at it and comfortably living off my skills in the market.
Investing In Penny Stocks
Penny stocks are an attractive investment vehicle for some investors. They are called penny stocks because of the low prices associated with them. Originally the term was limited to stocks that actually cost only pennies but now may mean any stock that costs up to $4-$5 with high risk.
Penny stocks are usually issued by untried and unproven businesses. They can be engaged in any type of business and operate anywhere in the world. Selling penny stocks is a way for these businesses to raise capital for research, development or expansion. Penny stocks are true investments. By buying a penny stock you are betting on the potential success of the underlying business. The caveat is that most of these companies never get off the ground or go under altogether. Because they are untried businesses penny stocks are highly risky.
Penny stocks can be quite lucrative if you find the right one. Many of today's big companies began as start-ups with stock worth less than a dollar. Even Microsoft at one time was just a start up with really cheap stock. If you have the time to wait and stomach for risk penny stocks can be part of a successful portfolio.
Binary Options Are Emerging As A New Tool For Traders
Trade Binary Options With Less Than $20
Binary options are emerging as a new and easier way to trade financial markets. This trading vehicle, and I do mean trading vehicle, is a simplified form of derivative options instrument with only two possible outcomes. If you buy calls and the stock moves up you profit, if it moves down you lose.
- Binary option - a fixed return, derivative trading instrument with only two possible outcomes. Binary options that close in the money return the maximum profit, binary options trades that close out of the money return the maximum loss. Binary options are usually all or nothing. Industry average for binary options returns are 70% per trade for over/under options.
Binary options, like equity options and hot penny stocks, are highly speculative and not suited to investment portfolios. What they are suited to is beginning traders and speculators without the capital required for margin accounts and day trading. Binary trades are based on the same technical and fundamental analysis as any other trade but come without the hurdles of equity options. There is no need to fear delta, theta or volatility. Accounts can be opened for around $200 and trades can be as big or as small as you like, ranging from less than $20 up to the maximum allowed by the broker.
Compound Interest Calculator
How to calculate compound interest.
Potential Gains Of Investing VS Saving
If high school students begin saving at the age of 18 they can retire millionaires. It does not take a lot. By putting away a mere $20, $30 or $50 a month the accumulated interest over time will add up to a hefty sum. Lets make a few assumptions and see what happens when you save and when you invest.
Saving - If you save $50 a month for 27 years that will give you $16,200 in accumulated principal. Putting that into a savings account that earns 2% compounded monthly the result in 27 years is just under $21,500.
Investing - If you bump up the percentage to 10% (this is an assumed average stock market return) the end total jumps up to over $82,000. This is quite a difference, eh? Now, if that same 18 year old leaves home with a savings account built up of birthday, lawn mowing, xmas and grandma money the end results really get interesting. Assume the child saves $200 per year over 18 years, that's $3,600. Add that into the retirement savings equation and the end result is $135,941 and it only cost around $20,000.
Let's say that you max out all of your retirement and 401K options and manage to save money on your own as well. Let's say that in all you are able to save $6,500 per year in your various accounts. Using this figure in the equation the end result is nearly $1 million. If you were to put the same money into savings, earning 2%, your final tally would be a measly $238,000, 75% less than investing.
Zara Rasul from Mumbai, India on November 30, 2012:
Thanks for such an awesome answer to my question. I was under the impression that commission paid while buying or selling a stock is a % of the amount and not a flat fee. Great Hub. Thanks again.