2000 dollars for the stockmarket

Discussion in 'Community Discussion' started by IDANNY, Oct 6, 2007.

  1. IDANNY macrumors 6502a

    IDANNY

    Joined:
    Dec 26, 2003
    Location:
    Las vegas
    #1
    I have about 2000 dollars I want to put in the stock market in the us. what is the best way of going about it. I already basically know what i wanna invest in but how should i actually do it as in what service? any help would be much appreciated. Also if anyone has any advice about stocks that would be cool also although I already have a pretty good idea. Thank you
     
  2. pseudobrit macrumors 68040

    pseudobrit

    Joined:
    Jul 23, 2002
    Location:
    Jobs' Spare Liver Jar
    #2
    Roth IRA.
     
  3. davidwarren macrumors 6502a

    Joined:
    Aug 28, 2007
    #3
    well, you could open a margin account with $2K, and then you would have $4K available to invest. Also, you could buy options and make (or lose) a lot of money quickly. However, I agree, it is good to max out your IRA first, $4K a year if you are single.
     
  4. IDANNY thread starter macrumors 6502a

    IDANNY

    Joined:
    Dec 26, 2003
    Location:
    Las vegas
    #4
    how does a margin account work? I am really interested in putting money into stocks. Even though it might be risky especially now. I want to invest in some energy companies in china. I am only 17 and I think I might start an ira later. I am not even sure if I can because of my age. But once I turn 18 I will put some money into an ira. thank you by the way I really need all the help I can get : )
     
  5. pianoman181 macrumors regular

    Joined:
    Jan 6, 2004
    #5
    I strongly advise that you do *not* trade on margin until you become accustomed to the market and how it works for you. Trading on margin is nice, because you see 50% greater returns as opposed to trading cash-value. The problem with this, especially for a new-comer, you also see 50% greater losses when your stocks are in the red.

    Beyond that, I personally have an account with TD Ameritrade that I'm quite satisfied with. Im 18 and started an account with $2000 with them at the end of the July. Through lots of trading, primarily in technology, alternative energy, oil, and aero, i have grown my portfolio to about $2775 in about 2.5 months. It's definitely a fun game. You just have to be thick-skinned and pay attention to what's going on.

    Good luck!
     
  6. Maui macrumors 6502a

    Maui

    Joined:
    May 18, 2007
    #6
    A margin account allows you to borrow money from your broker to pay for (usually) a portion of the security - so, for example, you buy a stock for $100, using $50 cash and then you borrow the other $50 from your broker. You pay your broker interest on the money you borrow, just like a typical loan. Margin accounts amplify both gains and losses, and are a really, really bad idea for a beginner or someone investing only $2K.

    There is no age limit for a Roth, provided the earned income condition is met, which basically requires you to have earned income in an amount at least equal to the amount you invest during the tax year in which you invest.

    What you should invest in depends a lot on your time horizon. If you need the money in, say, 5 or fewer years, stay out of the stock market. But, if you want to start investing for retirement (a great idea), a Roth is by far the best option for you. Investing is hugely impacted by taxes, and tax-free withdrawals are a gift from god.
     
  7. IDANNY thread starter macrumors 6502a

    IDANNY

    Joined:
    Dec 26, 2003
    Location:
    Las vegas
    #7
    yah I was just reading about the margin trading. I dont think thats for me right now. Maybe later but for now I want to play with what I have.
     
  8. sushi Moderator emeritus

    sushi

    Joined:
    Jul 19, 2002
    Location:
    キャンプスワ&#
    #8
    Here are some recommendations:

    - Consider opening an IRA, either ROTH or Traditional. Learn the pros and cons between the two types of accounts. In either case, the earlier you start to invest the better.

    - Find a good S&P 500 Index fund and start from there. Most of these mirror the market with a small percentage taken off for management fees.

    - Do not invest in individual stocks until you have some experience in the stock market. While Apple, Dell and Microsoft did well, there are countless other stocks that no longer exist. If you must go with this route, stick with known companies.

    - Do not open a margin account or day trade. Many folks get to a point where they think they know more than the professionals and get into these types of activities and loose everything.

    - Generally those who invest for the long run do the best. If it sounds too good to be true, it usually is.

    - It's fun to invest when the market is going up. It can suck when it goes the other way. I've had friends who margined, and invested in high risk situations, loose all they had in a couple of days. Remember, the market darling can turn out to be a toad real quick. Enron comes to mind.

    - Look for a company that has reasonable rates, with good services. Know what to expect from this company and their brokers when it comes to investment services. Generally, the low cost places do not provide any assistance. Having a good broker can be beneficial.

    - Check out company DRIP plans. This is a nice way of building your networth in well established and known companies.

    - You will have to pay taxes on those capital gains due to stock trades. If you trade often, you will have to keep a good paper trail.

    Good luck! :)
     
  9. IDANNY thread starter macrumors 6502a

    IDANNY

    Joined:
    Dec 26, 2003
    Location:
    Las vegas
    #9
    Thanks you sushi, your picture makes me so hungry :)
     
  10. Doctor Q Administrator

    Doctor Q

    Staff Member

    Joined:
    Sep 19, 2002
    Location:
    Los Angeles
    #10
    Perhaps you should invest in sushi futures. :)

    At your age, you have two great, but contrasting options:
    1. Make aggressive (higher-risk) investments. You have decades until retirement, so you don't need dependable earnings on your investments. It's the long term that matters, and stocks, while volatile, can fit the bill.
    2. Make regular investments, such as in an index fund as sushi mentioned. Even a small amount of money, added to an investment account each and every month from now on, will produce great results because you have a chance to start early and contribute for years and years, with all that money compounding.
     
  11. IDANNY thread starter macrumors 6502a

    IDANNY

    Joined:
    Dec 26, 2003
    Location:
    Las vegas
    #11
    I am leaning towards going the more aggressive route in the stock market. If i loose some of the money I loose it. I am not to worried about it either way positive or negative its a learning experience.
     
  12. CalBoy macrumors 604

    CalBoy

    Joined:
    May 21, 2007
    #12
    Out of curiosity, can a Roth IRA be cashed in in an emergency like a 401k can be? And, the OP might want to go Roth if he doesn't have to show that money as held assets for the purposes of his college apps (FAFSA doesn't like it when students have any money of their own;)).
    Margins are not a good idea for someone who's new to the market. Heck, they're barely a good idea for those who aren't too new to the market.
     
  13. Doctor Q Administrator

    Doctor Q

    Staff Member

    Joined:
    Sep 19, 2002
    Location:
    Los Angeles
    #13
    Just to clarify, since I didn't phrase my post well, I was suggesting two approaches that I think both make sense for someone in your circumstances. Risks and regular investments, together, give you a great chance of long-term investment success.
     
  14. sushi Moderator emeritus

    sushi

    Joined:
    Jul 19, 2002
    Location:
    キャンプスワ&#
    #14
    Dr. Q made some very good points on the two ways to invest.

    Here are the priorities in order:

    - Time to invest. Unfortunately, this is finite. So the sooner you start the better.

    - Rate of Return. Of course the higher the better. But if you swing for a home run each time, you may end up earning less while missing many other good steady opportunities.

    - Amount invested. The more the better. At least 10% of your gross income before taxes. A higher amount would be better. Shoot for 20-25% if at all possible.

    Sure it's fun to play the market. No doubt about it. However, most folks do better with a conservative approach over time. The market is volatile. Many folks think that they won't mind loosing value, but when it happens, some end up not taking it as well as they thought they would. You will need to find out and explore your limitations.

    As for the conservative approach, Index funds are a great way to get started. Then as you learn about the market you can experiment with other mutual funds. And of course transition to purchasing stocks directly once you feel comfortable.

    On the conservative side, for example, let's say you invested your $2,000 in an Index fund that earns an average of 10% per year. And you leave it in that fund until age 65 (45 years). You would have $176,000 in that account.

    Now, if you invested 200 per month ($2,400 per year) in the same account over the same time period and same rate of return, you would have $2.1 million.

    If you could manage an average of an 11% rate of return, you would have $3 million. Likewise if you only managed an average of a 9% rate of return, you would have $1.4 million. As you can see, a small percentage rate change makes a huge difference in the long run.

    Of course everyone probably wishes they had a 1,000 shares of Microsoft. That is, original shares. If memory serves they sold for around $27 per share. Those 1,000 original shares, due to splits, would have grown to 512,000 shares and would be worth about 15 million today. Then again, if you invested that same $27,000 in Microsoft around the year 2000, that stock would now be worth about $13,000.

    Another area to consider is defense as in being thrifty. As Ben Franklin stated, "A penny saved is a penny earned." Good advice indeed. Take a look at where you can reduce expenditures. Try to avoid impulse purchases. Always live within your means.

    Hope this helps.

    Happy investing! :)
     
  15. davidwarren macrumors 6502a

    Joined:
    Aug 28, 2007
    #15
    I was not recommending the OP to open a margin account, just stating that he could with $2K.

    Really, it depends on what your goals are in putting money in the market are. If you are looking for a quick buck, you need risk, but if your world would come crashing down if you lost all $2k, then you should stick with a conservative plan.

    I use a mixture of options and equity, on margin, to really amplify my gains, but my trading account is very volatile (as in -40%---+150% for the year). I use plain equity in my IRA. While it might sound boring, it really is a good idea to start saving for retirement simply because time is on your side right now.

    You would most likely not be approved for a margin account or an options trading account if you are just 17 and only putting in $2k, but that is probably a good thing.

    If you have any specific questions, feel free to ask; as for brokerages, I use optionsXpress.
     

Share This Page