How to get started

I asked many people what an appropriate first topic should be for this blog and many suggested that I write about how to start investing in stocks. Although my goal is to eventually just share my own research methods and investment decisions, I don't mind discussing the basics. Once again, please continue to do your own research.

In my opinion, the first step in investing in the markets is to figure out how much money you are willing to play with.

My husband and I only put money in the markets outside of our retirement and savings accounts when we felt we could "afford" it. To us, that meant that we could afford to lose the entire amount in the markets and we could still pay our bills. It also meant that we still had a significant savings account for emergencies.

I know that I am promoting a very conservative method and many people prefer to be much more aggressive in their investment approach. However, as a first time investor it is best to start on the conservative end. You can always change methodologies as you get more comfortable investing in the markets.

Once you come up with an amount of money that you are willing to lose in the markets, open a brokerage account. You can use the traditional institutions or you can use online brokerage firms. Each company has different commission rates and balance requirements, so make sure you read the fine print and understand the details of your account.

Among the online companies, I prefer Scottrade since they charge one of the most affordable rates per trade: $7.00. Scottrade does require a $500 minimum balance to open an account. E*Trade charges $9.99 per trade and requires a minimum of 10 stock trades per month to qualify for that commission rate. Sharebuilder might be the best option since they do not have balance or trade minimums and they charge $9.99 per trade. Traditional brokerage firms like Merrill Lynch and Fidelity have their own rates that you can find on their respective websites.

Edited to add husky422's recommendation: TD Ameritrade also has $9.99 commisison rates, no minimums and awesome research/tools.

I discuss differences in commission rates above since you have to pay this fee every time you buy and sell a security. So, if you bought two shares of a stock worth $100.00 per share, the money used in your account will be:

($100.00 x 2) + $7.00 = $207.00

When you sell these same 2 shares at $150.00 per share, your account will be funded:

($150.00 x 2) - $7.00 = $293.00

Commission rates are important because you need to count them when calculating your net gain or loss. I will discuss multiple ways to calculate gains and losses in later posts.

Once you open and fund the brokerage account, you are ready to start investing. The next step will then be figuring out what type of security to invest in: single name stocks, ETFs (exchange traded funds), mutual funds, corporate bonds, Treasury bills, etc.

For those interested in reading a more in-depth intro to investing, Investopedia publishes an easy read for beginners called Investing 101: A Tutorial for Beginner Investors. My husband loved reading Rich Dad, Poor Dad's Guide to Investing by Robert Kiyosaki, which is also another useful read.