Welcome to the exciting world of investing, where there are many choices.
I personally have an account at E*Trade. They have “low to no” minimums to
begin. Where you begin depends on your reason(s) for investing.
If you would like a “General Investing” account, their minimum balance to start is
$1,000. By comparison, the minimum to start any account at Charles Schwab is
currently $5,000. I am not against Charles Schwab. I am all for saving, wherever
you decide to do it. It is just that many of my students do not have $5,000 to start.
Here’s a link to E*Trade’s “General Investing” web page:
Just because you have a small amount to begin, should not discourage you. If you
were paying attention in class, you should know that compounding is one of the
cornerstones to wealth accumulation in investing. The earlier you start (investing),
the more powerful it is. Given any interest rate, look at the difference between 30
and 40 years:
Does When I Start Investing and
How Much I Earn Make a Difference?
Amount Accumulated with $2,000 Invested Annually
Years 3% 5% 8% 10% 12%
30 95,151 132,878 226,566 328,988 482,665
40 150,803 241,600 518,113 885,185 1,534,183
Another alternative, in investing, is to establish a Roth IRA. As part of your course
handouts (the Pink sheets) in both ACC 230 and 240, there is a two sided sheet that
describes this type of account. The beauty of E*Trade is there is NO minimum to
start a Roth IRA. Simply allow them to deduct a predetermined amount from your
checking account each month ($50?) and you are on your way.
Here’s a link to E*Trade’s “Roth IRA” web page:
With either a “General Investing” or “Roth IRA” account, your money is
automatically deposited into a Money Market account. With this interest earning
account, you will be able to buy stocks, bonds, mutual funds and exchange traded
funds. Although the mechanics of investing in those areas are not covered until
your Fundamentals of Finance class at the University, I should be able to answer
your basic questions in those areas.
Whichever investment you choose, you need to be able to answer three questions:
1) Where do I invest? Stocks, bonds or commodities to name a few.
2) When do I invest?
3) When do I sell?
Stocks seem on the surface to be a logical choice, but consider the following graph of
investing in the Dow:
There were good times to be invested in the stock market and there were extended
periods when you were best served staying out.
Here’s an interesting “what if.” What if I invested $1,000 on December 31, 1998?
Where would I be on December 31, 2004?
If you change your starting date to December 31, 1999, the results are even more
As you can see from the above table, over the last six years nothing gave a positive
return each and every year. In the investment world, there are “peaks and valleys.”
Nothing goes straight up or straight down. Or stated another way, there is risk.
Risk can be a little unsettling at times. But if you make prudent choices, you should
be rewarded over the long term. (Risk-free investing would be placing your money
in a federally insured savings or money market account or savings bond. The
problem with those places, in 2005, is that they do not keep up with inflation.
Translated, you have less buying power in the future than you do today – especially
when income taxes are factored in.)
Disclaimer: I have an account with E*Trade. I will not receive any type of
commission if you open an account there. I simply choose them because I am most
familiar with them. If you have a friend, neighbor, relative or co-worker with an
account elsewhere, I would be glad to help you fill out the paperwork to get started
there. Or, if you have an IRA available through your workplace – particularly those
with “matching” contributions from your employer available – you are highly
encouraged to start your investment career there. That “matching” feature is a “no to
low” risk way for your money to get a jump start from your employer.
If that last table caught your eye with respect to gold, there is an investment option
available to you through:
One of the downsides of investing in gold (bullion) is that in most cases you take
possession. Gold is like cash – it is untraceable. Like dollar bills, it is best kept in
safe storage. A bank safe deposit box is a good alterative. Just like buying stocks,
there is a commission.
The advantage of the above referenced site is that they take care of the storage and
insurance (they use Lloyd’s of London). And yes, they are audited – currently by
Deloitte & Touche (one of the Big Four Accounting firms). And if you commit to a
monthly withdrawal from your checking account – as little as $50 per month – the
commission is lower than any local dealer (unless you intend on buying in five-figure
Disclaimer: Yes, I also have an account there. No, I will not receive any type of
commission if you go there. (Be the first on your block to brag that you have an
account in the Channel Islands.)
Explore their web page and again I will be more than happy to help you fill out the
paperwork if you desire to establish an account there.
How has gold done lately? Here’s a graph to ponder:
Yes, as promised, there are “peaks and valleys.” But, no doubt, the direction is up.
The DOW, on the other hand, first crossed 10,000 on March 29, 1999. Check a
quote online to see how far it has gotten in the last few years.
Yes, houses are the “hot” investment fad today. Not too many people you meet
would mention gold as a choice. But, think of both of those (and stocks) while you
read the following:
Only a minority of individuals become rich. Doing what the majority does is the
surest path to mediocrity. The rich became that way, for the most part, by being
“You don’t make money buying what everyone wants. You make money by buying
something when nobody else wants it … and selling when everyone wants it. I call it
“Hold your nose and buy” investing … quite often, the more “stinky” an investment
sounds, the greater its potential for profit.” – Steve Sjugerrud
Remember this: The three most important subjects to “understand” (not just pass),
if you want to be a successful investor, are Accounting, Economics and Finance.
Be very careful when accepting advice from others on how you should spend or
invest your hard earned money. Ask yourself, or if necessary ask them, what their
education, certification(s) and experience entails that they are able to give you such
wonderful advice. You don’t have to necessarily ask this one but think to yourself:
do they have a vested interested in the advice they are giving me? In other words,
will they get a “cut”? If you walk onto a car lot and ask the salesman is now a good
time to buy a car what do you think their answer will be? If you enter into a
discussion with a realtor and ask is now a good time to buy a house, what do you
think their answer will be? If you are talking to a stock broker and ask is now a
good time to invest in “this” market, what do you think their answer will be? It’s
your money, be careful how you spend or invest it and always carefully consider the
source of any advice that you may receive. Ideally, your “business” courses (ACC,
ECN, and FIN) should aid in this cause.