I have some cd's coming due in the next few months. I will have 100k and would like to try some stocks. I have never purchased stocks previously and was wondering what is the best, most cost effective online broker or local franchise broker to deal with. something else, How much does it cost to buy stocks? by the share? or transaction? let me know what you think. thanks
buying into the stock market
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pb4uski
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If you are new to stocks you may like buying a no-load, low cost index fund. An index fund will give you broad, diversified exposure to stocks at a low cost. The fund managers do the stock picking for you, in the case of an index fund to replicate a defined basket of stocks.
If you go this route, a good possibility would be the Vanguard Total Stock Market Index fund - the fund is designed to provide investors with exposure to the entire U.S. equity market, including small-, mid-, and large-cap growth and value stocks. Most mutual funds you can buy direct from the mutual fund company (Vanguard in the aforementioned case) so there is no need to have a broker.
If you go this route, a good possibility would be the Vanguard Total Stock Market Index fund - the fund is designed to provide investors with exposure to the entire U.S. equity market, including small-, mid-, and large-cap growth and value stocks. Most mutual funds you can buy direct from the mutual fund company (Vanguard in the aforementioned case) so there is no need to have a broker.
Andre1969
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I have an online brokerage account with Scottrade (Online Trading and Online Investing | Scottrade | Stocks, IRAs and More). I've been with them about 9 years now, and have been happy with them. I think they have a $500 minimum to start, and their fee is $7.00 per transaction (buy or sell).
There may be better online brokerage firms, but I don't have any complaints.
There may be better online brokerage firms, but I don't have any complaints.
+1
The learning curve for investing in stocks is steep and expensive. An alternative that gives you some exposure to diversified funds like the Vanguard TSM but lets you learn to buy and sell them like stocks are broad index ETFs. They trade like stocks, and brokers like Fidelity allow you to buy and sell some ETFs without any commission. Vanguard does not charge commissions for Vanguard ETFS.
Col. Klink
Recycles dryer sheets
Along with the other good suggestions of a diversified index fund or ETF, my two cents worth is that you dollar cost average by making several purchases over a time period you are comfortable with.
Buy a big index mutual fund. Buy a big ETF through a brokerage that offers commision-free transactions for a large set of ETFs. If you have to buy individual stocks, buy way more than one so that you have some diversification.
Here's what I do: Merriman, LLC | Best of Merriman "The Ultimate Buy and Hold Strategy", which seems to be unavailable at the moment. It sets target allocations for equities and bonds and allocations for types of equities and bonds. Once set up you just have to check it once in a while to make sure your portfolio still matches your targets and adjust it if it doesn't.
Absolutely dollar cost average into the current market.
Here's what I do: Merriman, LLC | Best of Merriman "The Ultimate Buy and Hold Strategy", which seems to be unavailable at the moment. It sets target allocations for equities and bonds and allocations for types of equities and bonds. Once set up you just have to check it once in a while to make sure your portfolio still matches your targets and adjust it if it doesn't.
Absolutely dollar cost average into the current market.
W2R
Moderator Emeritus
+2 This entire post is very good advice, IMO.
Free To Canoe
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Interesting. The Ultimate... is still unavailable. However, the pdf of mistakes investors make is pretty interesting.
Is it ? (no, not trying to be a troll, trying to learn something).
I know next to nothing about investing but am a keen reader. In another thread a poster has asked if the real return on stocks (US&INTL) over the next twenty years is going to be in the range of 3.5% and a lot of you are agreeing with him. I leave it to you to say if that is correct or not because I certainly wouldn't know.
Currently in Canada I can get a 5yr CD that pays 3.25% Chances are that is going to increase in July when our version the Bank of Canada increases the base rate.
So, for a half a percent of return, why risk the capital ? I can think of only two reasons: a) because the taxation rate will be less (CapGain vs interest) and b) the potential upside of a stock or an index increasing (but doesn't the 3.5% if true negate that) ?
Sorry to hijack the thread but I figure since the OP is coming out of CDs into stocks it might be valid question to raise.
urn2bfree
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or consider VALUE COST AVERAGING instead-
http://www.studyfinance.com/jfsd/pdffiles/v13n1/marshall.pdf
Where in Canada can you get that rate? Most of the biggest banks, such as TD Canada Trust, do not offer anything remotely close to that. Apologies for hi-jacking the thread, but I have actually thought about moving some of our funds to a Canadian bank, so I am all ears.
TD Bank (the US branch, where we have most of our savings) actually offers the option to transfer funds between both countries once you set-up an account in Canada. Regarding the original question, I currently use Merrill Lynch for my (very limited) stock and ETF exposure. No, I do not like some of their predictably strange bedfellows nor the decisions they made recently, but if you are a Bank Of America account holder with more than $25K in total combined deposits, you basically get 100% free trades (up to 30 per month, which is about 29 more than I need). Just something to keep in mind if no-fees self-investing is the goal.
Sirka
Recycles dryer sheets
our CD rates (US) are pitiful at best (Wells Fargo 5yr CD only 1.76%) and may stay very low for few more years. So having dividend paying stocks for income is a must IMHO.
It's is a great advise to easy into any position. I do not make any sudden moves, because I am usually [-]early[/-] wrong. So I would not take $100K and plunk it into stocks or ETFs all at once. Besides at Vanguard, minimums are low.
Karloff said:Where in Canada can you get that rate? Most of the biggest banks, such as TD Canada Trust, do not offer anything remotely close to that. Apologies for hi-jacking the thread, but I have actually thought about moving some of our funds to a Canadian bank, so I am all ears.
Regarding the original question, I currently use Merrill Lynch for my (very limited) stock and ETF exposure. No, I do not like some of their predictably strange bedfellows nor the decisions they made recently, but if you are a Bank Of America account holder with more than $25K in total combined deposits, you basically get 100% free trades (up to 30 per month, which is about 29 more than I need). Just something to keep in mind if no-fees self-investing is the goal.
The online banks/CU. The "Big 5" banks in Canada only pay a pittance. The online banks are fine and the deposits/GICs are guaranteed by either the CDIC or provincial equivalents.
You can always check current rates at the Globe and Mail GlobeInvestor site.
http://www.globeinvestor.com/servle...Type=gic_long&sort=IR5&page=1&tax_indicator=N
Midpack
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I agree with those recommending starting with, if not staying with, mutual funds versus individual stocks. I've owned both exclusively over my investing lifetime. Stocks vs. mutual funds: Which is right for you? - May. 28, 2009
There's a lot of good advice here. Also, I would suggest doing some broader research and developing an overall investment plan, asset allocation %'s and then the individual investments. Once you determine how much you want to risk in stocks vs your overall portfolio you can then decide on individual stocks, ETF's or mutual funds.
Personally I have gone through various phases of my investment life and have settled largely on low cost index funds. The bulk of my equities are in Vanguard Institutional Index, Extended Market Index, Total Stock Market Index and Total International Index. Some overlap is due to different account types/
Personally I have gone through various phases of my investment life and have settled largely on low cost index funds. The bulk of my equities are in Vanguard Institutional Index, Extended Market Index, Total Stock Market Index and Total International Index. Some overlap is due to different account types/
I see most of the people on here prefer mutual funds. Does anyone have any idea how much they paid on average for the last 10 years for the large index funds? I thought dollar cost averaging was steadily investing over a long period of time. If you have a large amount of money that is all coming due at one time, how do you dollar cost average?
Frank, dollar cost averaging would mean you invest the lump sum in equal parts over a period of time. One example would be to invest 1/4 each third month for the next year. By spreading it over time you are lowering the risk that you buy at the top.
Andre1969
Thinks s/he gets paid by the post
Funny thing is, lately it seems like I've been having better luck with individual stocks than I have with mutual funds. Since my portfolio bottomed out in November of 2008, my Scottrade account's value is up about 5.5x, while my portfolio as a whole is up around 3.3x. Now, those numbers include contributions I've made since then, which I'm too lazy to look up right now. So, that's not my actual return. However, I really haven't invested a whole lot into the Scottrade account since then, either. Mainly just taken dividends and reinvested, and if a growth stock grew too much, sold a bit off, and put it into something that was paying a good dividend.
I also got lucky though, having a few stocks that went through the roof since November 2008. Apple, Google, Nordstroms, Cedar Fair, VISA, etc.
As for dollar cost averaging, when you just received a large sum of money? Basically, what MichaelB said. The stock market is always fairly volatile, but of late has been acting especially knee-jerk. So you're better off investing a little at a time. If you put it all in today, I can almost guarantee there will be a day, not too long from now, that you'll be kicking yourself for not waiting, because the market plunged. So, if you put some in today, some in after a couple months, or right after a major dip, etc, you should come off better in the long run.
You're comparing a real rate of return (3.5% in stocks), with a nominal rate of return for the CD.
The difference between the two is inflation. If inflation averages 3%, the nominal rate of a real return of 3.5% would be 6.5%.
So in your example, you would be expecting a 6.5% nominal return from the stock market compared to a 3.25% return from the CD.
The difference between the two is inflation. If inflation averages 3%, the nominal rate of a real return of 3.5% would be 6.5%.
So in your example, you would be expecting a 6.5% nominal return from the stock market compared to a 3.25% return from the CD.
RunningBum
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Don't feel compelled to dollar cost average if aren't convinced about it. The general trend of the market is up, so you're losing out by leaving money out of the market. While it could drop the day, week, or month after you invest, it could also jump or steadily rise and you'll never get a chance to invest as cheaply. It is a way to reduce your risk against a sudden drop, but that drop could come the day after you've made your last DCA investment, and then you've just limited your gains during the run-up, while taking the full hit from the drop. I don't DCA and I limit my risk with a proper asset allocation so that I'm only exposed to the market to the limit I'm comfortable with.
Now you've heard both sides on DCA, so make your own decision.
Now you've heard both sides on DCA, so make your own decision.
That's absoutely true, and usually I don't DCA. However, with obvious Europe problems and probable U.S. echoes I see way more downside than upside for the next year or two (IMHO). So this is one of the times I would DCA/value average into the market. That is essentially what I will be doing with my current cash, buying equities as my portfolio value hits a few fixed percentage loss points (-20%, -25%, ...).
RunningBum
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OK, but let's call that what it is--market timing. And there's nothing wrong with that. I've just found I'm not good enough at recognizing dips vs. free falls, or when a rally is nearing an end. May was a rough month, does that mean it's time to charge back in, or is the outlook still bad?
And really, if you are DCA'ing in, shouldn't I be selling most of my stocks (as long as I'm not taking much of a tax hit, or short holding term penalty) since I am just as exposed? My $100K is the same as the OPs, right? If there's a risk in investing it all at once, don't I have the same risk in being fully invested?
It's just a mental thing. People don't like to make a decision and have it blow up on them in the near term. However, if you've been invested for awhile, and then the market tanks, you are less likely to kick yourself for passively staying invested, even though the hit is the same.
And really, if you are DCA'ing in, shouldn't I be selling most of my stocks (as long as I'm not taking much of a tax hit, or short holding term penalty) since I am just as exposed? My $100K is the same as the OPs, right? If there's a risk in investing it all at once, don't I have the same risk in being fully invested?
It's just a mental thing. People don't like to make a decision and have it blow up on them in the near term. However, if you've been invested for awhile, and then the market tanks, you are less likely to kick yourself for passively staying invested, even though the hit is the same.
sunnysideup
Recycles dryer sheets
I too have both dividend stocks and mutual funds and while I haven't calcuated the exact return, my dividend stocks are way ahead of my funds since the same time period (since approximately April 2008 when I starting moving money from funds into stocks in non 401k accounts).
I can't believe that the difference is so noticeable, but it is. And my funds are well diversified. While I have no choice in my 401k but to put my money into funds, I have been rethinking my investing strategy, and perhaps longer term I will be investing the same way my parents have, reinvesting dividends in solid stocks....That's what they FIRE'd on and it has served them well. (of course, with the disclaimer that they started in the 80s and they did very well in the 90s. The market's past performance may not be repeated...)
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pb4uski
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If I had a large amount to invest, I would value average rather than DCA. With value averaging, you invest more when stocks are underperforming and less when stocks are overperforming. Studies have shown that overall returns are typically slightly better.
So in your example you have 100k to invest and let say you want to do it over a year. Your first deposit would be $9. The next month you would invest the difference between your balance and $18k. The next month you would invest the difference between your balance and $27k. So if the market does well in a month you would invest less and if it does poorly you would invest more - buy low, buy less high.
Midpack
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So far, I've never DCA'd with blocks of holdings either. Nothing whatsoever against DCA as a practice, a built in feature of employer 401k's that has served employees well. And in this case DCA won't likely do any harm.
But I wonder about using "obvious problems" and "more downside than upside" as a reason to DCA. Upsides (and downsides) often come as a complete surprise to everyone - especially "the experts."
One of the most enduring investing adages comes to mind..."Be fearful when others are greedy, and be greedy when others are fearful (when the accepted consensus is way more downside than upside)." YMMV
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