201 Investing: how to find the best low-cost methods for buying stocks and mutual funds. (Investing Part 2 Of A Series).WHILE THE STOCK MARKET WAS GOING ON ONE OF THE longest bull market runs in history during the 1990s, Edward Love was learning as much as he could about investing. The 36-year-old Bessemer, Alabama Bessemer is an American city and southwest suburb of Birmingham located in southwestern Jefferson County, Alabama. As of the 2000 census, the population of the city is 29,672. According to the 2005 U.S. Census estimates, the city had a population of 28,641. , production worker started with a mutual fund 10 years ago, but in 1999 a friend introduced him to online investing, and within a year, he was hooked. Online investing opened up a new world where financial information was a mouse-click away, any time, day or night. By studying many of the online investing Websites, he now feels so confident about his knowledge of the markets, he uses his laptop to do his own research and stock trades. Love also discovered a number of ways to purchase stocks at a lower cost than major Wall Street firms charge. Because of his modest income, investing online Investing online has become the norm for investors and traders over the past decade with many, if not all brokers now offering online services with unique trading platforms. In the past, investors had to call up their brokers and place an order on the phone. immediately appealed to him. And it made financial sense, too. "Your profit margin is better when you can invest on your own," says Love, who has opened several online accounts as well as enrolled in a direct stock purchasing plan in order to save money. If you want to save money while you invest, commit to a strategy of investing small sums on a regular basis with investment companies that allow you to make transactions at lower cost. It's a great way for beginning investors to get started and get the most value for their hard-earned dollars. You will have to investigate brokerage companies as well as publicly traded companies publicly traded company A company whose shares of common stock are held by the public and are available for purchase by investors. The shares of publicly traded firms are bought and sold on the organized exchanges or in the over-the-counter market. you'll invest in. Others have done it. Why haven't you? Whether you have a lot of money or a little, over the long haul Long distance. Long haul implies traversing a state or a country. Contrast with short haul. , you can reap the benefits of low-cost investing. But you have to get started. DOLLAR-COST AVERAGING dollar-cost averaging Investment of a fixed amount of money at regular intervals, usually each month. This process results in the purchase of extra shares during market downturns and fewer shares during market upturns. Whether you know it or not, you may already be engaging in low-cost investing through your 401(k) or 403(b) plan. Anyone participating in these qualified defined-contribution retirement plans is making regular pretax contributions (of up to $10,500 annually for 2001, $11,000 for 2002). Some companies match employee contributions up to 100%, and the funds can be invested in several options, usually a choice of mutual funds, a money market fund, and company stock. Once you've made your selections, your money is invested at regular intervals-virtually at no cost to you. Investing a fixed dollar amount in the same security over a period of time is known as dollar-cost averaging, and this strategy can be implemented with 401(k)s, individual retirement accounts (IBAs), or investment accounts for purposes other than retirement. An IRA Ira, in the Bible Ira (ī`rə), in the Bible. 1 Chief officer of David. 2, 3 Two of David's guard. IRA, abbreviation IRA. is a personal, tax-deferred individual retirement account that allows employed people to contribute up to $2,000 a year ($3,000 in 2002) toward their retirement. Most financial services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. companies can arrange for a set dollar amount to be transferred directly from your checking account or after-tax payroll check to your IBA IBA abbr. International Bar Association IBA (in Britain) Independent Broadcasting Authority IBA n abbr (Brit) (= Independent Broadcasting Authority to take advantage of dollar-cost averaging. Baunita Greer, president of Cromwell, Miller & Greer, in New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of , a division of the security brokerage firm B. Pierce & Co., says any good investment plan should start with participation in your company's 401(k) plan or with IRAs before actually buying individual stocks or additional mutual fund shares. "Investors should not feel they are going to get rich overnight," says Green "It could take years." ONLINE INVESTING Love, who describes himself as "everyday people," knows it's going to take many years before he reaches his extraordinary goals. Last January he established B.I.G. Inc. (B.I.G. stands for Best Investment Group), an investment club that he hopes will become a family trust fund. "We're looking to create [a legacy], just like with the Kennedys," he says with a laugh. He and Roland have taken the first steps toward establishing the Love family trust fund by opening an online account for B.I.G. Inc. They opened the account with Sharebuilder (www.sharebuilder.com) in March, and they each contribute $250 every quarter. So far, they've invested in Exxon (NYSE NYSE See: New York Stock Exchange : XOM XOM Exxon Mobil Corporation (stock symbol) XOM X/Open Object Management XOM OSI-Abstract-Data Manipulation API XOM Xml Object Model XOM X/Open Osi Abstract Data Manipulation ), Philip Morris (NYSE: MO), Anheuser Busch (NYSE: BUD), and HealthSouth (NYSE: HRC HRC Human Rights Campaign HRC Human Rights Council (UN) HRC Human Rights Commission HRC Hard Rock Cafe HRC Hillary Rodham Clinton (democratic senator/presidential candidate; former first lady) ). Love believes this was the best approach to building wealth for his family because it allows any family member to participate no matter what their financial situation, and it is inexpensive to maintain the account. "You're talking about minimum amounts of money to invest instead of dropping down thousands of dollars at a time," he explains, "and it's all for just three dollars a trade." At Sharebuilder (which can be accessed through www.blackenterprise.com), investors can set up online accounts with no minimum required, and use dollar-cost averaging to purchase stocks and mutual fund shares. The site also provides financial education, online tools and interactive calculators, research, and long-term investing strategies with an emphasis on diversification (see sidebar "Low-Cost Investing Resources to Help You Get Started"). DISCOUNT VS. FULL-SERVICE BROKERS Robert A. States, a registered representative and tax preparer for Fiducial fi·du·cial adj. 1. Based on or relating to faith or trust. 2. Relating to or characteristic of a legal trust; fiduciary. 3. Regarded or employed as a standard of reference, as in surveying. Inc., advocates working with a broker as opposed to online investing since the market's complexities might be too overwhelming for some people. "There is a high degree of people losing money, and there's a danger you could lose big time if you are not exactly careful of what you are doing," he says. Marc R. Lippman, a vice president at Salomon Smith Barney Inc. in Washington, D.C., agrees. "Brokers are obsolete as a second step, but they are absolutely necessary to get started," Lippman says an investor who has $10,000 to invest should be prepared to pay a broker a maximum of 4.5%, or $450, as a onetime commission. The sales charges decrease the more money you invest. When getting your feet wet in the stock market, Lippman says "the one-time commission is money well spent--especially during bearish markets. In a market like this, having experience is important." Online investors choosing discount brokers will save on fees, but Greer suggests that if you are not prepared to devote at least 10.5 hours a month to doing your homework--evaluating your holdings, researching new stocks, and reading financial news--then you should use a professional advisor to handle your portfolio. "If you make a mistake, you will have to eat that mistake," she notes. Like many beginning investors, Valencia Roner's commitment to long-term investing was tested as the markets began to slide in the spring of 2000. Roner, a single mother who owns VXR VXR Vauxhall Racing Enterprises, a marketing and public relations public relations, activities and policies used to create public interest in a person, idea, product, institution, or business establishment. By its nature, public relations is devoted to serving particular interests by presenting them to the public in the most firm in Culver City, California Culver City is a city in western Los Angeles County, California. As of the 2000 census, the city had a population of 38,816. The community is mostly surrounded by the city of Los Angeles but also has a border with unincorporated areas of Los Angeles County. , opened an account at Etrade (www.etrade.com) with $3,000 in March 1999, and immediately made several successful trades. Initially, she tried to use the account to generate extra income, selling her winning stocks even though the gains were modest. "After 1999, I stopped doing active trading because I started hearing stories about day traders getting hooked and losing all their money," says Roner. Instead Of getting out of the market altogether, she invested a total of $2,500 in Dell Computer (Nasdaq: DELL), Capital Crossing Bank (Nasdaq: CAPX CAPX Capital Expenditure(s) cAPX cytosolic ascorbate peroxidase CAPX Capital Expense(s) CAPX Customer Accessible Parts eXpress (Grove Cranes) ), Novell Software (Nasdaq: NOVL NOVL Novell, Inc. (stock abbreviation, AMEX) ), Intraware Inc. (Nasdaq: ITRA ITRA International Tire and Rubber Association ITRA Inter-American Treaty of Reciprocal Assistance ), and Venator Group (NYSE: Z) in February 2000, and decided to hold for a while. "Overall, I didn't mind losing what I had already invested in an attempt to make money," she reasoned. Unfortunately, the market's free fall began in March 2000, and her portfolio dwindled to about $1,250 in October 2001. Lucky for Roner, she has been able to land the Tavis Smiley Group and the City of Los Angeles
DIVIDEND REINVESTMENT PROGRAMS Love has several other online accounts from which he says he will eventually transfer assets into the B.I.G. Inc. account. One of those accounts is with EquiServe (www.equi serve, corn), a company that allows investors to make direct investments in publicly traded companies through Dividend Reinvestment Plans Dividend Reinvestment Plan (DRP) Plan which provides for automatic reinvestment of shareholder dividends in more shares of a company's stock, often without commissions. Some plans provide for the purchase of additional shares at a discount to market price. (DRIPs). In September, Love invested about $14,000 in Wal-Mart (NYSE: WMT (Windows Media Technologies) See Windows Media. ), saving on broker's fees. Vita Nelson, publisher of The Moneypaper (www.moneypaper.com), a newsletter that offers information about, as well as lists, companies that have DRIPs, says DRIPs are a key resource for people who want to invest but don't have a lot of money. "You can start investing now while you only have a few hundred dollars. Just pick a variety of stocks that make up a balanced portfolio and open an account." Nelson emphasizes that with DRIPs, the strategy is to accumulate shares of companies you believe in so that "you are investing in the company, and not speculating on the price of shares." Although Love opened his account with EquiServe, Nelson says you can open an account with Temper Enrollment Service (800-295-2550). Temper charges $30 per company to set up an account, but if you subscribe to The Moneypaper, you'll pay $15.50 per company (a subscription costs $90 annually, but first-time subscribers receive a promotional price). Then, you can purchase up to 100 shares at a time for the cost of the shares plus a $5 fee. Some companies also charge additional fees to participate in their direct stock purchasing programs. "The reason we like DRIPs investing is because anytime you have a few dollars, you can send it over to the company and it gets invested in your account with the companies you've chosen, whether it's a whole share or a quarter of a share," says Nelson. So whether you're investing by yourself or you are starting an investment club, using many of these low-cost investing choices may work for you. Just remember to research religiously, invest in what you know, and maintain a commitment to investing small sums over the long haul. "Money will work harder for you than you ever can for yourself," says Love. "Once you start a systematic savings plan, you just need to be consistent and then you'll see just how much you can have. You've just got to have patience." LOW-COST INVESTING RESOURCES TO HELP YOU GET STARTED ONLINE BROKERS www.buyandhold.com--no investment minimum, $6.99 per month with two free trades; $2.99 per transaction thereafter. www.sharebuilder.com--no investment minimum, $4 per trade. www.mydiscountbroker.com--no investment minimum, $12 per trade, and no-fee IRA accounts. www.scottrade.com--$500 minimum investment, $7 per trade for market order and $12 for limit order. No fee if you hold shares 90 days, $17 if you trade before 90 days. No inactivity fee Inactivity Fee A fee charged to investors whose trading activity meets their brokerages' criteria for an inactive account. Notes: Smaller, passive investors who make a small amount of trades are the most disadvantaged by the fee. See also: Broker, Passive Management . www.tdwaterhouse.com--$1,000 minimum investment, stock trades for up to $15, and 170 branches nationally. www.ameritrade.com--$2,000 minimum investment, $8 per trade for Internet equity market order, $13 for Internet stop or limit order. DIRECT STOCK PURCHASING PROGRAMS www.netstockdirect.com--provides a database of 1,600 companies that offer direct stock purchasing plans (DSPs), Dividend Reinvestment Plans (DRIPs), and access to a Mutual Fund Center. www.moneypaper.com--newsletter and brochure lists companies with direct investment programs. www.equiserve.com--largest securities transfer agent in the world, listing 1,400 companies with direct investing programs, www.directinvesting.com--lists information on enrolling in direct investment plans. BOOKS The Walt Street Journal's Guide to Understanding Money and Investing by Kenneth M. Morris, Virginia B. Morris, and Nan M. Siegal Simon & Schuster Simon & Schuster U.S. publishing company. It was founded in 1924 by Richard L. Simon (1899–1960) and M. Lincoln Schuster (1897–1970), whose initial project, the original crossword-puzzle book, was a best-seller. , $15.95 The Motley Fool's Investing Without a Silver Spoon by Jeff Fischer Motley Fool, $15 Black Enterprise Guide to Investing by James A. Anderson James (Jim) A. Anderson is a Professor of Cognitive Science and Brain Science at Brown University. His multi-disciplinary background includes expertise in psychology, biology, physics, neuroscience and computer science. Anderson received his PhD from MIT. John Wiley & Sons, $19.95 INVESTOR WEBSITES Blackenterprise.com--Black Enterprise Magazine Fool.com--The Motley Fool Nasd.com--National Association of Securities Dealers Inc. Better-investing.org--National Association of Investors Corp. Cobinvest.com--Coalition of Black Investors |
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