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Part 3: Thoughts on Investing:

Dear Higgs,

I am going to sum up my thoughts, then I will continue on to the points: You are going about this entire thing the wrong way, and your take away points from the articles are sometimes flawed. The first piece of advice I would give is that you should know about personal finance before you look at investing. If you are not financially sound, then investing should not be a priority. Also, you are already investing via your 401(k) and the amount you have in there is quite good. You are on track for a comfortable retirement (I think).

Another thing; You are mixing a variety of ideas about investing and types of investing. Are you talking about “buy and hold” or trading? Are you talking about investing for retirement or some other timeline? Are you talking individual stocks or funds of some sort? When you say you are going to open a brokerage account, most people assume you are going to trade, or at least buy individual stocks to sell at a profit when you need to or feel that it has peaked.

Choosing the Right Broker
There is no correct choice. As long as they execute your trade quickly, it is about the other features, and of course, the cost. I believe Boson uses Etrade. There are copious amounts of reviews and comparisons out there on brokerage accounts. I am not sure why you emphasize discount, since a full service broker would just be insane.

Money in a savings account or certificate of deposit barely earns enough interest (today) to keep up with inflation.
The point of a savings account is to have a buffer and discretionary fund for unforeseen expenses and planned purchases. You will need a new car, you will have car repairs, you will get married and you will want or need things that end up costing more than you had anticipated. That is why you need more than just 2 grand in a checking account.

A while back during a conversation you mentioned an article that said that, from 1926 to 2007, stocks returned an average of 10.4% a year. This means nothing. Depending on what years you are active in the market, your return could be much less or much more. Also, it depends on when you buy and sell. If you don’t sell an individual stock at the right time, you could give up a large portion of the potential gains. That is why a managed fund is good.

I’ll let you in on a little secret about investing:  It’s not nearly as hard as you think.  However the fact that most people do it badly might lead a reasonable person to believe the opposite.

You can start investing with not much money, but do you know what kind? I’ll give you a hint: you are already doing it!

To my knowledge it is possible to open an IRA and invest in no load fund for “free.(Boson, please correct me if I am wrong.) If you do that, then investing small amounts of money is not a problem. However, if you buy 10 shares of a 10 dollar stock and pay an 8 dollar commission, you have “killed” the first 8% of the (desired) increase in value. If you sell at 15 a share, you lose 16% of your ROI. To scale up the example: if you invested 1000 dollars and made 500, then your “loss” is 1.6%.

I like the idea of being able to invest without a lot of money. Maybe you’d be better off with just ETFs . If this is what you are looking to do, then you can ignore half of my ranting and just take the advice points. However, I still think that you need a cash cushion before you start locking up your money that way. I personally would consider investing that way (and I already have a Sharebuilder account, which I would recommend). However, I should probably fund my IRA first.

Sincerely,

Astatine