Everyone has heard of the term "day trader", however few people are actually successful and make money at it. One of my friends has created a video on forex trading (foreign currency) if you would like to get into that, which can become a lucrative venture if you know what you are doing.
One word of caution though, if you do not know what you are doing, you overexpose those hard earned dollars to a days market fluctuation. Yes, you can make more money per day by day trading, but you have a much greater chance of losing every penny in a day as well because of the fluctuations in stock market investing.
If you are only concerned about safety and want the highest rate possible, check out certificate of deposit rates. My friend has created a great way to find the best FDIC insured rate.
Also,The Oracle of Omaha does a great job explaining how Warren Buffet started out investing, and it may be a helpful source.
Back to the topic: for beginners, my strategy will be the best way to invest until you get more familiar with reading trends on graphs, learning about companies and how the market influences their stock price.
Also, day trading can become costly. If you are serious about it, I would suggest an online wrap account that will give you unlimited trades for a % fee each year. Usually this fee amounts to about 1-1.5% depending on where you go. Alternatively you can sign up for an online site charging $2-$10 per trade. This will add up quickly as you will be paying fees for both buying a stock and selling a stock. Never go through a human broker to day trade as you will likely get charged 1-3% for each trade (buy and sell) placed.
Also, instead of day trading single companies, which have the added risk of business risk (assuming risk that bad news will come out and hurt their stock price, may file bankruptcy, etc.), start out with ETFs (exchange-traded funds) that track an index. For example, buy an ETF that tracks gold and day trade it on a daily basis.
Retirement accounts and why people use them
If this is your first visit, please start from the beginning.
Now before I continue, the reason why I am introducing everything with baby steps is to ease your mind into thinking about investing and how investments fit into your overall picture.
If you haven't already started a retirement plan through your employer, I would strongly advise setting one up as soon as possible. Starting the right financial planning early in life will be one of the cornerstones to your future success.
If you work for a company you should be eligible to contribute to a 401k (or 403b if you work as a teacher or other circumstances). If you are looking for tips on a 401k rollover to an IRA go here.
If you own your own business you can contribute to a Keogh or SEP plan. I'm not here to explain the differences between these and essentially they all do the same thing: save for retirement.
Now what is the main reason to save your money in one of these versus a regular savings/checking account?
Taxes.
Taxes are going to be your worst enemy when you have built up substantial wealth, and retirement plans give you the ability to avoid paying taxes on ANYTHING until you pull money out of it.
For example: Susan Goldman is 22 and she starts a 401k through her work. She contributes $200 per month and earns an average of 6% from her investments over 40 years. When she retires her retirement account is worth 1.2 Million and she has not paid one dime of that money to the IRS.
Now if Susan started contributing to a savings account and bought the same investments inside of that, she would be paying taxes every year on dividends, gains, and interest from the account. However, since it is in a retirement account, all of that is protected.
Also, all of Susan's contributions to the 401k are tax deductible meaning any money she puts into the 401k comes off of her taxes.
Example: If she makes $70k and puts away $5k each year it is the same as if she is making $65k, therefore she only pays taxes on that amount.
There are a couple downsides to retirement plans.
1.) You cannot pull money out of them until you are 59 1/2 or you will get hit with a 10% tax penalty that you do not get back (certain exclusions to this).
2.) Different retirement plans have different contribution limits ($16,500 for 401k or $5,000 for an IRA if under 50).
ROTH IRA
This is one thing you important retirement plan you will want to take advantage of that does have distinct differences over the others.
A ROTH plan works like this. Anything you contribute, you will have already paid taxes on. So, you do not get the tax benefit of what you contribute coming off of your income (not tax deductible). However, the money will grow tax sheltered. So, you will still not be paying capital gains, dividends, or interest on any money while it grows.
Now the reason why anyone would invest in a ROTH plan is because anything you pull out of the plan is tax free after holding it for five years and being over 59 1/2.
Example: Susan Goldman decides to invest part of her income in a ROTH 401k at work as well as the regular 401k. Instead of putting the full $5,000 in the regular 401k she splits it up evenly, $2,500 in one, $2,500 in the other. Now, her taxable income looks like this: $70k - $2.5k (contribution to regular 401k) = $67.5k. The other $2,500 she put in the ROTH account doesn't give her the inital benefit.
40 years later her 401k grows to $600k and her ROTH 401k grows to $550k. She is retired now and will start withdrawing money as needed for income. As she takes money out of her 401k she will be taxed on it, however all of the money she takes from her ROTH will be tax free.
Now, Susan will be able to use BOTH accounts to her advantage because she can make withdrawals from her regular 401k up to a certain point, and then take the rest from her ROTH 401k so that she will not be bumped up into the next tax bracket. It's a great way for Susan to manage the amount of taxes she is paying each year and is a fantastic strategy for any investor.
Back: Saving for retirement
Next: Understanding how investments play a key role
Stock Market Investing for Beginners
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Now before I continue, the reason why I am introducing everything with baby steps is to ease your mind into thinking about investing and how investments fit into your overall picture.
If you haven't already started a retirement plan through your employer, I would strongly advise setting one up as soon as possible. Starting the right financial planning early in life will be one of the cornerstones to your future success.
If you work for a company you should be eligible to contribute to a 401k (or 403b if you work as a teacher or other circumstances). If you are looking for tips on a 401k rollover to an IRA go here.
If you own your own business you can contribute to a Keogh or SEP plan. I'm not here to explain the differences between these and essentially they all do the same thing: save for retirement.
Now what is the main reason to save your money in one of these versus a regular savings/checking account?
Taxes.
Taxes are going to be your worst enemy when you have built up substantial wealth, and retirement plans give you the ability to avoid paying taxes on ANYTHING until you pull money out of it.
For example: Susan Goldman is 22 and she starts a 401k through her work. She contributes $200 per month and earns an average of 6% from her investments over 40 years. When she retires her retirement account is worth 1.2 Million and she has not paid one dime of that money to the IRS.
Now if Susan started contributing to a savings account and bought the same investments inside of that, she would be paying taxes every year on dividends, gains, and interest from the account. However, since it is in a retirement account, all of that is protected.
Also, all of Susan's contributions to the 401k are tax deductible meaning any money she puts into the 401k comes off of her taxes.
Example: If she makes $70k and puts away $5k each year it is the same as if she is making $65k, therefore she only pays taxes on that amount.
There are a couple downsides to retirement plans.
1.) You cannot pull money out of them until you are 59 1/2 or you will get hit with a 10% tax penalty that you do not get back (certain exclusions to this).
2.) Different retirement plans have different contribution limits ($16,500 for 401k or $5,000 for an IRA if under 50).
ROTH IRA
This is one thing you important retirement plan you will want to take advantage of that does have distinct differences over the others.
A ROTH plan works like this. Anything you contribute, you will have already paid taxes on. So, you do not get the tax benefit of what you contribute coming off of your income (not tax deductible). However, the money will grow tax sheltered. So, you will still not be paying capital gains, dividends, or interest on any money while it grows.
Now the reason why anyone would invest in a ROTH plan is because anything you pull out of the plan is tax free after holding it for five years and being over 59 1/2.
Example: Susan Goldman decides to invest part of her income in a ROTH 401k at work as well as the regular 401k. Instead of putting the full $5,000 in the regular 401k she splits it up evenly, $2,500 in one, $2,500 in the other. Now, her taxable income looks like this: $70k - $2.5k (contribution to regular 401k) = $67.5k. The other $2,500 she put in the ROTH account doesn't give her the inital benefit.
40 years later her 401k grows to $600k and her ROTH 401k grows to $550k. She is retired now and will start withdrawing money as needed for income. As she takes money out of her 401k she will be taxed on it, however all of the money she takes from her ROTH will be tax free.
Now, Susan will be able to use BOTH accounts to her advantage because she can make withdrawals from her regular 401k up to a certain point, and then take the rest from her ROTH 401k so that she will not be bumped up into the next tax bracket. It's a great way for Susan to manage the amount of taxes she is paying each year and is a fantastic strategy for any investor.
Back: Saving for retirement
Next: Understanding how investments play a key role
Stock Market Investing for Beginners
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