Buy stocks 101, Help

How large is your emergency fund?

Unless you're willing to make researching stocks at least a part-time, if not a full-time, job, then I'd highly encourage you to skip buying individual stocks and, instead, look to buying index funds or their cousin ETFs. Buying individual stocks without the necessary understanding and knowledge is not investing, but, rather, gambling.

Quote from Brian1 : Unless you're willing to make researching stocks at least a part-time, if not a full-time, job, then I'd highly encourage you to skip buying individual stocks and, instead, look to buying index funds or their cousin ETFs. Buying individual stocks without the necessary understanding and knowledge is not investing, but, rather, gambling.

I agree, I would add mutual funds as well.

Education here is the #1 priority. Learn what these different trading options are. Learn how to evaluate a company, Learn about risk, so much to learn about. The average investor can not year over year beat the market, especially picking individual stocks. He/She might go up and get a few dollars here, but tends to loose more than he makes, especially when you factor in time.

I would also suggest you look at things like a IRA (Roth IRA if it fits your case) and 401k's (possibly through your employer to get a match if they do that, its free money). These have positive tax benefits for most people. In some of these you can do basic trading inside of them too.

Options are a more advanced form of investing. You can use options to supplement your income, de-risk your stocks, or speculate. If you think investing in stocks is like a casino, well options are the the world series of poker.

Margin allows you to extend your money, paying interest to the broker of course. Example, you have $10,000 in your stock account, your broker will allow you to spend $15,000, given you pay them the interest rate on the $5,000 you are borrowing.

Quote from vaultaddict : How large is your emergency fund?

All of my salary goes to emergency fund (Saving account) for now but I don't think I need money in emergency in the foreseeable future (No rent, No loan).

Quote from Brian1 : Unless you're willing to make researching stocks at least a part-time, if not a full-time, job, then I'd highly encourage you to skip buying individual stocks and, instead, look to buying index funds or their cousin ETFs. Buying individual stocks without the necessary understanding and knowledge is not investing, but, rather, gambling.

Quote from LiquidRetro : I agree, I would add mutual funds as well. Education here is the #1 priority. Learn what these different trading options are. Learn how to evaluate a company, Learn about risk, so much to learn about. The average investor can not year over year beat the market, especially picking individual stocks. He/She might go up and get a few dollars here, but tends to loose more than he makes, especially when you factor in time. I would also suggest you look at things like a IRA (Roth IRA if it fits your case) and 401k's (possibly through your employer to get a match if they do that, its free money). These have positive tax benefits for most people. In some of these you can do basic trading inside of them too.

Quote from ihazaname : Options are a more advanced form of investing. You can use options to supplement your income, de-risk your stocks, or speculate. If you think investing in stocks is like a casino, well options are the the world series of poker. Margin allows you to extend your money, paying interest to the broker of course. Example, you have $10,000 in your stock account, your broker will allow you to spend $15,000, given you pay them the interest rate on the $5,000 you are borrowing.

I think options and margin are too risky for me. Mutual Fund is a good option.

I am looking for a long term investment, so my plan was putting partial salary into stocks each month, but now it seems mutual fund is a better option.

If I choose to invest on mutual fund, where do I start?

If I choose to invest on stocks, is it too risky? In my understanding, investing stocks on a solid company is safe. Even though I may lose money in the short term, but in the long run, the company grows and stocks rises, which is what I am looking for ( 2-5 years investment)

Quote from xxalanxx : I think options and margin are too risky for me.

When used correctly, options actually helps hedge, reducing risks in stock.

Quote : Mutual Fund is a good option.

If you're one of those people that aren't going to do the research, then yes its a good option.

Quote : I am looking for a long term investment, so my plan was putting partial salary into stocks each month, but now it seems mutual fund is a better option.

I would start with a retirement account such as a Roth IRA and maybe 401k from employer. If they have matching, go with that first.

Quote : If I choose to invest on mutual fund, where do I start?

Research to see how they perform against the S&P 500 (the market) over a long period of time 10+ year. Pay attention to see how they did around 2008 - 2010. This will give you an idea of how much risk they took and how aggressive of a hedge they have.

Quote : If I choose to invest on stocks, is it too risky? In my understanding, investing stocks on a solid company is safe.

Every company has risks, both big or small. See Bank of America, AIG, GM, and Freddie Mac in the financial crisis. Everyone thought these were safe companies.

Quote : Even though I may lose money in the short term, but in the long run, the company grows and stocks rises, which is what I am looking for ( 2-5 years investment)

You make it sound so simple.

Quote from xxalanxx : If I choose to invest on mutual fund, where do I start?

Here's what I would do if I were you. I'd open a Roth IRA with Vanguard [vanguard.com] and I'd fill that Roth IRA with their target retirement fund [vanguard.com] that is appropriate for your retirement goal. In the meantime, if I wanted to, I'd learn more about investing by taking the free online investment courses offered by the LA Times [latimes.com]. Once I gained more understanding and knowledge I'd consider picking the individual index funds, ETFS, and bond funds to fill my Roth IRA with rather than going with the target retirement fund.

I'm not saying a target retirement fund is not as good as choosing your own index funds, ETFs, and bond funds. Quite the contrary. It's just a matter of personal preference as to how involved you want to be in choosing what you're invested in.

A target retirement is a single fund that you can put all of your money into that will take that money and invest it in a very diversified way. Over time it automatically adjusts and becomes more and more conservative as you approach your retirement age goal. You should first determine how many more years it will be before you plan to retire. Then, you can pick the target retirement fund that most closely matches that date. They are usually broken down into 5 year increments (Target Retirement Fund 2030, Target Retirement Fund 2035, Target Retirement Fund 2040, etc.).

Quote from xxalanxx : If I choose to invest on mutual fund, where do I start?

Annual fund guides are put out by Money, Kiplinger's, and Forbes, and Morningstar is available online, but if you don't want to pay for its premium features, such as the analyst reports, many local libraries will let you access them free, even from your computer.

I like the Forbes guide because it tells readers to emphasize asset allocation, costs, and volatility (risk) ahead of performance, and it's about the only guide that readily admits it can't pick tomorrow's superior performers. But whatever guides you use, it wouldn't hurt to check old issues from 5-10 years ago, to see how the top picks have done since. Generally, they do average, which is to be expected. IOW don't put too much effort into finding the very best funds because it can't be done.

If you use fund screens, you can weed out 80% of the funds quickly by eliminating anything that charges a sales load, has an expense ratio over 1.0% for stocks or 0.5% for bonds, hasn't been in business for at least 5-10 years, isn't diversified (by industry or country), has been riskier than average for its catagory, or has the very worst ratings (Morningstar's stars aren't good predictors, except for 1-star funds, which tend to remain lousy forever; don't be bothered much by a 2-star rating or impressed by a 5-star rating). Past performance isn't a very good predictor of future results, but I wouldn't completely ignore them. Look at annual results compared to relevant market indexes and peer funds, not just averages over longer periods because a single great year can more than make up for subpar performance in every other year. Also be careful about funds that did well because of a big bet on a single sector. Then there are funds that were the best in their catagory simply because they weren't put in the right catagory, like a balanced fund (bonds + stocks) with a highly aggressive stock portfolio.

Once you've picked some funds, try to explain why each is better than its comparable index, and if you can't come up with good reasons (superior returns is not a good reason), then it's probably better to pick the index fund.

It's probably better to pick index funds rather than other kinds of funds. Here are some reasons: Larry Swedroe columns [cbsnews.com]

OP does your employer offer a 401k plan? If so are you contributing? If they match a certain percentage, that's free and guaranteed money.