Money Matters

Investing – Getting Started

January 2021

Are you new to the world of investing? Not sure if investing is for you? Not sure what questions to ask?

Welcome to the Investors’ Column; it is intended for you. Get to know the basics – how to get started, and how to make money to supplement a steady paycheck.

Investing is a way for you to make money by getting involved in the country’s economy, and helping it grow. Investing is a way for you to help build a better world.

Investing is basically the buying and selling – “trading” – of “shares” of “stock”. When you buy stock, you become an owner of the company which sold the stock. You are saying, in effect, “I think your company will make a profit. So I am buying stock – giving you money – in the hope that I can eventually sell my shares of stock for more than I paid.”

If a company sells 1,000,000 shares of stock, and you own 100 of those shares, then you own 100/1,000,000th of that company. That may not sound like much, but it can ultimately mean quite a lot of money coming your way. You get money if you sell your stock, and you get money if the company pays a dividend – cash money –to the owner of each share of stock. Most companies pay four dividends per year.

How Do I Buy and Sell Stock?

All stock is bought and sold through a “stock broker”. You set up an account with a stock brokerage company, deposit money into it, and, either by phone call or through an “app” on your cell phone, tablet, or PC, you request that they purchase (or sell) stock; you tell them the name (or “stock trading symbol”) of the company, and how much money you want to pay. The broker completes the sale – and just like that, you are part-owner of that company!

Stock brokerage companies generally come in two flavors: full-service, and discount. The fees are higher at a full-service broker, but they will discuss your investments, financial goals, and make recommendations. Edward Jones is a good full-service example, and has a number of offices in the Golden Strip.

The fees at discount brokers are minimal – for trading stock, often no fee at all – but they expect you to be more independent. Charles Schwab is a good discount-broker example. Since there is a local office in downtown Greenville; if you have a large check you would rather not send through the mail, you can go there in person. Schwab also has financial analysts available to help you with any questions you have.

Whether you pick full-service or discount, however, both offer in-depth financial reports on companies, which you can request at any time. Visit the broker of your choice, and open an account; a deposit of $5,000 would be great, $1,000 would be nice, but most of us started off with only $100, and then added more as we could afford it. Get started!

401k and IRA Accounts

Most companies have a 401k program. If your employer does not, set up an IRA account, which is essentially the same, through your broker.

Essentially, you agree to deposit a certain percentage of each paycheck into your 401k account. This is “pre-tax” money – money for which the IRS has not taken any tax. Money put into a 401k is intended to be kept there until you retire – after you pass 59 ½.

Companies with a 401k program match your contributions to some degree. Typically they will match 100%, 50%, or 25% of the amount you contribute, up to 6% of your pay. This is free money; don’t miss out! Take it! Do so by agreeing to deposit the amount they will match – usually, 6%.

When you are young and just starting out, “losing” 6% of each paycheck sounds like a lot of money; it is not. Make it work. The company matches contributions because a 401k is excellent preparation for your retirement – if you start now. Your contributions need years to grow large enough to provide a comfortable retirement for you.

You can deposit up to 15% of your paycheck into a 401k (or IRA). Go beyond 6% as quickly as you can. Whenever you get a raise, increase the percentage. Whenever you pay off a loan, increase the percentage. Retirement may seem a long way away, but all of a sudden one day you realize it is creeping up on you much too quickly. Decades of contributions at 10-15% will really pay off.

Next Month:
Deciding what stocks to buy!

Scott Crosby

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