Quote:
Originally Posted by Adesanja
I don't really have any angst about starting out, I'm just curious about the best way to get started. I know that I need to open a trading account, but I'm not really sure what the best way to do that is. I'm also curious about what kind of fees I would be charged for transactions.
I also don't really know much about compound interest, so I'm not sure how that would work in terms of my investment goals.
Thanks for your advice!
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my suggestion would be to open a Roth IRA with whoever your main bank is, whoever you do most of your banking with. In Canada we have something called a tax free savings account. everything you put in there is not subject to taxes, unlike most regular brokerage accounts. the Roth IRA should be similar, it will have limits on how much you can put in there or withdraw but everything should grow tax free in that account. open a roth IRA, put a few hundred $ in a month and invest in index funds to start. you will likely pay a small monthly fee on your account but enough trades and that fee is waived (in Canada it's 3 per quarter, so not much). transaction fees will probably be around $10 per trade, which isn't so bad, all that will be laid out for you
if your goal is to save for retirement and invest funds you don't plan on withdrawing or don't plan on withdrawing very often, then a tax free structure is best. without a lot of buying and selling you won't incur a lot of fees either. careful though, if that tax man sees you using a tax free structure as a high frequency trading account (lots of short term holding periods) they will come after you
compound interest is a term that means you're earning interest on interest, basically reinvestment of any income which will then earn more interest and the cycle continues. easiest example is if you have a 10 year bond paying 5%, each year you reinvest that 5% interest into more bonds and do that every year for 10 years. it's a similar concept with stocks and reinvestment of dividends
TLDR:
- open a roth IRA
- put a few hundred in every month, whatever you can manage
- after you've got a few hundred in there, buy some value ETFs (blackrock, ishares, something simple to start). then buy some growth ETFs as well. it's better to do one trade of $500 than 50 trades of $10 (less transaction fees most likely - I pay a flat fee per transaction, regardless of value traded, I would assume Roth is similar and you can find that out easily)
- if you're nervous about losing $ or have a shorter horizon, high dividend ETFs will be a good play
- identify your ability to take risks (financially, mathematically what can you handle - ie do you need to buy a house next year and can't afford to lose any $ at all in the short term) vs. willingness to take risk (do stocks keep you up at night even though you've got a lot of savings and can tolerate market swings). this is important to help you shape your portfolio.