Friday, April 27, 2007

Why I do NOT play with stocks

There's absolutely nothing wrong with investing in the stock market. I just don't believe it is within the range or ability of the average middle class American. Just purchasing stock can be a confusing and expensive proposition for anyone starting out. Online trading is the new fad in the market, with brokers popping up all over the net and offering a variety of services and packages.

I like Vanguard myself, because of their low fees and ease of use. Now granted I've not actually purchased stock through Vanguard, so I can't attest to their customer service or reliability, but after reviewing some 5 other online possibilities they came out on top.

However I suspect that most of the people making money in this game are the people working for Vanguard.

First you have trading fees, then account fees, perhaps setup fees, minimal balance fees, minimal trading fees...the list goes on, and that's just to buy a stock! Have $500 that you'd like to invest in a company and let the stock sit and ride the waves of the market? Not likely. Your entire investment will probably be eaten up by fees, fees that increase as a percentage of your total principle should the market temporarily fall. Most of these stock brokers collect their fees by...yep, selling your stock. Imagine buying 50 $1 shares of ABC, Co. and during a month that the stock has dipped to $0.50/share, your online service decides to sell $10 worth of shares. You can see how that would kill your long-term return.

Of course, making any good decision in the stock market requires a good understanding of the economy and the particular market you are investing in. The one-month game we played in elementary school social sciences class where we picked a stock and tracked it for a week to learn how stocks work didn't exactly prepare me. Besides, my stock value had risen by $25 and I wanted to sell but my teacher wouldn't let me. Not a good enough return, he said. $25 on a $100 investment in a couple of weeks? It sounded good to a 9 year old, but what do I know. I should have threatened to pull my money out and go with Mrs. Tucker down the hall.

So the short answer is that I don't have a full work week to dedicate myself to tracking my stocks and predicting the market. By the time a stock tip shows up on CNN the train has already left the station. How am I supposed to work with that?

I'll stick to professionally managed, diversified funds.

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