At this point I still consider myself a neophyte in the investing game, but I have already learned a lot — sadly, some of it has been by trial and error.

I got into investing by opening a Roth IRA at E*Trade. I knew little or nothing about investing when I did this. I actually had no idea that I had to deliberately invest my own money to make an IRA work. I opened an account, funded it, and let the money sit there; then I checked back months later and was totally confused when my balance was exactly the same. I thought it was like my work 401(k) account where someone took my money and did some Wall Street magic to make it turn into more money. Then it dawned on me I would actually have to trade securities in order for my IRA to yield more than a savings account.

So, I started investing in mutual funds. I think mutual funds are a great way to get started for new investors. For those who don’t know, mutual funds are like a “basket” of stocks/bonds/whatever. At E*Trade (and I presume other brokers) there is a selection available that have no fees to trade, the only catch being you have to hold them for 90 days or something like that, which is fine because the best way to get above-average returns is to buy and hold for the long haul (but that’s a topic for another blog post) instead of trying to constantly trade. You also don’t have to buy shares in whole increments; you can choose a dollar value that you want to invest in the fund. Some mutual funds have minimum amounts you have to invest to buy-in, but E*Trade offers many that don’t. So, the advantage for new investors is that there is literally no minimum amount you need to invest, you can instantly diversify your portfolio (another important topic for another day) by picking a few mutual funds that have a variety of assets in their “basket”, and you can avoid fees that eat into your gains.

Continue reading →