Knowledge Barrel: Where/How to Start Investing? Part 1

Where/How to Start Investing? Part 1

I have found that there are 3 great trading platforms that are perfect for the individuals that are looking to to investing but don't know where to start. I find that most people say they don't have enough money to start investing or they don't have enough time to research stocks. These are all easily overcome by the 3 trading platforms that I will discuss in a series of posts. Disclaimer, I use all 3 of these platforms and so should you. Enjoy.

Let's start by addressing the most common reason people don't start investing: 

"I don't have enough money".

The following app, Robinhood is perfect at addressing this problem:

Robinhood is an app that allows you to trade stocks with no commission fee. Robinhood has no minimum balance and links directly to your checking account which makes it easy to add money to your Robinhood portfolio and to deposit profits from Robinhood into your checking account. 

Must trading platforms like Scottrade charge you $7.00 per trades. That is, $7.00 when you buy a stock and another $7.00 when you sell a stock. This creates a problem for new investors or investors with low capital. Lets say you only want to invest $100, you buy stock XY for $100 a share. Your return is immediately (-7.00%). Therefore, the stock price will need to increase by (7.00%) just to break-even on your holding. However, the goal in investing is to make money. Since you are charged an additional fee of $7.00 to sell a stock, you will ultimately needs the stock price to increase by (14.00%) just to break-even. 

Robinhood eliminates this problem by allowing you to trade stocks with no commission fee. You can buy and sell stocks and pay no fees. This is where it solves the "I don't have enough money" problem. To overcome the commission fee "problem" you need to invest a lot of money. For example:

• Share price of stock XY is $100 and you buy 1 share with a $7.00 fee. Your initial loss is (-7.00%) and when combined with sell fee, the total percent to overcome is (-14.00%).
• Share price of stock XY is $100 and you buy 10 shares with a $7.00 fee. Your initial loss is (-0.70%) and when combined with sell fee, the total percent to overcome is (-1.40%).

The biggest advantage to Robinhood is that it allows you to start small. And its this idea that so many people either overlook or are unaware of. There are TONS of great stocks that have have prices below $20.00 and plenty more under $10.00 a share. Lets say you invest $10.00 a week, by the end of the year you will have $520 invested and with an average return of (8.00%) you will earn +$41.60 and will have a final balance of $561.60 for the year.