Don’t Borrow Money to Buy Stock Online

You Need a Level Playing Field

Investing is more sophisticated these days, but this adage still holds true: don't borrow money to play the market! (Photo: flickr.com)

Traditionally, buying stocks through a broker meant pinching and saving your pennies for many years before being able to invest in the stock market. If you did not have the money to get started and you wanted to get started quickly, you needed to borrow money, or even buy stocks on credit. This is better known as “buying on the margin.” With the ease and convenience of the World Wide Web, however, the playing field has been leveled, allowing most anyone to enter the stock market with less money than before. However, in order to avoid losing your shirt, you need to have a basic knowledge of investing before attempting to invest online. Here are some tips:

Buy Direct

There is one method of investing that is not talked about or marketed much because it does not earn money for brokerages, which is buying stock directly through the company itself, or through a stock management site such as ComputerShare.com. Many large companies allow this, and the cost of entrance is quite a bit lower than if you were to start investing with a broker—online or offline. In fact, you can get started with as little as $250, and with minimal ongoing investments of $25 per month. Investing this way will help you avoid the traditional fees and commissions that are normally associated with using a brokerage, and will allow you to keep more of your money. If you are just getting started with investing, this may be the way to do it. Please, learn about investing before you go this route.

Brokers Can Help

As with anything you choose to do in life, if you do not understand how to do it, you will need assistance with the activity. Simply put, if you do not know how to invest properly, then you will need to find a reputable and honest broker to assist you. I say reputable and honest because there are brokers out there who will not have your best interests at heart and will leave with no money or assets to live on. They mostly have their own interests in mind when they push you to invest in something you do not understand. Keep in mind that, according to the Securities Exchange Commission (SEC), brokers are not allowed to sell you any investment or product that you cannot reasonably afford.

You will need to borrow money just to survive if you find a broker who cheats you out of your hard earned cash. So it is imperative that you interview each one thoroughly before you hire a broker to handle your money. Also, many brokerages are going online, with many available that are claiming to be better than any other company. Research as many as you can before choosing.

Watch the Fees!

Know the fees that are associated with your account, as many times, brokers do not want to discuss them with you. They also may not know some of the fees, because they are told what to tell you. Only those involved with setting up the products will know all the fees. Don’t assume that the fees that you are originally quoted will actually stay the same. One online brokerage states in their fine print, “We reserve the right to add, remove or change brokerage charges as deemed necessary.” According to the SEC, if fees are changed, you are entitled to know about them at least 30 days in advance. But keep track of the charges assessed anyhow, or you will be losing more of your money than you realize.

Do Your Homework

The best protection against the need to borrow more and more money to invest is to do complete and thorough research on any company or brokerage. Learn how to read a prospectus, including the jargon that may confuse you. If you are unsure of what a certain term means, Investopedia.com has a complete glossary as well as several beginner investing articles to assist you.

You must also learn what the difference is between the market value of the share price and the actual value. These are not the same, as the market value is always based on the emotions of investors, while the actual share value is based on the company itself, or rather the price-to-earnings ratio. In simple terms, the more income the company earns, the higher the price per share will be.

Everyone needs to borrow money occasionally, but when it comes to investing online, the less money you borrow, the more money you can make.

Borrow Money HERE!