THE BASICS OF INVESTING WITH RYAN JAMES: HOW TO INVEST

By Ryan James

Investing is like coding—it doesn’t matter how well you’ve learned to do it if you lack a medium. In the instance of coding, this would be an application such as Notepad ++ or Visual Studio Code, whereas investing occurs on electronic trading platforms, otherwise known as brokerages or online brokers. Some prime examples are E-Trade, TD Ameritrade, Fidelity, and Merrill Edge. Before you can start investing, you need to create an account for one of these services or one like them.

“Your job as a smart investor is to separate the facts and the news from the fiction and the noise.” — Chamath Palihapitiya

What Kind of Investor Are You?

There are many different types of investors. The usual characterizations that differentiate them are the holding period, but there are other factors.

Day traders buy a wide variety of stocks throughout a trading day (weekdays, 9:30 am – 4:00 pm) and sell every share before the closing bell. It is an exceedingly risky practice because losses occur commonly, and gains are minute. Taxes are also very high for short-term trades.

Swing traders gradually buy and hold stocks for the long term. Long-term trading entails buying and holding stocks for at least a year. It is less risky than day trading because gains increase, losses are less prevalent, and taxes are far lower. This methodology allows traders to do more research and invest in higher-quality securities with better future growth prospects.

Short sellers bet against stocks. These investors pick stocks they think will fail or decline in value. For example, GameStop (NYSE: GME); hedge funds bet against this stock because of its failing business model and obsolete nature until retail investors artificially surged the stock’s price. This practice is risky. It is the most like gambling; few profit, and many lose. The overall market typically increases in the sense of intrinsic value; additionally, negative growth is less predictable than that of neutral, positive, slowed, or increased growth.

Retail investors are dilettantish and trade individually.

Institutional investors manage the wealth of themselves or their clients. They are usually hedge funds, investment banking companies, banks, or otherwise large establishments. BlackRock, Vanguard, and BNY Mellon are notable examples.

Some other investors will hold stocks short-term but for more than one trading day. This holding period typically lasts a few weeks or months. But some investors will sell when they have reached a certain point of gain or to minimize losses. Many investors are a combination of multiple of these.

Which Platform is Right for You?

Different brokerages are better for different types of investors. They offer varying tools and resources to their clients. Many come without cost and allow for individualism; however, others charge a premium or commissions for usage.

E*TRADE, a subsidiary of Morgan Stanley, gives beginning investors the tools needed to flexibly trade independently and without commissions. There is no account minimum to begin trading. It is primarily an app but also available in the form of a desktop website. Both have an intuitive design with additional simplicity and ease of use. The app includes user-friendly research tools and trading resources. Although, a con is that the app can be somewhat challenging to navigate at times. E*TRADE has for some time been one of the most mainstream online brokerages. The zero dollar commissions and commendable trading platform appeal to heavily active investors. Contrarily, novice traders profit from an extensive library of instructional resources. E*TRADE Pro, a premium app for frequent traders, offers astounding graphing devices and constant real-time streaming. A paper trading option allows clients to practice trading without the risks associated with using real currency to invest. The company’s website states, “Invest. Save. Borrow. Plan for retirement. You can do it all at E*TRADE.” Click here to sign up for an account.

TD Ameritrade, a subsidiary of Charles Schwab, is an exceptional tool for beginners to produce a portfolio for the long or short-term. It is an exemplar of educational resources, navigation tools, and research options. Although it mainly targets the novice investor, it is superb for individuals of all experience and skill levels. The platform provides insight into clients’ portfolios and individual stocks, as well as the overall market. A minor con to this platform is the report of numerous outages. The website mentions, “Our desktop, web, and mobile platforms are designed for performance and built for all levels of investors.” Click here to sign up for an account.

Fidelity Investments offers users a well-rounded package of tools and resources and outstanding order executions. The service is continually evolving; it upgrades and updates itself often. It is yet another program without commissions. It has high-quality research and education tools. It allows clients to earn interest on uninvested funds via a money market fund. It is fantastic for both day and swing trading, but, to view incoming data, clients must refresh the page. Commonly used for retirement savings, Fidelity offers a wide array of accounts, such as 401(K)s and Roth IRAs. The news feed is customizable, allowing users to view more articles related to their holdings.

This broker is convenient for Bank of America clients, as that is the parent company. It is phenomenal for beginners but still exceptional for others. The service is a paragon of customer service. The research tools are exemplary, including data from outside resources such as Morningstar, CFRA, and S&P Global. Refreshing is required to view current information. It is better for larger investments than smaller ones. Its primary focus is the connection of banking and investing, allowing BofA’s clientele to have an integrated investing tool alongside their banking.

Why Does the Broker I Choose Matter?

Each broker has different benefits and drawbacks, expenses or a lack thereof. Your chosen medium will allow you to capitalize on your investments if chosen well and meticulously. If not, then your understanding and, in turn, investments will suffer.

Stock Exchanges

A stock exchange, or a stock market, is a place where stocks are located and traded. The most notable American markets are the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations (NASDAQ), both located in Manhattan, New York.

New York Stock Exchange
With approximately 2,400 listings, the NYSE is the largest exchange in terms of total market cap. It is home to many of the world’s largest public companies. Founded on March 8, 1817, this exchange is colloquially known as “Wall Street.”

NASDAQ
Ranked as second in total market cap, the NASDAQ has about 8,100 listings. It is a tech-heavy market, founded in 1971. Nasdaq, Inc. owns this exchange.

International Markets
The Tokyo (Japan), London (England), Euronext (European Union), Singapore (Singapore), Sydney (Australia), Shanghai (China), and Toronto (Canada) Stock Exchanges are some of the largest international markets. Most public corporations from these countries trade here, but some foreign companies, for example Alibaba (NYSE: BABA), are traded on other markets. These markets use their countries’ national currency.

Summary and Bottom Line

We discussed online brokerages and their importance. Also mentioned were different types of traders and their significance, how to invest, and stock exchanges. These are tenets for the foundation of investing. The next issue will focus on the topic of indexes and the different types of securities.

Disclosure: all statements and opinions expressed in this article are my objective and my own. I am not a financial advisor. I do not recommend the trade of any particular stocks or services. I acknowledge the risks of investing.