The New Investor: Brokers, Online Trading and Markets
Week 2 of the 52 week series: The Stock Market Unpacked
My Current Stock Standing: (36.2)%
The first step into my stock market journey was to attempt to gather more information from someone who knew what they were talking about. I Googled ‘Stock Broker’ for my area and got a ton of results, most of which were financial planning companies, banks and individual brokers. I decided I wanted to go with an individual broker because there was this idea in my head that I would get more guidance from someone who got paid solely based on stock performance. I called a woman who marketed herself as someone who specialized in getting women and families back on financial track, which strongly resonated with me.
The first few moments of our conversation revealed that the interview was just as much for the broker’s sake, as my own. She informed me that the broker also decides whether or not to take on the client, based on what their income will look like off of the 1% that they take off the top of your profits. Looking at my measly $1000 I had to invest, I can’t imagine she was too excited to take me on as a client for the $10 she would make for every $1000 of profit I incurred, which she earned only if I hit the jackpot at 100% return. Suddenly the role of the banks in financial planning was very clear to me.
I still wanted more direct experience with the stock market, so I invested more time in researching my options. I found that one of the most popular methods of investing in the stock market these days, when you don’t have enough money to warrant your own professional broker, is through an online brokerage. This allows you to take full control of your portfolio through online trading and account views. I found an article on the best online brokerages in Canada, and because the article seemed pretty unbiased and not based on marketing tactics, I followed their advice and picked Q-trade for my first venture.
I was not disappointed. I found Q-trade Investor relatively easy to use and it has tons of educational resources, as well as a $25 bonus if you open an account with a $1000 or more. Do they also offer a bonus for referrals and who doesn’t like free money? They offer guidance based on your experience level, which I found very helpful, and the site was easy to navigate for a ‘novice’ as I determined myself to be based on their definitions. I could easily research all the different stocks I was interested in, as well as receive alerts for any news that was related either my stock choices or stocks that were on my ‘watchlist’. They also had an app that I downloaded so that I could check my stocks obsessively while I was learning the general patterns of the market.
So I was away to the races. I added $1000 to my account and started to research some of my options in the Canadian market, which is more commonly known as the TSX. The New York Stock Exchange (NYSE) is the most popular market, and there are many more world markets, each with their own regulations for the public companies that are listed.
One of the first things that I learned was that there was something called an “Index” of the markets, which is a grouping of some of the most established companies listed on each exchange. For example the Nasdaq and the Dow are Indexes of the NYSE and the S&P is a popular index listed on both Canadian and U.S. Markets. These indexes offer a generalization of how the markets are doing, based on the performance of the top groupings of companies.
Mutual Funds and Exchange Traded Funds are popular, low-risk investment options that invest in these ‘indexes’ or groups of companies: Mutual funds are long term investments that are not meant to be traded regularly, and ETF’s are based on the same groups of companies listed in the index, but trade like a common stock.
Because I am more interested in learning about individual stocks, I won’t be getting into more details about indexes, ETF’s and Mutual funds but there is a good article titled ‘What is a Mutual Fund’ that was published by The Street that offers a more detailed explanation of the above options for investing.
So now it was time to choose which stocks I wanted to explore. During my conversation with the individual broker, she offered me a tidbit of advice — Marijuana stocks were not determined to be a good investment. If so many people were raving about these stocks, why was this a bad choice? She left me without any answers to this so I decided to look at the actual TSX and some of these companies to see if I could find my own answers.
I quickly realized that there are more mountains to climb in this journey than just one….
The New Investor Series
Week 2: Current Article
Week 3 topic: Stock Prices are not fixed — Highs, Lows and Market Value