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I Opened an ETRADE Account to Buy some Stocks
I opened an ETRADE account the other day with the sole purpose of buying a few individual stocks (two to be exact). Considering that I am a big advocate of index fund investing throughout this blog, I thought it might be a good idea to be transparent and mention this new account.
So you are a day trader now?
No, no, I won’t be buying and selling on an hourly basis or anything like that. In light of current economic and stock market conditions, there are a number of stocks that are trading much, much lower than they were a few months ago (well, yes, I realize that covers almost all stocks, but I do have a few particularly slammed stocks in mind). My wife and I have decided that taking a risk and purchasing some shares in the hopes of them returning to their previous values (or closer to them) would be acceptable at this time. I will buy some shares of these companies and hold them for a year or so while they (hopefully) (eventually) increase in value.
This is not our investing technique
To be clear, this is not part of my normal investing strategy. This is taking a risk with the hopes of it paying off with a big reward. To me, investing involves buying a diversified set of low-cost index funds. After you do that, then you buy more. And you don’t do anything with them other than occasionally rebalancing your portfolio. That is investing to me…this is speculating. I do own one other individual stock – that of my employer that I purchase through an employee stock purchase plan. Ok, my wife does own one share of Disney stock (a gift) and a share or so of Johnson Controls (another, somewhat stranger, gift).
This is a big risk
If you didn’t believe it before last year, you certainly realize now that investing in the stock market is inherently risky. Even my diversified index fund portfolios have shed a lot of value since the fall. And if an index fund of hundreds of stocks can drop that much, certainly individual stocks can be extremely volatile and risky. As an example, examine the plight of all the people who currently own Circuit City stock.
Minimizing the risk
The way that we have chosen to minimize the risk to our financial situation is to keep the total amount of cash invested to a very small percentage of our portfolio. I am planning on using approximately 1% of our net worth for these stocks. In that way, if either or both of these companies do realize the worst case scenario and cease to exist, we will not really notice a 1% drop in net worth (besides – it’s been dropping more than that each month since the fall!).
So, that’s our plan. We’re buying a few shares of two companies and hoping that their prices return to whence they came and we realize a significant monetary increase. I opened the account Tuesday evening and then transferred some money from my savings account into it Wednesday morning. I then clicked the button to buy some shares Wednesday afternoon. Unfortunately, ETRADE gently reminded me that I can not purchase stocks that cost less than $10 until 7 business days after opening a new account…..
so I have not actually bought any shares yet….but someday (if I can remember in seven business days from now that I started this process), I just might…
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10 Responses to “I Opened an ETRADE Account to Buy some Stocks”
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Sounds great. The key is setting a limit of $ and not transferring any more over, no matter how tempting it is.
@Christy – that sounds like very good advice. I do have a savings account with ETRADE also which makes it very easy to transfer money into the brokerage account. I will need to make sure I don’t get carried away.
How do you buy stock on E-Trade? If you open an account, what do you do?
how to become day trader…
In an nutshell, you should use technical analysis to follow the underlying trend for your stock that you are looking to trade, especially when entering. The underlying trend is the most important consideration when entering a trade at the correct time….
I have to say I’ve been thinking about doing this myself recently. There’s so much value in the market right now. Are you planning to hold the stocks for the same period of time you would with your index fund or will you be moving them on as soon as the market picks up?
Ian
.-= how to buy stocks for beginners´s last blog ..How to Buy Stocks for Beginners – Berkshire Hathaway =-.
@Ian – I am planning on holding them until they return to what I consider their “proper” value. There isn’t a really scientific method to my madness, I just look at what they tended to trade at before the craziness of last year. When they return to that value, I will consider selling them.
Thanks for the article. There are many good online brokers out there. My favorite is Tradeking.
It is important to have a disciplned risk management method in place when trading.
I’m a newbie when it comes to this stuff. Is there a book you would recommend for someone just getting started?
Great post by the way!
Thanks!
Gary -
@Gary – If you are looking for something regarding investing in individual stocks or various options strategies or what-not, unfortunately I don’t have a specific book for you. There is a wealth of tutorials and papers and other resources on various websites and that’s where I would start (ETrade.com has a bunch of them). If you want to read about general investing philosophy, I’d recommend you check out two of the books on the BFN bookshelf – start with The Bogleheads’ Guide To Investing and then read The Lazy Person’s Guide To Investing.
Thanks for the kind words and good luck!