Which online trading service would you recommend?

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darthvader747
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Which online trading service would you recommend?

Post by darthvader747 » Wed May 16, 2012 10:23 pm

I only plan to buy a few stocks every month. My main investments are through mutual funds.
Planning to buy a few google & apple stocks to get started. I may buy more as I start to feel more confident.
A friend of mine recommended Scottrade. He is no financial expert though.

Thoughts?

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CABob
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Re: Which online trading service would you recommend?

Post by CABob » Wed May 16, 2012 10:51 pm

I have had a Scottrade account for a number of years and have been satisfied with them.
Where are your mutual funds held? Do they have brokerage service? What are you looking for in a brokerage?
A few stocks every month? That sounds like a lot of trades over the year.
Bob

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nisiprius
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Re: Which online trading service would you recommend?

Post by nisiprius » Thu May 17, 2012 6:41 am

For the sort of pattern you suggest, any brokerage should be fine. Kiplinger has an article on Best of the Online Brokerages for 2011.

Since you say "my main investments are through mutual funds," I would look for a brokerage based on good handling of the specific family of mutual funds you plan to emphasize. That is, I would look at mutual fund companies that also offer brokerage services (or brokerages that run their own mutual funds). The reason is that mutual fund company X invariably (as far as I know) offer significant convenience and cost benefits to investors who hold the funds directly with the company or at the company's brokerage.

In brief, and in randomized order, Schwab, Fidelity, Vanguard. There are others but I don't know them--I think TIAA-CREF offers brokerage services now, for example.

Each of these firms offer an extensive line of their own mutual funds, both actively managed and low-cost index funds. Pick a fund family that you are happy with for the core of your portfolio. All of these firms can sell you practically any mutual fund, and typically have no transaction fee for smaller fund companies that have cut deals with them. All of them will sell you their competitor's core funds but with a more-than-annoying-sized transaction fee. And all of them are perfectly good for buying fifty shares of Apple or selling twenty shares of Monsanto or what have you.

In other words, yes, I believe you should choose a firm that makes it easy, convenient, and cheap to buy index funds, and that's better done at a company that offers the funds as well as the brokerage services, rather than at a pure brokerage like ScottTrade.
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Re: Which online trading service would you recommend?

Post by livesoft » Thu May 17, 2012 6:50 am

Smartmoney has their 2012 issue of online broker reviews. Vanguard Brokerage Services is not even listed. WellsTrade was rated the worst.
http://www.smartmoney.com/invest/market ... vey-23119/ You know something is wrong with these ratings when WellsTrade has the worst rating for commissions&fees, when commissions & fees are $0.00 under the conditions in the footnote in the table ($50,000 account. 5 trades a month).

And if speed of execution is important to you, please note:
Of course, the most important part of the online brokerage experience is placing a trade. In our survey, which used data from independent website tester Gomez, Fidelity was the fastest brokerage at trade execution, clocking in at less than four seconds per trade. The two slowest brokers of the bunch -- WellsTrade (14.5 seconds) and Merrill Edge (16 seconds) -- took almost twice as long as the industry average.


I suspect that the order of rankings is directly proportional to the amount of ad revenue received by SmartMoney from the named brokers.

For folks who want free trades, need no research, need no trading tools, and need no customer service, then WellsTrade is the way to go. :)
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Taylor Larimore
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Individual stocks?

Post by Taylor Larimore » Thu May 17, 2012 7:03 am

darthvader747 wrote:I only plan to buy a few stocks every month. My main investments are through mutual funds.
Planning to buy a few google & apple stocks to get started. I may buy more as I start to feel more confident.
A friend of mine recommended Scottrade. He is no financial expert though.

Thoughts?


darthvader:

My "Thoughts" are that you are probably making a mistake investing in stocks. It is the way I started investing until I learned that a professional mutual fund manager can pick stocks much better than I can. Later I learned that index funds beat most mutual fund managers.

Eric Tyson, author of Mutual Funds for Dummies put it this way:

The notion that most average people and non-investment professionals can, with minimal effort, beat the best full-time experienced money manager is, how should I say, ludicrous and absurd.


Jack Bogle wrote:
Are you smarter than the average professional investor? Probably not.

I suggest you stick to total market index funds and you are almost certain to outperform the majority of investors.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Which online trading service would you recommend?

Post by bertilak » Thu May 17, 2012 9:01 am

I think you should separate your funds into two categories: investments and Hobby. Budget the two and stick with the budget. Be sure you can afford to support your hobby! It can get expensive.

It might be a good idea to have your investment and hobby money at two different companies so you are not tempted to steal from your investment budget to pay for your stock picking hobby. Use a mutual fund family's (mostly) indexed funds for investments and a brokerage specializing in trading for the hobby.
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Re: Which online trading service would you recommend?

Post by darthvader747 » Thu May 17, 2012 10:39 am

You guys are truly fantastic. You are absolutely right in understanding that I am an amateur investor.
Some of my friends made so much money on Apple that I thought it would make sense for me to buy a few stocks on a monthly basis.
I checked the consensus recommendation on Apple and even at the current high price the recommendation is - BUY

Dont want to get distracted from my core question:

So based on the advise can you guys recommend couple of funds from fidelity or Vangurard that I should consider.

Profile:
Age:30
Retirement taken care of by company 401k (~100K)
Have an account with fidelity since they manage my 401K
Had an account with Vanguard since they managed my 401K before the account got moved over to Fidelity
Cash - 1year worth of expenses
I don't want to invest more into my retirement right now. I want to start investing in mutual funds.

Investment Period: 15 years (May need to sell some stocks to pay down payment for a house though. I know this complicates things).
Monthly Investment Amount - $1000 - $2000

Can you recommend some mutual funds that I should consider preferably from fidelity / vanguard. I am open to considering other firms too.
Should I go with fidelity or vanguard? Any idea on who charges more for trades? I might take up some hobby investing as well (money that I can afford to lose :(

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Re: Which online trading service would you recommend?

Post by YDNAL » Thu May 17, 2012 10:39 am

darthvader747 wrote:Which online trading service would you recommend?

None! :)
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Re: Which online trading service would you recommend?

Post by livesoft » Thu May 17, 2012 10:41 am

Ask your friends about the stocks they lost money on. Everyone can talk about winners. Get them to talk about losers.
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Re: Which online trading service would you recommend?

Post by BruceM » Thu May 17, 2012 12:08 pm

darthvader747 wrote: You guys are truly fantastic. You are absolutely right in understanding that I am an amateur investor.
Some of my friends made so much money on Apple that I thought it would make sense for me to buy a few stocks on a monthly basis.
I checked the consensus recommendation on Apple and even at the current high price the recommendation is - BUY


I remember the 90s like it was yesterday. This was EXACTLY the mentality of the workplace back then, when a few workers were walking around, showing their brokerage statements they had 'downloaded' from their brokers website (the internet and "on-line access" was relatively new). Everybody else wanted a piece of this action...and placed their bets, even though most could not tell you what a P/E or EPS growth was...and frankly, didn't care...there was free money to be made!!

What you have described will almost certainly result in losses. And the friends you speak of will behave much as those in Reno behave when they hit four 7's on the slots....they will gamble it all back.

darthvader747 wrote:Dont want to get distracted from my core question:

So based on the advise can you guys recommend couple of funds from fidelity or Vangurard that I should consider.

Profile:
Age:30
Retirement taken care of by company 401k (~100K)
Have an account with fidelity since they manage my 401K
Had an account with Vanguard since they managed my 401K before the account got moved over to Fidelity
Cash - 1year worth of expenses
I don't want to invest more into my retirement right now. I want to start investing in mutual funds.


Mutual funds may be held in retirement plans, IRAs and taxable brokerage accounts or mutual fund accounts. It looks like you don't yet have an IRA. You might want to start by making contributions to either a traditional IRA if you can deduct your annual contributions (up to $5,000 for you and up to $5,000 for your spouse, if you have one), or a Roth IRA if your adjusted gross income is too high for making a deductible contirbution to your TIRA. And if your AGI is too high, you may not be able to contribute to a Roth, so you'd have to make a non-deductible contribution to your TIRA. Holding investments in an IRA for most is preferential to a taxable account, as the IRA grows tax deferred (or tax free for a Roth) and is protected from creditors should you be sued for some large amount of money. However, you must leave the $$ in the IRA until 59.5, as most withdrawals taken before then will be includable that year as ordinary income and will be subject to a 10% early withdrawal penalty (there are a few exceptions to this penalty)

darthvader747 wrote:Investment Period: 15 years (May need to sell some stocks to pay down payment for a house though. I know this complicates things).
Monthly Investment Amount - $1000 - $2000

Can you recommend some mutual funds that I should consider preferably from fidelity / vanguard. I am open to considering other firms too.
Should I go with fidelity or vanguard? Any idea on who charges more for trades? I might take up some hobby investing as well (money that I can afford to lose :(


Fidelity is broadly popular, as it offers a broad selection of "No Transaction Fee" mutual funds, including index funds, it offers a long list of Exchange Traded Funds (ETFs) from iShares that you can purchase and sell with no brokerage commission (although there is a minimum holding period), it offers good online analytical services and a host of other admin services, such as bill-pay, money transfers, money wires, etc...and its stock trades run about $8. I hold about 50 income stocks, and I have been impressed with Fidos trade executions. And the few times I've had to use their 1-800 assistance, I've found the voice on the other end helpful and knowledgable.

Vanguard is the place to be if you're going to stay in index funds. Because Vanguard doesn't pay shelf fees or revenue share, most brokerages will not offer Vanguard's MFs at their discounted rate. Fido charges $75/Vanguard MF to purchase shares...and I'd bet most other brokerages are the same.

One other feature I like about Fido is locally, they have two offices. So if need be, I or my surviving spouse (should I get run over by a train) have a place where I can go talk face-to-face with a human being. Some may consider this unnecessary....others see it as valuable.

BruceM

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Re: Which online trading service would you recommend?

Post by darthvader747 » Thu May 17, 2012 12:36 pm

Thanks! Can you provide recommendations for specific mutual as well as index funds?
Would it be sensible to invest in both types? I could invest say $700 each month in index funds and a similar amount in mutual?

Could you please recommend a few index as well as mutual funds. There are too many choices and I would feel much more confident if I got recommendations from knowledgeable people.

Thanks

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Re: Which online trading service would you recommend?

Post by darthvader747 » Thu May 17, 2012 5:07 pm

Thoughts gentlemen?

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Re: Which online trading service would you recommend?

Post by livesoft » Thu May 17, 2012 5:17 pm

An index fund is a mutual fund. The wiki has recommendations: http://www.bogleheads.org/wiki/Three-fund_portfolio
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Re: Which online trading service would you recommend?

Post by nisiprius » Thu May 17, 2012 5:39 pm

darthvader747 wrote:Thanks! Can you provide recommendations for specific mutual as well as index funds?
Would it be sensible to invest in both types? I could invest say $700 each month in index funds and a similar amount in mutual?

Could you please recommend a few index as well as mutual funds. There are too many choices and I would feel much more confident if I got recommendations from knowledgeable people.

Thanks
Index funds are a kind of mutual fund.

A mutual fund is an investment company whose business consists of buying and selling (usually) stocks and bonds, and selling shares of that package. Mutual funds typically invest in very large portfolios of dozens, hundreds, or thousands of individual stocks and bonds.

Index funds are said to be passively managed. They track an index which, in turn, often tracks a entire market of some kind.

Start with the idea of three fund portfolio consisting of Vanguard Total Stock Market Index Fund (VTSMX), Vanguard Total International Stock Index Fund (VGTSX), and Vanguard Total Bond Index Fund (VBMFX). One way to do this is at Vanguard's core funds page.

You will then get frustrated because the fact that the minimum initial purchase for a Vanguard index fund is $3,000. Sorry about that. Not my idea. Once you buy the initial $3,000 worth, you can buy as little as $100 more at a time.

There are several ways around the minimum.

a) The Vanguard Target Retirement Funds are in fact three-fund portfolios that contain within them some of each of these three funds I mentioned, and you can buy them with a minimum initial purchase of $1,000. These are a very good choice. Figure out what percentage of stocks is right for you, find the Target Retirement fund that comes close to that, and it's fine.

b) Mutter something rude to Vanguard and go off to Schwab, where the minimum purchase for Schwab index funds is $100. They have counterparts to each of the three Vanguard funds I mentioned. See the Wiki article Charles Schwab.

c) I dislike ETFs so I'm putting this last. Other Bogleheads love 'em and would put it first. ETFs are a kind of mutual fund, structured and packaged in such a way that they trade like stocks on the stock market. And in fact if you like the idea of buying and selling individual stocks, you might enjoy ETFs for that reason. You get the excitement of knowing it actually matters a bit whether you place your order at 11:15 a.m or 11:18 a.m. And you get to goof off at work and hope the boss doesn't notice, because you have place your order during trading hours. The three ETFs that make up a three-fund portfolio are ETF versions of the same three mutual funds I mentioned. VTI (Vanguard Total Stock Market Index), VXUS (Vanguard Total International Bond Index), and BND (Vanguard Total Bond Market Index).

That's index fund investing using a simple three-fund portfolio.

For actively managed mutual funds that have managers who seek to beat the market through clever stock-picking, I don't think I want to make suggestions, but with the understanding that the Boglehead philosophy says Use index funds when possible, I don't think there's anything terrible with some cautious experiments in actively managed mutual funds or with individual stocks.
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Re: Which online trading service would you recommend?

Post by darthvader747 » Thu May 17, 2012 9:40 pm

Thanks again! Few follow-up questions:

1. Is there a benefit with buying the index funds from vanguard vs fidelity given that vanguard has these frustrating minimums? I can live with the minimums if there is a benefit with going with Vanguard

2. The retirement funds that you refer to are a combination of 3 index funds with varying proportions of stocks& bonds based on retirement date. Did I understand this correctly?

3.With the stock market tanking so much this year would you still recommend funds that track an index? Its been particularly bad since the JP Morgan news. Wouldn't actively managed funds have a better chance at out maneuvering the overall index?

4. If I want to liquidate my index fund purchases how do I do that? Is it like holding cash almost? Can I liquidate with a quick online sell order?

5. Is there a charge to open an account with Vanguard/fidelity? I know there are some fees associated with the managed and index funds. That is when I buy a chunk.

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Re: Which online trading service would you recommend?

Post by darthvader747 » Thu May 17, 2012 10:26 pm

Additional Question to add to the ones above:

Is there a benefit in buying 3 index funds with a total initial investment of $9K vs going with the retirement fund option?
The retirement fund as you mentioned could be used to work around the minimum $3K requirement. I may be able to buy the funds separately if there is a benefit.
Which approach would you recommend and why?

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Re: Which online trading service would you recommend?

Post by CABob » Thu May 17, 2012 11:22 pm

darthvader747 wrote:Thanks again! Few follow-up questions:

1. Is there a benefit with buying the index funds from vanguard vs fidelity given that vanguard has these frustrating minimums? I can live with the minimums if there is a benefit with going with Vanguard
You should check, but, I think you will find that Fidelity's minimums are similar and perhaps larger than Vanguard's

2. The retirement funds that you refer to are a combination of 3 index funds with varying proportions of stocks& bonds based on retirement date. Did I understand this correctly?
That is correct.

3.With the stock market tanking so much this year would you still recommend funds that track an index? Its been particularly bad since the JP Morgan news. Wouldn't actively managed funds have a better chance at out maneuvering the overall index?
There is evidence that most managed funds do not do better than passive funds.

4. If I want to liquidate my index fund purchases how do I do that? Is it like holding cash almost? Can I liquidate with a quick online sell order?
Yes, but, the sell is executed at the closing price that follows when the order is placed. It's not exactly like cash however since each sell will be a taxable event (assuming this is a taxable account) and you would incure a capital gain or loss which would have to be reported on your income tax return.

5. Is there a charge to open an account with Vanguard/fidelity? I know there are some fees associated with the managed and index funds. That is when I buy a chunk.
Generally not but you should check the web site or call the company for the information. The fees are generally loads and expense ratios. Both of those fund companies have mostly no-load fund. As for expense ratios, all funds have them but Vanguard is known for its low expenses. Fido is also generally low expense.

Additional Question to add to the ones above:

Is there a benefit in buying 3 index funds with a total initial investment of $9K vs going with the retirement fund option?
The retirement fund as you mentioned could be used to work around the minimum $3K requirement. I may be able to buy the funds separately if there is a benefit.

I can't think of an immediate benefit. Doing what you suggest forces you into an allocation of 33.3% into each of the three funds which may not be an appropriate allocation. A possible later benefit is that when the account balance grows to the point that the funds can be converted to Admiral shares you would have the advantage of lower expenses.
I should also mention that bond funds are not very tax efficient and are best held in a tax advantaged account rather than a taxable account.
Bob

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Re: Which online trading service would you recommend?

Post by nisiprius » Fri May 18, 2012 7:10 am

darthvader747 wrote:Thanks again! Few follow-up questions:

1. Is there a benefit with buying the index funds from vanguard vs fidelity given that vanguard has these frustrating minimums? I can live with the minimums if there is a benefit with going with Vanguard
The minimums are set by the funds themselves. Vanguard's index funds require a $3,000 minimum purchase wherever you buy them. At Fidelity, if you try to buy a Vanguard fund you have the same minimums and pay a $75 fee on top; at Vanguard there's no fee. Fidelity has their own index funds, which are probably just as good, but their minimum purchase for their own index funds is $10,000. I think Schwab is unique in having such low minimums for initial mutual fund purchases of their own funds. In my opinion, best thing to do is to shrug (or cuss), accept the minimums and don't fight it. Easiest way around it is to use ETFs instead of mutual funds.
2. The retirement funds that you refer to are a combination of 3 index funds with varying proportions of stocks& bonds based on retirement date. Did I understand this correctly?
Yes, except for the detail that the proportions adjust very slowly and gradually with time, stocks decreasing slowly and bonds increasingly slowly. Just by a percent or so a year. Seriously, the target retirement funds are probably what you want. If it's in a Roth, there are no tax consequences for exchanging, so you can just use a single target retirement fund and when you get up to $20,000 or so, if you want to mix it yourself from separate funds you'll have enough to meet the minimums.
3.With the stock market tanking so much this year would you still recommend funds that track an index?
Yes.
Its been particularly bad since the JP Morgan news. Wouldn't actively managed funds have a better chance at out maneuvering the overall index?
Argued endlessly, nobody will ever agree. Read the article on the Bogleheads investing philosophy, maybe watch some of the videos. You'll either agree or not. Lots of people do believe in active funds. My personal belief is that there might be active fund managers who can beat the market, but only by a tiny amount--1% at the very most if that--and they earn that extra 1% and keep it all for themselves. That is, they don't beat the market after "expenses."
4. If I want to liquidate my index fund purchases how do I do that? Is it like holding cash almost? Can I liquidate with a quick online sell order?
Yes. In the case of a mutual fund, you say "sell," the sale occurs at the end of the trading day. I want to be careful about counting days because the details are tricky--it always seems to take just a bit longer than you think it should--but I believe the money shows up in your money market settlement account the next day. That is, if I logged on and placed the sell order today, I'd see it as available tomorrow morning. I think.

How fast you can get it out of your Vanguard account and into your personal checking account as "available funds," I'm not sure. Yes, you need to plan ahead a few days if you have $20,000 in your mutual fund account and you want a $20,000 teller's check from your local bank to buy a car for cash.

In the case of a bond mutual fund at Vanguard (and probably other places) you can actually get a physical checkbook with paper checks in it that draw directly on the fund, so if someone's willing to take a check, you just write it. You can of course get a checkbook that draws on the money market settlement account. Boy do I sound old to myself talking about "checks."
5. Is there a charge to open an account with Vanguard/fidelity? I know there are some fees associated with the managed and index funds. That is when I buy a chunk.
My experience with every brokerage or fund company I've ever used is that they're good with telephone support, happy to talk to you, patient and helpful with newbies, and I encourage you to call them. I don't think there's any fee to open an account at Vanguard or anywhere else--they want you do.

At Vanguard and most places there are nuisance "account maintenance fees." The reps are glad to tell you exactly what you need to do to avoid them. They want you to avoid them, they're not like banks that make their profits off the fees and want you to pay them. At Vanguard currently
For nonretirement accounts, UGMAs/UTMAs, traditional IRAs, Roth IRAs, SEP-IRAs, and education savings accounts (ESAs):

Vanguard charges a $20 annual account service fee for each Vanguard fund in which you have a balance under $10,000 in an account. You can eliminate this fee by signing up for our e-service package. This fee also does not apply if you're a Voyager...
Voyager means broadly you have over $50,000 at Vanguard.
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Re: Which online trading service would you recommend?

Post by nisiprius » Fri May 18, 2012 7:26 am

darthvader747 wrote:Is there a benefit in buying 3 index funds with a total initial investment of $9K vs going with the retirement fund option? The retirement fund as you mentioned could be used to work around the minimum $3K requirement. I may be able to buy the funds separately if there is a benefit.
Which approach would you recommend and why?
Just buy the retirement fund and call it good. Know that you're doing something sensible and about as good as anything else you'd be doing. Then over the next few years read some more and think. The only benefit of separate funds is "freedom to tinker" and you don't need that yet. Besides, everyone, everyone, everyone tinkers too much anyway.

You will see your retirement fund fluctuate. A lot. The more stocks, the more fluctuation. You may well see the fund drop 10% or more. Please don't hate us if that happens. It could of course also gain 10% or more. Don't love us if that happens. It's just stocks fluctuating, they do that. Since no two investments behave in exactly the same way, no matter what you invest in, someone else's investment is always going to do better than yours. When it's a work colleague who's bought some hot fund, they may crow. Try not to let it bother you, and try not to crow someday when theirs tanks and yours doesn't.

P.S. The creator of the Dilbert comic strip, Scott Adams wrote a brilliant thing. No joke, this is dead seriously good advice:

Everything you need to know about financial planning
  • Make a will.
  • Pay off your credit cards.
  • Get term life insurance if you have a family to support.
  • Fund your 401(k) to the maximum.
  • Fund your IRA to the maximum.
  • Buy a house if you want to live in a house and you can afford it.
  • Put six months’ expenses in a money market fund.
  • Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement.
If any of this confuses you, or you have something special going on (retirement, college planning, tax issues) hire a fee-based financial planner, not one who charges a percentage of your portfolio.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: Which online trading service would you recommend?

Post by pkcrafter » Fri May 18, 2012 8:23 am

The most important thing you can do now is focus on educating yourself. Don't make any moves until you have a good understanding of investment basics and you have developed a plan. Start here:

http://www.bogleheads.org/wiki/Getting_Started


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Re: Which online trading service would you recommend?

Post by darthvader747 » Fri May 18, 2012 5:09 pm

Thanks nisiprius and CAbob. I also want to thank everyone else who contributed.
You guys should really give yourselves credit for helping people out. I couldn't thank this forum and the contributors enough!

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Re: Which online trading service would you recommend?

Post by Sbashore » Sat May 19, 2012 11:26 am

pkcrafter wrote:The most important thing you can do now is focus on educating yourself. Don't make any moves until you have a good understanding of investment basics and you have developed a plan. Start here:

http://www.bogleheads.org/wiki/Getting_Started


Paul


This is absolutely the best advice right now. You seem to be down in the weeds without knowing the basics.
Steve | Semper Fi

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