The Motley Fool
Ask the Fool
Learn to Invest
Q: How should I start investing in stocks, when I don’t have much money and don’t know much about investing? — T.M., Deerfield, Missouri
A: Don’t invest anything until you’ve learned enough to understand and be comfortable with what you’re doing.
Useful books that can help you understand the world of stocks and mutual funds include “The Little Book of Common Sense Investing” by John Bogle (Wiley, $25), “The Little Book That Still Beats the Market” by Joel Greenblatt (Wiley, $25) and “The Five Rules for Successful Stock Investing” by Pat Dorsey (Wiley, $25).
For starters, know that you don’t have to spend years becoming an expert stock picker. Instead, you might just park many or all of your stock market dollars in a low-fee, broad-market index mutual fund, such as one that tracks the S&P 500 index of major American companies. Such index funds outperform managed mutual funds, on average, over long periods, and can be great wealth builders.
Learn more about investing at Fool.com by clicking on the “How to Invest” tab.
Q: When I buy stock, is it OK — and safe — for the brokerage to keep the shares, or should I ask it to send me the stock certificates? — D.W., online
A: These days, it’s routine for brokerages to hold stock certificates for investors — registering the shares in “street name.” It’s actually helpful, because you don’t have to safeguard any certificates, and you can’t lose them. Also, whenever you want to sell, you don’t have to deliver the certificates back to the brokerage, which can take time. Instead, you can sell within minutes online, over the phone or at your local brokerage office.
Think Twice Before Buying This Stock
Some stocks should be avoided because their underlying companies are poorly managed, deep in debt, losing money or losing market share. There’s another kind of stock to be wary of, though: that of your employer.
Here’s why: You probably receive most or all of your income from that company, so you’re rather dependent on it for your financial security. But if you have a lot (or — gasp! — all) of your assets in its stock as well, you’re even more dependent on that company.
You might assume that your employer is healthy and that it’s safe to depend on it, but remember that many companies you wouldn’t expect to run into trouble sometimes do so.
Years ago, who would have suspected that these companies would have filed for bankruptcy: Pan American World Airways, General Motors, Eastman Kodak, Circuit City, Tower Records, Polaroid, Toys R Us, Sports Authority or Blockbuster? In 2018, more than 22,000 companies filed for bankruptcy protection in the U.S.
Think, too, of Enron, which in 2001 executed the then-largest bankruptcy filing in American history, with its losses estimated at $74 billion. It had seemed to be performing well, until its fraud came to light, and employees had been encouraged to invest in company stock. When the company failed, billions of dollars in retirement assets went up in smoke.
All shareholders assume some risk when they invest in a company, but employees bear even more when they invest in their employers. If the company runs into trouble, not only could your investment in its stock be vulnerable, your employment might be at risk, too. You don’t want your shares to shrink in value at the same time that you lose your job.
EDITOR’S NOTE: The Motley Fool is an investment column created by brothers David and Tom Gardner and distributed by Andrews McMeel Syndication.