Broke Millennial Takes on Investing

by Erin Lowry

  Here are the things you may need to know before you log in to buy stock through your brokerage:

  The name/symbol of the stock

  Okay, this one is fairly obvious and simple to find.

  The action you want to take

  You’ll probably have the option to buy, sell, or short-sell. In this case, you want to buy.

  How many shares you want to purchase

  The platform you pick will likely offer a calculator to help you figure out how many shares. You plug in the amount you want to spend, and it’ll tell you how many shares that equals at the current market price. If there’s no calculator, then it’s pretty easy for you to figure out yourself. Let’s say the stock you want to purchase costs $5 per share and you have $100 to invest. You’ll want to buy twenty shares.

  The order type

  Market order: You want to buy the stock, period. You’re willing to do this at the best price available, which is whatever the market is currently dictating. By placing a market order you guarantee that you’ll make the purchase, but you won’t be guaranteeing the price.

  Limit order: A limit order does the reverse of a market order. You guarantee a price maximum that you’re willing to pay, but there’s not a guarantee the order will successfully get placed. Limit orders can be used as a buyer and as a seller. Limit orders can also mitigate the risk of paying a higher price than expected, which can happen with a market order.

  Stop-loss order: There is a buy stop-loss order and a sell stop-loss order. With a buy stop-loss order you place an order above the prevailing market price on the stock. If the stock hits your price, then the order you placed will become a market order and get placed at the next available price. With a stop-loss order, you can decide how much you’re comfortable with a stock drop before you’re willing to sell. This can remove some of your emotional attachment to an investment. Let’s say you bought ten shares of Mosbius Designs at $30 per share, but if the stock falls more than 15 percent, you want to sell it off because you aren’t willing to risk more than a 15 percent loss on it. You then set a stop-loss order for $25.50. If Mosbius Designs hits $25.50, then your broker will sell the ten shares for you. Once your stop-loss order is reached, then it converts into a market order and will be sold at the next available price. This could cause a problem as you could end up buying or selling at a different price than you wanted.

  Stop-limit order: The stop-limit order combines the limit order with the stop-loss order. This means you set your stop price, or the price at which you want to buy or sell the stock, but you also set a limit price. You were willing to buy Mosbius Designs at $30, but if it hits $35, you no longer want to place the order. Similar to the limit order, you are not guaranteed that this transaction will execute.

  Timing

  Day only: Your request to purchase will expire at the end of the trading day if it’s not filled. (This is usually the default.)

  Good until cancelled: Your request will live on for usually thirty to ninety days, or until it’s been fulfilled or cancelled.

  Fill or kill: The request to purchase is either immediately fulfilled in its entirety or cancelled. For example, you want to buy 200 shares of Mosbius Designs at $15 per share. Your broker isn’t able to fulfill this order for you, so it gets cancelled.

  Immediate or cancel: You want the trade immediately filled, either entirely or partially. Whatever isn’t filled is cancelled. You still want 200 shares of Mosbius Designs at $15 per share, but your broker is only able to get 120 shares for $15 per share. She buys those for you and cancels the remainder of the order.

  What you want to do with your dividends

  The platform I use requires you to opt in by checking a box next to “reinvest dividends,” which would be easy to overlook. Some investments may not allow you to reinvest your dividends.

  Whether there are commissions and/or trading fees

  Be sure to calculate that into the total cost of your purchase.

  How your transaction is being funded

  You might have a cash reserve set up with your brokerage—fine. But if money is getting pulled out of your bank account to fund the purchase, then it could take a few business days to complete the order. That can make a world of difference when it comes to share prices.

  GETTING SOME EXPERIENCE BEFORE YOU TRULY COMMIT

  Tela Holcomb, an independent trader and the founder of the investing program Trade Your 9 to 5, started her stock-picking journey in the virtual world.

  “I started in a practice account,” says Holcomb. “That’s a huge tool for beginners who don’t know what they’re doing in the beginning and are scared and don’t want to lose money trying to learn.”

  Practice accounts may not be quite as prevalent as they used to be, but you can still find some online where you even compete against other people with virtual cash. Investopedia offers its Stock Market Game and TD Ameritrade offers paperMoney® for dabbling in virtual cash. Just make sure you read all the terms and conditions before you sign up, to ensure you’re not going to start getting charged.

  SHOULD I PURCHASE MY EMPLOYER’S STOCK?

  Outside of an employer-sponsored retirement plan, you may also have the benefit of purchasing company stock. Oftentimes you’re able to get access to this stock at a lower-than-market-value price, which makes it a deal. Still, company stock should be only a small part of your overall portfolio.

  “Avoid concentrated investments,” says Jaconetti, noting overinvesting in company stock as an example. “When you buy company stock, your financial future with your salary is highly tied to that company already. You double down almost by then buying a lot of company stock. It’s just putting that much more of your future in that company’s hands.”

  WHERE CAN I BUY STOCKS?

  It’s not terribly complicated to find where to buy stocks. You can go through most major brokerage firms and just place the order online. You don’t have to call up an individual stock broker you hire in order to place the buy. You should compare commissions and fees, though, if you’re trying to decide which brokerage firm to use. Options to consider include: Ally Invest, Charles Schwab, E*Trade, Fidelity, Merrill Edge, and TD Ameritrade.

  While robo-advisors do use ETFs to build portfolios, not many of them provide an option for purchasing individual stocks. Robinhood is one app that does.

  CHECKLIST FOR BUYING INDIVIDUAL STOCKS

  ☐ Are you okay losing all the money you’re about to invest in an individual stock?

  Picking an individual stock to buy doesn’t protect your downside in the same way investing in an index fund or ETF would, so you need to be emotionally and financially prepared to lose money.

  ☐ Do your research and thoroughly vet the company before making the purchase.

  ☐ Pick a brokerage firm.

  Don’t forget to compare commissions and trading fees.

  ☐ Decide how much you’re going to invest and how you’re going to place the order.

  Do you want to do a market order, limit order, stop-loss order, or stop-limit order?

  ☐ Determine ahead of time if this is a buy-and-hold purchase and then remind yourself of your goal in order to emotionally handle volatility.

  Chapter 8

  Investing—Of Course There’s an App for That

  IN 2013, when I opened my first taxable account, you generally needed to have at least a few thousand dollars saved in order to open up an index fund or ETF with a traditional brokerage. That’s only five years prior to my writing the words on this page, and yet micro-investing apps weren’t
available at the time. It’s amazing how quickly technology is changing the way we’re able to enter the markets. By 2014, the landscape of investing had already started changing. Suddenly, there were options for people to invest with only a few bucks via an app on their smartphones.

  Today, there are a variety of ways to invest with minimal sums of money. Some are gamified, while others adhere to the old principles of investing, but they all democratize the process to make it accessible to anyone with a bank account and a couple spare dollars a month.

  WHAT IS MICRO-INVESTING?

  It feels like such a Millennial cliché—of course “there’s an app for that” when it comes to investing! Micro-investing apps solved a common problem for young, rookie investors: investment minimums. Not only can it be cost-prohibitive to purchase a single share of some stocks, but some mutual funds can also require a minimum investment of $1,000 to $3,000 to even as high as $10,000 in some cases.

  As the name implies, micro-investing only requires you to deposit little bits of money at a time into your investment. This is often done in an automated or similarly simple manner for you, the user, in order to both reduce stress and actually encourage you to keep investing.

  Just like robo-advisors, micro-investing apps offer a variety of tools and ways in which you can be investing. You could be doing individual stock picking or build a portfolio out of ETFs. You generally create a portfolio by answering a few questions about your goals and risk tolerance, and then the app will recommend investments.

  Micro-investing apps are not the same as your brokerage firm’s app. These are companies built around the idea of helping people get into investing with as little as a few dollars, but ultimately you can level up, too.

  WHAT YOU NEED TO KNOW AND SHARE BEFORE YOU START

  Just like signing up with a brokerage, you’ll need to fill out some information in order to invest via an app. Here are some of the things you need to be prepared to provide:

  Email address

  Full, legal name

  Date of birth

  You must be eighteen or older to have an account in your name. Otherwise, a parent or guardian may be able to open a custodial account for you.

  Social Security number

  Phone number and address

  Your citizenship status:

  Some apps are only available to US citizens.

  Other information:

  When filling out the investor profile, you’ll be asked some basic questions like: employment status, annual income, perceived risk tolerance level (conservative, moderate, aggressive), and net worth.

  How will you fund the account?

  You’ll need to link a bank account and/or credit or debit card to your app. This is how you’ll add money to your investments. You’ll also need to verify that you’re the owner of the checking account. Typically, this is done by the app making two small deposits in your account. (They later take the money back.) You log in to the app and enter what those deposit amounts were.

  A LOOK AT MICRO-INVESTING APPS

  It’s important to actually overview some micro-investing apps in order to best help you understand what they have to offer. However, these apps and their services tend to evolve rather quickly. The information that follows is from the summer of 2018.

  Before using any of this information to actually select and use a micro-investing app, it’s important to research the company yourself and check current functionality and fees. This overview is just to give you a sense of how these apps work.

  As always, make sure anything you use to invest is SIPC protected.

  Acorns

  Acorns is a perfect match for the true beginner looking to get help building a well-diversified portfolio. Seasoned investors can get plenty of value from Acorns, but its simplicity makes it great for the true rookie.

  What It Offers

  Investment options: You can invest in one of five available portfolios.

  Invest your spare change: Acorn’s tagline is “Invest your spare change. Anyone can grow wealth.” The invest-your-spare-change philosophy manifests in the “Round-Ups.” You can set the app to round up your purchases to the next dollar and invest the difference. If you bought a coffee for $1.65, then it can round up your purchase to $2 and invest the $0.35.

  Automatic investments: You can also elect to set up automatic deposits into your investments. This can be done daily, weekly, or monthly.

  Found Money™: This works like a cash-back portal. By clicking through Acorns to shop with brand partners, a percentage of your purchase will be credited to your Acorn account. For example, let’s say Barnes & Noble is a brand partner and offers 2 percent back. You need to buy a book. You open your Acorns app and go to the “Found Money” screen. You locate Barnes & Noble and then click on it to be redirected to the Barnes & Noble website. After you place your order, 2 percent of its value will be credited to your Acorns account within a set period of time after purchase.

  Education component: “Education goes hand in hand with investing,” says Jennifer Barrett, chief education officer for Acorns, which offers a stand-alone financial education site and integrates education into the tool. “Because we recognize so many people [who] are investing with Acorns have probably never done it before, certainly not outside of a 401(k), we make it very easy to start investing, and we help people along the learning curve. Then you see them start to become more engaged users and put more money in.”

  Other: The app also offers Acorns Later and Acorns Spend, to help with retirement and day-to-day spending. Acorns Later gives you the option to invest in a Roth, Traditional, or SEP IRA. Acorns helps build your plan based on your lifestyle and goals. Acorns Spend is a checking account and debit card integrated with Acorns that allows roundups to happen in real time.

  Available Investments

  Acorns keeps this pretty streamlined. You choose from among five portfolios, all of which are invested in ETFs from well-known investment management companies like Vanguard and BlackRock. The portfolio options are: conservative, moderately conservative, moderate, moderately aggressive, and aggressive.

  Costs

  $1 per month for Acorns accounts under $1 million, or free for college students.

  $2 per month for Acorns + Acorns Later (the retirement portfolio).

  $3 per month for Acorns + Acorns Later + Acorns Spend.

  Robinhood

  The tongue-in-cheek name for a folk hero who robbed from the rich and gave to the poor perfectly aligns with Robinhood’s slogan: “Investing. Now for the rest of us.” Robinhood can certainly be used by absolute rookies, but it’s better suited for those looking to do individual stock picking and even dabble in cryptocurrency and options trading.

  What It Offers

  Stocks and ETFs: More than 5,000 stocks and the majority of ETFs listed on the major US exchanges.

  Robinhood Crypto: In 2018, Robinhood made cryptocurrency available for buying and selling in eighteen US states. It wasn’t available nationwide due to state regulations. At the time of this writing, it supported buying and selling Bitcoin, Bitcoin Cash, Dogecoin, Ethereum, and Litecoin.

  Options trading: This one is a bit more technical to explain, but in short, you’re making a bet on the future price of a commodity and will then have the ability to purchase it at a particular price and sell it for an immediate profit. For example, Fab Five Inc. is currently trading at $23 per share. You’re pretty certain it will increase in value, so you buy a “call option” for 100 shares. The call option costs you $1 per share, so $100, and allows you to buy 100 shares of Fab Five Inc. at $25 per share (also known as the “strike price”) within the next sixty days. Fab Five Inc. does increase
in value to $28 per share within the sixty days. You then buy the 100 shares at $25 and immediately sell them for a $3 profit per share (less the $100 you spent on purchasing the call option).

  Robinhood Gold: A trading option that allows an investor to buy “on margin,” which, in this case, means buying with money loaned to you by Robinhood Financial. You also get extended trading hours and can trade thirty minutes before the market opens and two hours after it closes.

  Costs

  Trading is commission free, but there are fees charged by the SEC and FINRA. Robinhood doesn’t pocket any of those fees, but you should expect to see them as part of your trade.