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Monitor your reaction when you read the following word: stocks. Did your body grow suddenly tense and rigid with a sense of impending confusion, or were you filled with excited anticipation of carefully planned success? If you felt anything less than complete foreboding at the word, you probably already know a little bit about stocks. Either way, if you chose to continue reading, do so bravely.
Many people view the stock market as a leviathan that can reward careful groomers with tremendous wealth while crushing unaware onlookers mercilessly. However, commercials with amusing talking babies make us wonder if it's as intense as it appears. Join me on my adventure into the stock market world for middle class Americans; it's not as hard as it looks.
The first step into entering the stock market game is to put your fears aside. I decided that I would never know what it had to offer if I didn't take a risk. The most I ever risk at Atlantic City is my bus ticket and $20 in quarters, so I'm not a gambler. I'd rather see my money put to a more reliable use than dropped on an unpredictable stock. A $2,000 investment might mean little to some, but those are my property taxes for the year. I'm not risking that much just yet.
With a little investigation, I learned that I can invest as little as $25 a month on stocks. As this builds, I accumulate some money to play the market. I could live with the fear of losing that little bit.
Here is the basic premise of the stock market. You purchase a share of a corporation, in a sense owning a portion of the company. If the company gains value, your portion gains value and you can sell it for a profit. If the company loses value, when you sell your portion it's worth less than you paid for it.
The tricky part is understanding what stocks you can purchase and how to acquire them. For me, the middle class American with an English degree, the direct stock option was the easiest to understand and maintain. Brokers can cost hundreds of dollars and require thousands in up front investments. Even the advertised trading companies that are aimed at the lightweight investor can eat up your profits with their fees. Direct stocks can be purchased without a broker and build upon themselves, reinvesting dividends as you move forward with your stock investment.
The direct stock market investment is known as a DRIP, but it can be called a DRP, DSP, DPP, DPS, SIP, or SPP). Anyone want to know what those acronyms stand for? I didn't. If it didn't affect my ability to make money on the stock, I was fine calling them DRIPs. These are the stocks that allow me to invest $25 a month, owning partial shares of stocks.
To find companies that offer DRIPs, look at the Dow 30 list or the S&P 500 list. The website www.stock1.com is helpful because it offers the most information in one location. When I chose my investment companies I used beginner's logic and guesswork to build my portfolio.
I invested in the company that owns my bank, figuring that the new locations being built mean the company is on the road to success. I also invested in an up and coming company that deals with data management; something that seems like a growing business. So far, my rookie judgment is doing pretty well.
Here's where I had trouble. After doing all my homework, I had no idea how to actually purchase the stock. The path between knowledge and action was unclear. I was about to give up, but then I found the path to stock success in the most likely place - my bank. Using my bank's share-owner options, I kept rolling on my path towards basic stockholder options, and learned that it wasn't very difficult to do.
Although SRI has grown into a three-trillion dollar industry, its beginning were humble. Now one of the fastest growing trends in financial investing, historically speaking, SRI has been around for more than a century. More recently, the field of SRI re-emerged as a grassroots movement after the Vietnam War, when activists began to question whether or not their investments helped to finance war efforts they did not support. Today, individuals who want to grow their money using SRI have access to a complete range of investment options-stocks, bonds, mutual funds, exchange traded funds and financial planners who specialize in SRI and earth-friendly investing.
Logic would suggest that there must be a financial price to pay for putting your money where your heart is, at least this is what opponents of SRI argue. After all, there are less SRI options to invest in, which should mean a portfolio with greater volatility, less efficiency and reduced returns on your investment. Proponents of SRI counter this argument by pointing out that companies that are engaged in unsustainable business practices will show poorer profits over time, while companies who participate in sustainable business practices deliver a better overall performance. SRI is a pretty new field, so for now, the truth may lie somewhere in the middle. In side by side comparisons, studies suggest there is no difference in the rate of returns between SRI and conventional investing.
SRI distinguishes itself from conventional investing by incorporating the following three strategies: Screening, Shareholder Activism and Community Investing.
Screening is the inclusion or exclusion of investment options based on a set of environment or social criteria. There can be both positive and negative screens. For example, you may want to invest in an SRI mutual fund made up of holdings that exclude companies (negative screening) that generate more than a certain percentage of their revenue from sales of military weapons or tobacco or that use animals for testing. Or, you may want to only invest in companies that participate in renewable energy or promote employment equality (positive screening).
Just like conventional investors, an investor and shareholder in a socially responsible company becomes part owner of that company. With SRI, shareholders are strongly encouraged to use this status to influence corporate behavior. Investors are encouraged to file shareholder resolutions that pressure corporate executives into improving the company's performance (e.g. reducing energy use) or join forces with other interests to solve environmental and social issues such as preserving wilderness or protecting women's rights.
Community Investing is creating financial resources for the economically disadvantaged. This can be done in a number of ways, but the easiest way to participate is by doing your banking at a community development bank or credit union. These financial institutions focus on funding economic development for low to middle income people in the US and abroad that are normally overlooked by traditional financial institutions.
Whether you're an individual investor or you're part of a company, university, and church or non-profit, there are socially responsible options designed to align your social and financial values. Check out these resources for more information:
Investment newsletters that give advice on buying and selling securities can cost more than $500 a year, but you can often pick up free investment advice by looking for those same publications in your local library.
Unlike a savings account, certificate of deposit funds are invested for a set time period and set interest rate. There can be a stiff penalty when the funds are withdrawn early. This is a page about investing in certificates of deposit (CDs).
Annuities can be costly for you and very profitable for the company selling them, and may not be the best place to put your savings. This is a page about investing in annuities.