Online Investing for Dummies

by Krantz, Matthew

• ISBN13: 9781119601487
• ISBN10: 1119601487
• Edition: 10th
• Format: Paperback
• Copyright: 2019-08-27
• Publisher: For Dummies

Summary

Build a winning portfolio—and reduce your risk—with this bestselling guide

Online investing has never been easier—or more potentially confusing. Now that every broker or finance site has its own app, data, or approach, it can be all too easy to be misled and make a bad decision. Online Investing for Dummies helps you reduce risk and separate the gimmicks from the gold, pointing investors of all experience levels to the pro-tips, calculators, databases, useful sites, and peer communities that will lead to success. 

Updated to include information on mobile trading and the influence of social media on the markets, the book also covers the basics—showing you how to figure out how much to invest, find data online, and pick an online broker. It then progresses through to more advanced topics, such as calculating returns, selecting mutual funds, buying bonds, options, commodities, and IPOs, taking you and your money wherever you want to go in the global market.

• Set expectations and assess your risk
• Analyze stocks and financial statements
• Assemble the suite of tools to calculate your performance
• Get tips on choosing the right online broker and on protecting your information online 

It’s time to get a pro strategy, and Online Investing for Dummies has all the inside information you need to build up that winning portfolio.

Author Biography

Matt Krantz is a nationally known financial journalist who specializes in investing topics. He's personal finance and management editor at Investor's Business Daily. He's also worked in the financial industry and covered markets and investing for USA TODAY. His writing on financial topics has also appeared in Money magazine, Kiplinger's, and Men's Health. Krantz is the author of Fundamental Analysis For Dummies and co-author of Investment Banking For Dummies.

Table of Contents

Introduction 1

About this Book 1

Foolish Assumptions 2

Icons Used in This Book 2

Beyond the Book 3

Where to Go from Here 3

Part 1: Getting Started Investing Online 5

Chapter 1: Getting Yourself Ready for Online Investing 7

Why Investing Online is Worth Your While 8 Getting Started 9

Measuring How Much You Can Afford to Invest 12

Turning yourself into a big saver 12

Using desktop personal finance software 13

Perusing personal finance websites 15

Capitalizing from personal finance apps 17

Saving with web-based savings calculators 18

Relying on the residual method 19

Using web-based goal-savings calculators 19

Deciding How You Plan to Save 21

To Be a Successful Investor, Start Now! 21

Learning the Lingo 22

Setting Your Expectations 23

Keeping up with the rate of return 23

The power of compounding 24

Determining How Much You Can Expect to Profit 24

Studying the past 25

What the past tells you about the future 28

Gut-Check Time: How Much Risk Can You Take? 30

Passive or Active? Deciding What Kind of Investor You Plan to Be 31

How to know if you’re a passive investor 31

Sites for passive investors to start with 32

How to know whether you’re an active investor 33

Sites for the active investor to start with 34

Chapter 2: Getting Your Device Ready for Online Investing 35

Turning Your Device into a Trading Station 36

Using favorites to put data at your fingertips 37

Putting key mobile apps a touch away 38

Compiling a list of must watch sites 39

Tracking the Market’s Every Move 39

Getting price quotes on markets and stocks 40

Slicing and dicing the markets 41

Your crystal ball: Predicting how the day will begin 43

Getting company descriptions 44

Keeping tabs on commodities 44

Tracking bonds and U.S Treasurys 45

Monitoring Market-Moving News 46

Financial websites 46

Traditional financial news sites 48

Checking In on Wall Street Chatter 50

Everyone is an expert: Checking in with blogs 51

Finding blogs 52

Getting in tune with podcasts 52

Taming Twitter 53

Keeping Tabs on the Regulators 54

Executing Trades 56

Searching the Internet High and Low 56

Keeping the Bad Guys Out: Securing Your PC 57

Mastering the Basics with Online Tutorials and Simulations 58

Online tutorials 59

Simulations 60

Chapter 3: Choosing the Best Account Type for You 63

Knowing How Different Accounts Are Taxed 64

Taxable accounts 64

Retirement accounts 64

Education savings accounts 65

Plain Vanilla: The Taxable Brokerage Account 66

The importance of dividends 67

How capital gains are taxed 69

The high tax price of being short-term 70

How long-term capital gains are taxed 71

When you can win from your losses 71

What to do with your worthless stock 73

Using technology to measure your capital gain 74

Measuring your capital gains if you’ve lost your records 77

How dividends are taxed 79

Retirement Accounts: Knowing Your 401(k)s from Your IRAs 80

401(k)s: A great place to get started 82

Managing your 401(k) plan online 83

Getting in tune with IRAs 84

Setting up an IRA 85

Going Back to School with Education Savings Accounts 86

Three numbers you need to know: 529 87

Getting up to speed on 529 plans online 88

Understanding 529 fees 89

Living in the 529’s shadow: The Coverdell 90

Chapter 4: Connecting with an Online Broker 91

Finding the Best Broker for You 92

The nine main factors to consider 92

Gotchas to watch out for 94

Separating the Types of Brokerages 94

Paying the minimum with a deep discounter 95

Get more with a discounter 97

Full-service traditional 104

Avoiding Hidden Fees 106

Finding Out What Reviewers Think 108

Is Your Money Safe? Checking Out Your Broker 110

Cutting the Cord: Mobile Trading 111

Pay Attention to Where Your Cash is Parked: Money Market Funds 113

Buying Stocks and Mutual Funds without a Broker 114

Stocks: Direct investments 114

Mutual funds: Straight from the mutual fund company 116

Opening and Setting Up Your Account 116

The checklist of what you need to know 117

The checklist of what you need to have 117

Chapter 5: Getting It Done: How to Enter and Execute Trades 119

Understanding How Stock Trades and Shares Are Handled 120

Ways you can hold your investments 120

A second in the life of a trade 126

Getting It Done: Executing Your Trades 127

Types of orders 127

Costs of different orders 129

Tailoring your trades even more 129

Going off the Beaten Path with Different Trading Techniques 130

Cashing in when stocks fall: Selling stock short 130

Tracking the short sellers 131

Living on borrowed time: Buying stock on margin 132

The call you don’t want to get: The margin call 135

The nightshift: Trading in the extended hours 135

Knowing Your Options: Basic Ways to Best Use Options 136

The different types of options 137

Basic options strategies 137

How to get option prices online 140

How to buy options online 141

Discovering more about options online 142

Stepping Through Placing a Trade 143

Using the brokerage’s website 143

Using the brokerage’s mobile app 145

Using the brokerage’s PC software 146

Part 2: Using Online Investment Resources 149

Chapter 6: Why Stock Prices Rise and Fall 151

How Stocks Get into the Public’s Hands 152

Step 1: An idea becomes a company 152

Step 2: The company expands and grows 152

Step 3: The company goes public 154

Step 4: The new shares trade 155

Why Stocks Move Up and Down in the Short Term 155

Tracking the market’s every move 156

Getting in tune with earnings reports 157

Companies and the company they keep in their industries 162

Monitoring the big cheese 165

Where it all begins: Tracking prices of raw materials 165

Getting with the mo’ 166

Mania over merger chatter 167

Why bond yields aren’t boring 168

The heartbeat of the economy: Economic reports 168

What they know that you don’t — Insider buying and selling 170

Knowing how investors are feeling: Tracking market sentiment 172

What Moves Stocks in the Long Term? 175

Going back to school with academic research 175

Learning from the wise men 176

Chapter 7: Connecting with Other Investors Online 179

Finding Kindred Investment Spirits Online 180

Getting the Message with Stock Message Boards 180

Stock message boards aren’t for everyone 181

Understanding the types of stock message boards 181

Knowing the ulterior motives of some online stock message board members 182

Determining what exchange or market a stock trades on 184

A penny saved: Beware of penny stocks 185

Connecting with an Investment Club 187

How to find an investment club that suits you 188

Understanding the drawbacks of investment clubs 188

Social Networking Comes of Age 189

What’s the fuss about Twitter? 190

Getting a read on the market with Twitter 193

Giving Facebook some face time 194

The Brave New World: Social Networking Meets Online Investing 196

Social investing sites as a higher form of stock message boards? 196

Plugging into social investing sites 197

Starting to get social: Trying social investing sites 198

Chapter 8: Measuring Your Performance 199

The Importance of Tracking Your Performance 200

Why it’s worth the trouble to measure your returns 200

Why you want to measure your risk, too 201

Calculating Your Performance Yourself 202

The easiest way to calculate returns 203

An easy way to calculate returns if you’ve deposited or taken out money 203

The hardest way to calculate returns 205

Calculating How Risky Your Portfolio is 206

A simple way of calculating your average return 207

Calculating your risk 209

What does it all mean? Sizing up your portfolio 210

Finding other things to compare your returns to 211

Using Online Tools to Calculate Your Performance 212

Looking at online performance-measurement tools 213

Using personal finance and performance-tracking software 213

Using stock simulation and social investing sites 214

Using portfolio-tracking websites 215

Using performance-analytics websites 216

Chapter 9: Choosing an Asset Allocation 219

The Recipe for Your Online Investing: Asset Allocation 220

What’s so great about diversification? 221

Zig-zag: The second element of diversification 221

Bigger isn’t always better: Understanding size 223

Picking investments with the right styles 224

How rebalancing steadies your portfolio 226

How discipline can save your portfolio from getting punished 227

Using and Finding Your Perfect Asset Allocation 227

Determining your current asset allocation 228

Using guidelines 230

Picking an asset allocation based on your risk tolerance 232

Picking an asset allocation based on your goals 234

Chapter 10: Finding and Buying Mutual Funds 237

The Feeling is Mutual: Understanding Mutual Funds 238

Considering the pros of mutual funds 238

Drawbacks of mutual funds worth considering 239

Types of Investment Companies 240

Categorizing Mutual Funds 242

Stock funds 242

Bond funds 243

Money market funds 243

Hybrid funds 244

What to Look for in a Mutual Fund 245

Deciphering the morass of mutual fund fees 247

Finding mutual funds that work for you 249

Buying mutual funds with an online broker 250

How to buy mutual funds without a broker 251

Comparing Mutual Funds 252

Putting funds’ characteristics side by side 252

Analyzing a mutual fund’s risk 253

Getting the Full Story: Reading a Mutual Fund’s Prospectus 254

Getting More Information about Funds 255

Chapter 11: Finding and Buying Exchange-Traded Funds 257

Getting to Know ETFs 258

Invest in Popular Indexes with ETFs 260

How to Find the Right ETF for the Job 260

Tracking ETFs’ every move 262

ETF fees can vary 262

Finding out how pricey an ETF is 264

Using ETF-Recommending Robo-Advisors 265

What the heck is a robo-advisor? 265

Robo-advisors that hold your hand 266

Robo-advisors that are completely automated 267

ETFs That Go off the Beaten Path 269

ETFs Have Issues, Too 270

A Few Final Things to Consider about ETFs 271

Using ETFs as a way to invest in themes 272

Betting on commodities and currencies with ETFs 272

Reading the fine print: The prospectus 273

Part 3: Maximizing Investment Knowledge 275

Chapter 12: Putting Companies Under the Microscope 277

Understanding Financial Statements 278

Downloading financial statements 279

Reading the income statement 281

Basics about the balance sheet 282

Understanding the cash flow statement 284

Putting it all together 284

Spotting trends in financial statements 286

Using financial statements to understand the company 288

Unearthing Details about the Company from Regulatory Filings 289

Finding the nitty-gritty description of the company 290

Getting the details on company announcements 290

Finding out whether the company is being sued 290

Getting the truth from management 291

Seeing whether the company got into a tiff with its auditors 292

Weighing the risk of failure 293

Seeing what the company is worried about 293

Assessing how much the company’s management is getting paid 293

Determining the independence of the company’s leadership 294

Chapter 13: Evaluating Stocks’ Prospects 295

Finding Out How to Not Overpay for Stocks 296

Quick ways to determine how pricey a stock is 298

Ways to interpret valuations 300

Studying stocks using automated tools 303

Shortcomings of studying stocks’ valuation ratios 303

The armchair investor’s way to not overpay 305

Evaluating Stocks’ Potential Return and Risk 305

Measuring a stock’s total return 306

Finding out more about risk and return online 307

Digging Even Deeper: Advanced Valuation Techniques 308

Using the dividend discount model to see whether a stock is on sale 308

The value hunter’s favorite weapon: The discounted cash flow analysis 309

Chapter 14: Finding Investment Ideas with Online Stock Screens 313

Getting Familiar with Stock Screens 314

Creating an online screen 315

General characteristics you can use to screen stocks 316

Choosing an online screening site 317

Knowing What You’re Looking For: Popular Screening Variables 319

The basics: Because you have to start somewhere 319

Getting more particular: More advanced variables to screen for 321

Finding stocks using trading-pattern variables 322

Getting Started with Premade Screens 323

Designing a Custom Screen 325

Finding different industries’ best companies by using Yahoo! Finance 326

Finding value or growth companies by using Morningstar’s Stock Screener 327

Chapter 15: Analyzing the Analysts and Stock Pickers 329

Picking Apart Professional Analyst Reports 330

Accessing analyst reports online 330

Determining which Wall Street analysts are worth listening to 332

What to look for in an analyst report 334

Pssst understanding the whisper number 335

Accessing and understanding credit ratings 335

Connecting with Online Stock Ratings 338

Putting quant stock models to work for you 338

Sharing stock ratings with other investors online 339

Evaluating Stock- and Mutual Fund–Picking Newsletters and Websites 341

Before you sign up for a stock-picking service 341

Using newsletters to your advantage 342

Chapter 16: Researching and Buying Bonds Online 345

Getting Acquainted with Bonds 346

Knowing who issues debt 347

Online resources to find out more about bonds 350

Common traits of bonds 350

Finding and Buying Bonds Online 355

Finding individual bonds online 355

Sealing the deal: Buying individual bonds online 357

Considering Bond Alternatives 359

Money market funds and certificates of deposit 360

Wall Street’s lost child: Preferred stock 361

Part 4: The Part of Tens 363

Chapter 17: Ten Top Mistakes Made by Online Investors 365

Buying and Selling Too Frequently 366

Letting Losers Run and Cutting Winners Short 367

Focusing on the Per-Share Price of the Stock 367

Failing to Track Risk and Return 368

Taking Advice from the Wrong People 368

Trying to Make Too Much Money Too Quickly 369

Letting Emotions Take Over 370

Looking to Blame Someone Else for Your Losses 371

Ignoring Tax Considerations 372

Dwelling on Mistakes Too Long 372

Chapter 18: Ten Ways to Protect Your Investments and Identity Online 373

Beware of Pyramid Schemes 374

Steer Clear of Ponzi Schemes 375

Avoid Tout Sheets and Know Whom You’re Taking Advice From 376

Don’t Fall for Investment Spam Emails 377

Understand Loopholes Scammers Can Use 378

Familiarize Yourself with the Fingerprints of a Scam 379

Learn to Be an Online Sleuth 380

Know How to Complain If You Suspect a Fraud 380

Make Sure That Your Computer is Locked Down 381

Be Aware of Online Sources for More Information 382

Chapter 19: Online Investors’ Ten Most Common Questions 383

How Do I Find Out Which Companies Are Going to Split Their Stock? 384

Can I Use Options to Boost My Returns? 384

Can I Still Lose Money If I Invest in Bonds? 385

What’s the Easiest Way to Invest in Commodities? 386

How Long Will it Take for Me to Double My Money? 386

Do I Have a Say in How a Company I’m Invested in Operates? 387

How Can Deep-Discount Online Brokers Make Money Charging $5 or Less for Trades? 388

How Are Hedge Funds, Private-Equity Funds, and Venture Capital Funds Different? 388

If a Company is Buying Back Its Stock, Does That Mean the Stock is Cheap? 389

If I Own a House, Do I Need to Hold Real-Estate Investment Trusts in My Stock Portfolio, Too? 390

Index 391