Always remember that what happens on Wall Street is gambling, and if you participate you will be a minnow among whales. But the advantages the whales have written into law can also benefit little fish. In spite of the risk, I’ll try to explain how I got started in saving money for my family at the Wall Street casino and how I came to consider a brokerage account to be a savings account that grows faster than inflation can shrink it. I write now because I came to wish I had started earlier and saved for my retirement.
I understand now that the reasons I did not save during my working life were excuses, not reasons. If you eat in restaurants at all, you can afford to save. If you smoke or drink, you can afford to save. If your income is irregular, saving becomes much harder because you can’t think in terms of “paying yourself first.” You always have bills nipping at your heels.
Still, most human beings in the 21st century can put their hands on 10 bucks, the bare minimum it would cost to get started in the stock market. I started with 50. The important thing is to get started, and the purpose of this series will be to show you how you can become as interested in Wall Street as it is already interested in you.
Everybody knows the myth fed to children. Dutch traders, those sharp cookies in wooden shoes, bought Manhattan Island, where the center of stock trading came to be located on Wall Street, for a handful of beads worth about $24.
In fact, the Dutch seem to have had as much wood in their heads as in their shoes, because they first bought the right to use Manhattan Island from the Canarsee, who did not own it, and so had to pay a second time to the Wappinger Confederacy, who might or might not have owned it. The difference between purchase and usufruct was an ongoing source of misunderstanding back then and the Dutch document states the price as 60 guilders in “trade goods,” among which beads would rank way lower than tools and cloth.
Some people claim Wall Street got its name from a wall built on the site to keep the “wild Indians” at bay. That may be a myth, because at times the same story refers to keeping “pirates” at bay. But it is historical fact that the first involvement of Indians and commerce on Wall Street was as merchandise in the slave market located there that sold both Indians and Africans until the latter proved superior slaves because they were less an escape risk.
Beyond the trafficking in human flesh, investment got started on Wall Street in two coffee houses, the Merchants’ and the Tontine, and the street in between. “Wall Street” is now a cultural meme for the great roiling rivers of money that stocks and bonds represent in any advanced economy.
The health of Wall Street is the stuff of international news. Wall Street has moods. Sometimes it’s a bull (stocks are going up) and sometimes it’s a bear (stocks are going down).
Wall Street has come back from the Great Recession of 2008 much faster than most of the rest of us have. It’s been a bull more often than a bear recently. I’m here to suggest this is not just good news for rich people.
There was a time when people of the class with portfolios employed stockbrokers—a.k.a., upper-class bookies—who took orders by telephone after their customers had digested The Wall Street Journal over breakfast. Commissions started around 50 bucks, which would be about $430 in today’s money. Investing was a rich man’s game.
That is no longer true, unless we choose to make it true out of fear and habit. This is the age of online discount brokerages, with commissions ranging from zero. While there is a certain amount of “you get what you pay for,” there is never any reason to pay over 10 bucks to do a stock trade and unless you get into the research end of it, as I have, there’s little reason to pay more than five bucks.
There are places you can pay zero if you maintain a large balance, but those are not for beginners. An excellent place for beginners who don’t want to pay commissions is Loyal3. This outfit offers very few stocks, but most are called “blue chips” or “granny stocks,” meaning they are fairly safe and represent shares in companies that are likely to survive any economic downturn.
I began my investing adventures in 2008 with Sharebuilder, where automatic investments (what Loyal3 offers) cost $3.95 and real-time trades cost $6.95. Sharebuilder is more useful than Loyal3 because it allows you to buy any stock listed on a major exchange. I would not recommend it for real-time trades but now is a good time to say I will not be discussing real-time trades... unless this series catches on.
Also, I will have nothing to say about day-trading, trading on margin (except “Don’t!”), trading options (puts and calls), or selling short, beyond pointing out that selling short is how you make money if a stock goes down. Traders don’t much care which direction the market moves. They try to be long in a bull market and short in a bear market. I intend to explain investing, not trading.
At both Loyal3 and Sharebuilder you get market orders executed in batches, once a day or once a week. A “market order” means you buy or sell at whatever the price is when your order is executed. A trader would seldom if ever do a market order.
At both Loyal3 and Sharebuilder, you don’t say how many shares you want to buy. You say how much money you want to invest, and these discount brokers will purchase fractional shares for whatever sum you put in your account. Loyal3 requires a minimum order of 10 bucks.
Google, for example, is now selling for about $580 a share. I am right now accumulating Google shares for my wife $50 at a time. I used to accumulate Apple the same way, but they just did a 1 for 7 stock split that brought share prices down to about $93, an easier sum to raise.
Not all shares of good companies cost too much per share for most people to buy a full share. Intel is about $33; Microsoft $44; Nokia $7. Stocks that sell for under $5 a share are called “penny stocks.” While most penny stocks are cheap for a reason, it’s a form of gambling that’s a lot more fun than slot machines, if a bit slower.
Another slight advantage to Sharebuilder over Loyal3 is that Sharebuilder will reinvest your dividends automatically if you request it. Loyal3 gives you the cash and you have to reinvest it yourself, if you choose. I think it’s better to reinvest on autopilot so there is no temptation to spend your dividends.
Whether this series continues will depend on the number of people who read the first two parts. If this is not the end, I intend in the next installment to discuss the part Wall Street could play in your retirement, if you choose to let it.