Online Investing For Dummies

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.

• Introduction 1About this Book 1Foolish Assumptions 2Icons Used in This Book 2Beyond the Book 3Where to Go from Here 3Part 1: Getting Started Investing Online 5Chapter 1: Getting Yourself Ready for Online Investing 7Why Investing Online is Worth Your While 8 Getting Started 9Measuring How Much You Can Afford to Invest 12Turning yourself into a big saver 12Using desktop personal finance software 13Perusing personal finance websites 15Capitalizing from personal finance apps 17Saving with web-based savings calculators 18Relying on the residual method 19Using web-based goal-savings calculators 19Deciding How You Plan to Save 21To Be a Successful Investor, Start Now! 21Learning the Lingo 22Setting Your Expectations 23Keeping up with the rate of return 23The power of compounding 24Determining How Much You Can Expect to Profit 24Studying the past 25What the past tells you about the future 28Gut-Check Time: How Much Risk Can You Take? 30Passive or Active? Deciding What Kind of Investor You Plan to Be 31How to know if you’re a passive investor 31Sites for passive investors to start with 32How to know whether you’re an active investor 33Sites for the active investor to start with 34Chapter 2: Getting Your Device Ready for Online Investing 35Turning Your Device into a Trading Station 36Using favorites to put data at your fingertips 37Putting key mobile apps a touch away 38Compiling a list of must watch sites 39Tracking the Market’s Every Move 39Getting price quotes on markets and stocks 40Slicing and dicing the markets 41Your crystal ball: Predicting how the day will begin 43Getting company descriptions 44Keeping tabs on commodities 44Tracking bonds and U.S Treasurys 45Monitoring Market-Moving News 46Financial websites 46Traditional financial news sites 48Checking In on Wall Street Chatter 50Everyone is an expert: Checking in with blogs 51Finding blogs 52Getting in tune with podcasts 52Taming Twitter 53Keeping Tabs on the Regulators 54Executing Trades 56Searching the Internet High and Low 56Keeping the Bad Guys Out: Securing Your PC 57Mastering the Basics with Online Tutorials and Simulations 58Online tutorials 59Simulations 60Chapter 3: Choosing the Best Account Type for You 63Knowing How Different Accounts Are Taxed 64Taxable accounts 64Retirement accounts 64Education savings accounts 65Plain Vanilla: The Taxable Brokerage Account 66The importance of dividends 67How capital gains are taxed 69The high tax price of being short-term 70How long-term capital gains are taxed 71When you can win from your losses 71What to do with your worthless stock 73Using technology to measure your capital gain 74Measuring your capital gains if you’ve lost your records 77How dividends are taxed 79Retirement Accounts: Knowing Your 401(k)s from Your IRAs 80401(k)s: A great place to get started 82Managing your 401(k) plan online 83Getting in tune with IRAs 84Setting up an IRA 85Going Back to School with Education Savings Accounts 86Three numbers you need to know: 529 87Getting up to speed on 529 plans online 88Understanding 529 fees 89Living in the 529’s shadow: The Coverdell 90Chapter 4: Connecting with an Online Broker 91Finding the Best Broker for You 92The nine main factors to consider 92Gotchas to watch out for 94Separating the Types of Brokerages 94Paying the minimum with a deep discounter 95Get more with a discounter 97Full-service traditional 104Avoiding Hidden Fees 106Finding Out What Reviewers Think 108Is Your Money Safe? Checking Out Your Broker 110Cutting the Cord: Mobile Trading 111Pay Attention to Where Your Cash is Parked: Money Market Funds 113Buying Stocks and Mutual Funds without a Broker 114Stocks: Direct investments 114Mutual funds: Straight from the mutual fund company 116Opening and Setting Up Your Account 116The checklist of what you need to know 117The checklist of what you need to have 117Chapter 5: Getting It Done: How to Enter and Execute Trades 119Understanding How Stock Trades and Shares Are Handled 120Ways you can hold your investments 120A second in the life of a trade 126Getting It Done: Executing Your Trades 127Types of orders 127Costs of different orders 129Tailoring your trades even more 129Going off the Beaten Path with Different Trading Techniques 130Cashing in when stocks fall: Selling stock short 130Tracking the short sellers 131Living on borrowed time: Buying stock on margin 132The call you don’t want to get: The margin call 135The nightshift: Trading in the extended hours 135Knowing Your Options: Basic Ways to Best Use Options 136The different types of options 137Basic options strategies 137How to get option prices online 140How to buy options online 141Discovering more about options online 142Stepping Through Placing a Trade 143Using the brokerage’s website 143Using the brokerage’s mobile app 145Using the brokerage’s PC software 146Part 2: Using Online Investment Resources 149Chapter 6: Why Stock Prices Rise and Fall 151How Stocks Get into the Public’s Hands 152Step 1: An idea becomes a company 152Step 2: The company expands and grows 152Step 3: The company goes public 154Step 4: The new shares trade 155Why Stocks Move Up and Down in the Short Term 155Tracking the market’s every move 156Getting in tune with earnings reports 157Companies and the company they keep in their industries 162Monitoring the big cheese 165Where it all begins: Tracking prices of raw materials 165Getting with the mo’ 166Mania over merger chatter 167Why bond yields aren’t boring 168The heartbeat of the economy: Economic reports 168What they know that you don’t — Insider buying and selling 170Knowing how investors are feeling: Tracking market sentiment 172What Moves Stocks in the Long Term? 175Going back to school with academic research 175Learning from the wise men 176Chapter 7: Connecting with Other Investors Online 179Finding Kindred Investment Spirits Online 180Getting the Message with Stock Message Boards 180Stock message boards aren’t for everyone 181Understanding the types of stock message boards 181Knowing the ulterior motives of some online stock message board members 182Determining what exchange or market a stock trades on 184A penny saved: Beware of penny stocks 185Connecting with an Investment Club 187How to find an investment club that suits you 188Understanding the drawbacks of investment clubs 188Social Networking Comes of Age 189What’s the fuss about Twitter? 190Getting a read on the market with Twitter 193Giving Facebook some face time 194The Brave New World: Social Networking Meets Online Investing 196Social investing sites as a higher form of stock message boards? 196Plugging into social investing sites 197Starting to get social: Trying social investing sites 198Chapter 8: Measuring Your Performance 199The Importance of Tracking Your Performance 200Why it’s worth the trouble to measure your returns 200Why you want to measure your risk, too 201Calculating Your Performance Yourself 202The easiest way to calculate returns 203An easy way to calculate returns if you’ve deposited or taken out money 203The hardest way to calculate returns 205Calculating How Risky Your Portfolio is 206A simple way of calculating your average return 207Calculating your risk 209What does it all mean? Sizing up your portfolio 210Finding other things to compare your returns to 211Using Online Tools to Calculate Your Performance 212Looking at online performance-measurement tools 213Using personal finance and performance-tracking software 213Using stock simulation and social investing sites 214Using portfolio-tracking websites 215Using performance-analytics websites 216Chapter 9: Choosing an Asset Allocation 219The Recipe for Your Online Investing: Asset Allocation 220What’s so great about diversification? 221Zig-zag: The second element of diversification 221Bigger isn’t always better: Understanding size 223Picking investments with the right styles 224How rebalancing steadies your portfolio 226How discipline can save your portfolio from getting punished 227Using and Finding Your Perfect Asset Allocation 227Determining your current asset allocation 228Using guidelines 230Picking an asset allocation based on your risk tolerance 232Picking an asset allocation based on your goals 234Chapter 10: Finding and Buying Mutual Funds 237The Feeling is Mutual: Understanding Mutual Funds 238Considering the pros of mutual funds 238Drawbacks of mutual funds worth considering 239Types of Investment Companies 240Categorizing Mutual Funds 242Stock funds 242Bond funds 243Money market funds 243Hybrid funds 244What to Look for in a Mutual Fund 245Deciphering the morass of mutual fund fees 247Finding mutual funds that work for you 249Buying mutual funds with an online broker 250How to buy mutual funds without a broker 251Comparing Mutual Funds 252Putting funds’ characteristics side by side 252Analyzing a mutual fund’s risk 253Getting the Full Story: Reading a Mutual Fund’s Prospectus 254Getting More Information about Funds 255Chapter 11: Finding and Buying Exchange-Traded Funds 257Getting to Know ETFs 258Invest in Popular Indexes with ETFs 260How to Find the Right ETF for the Job 260Tracking ETFs’ every move 262ETF fees can vary 262Finding out how pricey an ETF is 264Using ETF-Recommending Robo-Advisors 265What the heck is a robo-advisor? 265Robo-advisors that hold your hand 266Robo-advisors that are completely automated 267ETFs That Go off the Beaten Path 269ETFs Have Issues, Too 270A Few Final Things to Consider about ETFs 271Using ETFs as a way to invest in themes 272Betting on commodities and currencies with ETFs 272Reading the fine print: The prospectus 273Part 3: Maximizing Investment Knowledge 275Chapter 12: Putting Companies Under the Microscope 277Understanding Financial Statements 278Downloading financial statements 279Reading the income statement 281Basics about the balance sheet 282Understanding the cash flow statement 284Putting it all together 284Spotting trends in financial statements 286Using financial statements to understand the company 288Unearthing Details about the Company from Regulatory Filings 289Finding the nitty-gritty description of the company 290Getting the details on company announcements 290Finding out whether the company is being sued 290Getting the truth from management 291Seeing whether the company got into a tiff with its auditors 292Weighing the risk of failure 293Seeing what the company is worried about 293Assessing how much the company’s management is getting paid 293Determining the independence of the company’s leadership 294Chapter 13: Evaluating Stocks’ Prospects 295Finding Out How to Not Overpay for Stocks 296Quick ways to determine how pricey a stock is 298Ways to interpret valuations 300Studying stocks using automated tools 303Shortcomings of studying stocks’ valuation ratios 303The armchair investor’s way to not overpay 305Evaluating Stocks’ Potential Return and Risk 305Measuring a stock’s total return 306Finding out more about risk and return online 307Digging Even Deeper: Advanced Valuation Techniques 308Using the dividend discount model to see whether a stock is on sale 308The value hunter’s favorite weapon: The discounted cash flow analysis 309Chapter 14: Finding Investment Ideas with Online Stock Screens 313Getting Familiar with Stock Screens 314Creating an online screen 315General characteristics you can use to screen stocks 316Choosing an online screening site 317Knowing What You’re Looking For: Popular Screening Variables 319The basics: Because you have to start somewhere 319Getting more particular: More advanced variables to screen for 321Finding stocks using trading-pattern variables 322Getting Started with Premade Screens 323Designing a Custom Screen 325Finding different industries’ best companies by using Yahoo! Finance 326Finding value or growth companies by using Morningstar’s Stock Screener 327Chapter 15: Analyzing the Analysts and Stock Pickers 329Picking Apart Professional Analyst Reports 330Accessing analyst reports online 330Determining which Wall Street analysts are worth listening to 332What to look for in an analyst report 334Pssst understanding the whisper number 335Accessing and understanding credit ratings 335Connecting with Online Stock Ratings 338Putting quant stock models to work for you 338Sharing stock ratings with other investors online 339Evaluating Stock- and Mutual Fund–Picking Newsletters and Websites 341Before you sign up for a stock-picking service 341Using newsletters to your advantage 342Chapter 16: Researching and Buying Bonds Online 345Getting Acquainted with Bonds 346Knowing who issues debt 347Online resources to find out more about bonds 350Common traits of bonds 350Finding and Buying Bonds Online 355Finding individual bonds online 355Sealing the deal: Buying individual bonds online 357Considering Bond Alternatives 359Money market funds and certificates of deposit 360Wall Street’s lost child: Preferred stock 361Part 4: The Part of Tens 363Chapter 17: Ten Top Mistakes Made by Online Investors 365Buying and Selling Too Frequently 366Letting Losers Run and Cutting Winners Short 367Focusing on the Per-Share Price of the Stock 367Failing to Track Risk and Return 368Taking Advice from the Wrong People 368Trying to Make Too Much Money Too Quickly 369Letting Emotions Take Over 370Looking to Blame Someone Else for Your Losses 371Ignoring Tax Considerations 372Dwelling on Mistakes Too Long 372Chapter 18: Ten Ways to Protect Your Investments and Identity Online 373Beware of Pyramid Schemes 374Steer Clear of Ponzi Schemes 375Avoid Tout Sheets and Know Whom You’re Taking Advice From 376Don’t Fall for Investment Spam Emails 377Understand Loopholes Scammers Can Use 378Familiarize Yourself with the Fingerprints of a Scam 379Learn to Be an Online Sleuth 380Know How to Complain If You Suspect a Fraud 380Make Sure That Your Computer is Locked Down 381Be Aware of Online Sources for More Information 382Chapter 19: Online Investors’ Ten Most Common Questions 383How Do I Find Out Which Companies Are Going to Split Their Stock? 384Can I Use Options to Boost My Returns? 384Can I Still Lose Money If I Invest in Bonds? 385What’s the Easiest Way to Invest in Commodities? 386How Long Will it Take for Me to Double My Money? 386Do I Have a Say in How a Company I’m Invested in Operates? 387How Can Deep-Discount Online Brokers Make Money Charging $5 or Less for Trades? 388How Are Hedge Funds, Private-Equity Funds, and Venture Capital Funds Different? 388If a Company is Buying Back Its Stock, Does That Mean the Stock is Cheap? 389If I Own a House, Do I Need to Hold Real-Estate Investment Trusts in My Stock Portfolio, Too? 390Index 391