Making Sense Of Stocks

You can't build serious wealth without owning shares in the market. Here's all you need to get started.

go through a discount outfit such as Jack White or a full-service brokerage such as SalomonSmithBarney. Your broker will deal with dealers who work at the exchanges or field large orders and match buyers with sellers.

And, for you, the individual investor, there’s really not going to be much difference between the NYSE, Amex, and Nasdaq, either. Your focus should be on the company you choose to invest in, after all, which will determine how much you make on your money.

Paying The MiddleMan
You should also know-and keep in the back of your mind-that there are other folks benefiting from your choice to become a shareholder, too. Unless you buy-or sell-shares directly from a company itself, you’ll have to pay an intermediary, a middle-man, to take your money and purchase shares on the stock market. This dealer you’ll know as your broker. The price you pay is called a commission.

While the task at hand is essentially the same, transaction after transaction, be aware that the commission or the cut you pay a broker varies from firm to firm. For discount outfits on the Internet, like E-Trade or Ameritrade, you can pay between $10 and $15 for a purchase or sale of shares-sometimes less. If you use a firm such as Charles Schwab & Co., you might pay $29.95 for the same deal. And, at a full-service broker, that same order to buy or sell shares will cost more-possible as much as $60 all told.

For now, however, w
e’ll make a couple of suggestions. First, always figure a broker’s commission into your initial investment and your sale of shares. After all, it’s money coming out of your gains and off on its way to line the pockets of others. Another bee for your bonnet: the fact that you have to pay any commissions should serve up plenty of motivation not only to keep from trading over and over (which would run up your commission bill) but also to wait until you have a sizable chunk of cash. One rule of thumb: buy enough stock to keep your commission to 1% or less of the total sale. Put into a real-life scenario, that means that for a planned purchase of $2,500, you shouldn’t pay more than $25 for the transaction. If your broker charges more-we’ll say $40-then you should wait until you can buy $4,000 worth of the shares of whatever company has caught your fancy.

The Invisible Certificate
Once you purchase shares, don’t expect your stock certificate to come in the mail. Don’t start looking for a cozy place around the house to hide proof of purchase once you’ve bought stock.

Sure, we’ve all remembered seeing stock certificates-most probably in old movies. Widows would clutch them tightly when a villain came over to foreclose the mortgage. Or, once they had dynamited the bank safe, robbers would snatch them out of safe deposit boxes.

Certificates have quite a history, and in the past, they were beautifully done. They’ve also headed the way of the dinosaur. In this era,

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