Expert: Paul Henneman - 6/19/2006

Question
Hello Paul,

I am 17 and became very interested in the stock market after hearing quite a few success stories from family friends. I wanted to know the differences of investing through a bank and the interent. What are the advantages and disadvantages of both? I need advice on recomended websites through which i should start trading stocks. Finally, what  are some reaosnable profits that i can make over the course of a single year by buying medium-risk shares and recieving a return.

Answer
Daniel,
   Thank you for your question!
The main differences between investing through banks or online websites is service and costs. Banks charge more in fees for you to trade, but have advisors that can help with organizing your investments. Banks typically have a minimum amount that you must start with as well. Some find the financial advice helpful that banks provide. But to be honest, the financial advisors most banks have lack experience and do not generally help much.
  Investing directly online means that you have to do more of  your own research, but the fees are much less. This is what I recommend since most of the 'professional' advice out there is of less quality than you could do yourself, if you are motivated and interested as it sounds like you are. Here are some websites to investigate:

www.FOLIOfn.com
www.Scottrade.com
www.etrade.com

Some websites that will help you learn about stocks investing:
www.morningstar.com
www.motleyfool.com (chat rooms at this site are good)

The most important thing when research is to make your own decisions. Everyone in finance will appear to have the answer, the perfect company for you to invest in, or the magic strategy. The more certain someone is about the market will do in the future, the more suspicious you should become that they are full of it. If it were easy or a sure thing, everyone would do it! Only research and skill that is aquired over time will help you.

Those should get you started. I listed them from cheapest to most expensive, so view each site with the 'what do you get for your fees' perspective in mind.
In terms of the returns you can expect in a year, that is not an easy question to answer. Some years are good and some bad. On average, the overall market sees about a 12% return each year. But some years are negative, some years are two or three times that much. For example, if you had invested two months ago, you would certainly have lost at least a few percent, more likely ten percent or more of your money as the stock market has taken a tumble. But it always recovers.

I believe that it is a dangerous thing to think in terms of what you can make in the next year. Investing cannot be thought of as a 'get rich quick' tactic. It takes alot of research to skillfully select stocks that will make you money, and even more importantly, to know when to sell to reduce a loss or lock in a profit. It takes time and research.
You are young and interested, and this is fantastic. If investing becomes a lifelong hobby for you, it will be of great benefit. You will make mistakes, particularly early on. So start with smaller sums of money. As you earn more money later on, and have time to learn more about the stock market and other investmetns, your portfolio will grow as will your skill.
Your investments will grow slowly at first, and at times it will seem like you are losing money. But stick to it, things always do better later on. The way the returns on your investments compound over time, it is like rolling a snow ball downhill. At first you will see little effect for perhaps several years. But you will gain skill and your investments will grow. As an example, if you have a great year and make 30% on your investments: if you have $1,000 this means $300 profit for the year. Hardly a life changing event. But if you have one million, it is a $300,000 profit. They trick is to be patient and disciplined, to keep at it for the first decade or two that will be needed to grow your investments to a large level.
I recommend also picking up a copy of "Investing for Dummies". While not a flattering title, it does give a good overview on most investment types, including stocks and mutual funds that may be of most interest to you. Resources and additional reading materials are cited for each subject area, so you could do more research on what interests you.

I hope this helps! Please do not hesitate to follow up with me if I can be of any additional service,

Sincerely,
Paul Henneman
President
ValuEngine, Inc.
www.ValuEngine.com
www.VEInstitutional.com
www.VEReports.com
www.ValuEngineView.com