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[IMAGE] =09 For: Sara Shackleton[IMAGE] Topics covered: [IMAGE] There Are No Gua= rantees [IMAGE] Balancing Risk and Reward [IMAGE] Investing, Dollar by Do= llar [IMAGE] Putting It All Together Open an Account Now! [IMAGE]W= hat is Risk [IMAGE] Risk is the likelihood that you'll either lose mone= y or earn a lower return than you expect from any investment. To understand= more about risk, see "Understanding risk ". To gauge your personal risk = tolerance, use PlanBuilder to determine your investing style. [IMAGE]= What is Inflation [IMAGE] Inflation is the rising costs of goods and se= rvices. Over time, inflation makes a dollar able to buy fewer goods and ser= vices than it did in the past. For more on the effects of inflation read "T= he Impact of Inflation ". [IMAGE]What If I Had Invested [IMAGE] Her= e's an example of how dollar-cost averaging can work. If you had invested a= lump sum in the Standard & Poor's 500 index at the start of 1929, months b= efore the start of the Great Depression, by 1938 your investment would have= lost about one percent a year. That's ten years when your money would have= accomplished absolutely nothing for you. However, if you had spread your d= ollars into equal quarterly investments through the same period, you would = have earned 7.4 percent on average each year. Try using the "What If I ha= d Invested" tool below to experiment with what kind of return you would hav= e made on long-term dollar cost averaging. Try it now! Enter a stock symbo= l Quote Chart SEC Filings What if I had invested... Company Snapshot = [IMAGE]Dollar-Based Investing [IMAGE] Dollar-based investing has two ma= in advantages since it allows you to buy fractional shares of stocks: you c= an invest small amounts in order to purchase stocks whose share prices are = high, and you can make sure that all of your investment dollars are put to = work when you do make a purchase. Resources From ShareBuilder Dollar-Bas= ed Investing Asset Allocation with PlanBuilder Stocks and Index Shares C= losed-end Bond Funds Get Started with ShareBuilder Sign On to ShareBuilder= Open an Account Find out how ShareBuilder works Research a stock Try P= lanBuilder [IMAGE] Lesson 1 of 6: Are you ready to start investing i= n stocks? by Douglas Gerlach Are you ready to start investing in stocks= ? Congratulations. Before you get going, however, there are a few essential= concepts you should understand first. Working with these basic concepts is= the key to becoming a successful investor. Once you understand the potenti= al risks, rewards, and how to balance your choices in the market, you'll ha= ve the right foundation to continue your education and pick stocks for your= portfolio. [IMAGE] There Are No Guarantees The first thing you need to = know about investing is this: Whenever you invest, whether in stocks, bonds= , or even if you simply keep your dollars in a money market fund, there is = no guarantee you'll make a profit. With some investments, you could even lo= se money, ending up with less than you started with. Armed with the right k= nowledge, however, you can improve your odds of success significantly, bala= ncing the risks of investing with the potential rewards. [IMAGE] Balancin= g Risk and Reward Whenever you invest, you expose your money to some level= of risk. You might not think about it, but there is risk involved no matte= r what you do with your money. Most people recognize that stashing their li= fe savings under a mattress or in a cookie jar comes with the risk that the= ir money could be stolen (where do you think burglars look first when they = rob a house?) or destroyed (you might be able to find a fire-proof cookie j= ar, but your bed is definitely not safe in that department). Investing in = the stock market has its own kinds of risks. A stock you purchase might go = up or down in price (what's known as "fluctuation"). Stocks are volatile by= their very nature, and that's part of the inherent risk of investing in st= ocks. In the worst case, a stock could even become worthless and cause you = to lose 100% of your investment. However, it's important to recognize that = there are different kinds of stocks, and some stocks are riskier than other= s. You can't ever eliminate the risk associated with investing in stocks-bu= t you can certainly tame it and even put some of those volatile tendencies = to work for your benefit. Keeping Up with Inflation There is another imp= ortant kind of risk to consider-- even if you're investing in bonds or just= keeping your money in the bank. There's the risk that your investment won'= t grow fast enough to keep up with the effects of inflation. Over the years= , inflation has grown at about three to four percent a year on average. If = your money is sitting in a bank collecting interest at less than the rate o= f inflation, then that money will actually be worth less when you withdraw = it at some point down the road. Not Being Afraid of Risk Whenever you see= k higher returns, you must accept higher risk. The key is to balance the am= ount of risk appropriate for your circumstances (what experts call your ris= k tolerance) with the amount of reward you want to achieve. Every person ha= s a different tolerance for risk, and it's up to you to decide for yourself= how to build a portfolio that will serve you best. Historically, investin= g in stocks offers the chance to earn higher returns than investing in bond= s or keeping your money in the bank, but that opportunity comes with higher= risk. The essence of successful investing, though, is understanding and ac= cepting the fact that risk is unavoidable -- and managing that risk so you = can still sleep soundly at night. [IMAGE]Investing, Dollar by Dollar An= important concept that you can put to work when you use ShareBuilder to i= nvest in stocks is dollar-cost averaging. While this may sound like some co= mplicated strategy, it's really not so difficult to understand. When you us= e dollar-cost averaging, you automatically invest a fixed amount each week = or month in the purchase of a single security. That's all there is to it! = Why is dollar-cost averaging such a good long-term strategy? Stock prices c= an be volatile, rising and falling from week to week and month to month. Wh= en you make a weekly or monthly purchase, the price of the stock may be hig= her or lower than it was the month before. If you invest $100 a month, for = example, then your $100 will buy fewer shares when the price is high and mo= re shares when the price is low -- automatically. While dollar-cost averagi= ng doesn't assure a profit, over time the average cost of your shares will = generally tend to be lower than if you had made a single one-time investmen= t of the same amount. You might be using dollar-cost averaging right now = without even knowing it. If you invest in a 401(k) or other retirement plan= at work, you contribute a fixed amount each pay period to your account, wh= ich is then used to buy shares in one or more mutual funds. Over time, your= regular purchases will probably reduce the average cost you pay for all yo= ur shares -- and that can help increase your returns. You should recogniz= e that dollar-cost averaging doesn't protect you from investment losses. An= d a stock can decline until it's worthless -- so don't count on dollar-cost= averaging to protect you from the damage caused by buying a bad stock. Sh= areBuilder is designed to make dollar-cost averaging easy by allowing you t= o buy in dollar amounts - dollar-based investing. When you buy stocks at a = typical brokerage, you can only buy whole shares. If your chosen stock sell= s for $70 a share, and you have $200 to invest, then you can only buy two s= hares for $140 (plus commissions). The remaining $60 has to sit on the side= lines until the next month (which means it can't be working for you in your= portfolio). If you have $50 a month to invest at a typical brokerage, an= d the stock you've selected currently sells for $85 a share, what do you do= ? Either you wait until you scrape together the remaining $35 (and hope the= price doesn't go higher), or you find another stock. With ShareBuilder, d= ollar-based investing means you can purchase fractional shares with the ent= ire amount of your investment dollars. Your $200 will buy you 2.857 shares = of your $70 stock (without commissions). Or your $50 will buy you 0.588 sha= res of your $85 stock, so you don't have to put off investing until tomorro= w. [IMAGE] Putting It All Together Understanding these three basic conce= pts is key to becoming a successful investor. You must be aware of the ri= sks of investing. Understand how you can use strategies like dollar- cost a= veraging to invest in stocks. If you invest with your eye on the long-term,= you can often ride out bumpy times in the market. [IMAGE] Tomorrow: Lear= n the basics of building a portfolio. In our next lesson you'll learn the = basics about building a portfolio. You'll find out how to identify your fi= nancial goals, pay yourself first, and build a diversified portfolio of sto= cks. back to top [IMAGE] [IMAGE] subscribed: sshackl@enron.com = Click here to unsubscribe from: The ShareBuilder Long Term Investing Guide= . =09 ?2002 Netstock Corporation. ShareBuilder is a registered trademark of Nets= tock Corporation. Patent Pending. ShareBuilder Securities Corporation, a re= gistered broker dealer, is a subsidiary of Netstock Corporation and Member = NASD/SIPC. =09 =20
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