We're not fans of penny stocks (any stock that sells for less than $5 per share) for two reasons. First, they're difficult to research, as they're often not followed by analysts or scrutinized by the press. Often they appear in the form of cheap companies, with less-than-stellar track records, promising miracles -- like revolutionary fingerprinting technology or a cure for the common cold. Yeah, right.
The second reason is that they're very easy to hype and manipulate. Too often, hype causes them to soar briefly, then fiercely plummet back to earth, along with the hard-earned cash you invested.
Remember that a low price doesn't necessarily indicate a bargain. It might seem cool that you can buy 1,000 shares for just $5,000, but you're probably better off buying 50 shares of a higher-quality stock that sells for $100 per share. It's the amount of money you invest, not the number of shares you own, that matters.
Beware penny stocks. Most sell at a low price for a reason.
By Barbara Eisner Bayer (TMFVenus)
Feeling an urge to invest money for a major purchase in the stock market? Don't do it! Turn off CNBC. Run around the block a few times if you need to. The stock market can be extremely volatile over the short-term (generally defined as five years or less). You might get lucky, but there's a very real chance your investment will lose value, and that your deadline will force you to sell at an inopportune time. The last thing you want is to have to pare back your plans, or worse yet, start again from scratch.
The key to investing for a short-term goal is safety -- making sure you earn steady interest while avoiding risk. CDs, treasury bills, and money market funds are great vehicles for this type of investing. While not especially glamorous, they'll earn interest -- perhaps at a higher rate than you might expect -- and you'll be assured that your money will be there when you need it. Don't be so conservative, however, that you settle for the modest interest rates offered by most bank savings accounts. CDs and money market funds offer markedly higher yields.
You can start a CD at a local or online bank or brokerage, and a money market fund at any of the brokerages listed in the Fool's discount brokerage center. Be sure to check into all account fees before signing on; you wouldn't want to give back your interest in the form of account maintenance or inactivity fees. No doubt, every little bit will come in handy later on.
By Kevin Scollan (TMFKevin)
It is possible to invest if you have debt, but you need to look at your situation to decide if it's appropriate. Here are some general guidelines.
First, note that the kind of debt we are concerned about is unsecured, consumer debt. This is "bad" debt. If this kind of debt were a movie it would be Santa Claus Conquers the Martians. It's very bad. Credit cards are the main culprit here, but there are other sources, too. Mortgages are not included because the house acts as security for the debt and houses are generally appreciating assets.
Don't add money to a regular, taxable brokerage account if you have high-interest credit card debt. By paying off the credit cards, you are essentially getting a guaranteed return of 18%, or whatever your credit card's interest rate is.
Do participate in any employer-sponsored retirement plan, like a 401(k), at least to the extent that you take advantage of any employer matching. For instance, say your employer matches 25% of the first 6% of your gross salary that you contribute. Simply by contributing 6% of your salary to your 401(k), you're getting an immediate, guaranteed 25% return. You contribute $100 and suddenly, like magic, you have $125 in your account. And it's tax-deferred. It doesn't get much better than that. Anybody want to calculate the annualized return of 25% on a one-second investment?
The idea is simply that you want to put your money where it will do you the most good. Sometimes that will be paying off debt and sometimes it will be investments. If you're still stumped about what you should do, visit our discussion boards for some advice from those who've been there.
By Joseph Richardson (TMFPhool1)
You simply contact the new broker and ask for assistance. They'll send you forms for opening a new account with them and ACAT (Automated Customer Account Transfer) forms for the transfer. These are not difficult forms to fill out, and the new broker will actually send the ACAT forms to the old broker for you. You need never have any contact with them again, should you wish.
The hardest part of the process is choosing the new broker. If you haven't already selected one, visit our Discount Brokerage Center. There are many resources there that you should find helpful.
Another thing to be prepared for is how long the process takes. It should take only a couple of weeks, but it's revealing how these firms that are so quick to take your money will drag their feet in giving it back. It will more likely take a couple of months. Sometimes even longer. Ugh. If it takes longer than six weeks, ask your broker to contact the compliance officer at the old brokerage. That sometimes gets them moving.
By Tim Thurman (TMFDrT)
The so-called "wash sale" rule prohibits you from taking a capital loss for tax purposes if you sell and then repurchase an equivalent stock within 30 days (or any similar combination of transactions). In other words, you can't sell or close out your position in a stock for a loss in order to get the tax benefit and then turn around and buy a position in the same stock again right away. If you really want to use the loss for tax purposes, you'll have to sell, then wait 30 days to buy the same stock again.
By Tim Thurman (TMFDrT)
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