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Chapter 5: Research and Purchasing

Getting advice from a professional and doing your own research can help you determine what specific investments to buy. The internet is a great place to get information, but pay attention to the credentials of the person giving advice. If you are interested in purchasing stocks from a particular company, you can read their annual report to see how profitable the company has been. There are many publications on the stock market as well, including the Wall Street Journal, Forbes, Fortune, and BusinessWeek. You do not necessarily need to purchase them – you may be able to find them at the library or view content on-line for free.

If you are investing in a mutual fund, it is extremely important to pay attention to the fees the fund charges. The “load” is the commission charged by the broker or advisor selling you the shares. (There are many no-load funds available that do not have this fee.) The “expense ratio” shows the annual percentage of the fund’s assets that are used to pay for ongoing expenses. The higher the fees, the less money that goes to you. You may think that funds with higher fees perform better, but, for the most part, this is not actually the case.

You probably already have experience opening a checking and savings account, but you may not know where you can get stocks or bonds. Many credit unions and banks offer investment services. (If you already have an account with them, you may be able to speak to an advisor for free.) Brokerage firms are another option. There are full-service brokerages that will provide you with advice in addition to facilitating the purchase, and discount/on-line brokerages that just provide bare-bones service with no advice. As the name implies, discount brokers are typically cheaper, but first-time investors may prefer to pay more to get advice from a professional. In some cases, it is possible to buy the investment directly from the entity that is offering it. For example, as mentioned previously, you can buy Treasury bonds directly from the Department of the Treasury. There are also several companies that offer a direct stock purchase plan.

As the old saying goes, a penny saved is a penny earned. And if you invest that penny today, you can have two pennies tomorrow.
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