From Rags To Riches Essay Research Paper

From Rags to Riches…. The Stock Market

Almost everyone in this world, has the same dream of never having to go

to work, to just be extremely wealthy. I am not an exception to that, the only

problem with this dream is people don t know how to obtain this goal. There are

many different ways to go about this, but my choice is taking the money I already

have and investing in the stock market. I am not at all an expert on the stock

market, the only involvement with the stock market was in 6th grade, with the

Stock Market Game. I have heard the stories of people

investing in companies and becoming extremely wealthy. In my I-Search Paper I

will investigate how to get started investing in the stock market and how to learn

to make the most money of your money in the stock market.

I am only 19 years old and have people already talking to me about

saving for my retirement. From my parents, all the way to the Presidential

candidates, and I can t believe it. I want to spend like crazy, I am young and

retirement in my eyes is a long way away. But, I also know that if I do act foolish

at a young age with my money, that later on in life I will regret it. My Father is 68

years old and is still working, I don t want to be working at 68. The stock market

to me seems like the safest way to earn money for retirement. As I see it, this will

allow me to save a little less because I will be getting back a larger return than

just a savings account with the bank.

As I see people drive past me in there new fancy car , I wonder if I will

ever be able to afford one and how did they get the money to afford it. I don t

want to wonder I want to know that I will be financially able to buy what I want. I

think that this seems very materialistic, but in the world we live in today,

everyone wants to have the best.

The stock market seems to challenge people in it s complexity, I am

hoping that in my research that I find it easier than assumed. In the Sacramento

Bee there is an article that is published every week written by the Motley Fools ,

which gives advice to the non-professional or new investors. They take all the

technical stock market terms and put them in Laymen s terms. I found out that

these Motley Fools have a book out called The Motley Fool Investment

Guide , I am going to use that book for information. I also plan to talk to my

mothers friend who is an Investment Consultant for Fidelity. The Internet will

also play a big role in obtaining information for my report.

The Internet can connect me to so many resources, that I think it will be

the biggest factor in my research. I can search the New York Stock Exchange to

editorial columns from the Sacramento Bee. Which will let me get different

perspectives from all different types of sources.

The main reason I choose this topic is that, this is something I know little

about. I feel that it is something that should be known very well. I actually

thought of just choosing a topic where I knew a lot, but figured that this was a

great opportunity to learn the stock market. I know that the stock market is not a

sure thing, but I do know that if I don t figure out how it works soon, I will be

behind in my financial goals. The stock market is not the lottery, but it does

almost seem to me that it s a higher form of gambling. I am ready to take the risk

of the stock market, at least after this paper I will feel a little safer with my

decisions in the future.

Section Two: My Research

In my own thinking , I thought finding information about the stock market

would be easy. I brainstormed a certain path I would take. I would start with the

newspaper, then the Internet, and then move on to the library.

All of this while reading The Motley Fool Investment Guide and preparing for

my interview. I figured that I should have some knowledge of the stock market

before interviewing a stock market analyst from Fidelity.

I start with the newspaper, going directly to the Business

section every morning. The newspaper has all the abbreviations of the stock

market identified and also some other useful definitions. The Sacramento Bee

newspaper gave me the bear essentials to learning the how to read stock

market page. Also, once a week, there is a section written by The Motley

Fools , whose book I am reading , that has small up to the date useful

investment tips for the new investor.

While still watching the newspaper, I move on to the Internet. Where I will

log on to America Online to surf the World Wide Web to find information. One tip

that the Motley Fools suggested was to visit the New York Stock Exchange

(NYSE) web site. Following there advice that was my first step on the Internet.

This site was set up perfectly for the beginner to the everyday investor. The

information I received from this one site was tremendous in the history of the

stock market, totally over exceeding my expectations. Yet, I still wanted to

search through the web to see if I could find any other useful facts I may not

have received from the NYSE. That search takes me through all kinds of sites,

from business sites to personal home pages. Most of the business sites had the

same information as the NYSE and the personal web pages were just not

trustworthy. I also sent out some e-mails to a few friends to get there opinion on

the stock market. But, for the most part the Internet had jump-started my

research.

The next step in my research was going to the library. The library was full

of beginner investment guides to the history of the stock market. These books I

am sure would have been more useful, but, it is to late to start reading another

book this late. I had to instead just take exerts of information, instead of getting

all the information that these books had. I should have realized this would have

happened earlier on and gone to the library first. My library visit was probably

the least helpful of all my research.

I am nearly finished with the book The Motley Fool Investment Guide, I

have gained tons of information from this book. I have gone from talking about

how to read the stock exchange to talking about what the Vanguards Index

Trust 500 Portfolio is. This book has totally exceeded expectations and has

made my research a lot easier to understand. This book has not just been easy

to understand, but fun to read with comedy mixed into it.

My last step in my research was to interview Alan of Fidelity who

is a Stock Market Analyst. Our meeting date was on December 1, because of

conflicting schedules. I had been writing questions for him throughout all of my

research. Some questions I have been able to answer myself , but I still have

around 35 questions for him. After my interview with Alan Marcum, I felt like a

beginner even more. My questions almost seemed so elementary for Mr.

Marcum that I felt like I was just wasting his time. He was very helpful though ,

even if my questions did not challenge him. I am now ready to get started on

the final section of my paper to see all my research come together. From

Rags to Riches?

Who doesn’t want to make the most of their money? Most people want to

turn their hard earned money into millions just like me. How to do that is the

biggest question. I think that the best answer is, investing in the stock market.

Many people fear that investing is too difficult to understand. But, that’s why I am

here to teach you the basics of investing in the stock market. When you’re ready

to invest, you have to start somewhere. The question is where? How do you

comfortably enter a world filled with nonsense and mystery? First, you do it

carefully. If you think you’re ready to invest but don’t know the first thing about it,

this is your investment guide.

Understanding what you want from investing, and then determining what

investments will help you achieve those goals is an important first step. Begin

with an understanding of yourself. What is it you want from your investments?

Are you looking for growth, income or some of both? No one investment will give

you everything you want so think about your objectives. Another important thing

is don’t think short term, this is not an automatic thing. You have to leave your

investments in the markets for a long time to get the most from your investment

dollar. Put money in the market that you won’t need for at least five years, and

preferably, ten. You need to make sure that you will have enough money for

now.

Are you comfortable with taking risks? Stocks go up and down. If you buy

a stock and the next day bad news is out and it’s down 10%, how will you react?

This is the hardest part, were not talking about simple savings accounts

anymore. That s like investing $1000 and the next day having it worth $900. Is

your first reaction to sell and run away? I know I would be really tempted to just

get out of it, would you? But a good investor will look at why the stock went down

and determine if this is a buying opportunity or whether the company is truly

“done.” If it’s the former, then an investor will look to buy more stock. If it’s the

latter, the investor will sell. But for good reasons, not from an emotional reaction.

The worst thing you can do is let your reactions take over, you have to be

patient.

Remember that all stocks are volatile, but they also represent one of the

best investing options. “Over the last 77 years, the larger stocks have returned

about 12% to investors(Marcum).” That’s an average, so some years those

stocks went down, but the last few years those stocks have had good

performances. So it’s easy to get very positive on stocks and point to the great

records they’ve produced. But those numbers don’t tell the whole story because

they are averages and include all stocks. If you think about buying stocks, you

won’t buy all of them. You’ll buy individual ones.

If you decide you can stand the sudden drops the market will sometimes

deliver and want to go into stocks, you might want to consider your first purchase

to be a mutual fund. This will give you professional management of your money

and good diversification over many industries. As I see it, mutual funds make

you feel safe about your money.

If you don’t want the volatility of stocks or simply want income, when I

interviewed Alan Mracum of Fidelity he said: “Then you’ll want to consider

buying fixed income investments. These come in many different varieties,

starting with the best first investment you can make: buy a money market fund.

You can do this by simply opening a brokerage account, and depositing the

minimum required by the broker.” Whatever your initial dollar amount is to

invest, you’ll automatically have the money put into a money market fund at your

brokerage firm. This is how you “weasel” out of taking the risk of the stock

market. But, it’s a good way to earn interest on your money while you learn more

about investing.

To a seasoned investor, buying a stock seems so obvious. But one of the

most basic aspects of buying a stock, actually paying for it, is a question many

new investors have. Can you use credit card? How long before you have to pay

for it? Do I need money in the account first? Here are some answers.

There are no specific rules that apply to each brokerage firm. Many

brokers have very strict and conservative ones while others are more lenient.

You’ll need to ask your broker what its rules are when you’re opening your

account so you won’t be surprised when you’re trying to buy a stock. In general,

the following is most typical for new accounts.

When you first open an account, it will most likely be a cash account. That

means you settle trades in cash. A stock trade settles three days after the trade

date, or the day you actually enter the order and buy a stock.

But you may not be able to enter an order to buy a stock without having

money in your account first. That’s because you don’t have a track record of

paying for stock with the broker. If your credit is outstanding and can be

demonstrated through a credit check, you’ll probably be allowed to buy up to a

certain amount of stock, say up to $2500 or so. But most people will have to

deposit the amount of money they’d like to invest before they enter an order to

buy a stock.

That means you have to send a check (the most common way of paying

for stock) to your broker or deliver it in person if there is a branch nearby and

have that check clear before you can buy a stock. You’ll earn interest on your

deposit on the day you hand over the check so you won’t lose any interest

income on your funds. Once the check is cleared and the money is free and

clear in your brokerage account, you can enter an order to buy a stock for up to

the amount of money you’ve deposited.

You may find a broker who isn’t this cautious and will allow you to enter

an order with no money in your account, but that is the exception. Again, you are

not known to the broker so you must establish a pattern of payment for your

stocks. That’s why it’s important to make sure you have the funds in your

account before you do the trade. Then, as you do more trades and you have

some securities in your account, you’ll be able to enter buy orders without

putting money in your account first. Then it’s important that you pay the future

purchases on time.

This part can’t be emphasized strongly enough. Make sure your payments

for your trades, usually checks, are made by the third business day after you

purchase a stock. Don’t mail the check on the settlement day or even the day

before. The check has to be in the broker’s hands by settlement date.

That’s because someone has sold the stock to you, and that party is

looking for its money, just as you would if you sold a stock. So if the broker

doesn’t have your money to give to the selling broker, it has to pay the money

from its own account. Brokers hate to do that (just as you and I do when we have

to “cover” for someone else’s commitments). That’s why you have to have the

money in your account by settlement date. Brokers don’t want to have to write a

check from their own account for you. They want your money because you

entered the order and are now responsible for the trade. Conversely, when you

sell a stock, and you want your money on settlement date, you will receive it,

whether or not the broker has received it from the person to whom the stock was

sold. It works both ways.

If you don’t pay for your purchases on time, your account becomes

restricted. That means you can only buy securities if the money is in the

account before you enter the trade(208 Gardener). A restricted account can be

a real pain, especially if you want to take advantage of a market dip. By making

sure your checks are in by settlement date, you won’t have to worry about

having your account restricted.

And once in a while, an investor will not respond to a broker’s calls to pay

for stock. By the way, that’s why you’re not allowed to use a P.O Box in your

application(NYSE). The broker has to be able to reach you. You have to give an

address and a phone number. When the broker is ignored after repeated tries to

the client, the stock is sold out of the account. If there is a loss, the client is

responsible for it. If there is a profit, the client must first pay for the stock before

receiving the profit. And then the account is closed.

There’s been some talk of using a credit card to buy stock, and some

firms have offered this to highly credit worthy investors. But in general, it has not

been widely used. Even if you have the opportunity, don’t use your credit card to

pay for stock. The interest on the borrowed money is at least 18% and if you

make that in a year on a stock, you’re doing very, very well. Also, there is always

a fee for taking a cash advance which is what buying a stock is. And finally,

you’re borrowing money to buy something that might go down. Imagine owing

the credit card and having a stock that’s worth less than the debt. If this option is

available, don’t use it.

Buying stock is easy. You just have to keep certain dates in mind and

develop a good pattern of paying for them. It makes buying and selling stocks in

the future much easier. I hope you found this informative and taught you the

begging of how to invest. Good Luck!!

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Works Cited

Gardner,David and Tom. The Motley Fool Investment Guide. New York :

Simon & Schuster, 1997.

Marcum, Alan. Fidelity Investment Advisor.Personal Interview. 1

December 2000.

New York Stock Exchange URL:http://www.nyse.com/about/about.html(28 Dec.

2000)