Getting a jump start on your investments is an excellent thing to do when you are young.  Most people do not become interested in investing until they approach middle age, and by then they have missed out on a lot of time for their portfolios to grow.  I have heard a fair share of investors say that they wish they would have gotten started earlier in life.   That said, the wide world of investment can be a scary and uncertain place, especially for a young novice.  Let’s go through some of the basics.      

    So you’ve saved up $2,000, and you want to hit Wall Street.  The first thing you will need to do is open a brokerage account.  There are plenty to choose from: Scottrade, TdAmeritrade, Fidelity, Etrade, the list goes on and on.  I am with TdAmeritrade and I couldn’t be happier with them.  Do some research, read some reviews and you will find one that suits your needs.  If you are under 18, you will have to open up a sort of joint account with a parent.  It’s a little bit more hassle, but well worth it.      

    Once you have your account up and funded, it’s time for the fun part; deciding what you want to invest in.  There are so many options and different places to invest in that it can blow your mind.  First we must decide how we want to manage our amount of money.  With only a few thousand dollars, it’s tough to build a diversified portfolio, but you can get a good start on one.  The more money you have, the easier it will be to diversify.

    You are going to have to decide how many different stocks you want to purchase.  It’s all up to you how much money you want in each stock.  If you have $2,500, purchasing five different companies at $500 each makes for a good start.  If you comprise your portfolio of 25 stocks at $100 each, not only will you drive yourself mad trying to find 25 good investments, but you will spend a good percentage of your capital on brokerage fees that are charged on each trade.   

    To diversify your assets, invest in companies in various industries rather than loading up in the same or similar business sectors.  For instance, you could have stock in the oil, finance, agricultural, automotive, and retail industries.  It’s cliché, but don’t put all your eggs in one basket, as all industries will suffer from time to time.  Of course, you could instead invest in a mutual fund do your diversification that way.  This is also a possibility and I will write more about mutual funds in the near future.   

    In part 2, we will explore the process of selecting  individual stocks.