YAI(investing)T - Stock sims vs. the real thing, is investing that easy?

[paulxcook]

I'm 22, almost 23, and only just started making enough money to invest. I've read a few books, talked to a few people (most of whom were unhelpful), and I understand a few basics of investing. Through my employer I can set up a dollar-for-dollar 401k, but I haven't yet. However, I also know I shouldn't rely on just that for retirement. Plus there's future kids' college to think about, and my savings account's interest rate is pathetic.

I found a stock/options trading sim at investopedia.com. You get $10k in fake money to invest however you will, and your success or failure is based on the actual stock market. Basically you can mess around with fake money in a real-world situation.

However, I'm not sure how realistic this is. Assuming I saved $10k as my starting-out money in investing, is it that easy to just set up a Scottrade account, type in a stock symbol, choose 75 shares, and buy?

Also, should a 401k and single stocks really be the extent of my investments? I've read good things about index funds, but is that in addition to single stocks, or a replacement for them? How much should I diversify, and how? I feel I have very disjointed knowledge about this stuff, it would probably be good for me to review something intended for a high school class or something, just to get a decent baseline of knowledge.

Cliffs:
I'm new at investing. Is the stock sim at investopedia.com realistic? What else should I plan on doing?

edit: message title

 

[lyssword]

Yes it's that easy (coming from a relative noob to stocks), However you must also add price for every trade ($10-20) so if you invest smaller amount, like 1k, it's not wise to buy 10-20 different stocks as the cost would be $100-200 to purchase and same to sell..
For now people are suggesting to buy big company stocks, as prices are cheaper per stock now.

 

[lyssword]

*doublepost

 

[Fritzo]

marked

 

[paulxcook]

Originally posted by: lyssword
Yes it's that easy (coming from a relative noob to stocks), However you must also add price for every trade ($10-20) so if you invest smaller amount, like 1k, it's not wise to buy 10-20 different stocks as the cost would be $100-200 to purchase and same to sell..
For now people are suggesting to buy big company stocks, as prices are cheaper per stock now.

Big company stocks? As in Microsoft, GE, etc? I thought those were considered long term stocks that are good for stability, but don't provide many gains? I realize they should play a part in ones portfolio, but surely not all or even most of it?

 

[crownjules]

Originally posted by: paulxcook
I found a stock/options trading sim at investopedia.com. You get $10k in fake money to invest however you will, and your success or failure is based on the actual stock market. Basically you can mess around with fake money in a real-world situation.

However, I'm not sure how realistic this is. Assuming I saved $10k as my starting-out money in investing, is it that easy to just set up a Scottrade account, type in a stock symbol, choose 75 shares, and buy?

Yes it is just that easy, for the most part. Sims allow you to test your trading system and work out the kinks. Be forewarned, however, that there is a psychology difference between simulation and real trading/investing. No matter how much in your mind you tell yourself "I will pretend like I am investing with real money", you won't. And when you do finally make the switch to real money, it will take some time to adjust to the emotional swings you'll experience when watching the stocks go up/down.

Also, should a 401k and single stocks really be the extent of my investments? I've read good things about index funds, but is that in addition to single stocks, or a replacement for them? How much should I diversify, and how? I feel I have very disjointed knowledge about this stuff, it would probably be good for me to review something intended for a high school class or something, just to get a decent baseline of knowledge.

I throw the majority of my money into index and mutual funds. I keep 'spare change' to invest/trade for now and, as I get more comfortable and successful, I will add to those amounts.

 

[lyssword]

Originally posted by: paulxcook

Originally posted by: lyssword
Yes it's that easy (coming from a relative noob to stocks), However you must also add price for every trade ($10-20) so if you invest smaller amount, like 1k, it's not wise to buy 10-20 different stocks as the cost would be $100-200 to purchase and same to sell..
For now people are suggesting to buy big company stocks, as prices are cheaper per stock now.

Big company stocks? As in Microsoft, GE, etc? I thought those were considered long term stocks that are good for stability, but don't provide many gains? I realize they should play a part in ones portfolio, but surely not all or even most of it?

I did say I'm a noob But because there was a recent stock market crash (china problem or something) it seems that a lot of stocks gotten cheaper and when they get back up to their normal price u'll make a little bit of money. Then again maybe i'm wrong

 

[drnickriviera]

Originally posted by: crownjules

Yes it is just that easy, for the most part. Sims allow you to test your trading system and work out the kinks. Be forewarned, however, that there is a psychology difference between simulation and real trading/investing. No matter how much in your mind you tell yourself "I will pretend like I am investing with real money", you won't. And when you do finally make the switch to real money, it will take some time to adjust to the emotional swings you'll experience when watching the stocks go up/down.

2nded. It's one thing to play around with fake money. When you have 10k of your own money on the line and the stock just dropped 10% and you're in the red, it's quite different.

 

[Schfifty Five]

Easy to trade through a brokerage (fidelity/scottrade/etc)

Easy to MAKE money through trading? hardly.

 

[paulxcook]

Originally posted by: lyssword
I did say I'm a noob But because there was a recent stock market crash (china problem or something) it seems that a lot of stocks gotten cheaper and when they get back up to their normal price u'll make a little bit of money. Then again maybe i'm wrong

Hey, I'm not criticizing. I know very little about it. What you said about the China crash makes sense, I guess. A big hit like that hurts almost everyone, but when it rebounds... yeah, that makes sense.

 

[paulxcook]

Originally posted by: Schfifty Five
Easy to trade through a brokerage (fidelity/scottrade/etc)

Easy to MAKE money through trading? hardly.

Care to expound?

 

[dullard]

1) Set up that 401k. Why throw away thousands of dollars of free money? Even if you are one of the worst investors possible and lose 50% of what is invested, you STILL will be even with what you put into it due to the employer match.

2) If you don't know what to buy with that 401k, buy something safe for now. An index fund, a money market account, heck even a bond fund. You can shift it over to whatever you want later when you feel you understand investing better.

3) I think of investing as being two parts. One part is that I want to be secure in my retirement. I don't want to be one of those crotchedly old men who complain that the 25 cent coffee after the senior discount is far too expensive and then pout through the whole day. The second part is that I want to take some risks and have fun.

Thus I have my employer matched retirement account as a diversified mix of mutal funds. I choose it to be fairly agressive to get a good yield, but diversified enough that that good yield is fairly guaranteed. I also have my own free money that I invest as I please in a second account. If I'm confident in a company, and its stock has taken a recent beating, then I buy it. If I was right that it is fundamentally a good company, I get a good reward. If not, I still have my stable retirement account.

 

[paulxcook]

dullard, that is exactly the kind of advice I was looking for. Thanks.

So, in a 401k you can choose where the money goes? Awesome. So, say I want to put $100 per paycheck into the 401k. That's an arbitrary number. I have a certain stock that I know is a good buy, but it's $10.08 per share, so I can only buy 9 shares. What happens to the extra $9+? Does it just come back to me?

 

[dullard]

Originally posted by: paulxcook
So, in a 401k you can choose where the money goes? Awesome. So, say I want to put $100 per paycheck into the 401k. That's an arbitrary number. I have a certain stock that I know is a good buy, but it's $10.08 per share, so I can only buy 9 shares. What happens to the extra $9+? Does it just come back to me?

With employer sponsored investments (401k, Simple, and the other varieties) you usually have a limited selection of what you can buy. For me, I can buy anything listed here. I can't just go out and buy one stock that I really want with my employer sponsored retirement account. That is one reason why I have a separate account for my own investments.

As for the extra $9, in my mutual funds, that isn't an issue. They just sell a fraction of a share of a mutual fund. It gets rounded to the nearest penny with each transaction. Sometimes I get an extra penny's worth of the fund, sometimes a penny less. Although, it appears that they tend to just keep that extra penny more often than not. With your example, if that was a mutual fund, I'd get 9.921 shares at a cost of $100.004. Where did that 0.4 cents come from? They gave it to me for free.

Ask your employer what your options are for your retirement account.

 

[Schfifty Five]

Originally posted by: paulxcook

Originally posted by: Schfifty Five
Easy to trade through a brokerage (fidelity/scottrade/etc)

Easy to MAKE money through trading? hardly.

Care to expound?

What's there to expound on?

Anyone can trade, it's easy to set up an account and start trading.

Is it easy to make money? Nope...if it were, wouldn't everyone be rich?

 

[LS20]

you have to consider cost of trades, limitations (# of trades before youre classified as pattern day trader), therell be tax on profits, restrictions on bonds and options etc etc etc

 

[alrocky]

Through my employer I can set up a dollar-for-dollar 401k

Set up that 401k. Why throw away thousands of dollars of free money? Ask your employer what your options are for your retirement account.

The Four Pillars of Investing by W. Bernstein
The Only Guide to a Winning Investment Strategy You'll Ever Need by L. Swedroe
All About Asset Allocation by R. Ferri
A Random Walk Down Wall Street by B. Malkiel
Why Smart People Make Big Money Mistakes and How to Correct Them by G. Belsky & T. Gilovich

What are you investment options in your 401(k)? It is to your advantage to start investing as soon as possible and as much as you can afford.

 

[paulxcook]

Originally posted by: alrocky

What are you investment options in your 401(k)? It is to your advantage to start investing as soon as possible and as much as you can afford.

Investment options are as follows:

- Dollar for dollar matching, up to 6% of my yearly salary
- It can be put toward any mutual fund that Fidelity offers
- The money is reinvested in my employers stock, but that is changeable.

It sounds like I need to get this sucker started ASAP.

Thanks for the book links, btw.

 

[aldamon]

Originally posted by: paulxcookI found a stock/options trading sim at investopedia.com. You get $10k in fake money to invest however you will, and your success or failure is based on the actual stock market. Basically you can mess around with fake money in a real-world situation.

It's probably realistic, but I think there's a little more pressure on you when it's real money, L2 is going haywire, and you "think" it's the bottom.

 

[VTHodge]

Originally posted by: paulxcook

Originally posted by: alrocky

What are you investment options in your 401(k)? It is to your advantage to start investing as soon as possible and as much as you can afford.

Investment options are as follows:

- Dollar for dollar matching, up to 6% of my yearly salary
- It can be put toward any mutual fund that Fidelity offers
- The money is reinvested in my employers stock, but that is changeable.

It sounds like I need to get this sucker started ASAP.

Thanks for the book links, btw.

If you can afford to do it, put in the full 6% now. That match is instant free money. Look through the list and pick the following:

- One Large Cap Growth
- One Large Cap Value
- One Small Cap Growth/Value
- One International / Emerging Markets

That is my strategy (just one of many of course), but it does provide good diversification. You may want to choose more than 4 funds. Once a year or so, look at the rate of return and ditch the low performing ones for better performing ones. Also, each time you get a raise, try bumping up that 6% by 0.5-1.0%. You won't notice the difference in your paycheck, since you got a raise anyways, but it will add up quickly.

Final advice is, don't "play" the stock market. Invest your money for the long term.

 

[alrocky]

Expense Ratio:
0.10% - Spartan 500 Index Investor - FSMKX
0.10% - Spartan Extended Mkt Index Inv - FSEMX
0.10% - Spartan Total Market Index Inv - FSTMX
0.10% - Spartan International Index Inv - FSIIX

500 Index + Extended Market = Total Market, so top 2 or FSTMX. Then the International Index. Perhaps a bond fund. But the ones I listed could represent the core / majority holdings of your 401(k) portfolio. Costs matter in investing so look for low Expense Ratios.

Vanguard Diehards reading list which includes links to free online books. You could register and ask additional questions there.

 

[ChAoTiCpInOy]

My high school uses investopedia.com for its econ class so that we can learn the innerworkings of the stock market. The only thing different I can tell from investopedia is the time delay to buy and sell. Other than that, it is like the real thing.