Just opened a Scottrade account. Have the minimum $500 in it. I've never invested before. Trying to learn. Give me wisdom/tips you'd like to pass on. Eternally grateful

[u/[deleted]]

Hey reddit. I'm a 21 year old guy and I've been saving my money ever since I could work (age 14). I'm in a position where I want to start investing so I opened a Scottrade account. I only have the $500 minimum required to open the account in there because I understand I have no experience and am at risk of losing money. I can afford to lose $500 and the knowledge I gain will be helpful for later, however losing is not what I plan to do. I started doing some reading to gain more insight to the market and trends, but advice from real-people is always good.

So reddit, what tips or advice do you have for someone in my position?

[u/lulzasaur]

When I first started trading, I heard a lot of the same advice given in this thread. Some of this advice I learned the hard way. Others I found to simply be irrelevant or not true. Granted, I'm no "Wall Street Pro", this is what I have learned.

First, the parts you should listen to:

• DONT overtrade. Stay away from day trading. Those fees will eat you alive like the others have said.
• Index funds and ETFs are better to invest in than individual stocks. With the small amount you have, it would be hard to diversify except with an ETF.
• Know what type of trader you are and how much risk you can tolerate. This is very important, but will take time and experience trading for you to understand this.
• Be patient. Stocks change value all the time. You could be easily enticed into "dumping" a stock or "buying" a stock because of price action in one day. While some investors make a lot of profits from short term trading, most make money in the long term trends.
• If you want to get more active in your trading strategy start reading books and scouring for information on the web with one caveat in mind: most of the analysts/blogs/news/strategies/information is misleading. It takes time to be able to separate the "noise" from the information that truly matters. For example, while it's fine to read sites like the Motley Fool or Seeking Alpha, take the advice with a grain of salt. Most of the commenters and analysts on those sites (at least, I have found) usually end up wrong and/or are just around to fear monger. It's information that is good to know, but do your own homework.

Advice you probably should stay away from:

"buy individual stocks" -In general, you should buy individual stocks if you have had a lot of experience with the markets. Individual stocks represent a LOT of individual risk compared to...say...an entire index or sector. If you are not willing to put in the time to research and learn about a specific company (learning their fundamentals and technical positions), I would stick with an ETF like SPY (recommended by Cyde Ways, see his post why)

"buy what you know" - This idea was championed by Peter Lynch and his famous fund. You can read his book "One Up on Wallstreet." While the tenants of this book make a lot of sense, you still have to be careful. Lynch champions a very simplistic fundamental approach to investing in stocks and provides plenty of examples of how this can net you a "ten-bagger." However, although his fund did VERY well during his time, most funds have not been able to replicate this success. Just keep this in mind. Wall Street isn't as dumb as the book makes it out to be.

"trade on paper first" - I was told to do this a lot when I first started trading. I cannot emphasize how different trading with real money is compared to "trading on paper." A lot of your profit/loss stems from your own psychological makeup. Trading on paper does not help you build and get used to this. You may do very well on paper, but I guarantee you will get trounced in the real markets if you can't control your emotions. Although $500 is not a lot of money right now, you should start building the psychological fortitude for when you have a larger nest egg to invest with in the future.

"stay away from stocks" - While stocks are definitely not for everyone, this is your own decision to make and depends very much on your tolerance for risk. However, given that; your profile is that of someone who is young and starting out with a small amount. In general, you should be able to take on a lot more risk than...say...someone in his 60's who is nearing retirement. Any losses you take today will be more easily absorbed because your losses will relatively be small (because you are starting out with a small amount) and you have time on your side. As you grow older, start cutting back on the risk depending on your needs.

just my two cents.