Like, if I have $100, can I buy exactly $100 worth of index funds or do I have to save up $160 for one share of an index fund if that’s the price of a single share?
Depends on the broker. Some, like Motif investing and Sharebuilder, let you buy fractional shares but it depends on their inventory and if they choose to do that for their clients. Generally the answer is you must save up for a single share of a stock or ETF. Mutual funds, however, let you buy fractions provided you meet the minimum investment for the fund.
How do trading fees work? When do you pay them?
Assuming you don’t have account maintenance fees or anything like that, trading fees are baked into your purchases and security sales.
For example, Index of Awesome is on sale at market for $100. Your brokerage is awesome and charges you $5 per trade. You won’t be able to buy that one share until you have $105 in your account.
Say you’re ready to cash out. Your Index of Awesome went to $1,000. Your broker’s fees haven’t changed. When you sell, you’ll get $995 back to compensate their fees being taken.
Mind you most brokers have flat rate commissions. This allows you to have economies of scale when buying and selling, so you can save money and increase returns by buy in bulk instead of individual stock shares. For example, whether you buy 1 or 100 shares of Index of Awesome, the brokerage will still only add $5 to the total, but if you buy the index and Snapchat at the same time, they will be two transactions for fee purposes.
How do you choose which funds to invest in?
Depends on what types of investments you want to be exposed to (this is asset allocation), what’s your risk tolerance, what your timeline for these funds will be, etc. This encompasses an entire industry and no short answer will suffice so I’d need more specifics to help out.
What the hell is portfolio balancing and how do I do it?
Say your portfolio contains two things: Awesome Index and Boring Bonds. Your research/neighbor/the dog you talks to you late at night says you should allocate your money 70% to Awesome Index (A) and 30% to Boring Bonds (B). Naturally over time the values will fluctuate and change as time goes along.
So once a year, or however often you’d like, you look at the portfolio when you want to rebalance. A did Awesome (as it should) and doubled in value. B was boring and only stayed the same. To rebalance, you’d sell A back down to the point where it would be back at 70% of the total portfolio and buy B with the excess cash to bring it back to 30%. In the long run, you’re trimming the assets that are doing well and investing in another that’s relatively out of favor because they different assets go in and out of style.
Do I print out my investments and balance them in a folder on my head?
Most websites have more data than you need for reviewing your holdings, but for recordkeeping you could always print out your monthly statement and keep that in a folder. I didn’t realize this was a joke until I wrote this.
If you have any questions or want me to help you with specifics, let me know and I’d be more than happy to help!