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Investing Online For Dummies, 7th Edition

Book Description

Straightforward advice on investing online wisely with the most updated information available

If you're eager to take control of your investments but don't want to make it your full-time job, Investing Online For Dummies, 7th Edition will put you on your way. Completely updated to cover all the newest online tools and resources, this easy-to-understand guide gets you started with investing online and growing your online portfolio using the latest tools, information, and resources available. You'll learn to pick winning stocks, find an online broker, construct a profitable portfolio, research investment data online, and what considerations to take into account when making key decisions.

  • Addresses critical issues for beginner investors, such as setting reasonable expectations, figuring out how much to invest, assessing how much risk is appropriate, and picking an online broker

  • Pinpoints a variety of Web sites, online calculators, databases, and online communities that will help you make beneficial decisions

  • Delves into using online tools to calculate returns and risk, selecting mutual funds with online databases, analyzing stocks and financial statements, and buying bonds online

You'll quickly see the profits of the straightforward and fun online investing advice contained within Investing Online For Dummies, 7th Edition!

Table of Contents

  1. Copyright
  2. About the Author
  3. Author's Acknowledgments
  4. Publisher's Acknowledgments
  5. Introduction
    1. About This Book
    2. Who Invests Online?
    3. Foolish Assumptions
    4. Conventions Used in This Book
    5. How the Book Is Organized
      1. Part I: Getting Started Investing Online
      2. Part II: Using Online Investment Resources
      3. Part III: Maximizing Investment Knowledge
      4. Part IV: The Part of Tens
      5. Bonus Chapters on the Web Site: Alternative Investing Strategies
    6. Icons Used in This Book
    7. Where to Go from Here
  6. I. Getting Started Investing Online
    1. 1. Getting Yourself Ready for Online Investing
      1. 1.1. Why Investing Online Is Worth Your While
      2. 1.2. Getting Started
      3. 1.3. Measuring How Much You Can Afford to Invest
        1. 1.3.1. Turning yourself into a big saver
        2. 1.3.2. Using personal finance software
        3. 1.3.3. Perusing personal finance Web sites
        4. 1.3.4. Saving with Web-based savings calculators
        5. 1.3.5. Relying on the residual method
        6. 1.3.6. Using Web-based goal-savings calculators
      4. 1.4. Deciding How You Plan to Save
      5. 1.5. Want to Be a Successful Investor? Start Now!
      6. 1.6. Learning the Lingo
      7. 1.7. Setting Your Expectations
        1. 1.7.1. Keeping up with the rate of return
        2. 1.7.2. The power of compounding
      8. 1.8. Determining How Much You Can Expect to Profit
        1. 1.8.1. Studying the past
        2. 1.8.2. What the past tells you about the future
      9. 1.9. Gut-Check Time: How Much Risk Can You Take?
      10. 1.10. Passive or Active? Deciding What Kind of Investor You Plan to Be
        1. 1.10.1. How to know if you're a passive investor
        2. 1.10.2. Sites for passive investors to start with
        3. 1.10.3. How to know whether you're an active investor
        4. 1.10.4. Sites for the active investor to start with
    2. 2. Getting Your PC Ready for Online Investing
      1. 2.1. Turning Your PC into a Trading Station
        1. 2.1.1. Using favorites to put data at your fingertips
        2. 2.1.2. Compiling a list of must-watch sites
      2. 2.2. Tracking the Market's Every Move
        1. 2.2.1. Getting price quotes on markets and stocks
        2. 2.2.2. Slicing and dicing the markets
        3. 2.2.3. Your crystal ball: Predicting how the day will begin
        4. 2.2.4. Getting company descriptions
        5. 2.2.5. Keeping tabs on commodities
        6. 2.2.6. Tracking bonds and U.S. Treasurys
      3. 2.3. Monitoring Market-Moving News
        1. 2.3.1. Financial Web sites
        2. 2.3.2. Traditional financial news sites
      4. 2.4. Checking In on Wall Street Chatter
        1. 2.4.1. Everyone is an expert: Checking in with blogs
        2. 2.4.2. Finding blogs
        3. 2.4.3. Getting in tune with podcasts
        4. 2.4.4. Finding podcasts
        5. 2.4.5. Listening to podcasts
        6. 2.4.6. Getting your computer to do the work: RSS feeds
      5. 2.5. Keeping Tabs on the Regulators
      6. 2.6. Executing Trades
      7. 2.7. Searching the Internet High and Low
      8. 2.8. Keeping the Bad Guys Out: Securing Your PC
      9. 2.9. Mastering the Basics with Online Tutorials and Simulations
        1. 2.9.1. Online tutorials
        2. 2.9.2. Simulations
    3. 3. Choosing the Best Account Type for You
      1. 3.1. Knowing How Different Accounts Are Taxed
        1. 3.1.1. Taxable accounts
        2. 3.1.2. Retirement accounts
        3. 3.1.3. Education savings accounts
      2. 3.2. Plain Vanilla: The Taxable Brokerage Account
        1. 3.2.1. The importance of dividends
        2. 3.2.2. How capital gains are taxed
        3. 3.2.3. The high tax price of being short-term
        4. 3.2.4. How long-term capital gains are taxed
        5. 3.2.5. When you can win from your losses
        6. 3.2.6. What to do with your worthless stock
        7. 3.2.7. Using technology to measure your capital gain
        8. 3.2.8. Measuring your capital gains if you've lost your records
        9. 3.2.9. How dividends are taxed
      3. 3.3. Retirement Accounts: Knowing Your 401(k)s from Your IRAs
        1. 3.3.1. 401(k)s: A great place to get started
        2. 3.3.2. Managing your 401(k) plan online
        3. 3.3.3. Getting in tune with IRAs
        4. 3.3.4. Setting up an IRA
      4. 3.4. Going Back to School with Education Savings Accounts
        1. 3.4.1. Three numbers you need to know: 529
        2. 3.4.2. Getting up to speed on 529 plans online
        3. 3.4.3. Understanding 529 fees
        4. 3.4.4. Living in the 529's shadow: The Coverdell
    4. 4. Connecting with an Online Broker
      1. 4.1. Finding the Best Broker for You
        1. 4.1.1. Main factors to consider
        2. 4.1.2. "Gotchas" to watch out for
      2. 4.2. Separating the Types of Brokerages
        1. 4.2.1. Deep discounters: Trading for $5 or less
        2. 4.2.2. Discounters: Trading for $5.01 to $10
        3. 4.2.3. Premium discounters: Trading for $10 or more
        4. 4.2.4. Full-service traditional
      3. 4.3. Avoiding Hidden Fees
      4. 4.4. Finding Out What Reviewers Think
      5. 4.5. Is Your Money Safe? Checking Out Your Broker
      6. 4.6. Cutting the Cord: Wireless Trading
      7. 4.7. Pay Attention to Where Your Cash Is Parked: Money-Market Funds
      8. 4.8. Buying Stocks and Mutual Funds without a Broker
        1. 4.8.1. Stocks: Direct investments
        2. 4.8.2. Mutual funds: Straight from the mutual fund company
      9. 4.9. Opening and Setting Up Your Account
        1. 4.9.1. The checklist of what you need to know
        2. 4.9.2. The checklist of what you need to have
    5. 5. Getting It Done: How to Enter and Execute Trades
      1. 5.1. Understanding How Stock Trades and Shares Are Handled
        1. 5.1.1. Ways you can hold your investments
          1. 5.1.1.1. Street name ownership
          2. 5.1.1.2. Paper certificate ownership
          3. 5.1.1.3. Direct registration
        2. 5.1.2. A second in the life of a trade
        3. 5.1.3. ECNs: You have been assimilated
      2. 5.2. Getting It Done: Executing Your Trades
        1. 5.2.1. Types of orders
        2. 5.2.2. Costs of different orders
        3. 5.2.3. Tailoring your trades even more
      3. 5.3. Going off the Beaten Path with Different Trading Techniques
        1. 5.3.1. Cashing in when stocks fall: Selling stock short
        2. 5.3.2. Tracking the short sellers
        3. 5.3.3. Living on borrowed time: Buying stock on margin
        4. 5.3.4. The call you don't want to get: The margin call
        5. 5.3.5. The nightshift: Trading in the extended hours
      4. 5.4. Knowing Your Options: Basic Ways to Best Use Options
        1. 5.4.1. The different types of options
        2. 5.4.2. Basic options strategies
        3. 5.4.3. How to get option prices online
        4. 5.4.4. How to buy options online
        5. 5.4.5. Discovering more about options online
  7. II. Using Online Investment Resources
    1. 6. Why Stock Prices Rise and Fall
      1. 6.1. How Stocks Get into the Public's Hands
        1. 6.1.1. Step 1: An idea becomes a company
        2. 6.1.2. Step 2: The company expands and grows
        3. 6.1.3. Step 3: The company goes public
        4. 6.1.4. Step 4: The new shares trade
      2. 6.2. Why Stocks Move Up and Down in the Short Term
        1. 6.2.1. Tracking the market's every move
        2. 6.2.2. Getting in tune with earnings reports
          1. 6.2.2.1. Getting the goods
          2. 6.2.2.2. What's so important about earnings reports?
        3. 6.2.3. Companies and the company they keep in their industries
        4. 6.2.4. Monitoring the big cheese
        5. 6.2.5. Where it all begins: Tracking prices of raw materials
        6. 6.2.6. Getting with the mo'
        7. 6.2.7. Mania over merger chatter
        8. 6.2.8. Why bond yields aren't boring
        9. 6.2.9. The heartbeat of the economy: Economic reports
        10. 6.2.10. What they know that you don't — Insider buying and selling
        11. 6.2.11. Knowing how investors are feeling: Tracking market sentiment
      3. 6.3. What Moves Stocks in the Long Term?
        1. 6.3.1. Going back to school with academic research
        2. 6.3.2. Learning from the wise men
    2. 7. Connecting with Other Investors Online
      1. 7.1. Finding Kindred Investment Spirits Online
      2. 7.2. Getting the Message with Stock Message Boards
        1. 7.2.1. Stock message boards aren't for everyone
        2. 7.2.2. Understanding the types of stock message boards
          1. 7.2.2.1. The investing areas of general Internet portals
          2. 7.2.2.2. Specialized stock message boards
          3. 7.2.2.3. Stock message board aggregators
        3. 7.2.3. Knowing the ulterior motives of some online stock message board members
        4. 7.2.4. Determining what exchange or market a stock trades on
        5. 7.2.5. A penny saved: Beware of penny stocks
      3. 7.3. Tapping into Online Newsgroups
        1. 7.3.1. How to locate specific online newsgroups
        2. 7.3.2. How to participate in online newsgroups
      4. 7.4. Connecting with an Investment Club
        1. 7.4.1. How to find an investment club that suits you
        2. 7.4.2. Understanding the drawbacks of investment clubs
      5. 7.5. Social Networking Comes of Age
        1. 7.5.1. What's the fuss about Twitter?
          1. 7.5.1.1. Getting your tweet on
          2. 7.5.1.2. Being a good follower
          3. 7.5.1.3. Turning Twitter into an online investing tool
        2. 7.5.2. Giving Facebook some face time
          1. 7.5.2.1. Getting your mug on Facebook
          2. 7.5.2.2. Using Facebook for investing online
      6. 7.6. The Brave New World: Social Networking Meets Online Investing
        1. 7.6.1. Social investing sites as a higher form of stock message boards?
        2. 7.6.2. Plugging into social investing sites
        3. 7.6.3. Starting to get social: Trying social investing sites
        4. 7.6.4. Choosing a social investing site
    3. 8. Measuring Your Performance
      1. 8.1. The Importance of Tracking Your Performance
        1. 8.1.1. Why it's worth the trouble to measure your returns
        2. 8.1.2. Why you want to measure your risk, too
      2. 8.2. Calculating Your Performance Yourself
        1. 8.2.1. The easiest way to calculate returns
        2. 8.2.2. An easy way to calculate returns if you've deposited or taken out money
        3. 8.2.3. The hardest way to calculate returns
      3. 8.3. Calculating How Risky Your Portfolio Is
        1. 8.3.1. A simple way of calculating your average return
        2. 8.3.2. Calculating your risk
        3. 8.3.3. What does it all mean? Sizing up your portfolio
        4. 8.3.4. Finding other things to compare your returns to
      4. 8.4. Using Online Tools to Calculate Your Performance
        1. 8.4.1. Looking at online performance-measurement tools
        2. 8.4.2. Using personal finance and performance-tracking software
        3. 8.4.3. Using stock simulation and social investing sites
        4. 8.4.4. Using portfolio-tracking Web sites
        5. 8.4.5. Using performance-tracking Web sites
    4. 9. Choosing an Asset Allocation
      1. 9.1. The Recipe for Your Online Investing: Asset Allocation
        1. 9.1.1. What's so great about diversification?
        2. 9.1.2. Zig-zag: The second element of diversification
        3. 9.1.3. Bigger isn't always better: Understanding size
        4. 9.1.4. Picking investments with the right styles
        5. 9.1.5. How rebalancing steadies your portfolio
        6. 9.1.6. How discipline can save your portfolio from getting spanked
      2. 9.2. Using and Finding Your Perfect Asset Allocation
        1. 9.2.1. Determining your current asset allocation
        2. 9.2.2. Using guidelines
          1. 9.2.2.1. Intuit's Quicken financial software
          2. 9.2.2.2. Efficient Frontier
          3. 9.2.2.3. AssetBuilder
          4. 9.2.2.4. Money Chimp
          5. 9.2.2.5. Iowa Public Employees' Retirement System
          6. 9.2.2.6. SmartMoney.com Asset Allocator
          7. 9.2.2.7. Gummy Stuff
        3. 9.2.3. Picking an asset allocation based on your risk tolerance
        4. 9.2.4. Picking an asset allocation based on your goals
    5. 10. Finding and Buying Mutual Funds
      1. 10.1. The Feeling Is Mutual: Understanding Mutual Funds
        1. 10.1.1. Considering the pros of mutual funds
        2. 10.1.2. Drawbacks of mutual funds worth considering
      2. 10.2. Types of Investment Companies
      3. 10.3. Categorizing Mutual Funds
        1. 10.3.1. Stock funds
        2. 10.3.2. Bond funds
        3. 10.3.3. Money market funds
        4. 10.3.4. Hybrid funds
      4. 10.4. What to Look for in a Mutual Fund
        1. 10.4.1. Deciphering the morass of mutual fund fees
        2. 10.4.2. Finding mutual funds that work for you
        3. 10.4.3. How to buy mutual funds with an online broker
        4. 10.4.4. How to buy mutual funds without a broker
      5. 10.5. Comparing Mutual Funds to Each Other
        1. 10.5.1. Putting funds' characteristics side by side
        2. 10.5.2. Analyzing a mutual fund's risk
      6. 10.6. Getting the Full Story: Reading a Mutual Fund's Prospectus
      7. 10.7. Getting More Information about Funds
    6. 11. Finding and Buying Exchange-Traded Funds
      1. 11.1. Getting to Know the Newcomers: ETFs
      2. 11.2. Invest in Popular Indexes with ETFs
      3. 11.3. How to Find the Right ETF for the Job
        1. 11.3.1. Tracking ETFs' every move
        2. 11.3.2. ETF fees can vary
        3. 11.3.3. Finding out how pricey an ETF is
      4. 11.4. ETFs That Go off the Beaten Path
      5. 11.5. ETFs Have Issues, Too
      6. 11.6. A Few Final Things to Consider about ETFs
        1. 11.6.1. Using ETFs as a way to invest in themes
        2. 11.6.2. Betting on commodities and currencies with ETFs
        3. 11.6.3. Reading the fine print: The prospectus
        4. 11.6.4. Using an online ETF recommendation service
  8. III. Maximizing Investment Knowledge
    1. 12. Putting Companies Under the Microscope
      1. 12.1. Understanding Financial Statements
        1. 12.1.1. Downloading financial statements
        2. 12.1.2. How to read the income statement
        3. 12.1.3. Basics about the balance sheet
        4. 12.1.4. What you need to know about the cash flow statement
        5. 12.1.5. Putting it all together
        6. 12.1.6. How to spot trends in financial statements
          1. 12.1.6.1. A company's growth rate
          2. 12.1.6.2. A company's financial composition
        7. 12.1.7. Using financial statements to understand the company
      2. 12.2. Unearthing Details about the Company from Regulatory Filings
        1. 12.2.1. Finding the nitty-gritty description of the company
        2. 12.2.2. Getting the details on company announcements
        3. 12.2.3. Finding out whether the company is being sued
        4. 12.2.4. Getting the truth from management
        5. 12.2.5. Seeing whether the company has gotten into a tiff with its auditors
        6. 12.2.6. Weighing the risk of failure
        7. 12.2.7. Seeing what the company is worried about
        8. 12.2.8. Assessing how much the company's management is getting paid
        9. 12.2.9. Determining how independent the company's leadership is
    2. 13. Evaluating Stocks' Prospects
      1. 13.1. Finding Out How to Not Overpay for Stocks
        1. 13.1.1. Quick ways to determine how pricey a stock is
        2. 13.1.2. Ways to interpret valuations
        3. 13.1.3. Studying stocks using automated tools
        4. 13.1.4. Shortcomings of studying stocks' valuation ratios
        5. 13.1.5. The armchair investor's way to not overpay
      2. 13.2. Evaluating Stocks' Potential Return and Risk
        1. 13.2.1. Measuring a stock's total return
        2. 13.2.2. Finding out more about risk and return online
      3. 13.3. Digging Even Deeper: Advanced Valuation Techniques
        1. 13.3.1. Using the dividend discount model to see whether a stock is on sale
        2. 13.3.2. The value hunter's favorite weapon: The discounted cash flow analysis
    3. 14. Finding Investment Ideas with Online Stock Screens
      1. 14.1. Getting Familiar with Stock Screens
        1. 14.1.1. How you can create an online screen
        2. 14.1.2. General characteristics you can use to screen stocks
        3. 14.1.3. Choosing an online screening site
      2. 14.2. Knowing What You're Looking For: Popular Screening Variables
        1. 14.2.1. The basics: 'Cause you have to start somewhere
        2. 14.2.2. Getting more particular: More advanced variables to screen for
        3. 14.2.3. Finding stocks using trading-pattern variables
      3. 14.3. Getting Started with Premade "Canned" Screens
      4. 14.4. Designing Your Own Custom Screens
        1. 14.4.1. Finding different industries' best companies using Google Finance
        2. 14.4.2. Finding value or growth companies using Morningstar's Stock Screener
    4. 15. Analyzing the Analysts and Stock Pickers
      1. 15.1. Picking Apart Professional Analyst Reports
        1. 15.1.1. How to access analyst reports online
        2. 15.1.2. Determining which Wall Street analysts are worth listening to
        3. 15.1.3. What to look for in an analyst report
        4. 15.1.4. Pssst... understanding the "whisper number"
        5. 15.1.5. Accessing and understanding credit ratings
      2. 15.2. Connecting with Online Stock Ratings
        1. 15.2.1. Putting quant stock models to work for you
        2. 15.2.2. Sharing stock ratings with other investors online
      3. 15.3. Evaluating Stock- and Mutual Fund–Picking Newsletters and Web Sites
        1. 15.3.1. Before you sign up for a stock-picking service...
        2. 15.3.2. Using newsletters to your advantage
    5. 16. Researching and Buying Bonds Online
      1. 16.1. Getting Acquainted with Bonds
        1. 16.1.1. Knowing who issues debt
        2. 16.1.2. Online resources to find out more about bonds
        3. 16.1.3. Common traits of bonds
      2. 16.2. How to Find and Buy Bonds Online
        1. 16.2.1. Finding individual bonds online
        2. 16.2.2. Sealing the deal: Buying individual bonds online
      3. 16.3. Considering Bond Alternatives
        1. 16.3.1. Money market funds and certificates of deposit
  9. IV. The Part of Tens
    1. 17. Ten Top Mistakes Made by Online Investors
      1. 17.1. Buying and Selling Too Frequently
      2. 17.2. Letting Losers Run and Cutting Winners Short
      3. 17.3. Focusing on the Per-Share Price of the Stock
      4. 17.4. Failing to Track Risk and Return
      5. 17.5. Taking Advice from the Wrong People
      6. 17.6. Trying to Make Too Much Money Too Quickly
      7. 17.7. Letting Emotions Take Over
      8. 17.8. Looking to Blame Someone Else for Your Losses
      9. 17.9. Ignoring Tax Considerations
      10. 17.10. Dwelling on Mistakes Too Long
    2. 18. Ten Ways to Protect Your Investments and Identity Online
      1. 18.1. Beware of Pyramid Schemes
      2. 18.2. Steer Clear of Ponzi Schemes
      3. 18.3. Avoid Tout Sheets and Know Who You're Taking Advice From
      4. 18.4. Don't Fall for Investment Spam E-Mails
      5. 18.5. Understand Loopholes Scammers Can Use
      6. 18.6. Familiarize Yourself with the Fingerprints of a Scam
      7. 18.7. Learn to Be an Online Sleuth
      8. 18.8. Know How to Complain If You Suspect a Fraud
      9. 18.9. Make Sure That Your Computer Is Locked Down
      10. 18.10. Be Aware of Online Sources for More Information
    3. 19. Online Investors' Ten Most Common Questions
      1. 19.1. How Do I Find Out Which Companies Are Going to "Split" Their Stock?
      2. 19.2. Can I Use Options to Boost My Returns?
      3. 19.3. Can I Still Lose Money If I Invest in Bonds?
      4. 19.4. What's the Easiest Way to Invest in Commodities?
      5. 19.5. How Long Will It Take for Me to Double My Money?
      6. 19.6. Do I Have a Say in How a Company I'm Invested in Operates?
      7. 19.7. How Can Deep-Discount Online Brokers Make Money Charging $5 or Less for Trades?
      8. 19.8. How Are Hedge Funds, Private-Equity Funds, and Venture Capital Funds Different?
      9. 19.9. If a Company Is Buying Back Its Stock, Does That Mean the Stock Is Cheap?
      10. 19.10. I Own a House. Do I Need to Hold Real-Estate Investment Trusts in My Stock Portfolio, Too?
  10. 20. Broadening Your Horizons: International Stocks
    1. BC1.1. Why Investing in Foreign Stocks Is a Good Idea
      1. BC1.1.1. What are international and emerging markets?
      2. BC1.1.2. Advantages to investing overseas
      3. BC1.1.3. Where to find out more about international investing online
    2. BC1.2. Taking the Plunge: How to Trade Foreign Stocks
      1. BC1.2.1. Going direct: Buying foreign stocks from the local exchange
      2. BC1.2.2. Going the ADR route to invest internationally
      3. BC1.2.3. Opting for an international mutual fund
      4. BC1.2.4. Going international with ETFs
    3. BC1.3. Understanding the Unique Risks of Investing Internationally
  11. 21. Taking It Further: Technical Analysis and Initial Public Offerings
    1. BC2.1. What Is Technical Analysis?
    2. BC2.2. Getting Started with Technical Analysis
      1. BC2.2.1. Dissecting the online stock quote
      2. BC2.2.2. The many levels of stock quotes
      3. BC2.2.3. How technical analysts interpret quote data and charts
        1. BC2.2.3.1. Price trends
        2. BC2.2.3.2. Volume
        3. BC2.2.3.3. Patterns
      4. BC2.2.4. Finding out more about technical analysis online
    3. BC2.3. Letting Web Sites Read Charts for You
    4. BC2.4. Getting in Early: Investing in IPOs
      1. BC2.4.1. Beware of the risks of IPOs
      2. BC2.4.2. Online sources for information about IPOs
      3. BC2.4.3. Picking the good IPOs from the not-so-good
      4. BC2.4.4. How to invest in IPOs