Introduction 1
About this Book 1
Foolish Assumptions 2
Icons Used in This Book 2
Beyond the Book 3
Where to Go from Here 3
Part 1: Getting Started Investing Online 5
Chapter 1: Getting Yourself Ready for Online Investing 7
Why Investing Online is Worth Your While 8 Getting Started 9
Measuring How Much You Can Afford to Invest 12
Turning yourself into a big saver 12
Using desktop personal finance software 13
Perusing personal finance websites 15
Capitalizing from personal finance apps 17
Saving with web-based savings calculators 18
Relying on the residual method 19
Using web-based goal-savings calculators 19
Deciding How You Plan to Save 21
To Be a Successful Investor, Start Now! 21
Learning the Lingo 22
Setting Your Expectations 23
Keeping up with the rate of return 23
The power of compounding 24
Determining How Much You Can Expect to Profit 24
Studying the past 25
What the past tells you about the future 28
Gut-Check Time: How Much Risk Can You Take? 30
Passive or Active? Deciding What Kind of Investor You Plan to Be 31
How to know if you’re a passive investor 31
Sites for passive investors to start with 32
How to know whether you’re an active investor 33
Sites for the active investor to start with 34
Chapter 2: Getting Your Device Ready for Online Investing 35
Turning Your Device into a Trading Station 36
Using favorites to put data at your fingertips 37
Putting key mobile apps a touch away 38
Compiling a list of must watch sites 39
Tracking the Market’s Every Move 39
Getting price quotes on markets and stocks 40
Slicing and dicing the markets 41
Your crystal ball: Predicting how the day will begin 43
Getting company descriptions 44
Keeping tabs on commodities 44
Tracking bonds and U.S Treasurys 45
Monitoring Market-Moving News 46
Financial websites 46
Traditional financial news sites 48
Checking In on Wall Street Chatter 50
Everyone is an expert: Checking in with blogs 51
Finding blogs 52
Getting in tune with podcasts 52
Taming Twitter 53
Keeping Tabs on the Regulators 54
Executing Trades 56
Searching the Internet High and Low 56
Keeping the Bad Guys Out: Securing Your PC 57
Mastering the Basics with Online Tutorials and Simulations 58
Online tutorials 59
Simulations 60
Chapter 3: Choosing the Best Account Type for You 63
Knowing How Different Accounts Are Taxed 64
Taxable accounts 64
Retirement accounts 64
Education savings accounts 65
Plain Vanilla: The Taxable Brokerage Account 66
The importance of dividends 67
How capital gains are taxed 69
The high tax price of being short-term 70
How long-term capital gains are taxed 71
When you can win from your losses 71
What to do with your worthless stock 73
Using technology to measure your capital gain 74
Measuring your capital gains if you’ve lost your records 77
How dividends are taxed 79
Retirement Accounts: Knowing Your 401(k)s from Your IRAs 80
401(k)s: A great place to get started 82
Managing your 401(k) plan online 83
Getting in tune with IRAs 84
Setting up an IRA 85
Going Back to School with Education Savings Accounts 86
Three numbers you need to know: 529 87
Getting up to speed on 529 plans online 88
Understanding 529 fees 89
Living in the 529’s shadow: The Coverdell 90
Chapter 4: Connecting with an Online Broker 91
Finding the Best Broker for You 92
The nine main factors to consider 92
Gotchas to watch out for 94
Separating the Types of Brokerages 94
Paying the minimum with a deep discounter 95
Get more with a discounter 97
Full-service traditional 104
Avoiding Hidden Fees 106
Finding Out What Reviewers Think 108
Is Your Money Safe? Checking Out Your Broker 110
Cutting the Cord: Mobile Trading 111
Pay Attention to Where Your Cash is Parked: Money Market Funds 113
Buying Stocks and Mutual Funds without a Broker 114
Stocks: Direct investments 114
Mutual funds: Straight from the mutual fund company 116
Opening and Setting Up Your Account 116
The checklist of what you need to know 117
The checklist of what you need to have 117
Chapter 5: Getting It Done: How to Enter and Execute Trades 119
Understanding How Stock Trades and Shares Are Handled 120
Ways you can hold your investments 120
A second in the life of a trade 126
Getting It Done: Executing Your Trades 127
Types of orders 127
Costs of different orders 129
Tailoring your trades even more 129
Going off the Beaten Path with Different Trading Techniques 130
Cashing in when stocks fall: Selling stock short 130
Tracking the short sellers 131
Living on borrowed time: Buying stock on margin 132
The call you don’t want to get: The margin call 135
The nightshift: Trading in the extended hours 135
Knowing Your Options: Basic Ways to Best Use Options 136
The different types of options 137
Basic options strategies 137
How to get option prices online 140
How to buy options online 141
Discovering more about options online 142
Stepping Through Placing a Trade 143
Using the brokerage’s website 143
Using the brokerage’s mobile app 145
Using the brokerage’s PC software 146
Part 2: Using Online Investment Resources 149
Chapter 6: Why Stock Prices Rise and Fall 151
How Stocks Get into the Public’s Hands 152
Step 1: An idea becomes a company 152
Step 2: The company expands and grows 152
Step 3: The company goes public 154
Step 4: The new shares trade 155
Why Stocks Move Up and Down in the Short Term 155
Tracking the market’s every move 156
Getting in tune with earnings reports 157
Companies and the company they keep in their industries 162
Monitoring the big cheese 165
Where it all begins: Tracking prices of raw materials 165
Getting with the mo’ 166
Mania over merger chatter 167
Why bond yields aren’t boring 168
The heartbeat of the economy: Economic reports 168
What they know that you don’t — Insider buying and selling 170
Knowing how investors are feeling: Tracking market sentiment 172
What Moves Stocks in the Long Term? 175
Going back to school with academic research 175
Learning from the wise men 176
Chapter 7: Connecting with Other Investors Online 179
Finding Kindred Investment Spirits Online 180
Getting the Message with Stock Message Boards 180
Stock message boards aren’t for everyone 181
Understanding the types of stock message boards 181
Knowing the ulterior motives of some online stock message board members 182
Determining what exchange or market a stock trades on 184
A penny saved: Beware of penny stocks 185
Connecting with an Investment Club 187
How to find an investment club that suits you 188
Understanding the drawbacks of investment clubs 188
Social Networking Comes of Age 189
What’s the fuss about Twitter? 190
Getting a read on the market with Twitter 193
Giving Facebook some face time 194
The Brave New World: Social Networking Meets Online Investing 196
Social investing sites as a higher form of stock message boards? 196
Plugging into social investing sites 197
Starting to get social: Trying social investing sites 198
Chapter 8: Measuring Your Performance 199
The Importance of Tracking Your Performance 200
Why it’s worth the trouble to measure your returns 200
Why you want to measure your risk, too 201
Calculating Your Performance Yourself 202
The easiest way to calculate returns 203
An easy way to calculate returns if you’ve deposited or taken out money 203
The hardest way to calculate returns 205
Calculating How Risky Your Portfolio is 206
A simple way of calculating your average return 207
Calculating your risk 209
What does it all mean? Sizing up your portfolio 210
Finding other things to compare your returns to 211
Using Online Tools to Calculate Your Performance 212
Looking at online performance-measurement tools 213
Using personal finance and performance-tracking software 213
Using stock simulation and social investing sites 214
Using portfolio-tracking websites 215
Using performance-analytics websites 216
Chapter 9: Choosing an Asset Allocation 219
The Recipe for Your Online Investing: Asset Allocation 220
What’s so great about diversification? 221
Zig-zag: The second element of diversification 221
Bigger isn’t always better: Understanding size 223
Picking investments with the right styles 224
How rebalancing steadies your portfolio 226
How discipline can save your portfolio from getting punished 227
Using and Finding Your Perfect Asset Allocation 227
Determining your current asset allocation 228
Using guidelines 230
Picking an asset allocation based on your risk tolerance 232
Picking an asset allocation based on your goals 234
Chapter 10: Finding and Buying Mutual Funds 237
The Feeling is Mutual: Understanding Mutual Funds 238
Considering the pros of mutual funds 238
Drawbacks of mutual funds worth considering 239
Types of Investment Companies 240
Categorizing Mutual Funds 242
Stock funds 242
Bond funds 243
Money market funds 243
Hybrid funds 244
What to Look for in a Mutual Fund 245
Deciphering the morass of mutual fund fees 247
Finding mutual funds that work for you 249
Buying mutual funds with an online broker 250
How to buy mutual funds without a broker 251
Comparing Mutual Funds 252
Putting funds’ characteristics side by side 252
Analyzing a mutual fund’s risk 253
Getting the Full Story: Reading a Mutual Fund’s Prospectus 254
Getting More Information about Funds 255
Chapter 11: Finding and Buying Exchange-Traded Funds 257
Getting to Know ETFs 258
Invest in Popular Indexes with ETFs 260
How to Find the Right ETF for the Job 260
Tracking ETFs’ every move 262
ETF fees can vary 262
Finding out how pricey an ETF is 264
Using ETF-Recommending Robo-Advisors 265
What the heck is a robo-advisor? 265
Robo-advisors that hold your hand 266
Robo-advisors that are completely automated 267
ETFs That Go off the Beaten Path 269
ETFs Have Issues, Too 270
A Few Final Things to Consider about ETFs 271
Using ETFs as a way to invest in themes 272
Betting on commodities and currencies with ETFs 272
Reading the fine print: The prospectus 273
Part 3: Maximizing Investment Knowledge 275
Chapter 12: Putting Companies Under the Microscope 277
Understanding Financial Statements 278
Downloading financial statements 279
Reading the income statement 281
Basics about the balance sheet 282
Understanding the cash flow statement 284
Putting it all together 284
Spotting trends in financial statements 286
Using financial statements to understand the company 288
Unearthing Details about the Company from Regulatory Filings 289
Finding the nitty-gritty description of the company 290
Getting the details on company announcements 290
Finding out whether the company is being sued 290
Getting the truth from management 291
Seeing whether the company got into a tiff with its auditors 292
Weighing the risk of failure 293
Seeing what the company is worried about 293
Assessing how much the company’s management is getting paid 293
Determining the independence of the company’s leadership 294
Chapter 13: Evaluating Stocks’ Prospects 295
Finding Out How to Not Overpay for Stocks 296
Quick ways to determine how pricey a stock is 298
Ways to interpret valuations 300
Studying stocks using automated tools 303
Shortcomings of studying stocks’ valuation ratios 303
The armchair investor’s way to not overpay 305
Evaluating Stocks’ Potential Return and Risk 305
Measuring a stock’s total return 306
Finding out more about risk and return online 307
Digging Even Deeper: Advanced Valuation Techniques 308
Using the dividend discount model to see whether a stock is on sale 308
The value hunter’s favorite weapon: The discounted cash flow analysis 309
Chapter 14: Finding Investment Ideas with Online Stock Screens 313
Getting Familiar with Stock Screens 314
Creating an online screen 315
General characteristics you can use to screen stocks 316
Choosing an online screening site 317
Knowing What You’re Looking For: Popular Screening Variables 319
The basics: Because you have to start somewhere 319
Getting more particular: More advanced variables to screen for 321
Finding stocks using trading-pattern variables 322
Getting Started with Premade Screens 323
Designing a Custom Screen 325
Finding different industries’ best companies by using Yahoo! Finance 326
Finding value or growth companies by using Morningstar’s Stock Screener 327
Chapter 15: Analyzing the Analysts and Stock Pickers 329
Picking Apart Professional Analyst Reports 330
Accessing analyst reports online 330
Determining which Wall Street analysts are worth listening to 332
What to look for in an analyst report 334
Pssst understanding the whisper number 335
Accessing and understanding credit ratings 335
Connecting with Online Stock Ratings 338
Putting quant stock models to work for you 338
Sharing stock ratings with other investors online 339
Evaluating Stock- and Mutual Fund–Picking Newsletters and Websites 341
Before you sign up for a stock-picking service 341
Using newsletters to your advantage 342
Chapter 16: Researching and Buying Bonds Online 345
Getting Acquainted with Bonds 346
Knowing who issues debt 347
Online resources to find out more about bonds 350
Common traits of bonds 350
Finding and Buying Bonds Online 355
Finding individual bonds online 355
Sealing the deal: Buying individual bonds online 357
Considering Bond Alternatives 359
Money market funds and certificates of deposit 360
Wall Street’s lost child: Preferred stock 361
Part 4: The Part of Tens 363
Chapter 17: Ten Top Mistakes Made by Online Investors 365
Buying and Selling Too Frequently 366
Letting Losers Run and Cutting Winners Short 367
Focusing on the Per-Share Price of the Stock 367
Failing to Track Risk and Return 368
Taking Advice from the Wrong People 368
Trying to Make Too Much Money Too Quickly 369
Letting Emotions Take Over 370
Looking to Blame Someone Else for Your Losses 371
Ignoring Tax Considerations 372
Dwelling on Mistakes Too Long 372
Chapter 18: Ten Ways to Protect Your Investments and Identity Online 373
Beware of Pyramid Schemes 374
Steer Clear of Ponzi Schemes 375
Avoid Tout Sheets and Know Whom You’re Taking Advice From 376
Don’t Fall for Investment Spam Emails 377
Understand Loopholes Scammers Can Use 378
Familiarize Yourself with the Fingerprints of a Scam 379
Learn to Be an Online Sleuth 380
Know How to Complain If You Suspect a Fraud 380
Make Sure That Your Computer is Locked Down 381
Be Aware of Online Sources for More Information 382
Chapter 19: Online Investors’ Ten Most Common Questions 383
How Do I Find Out Which Companies Are Going to Split Their Stock? 384
Can I Use Options to Boost My Returns? 384
Can I Still Lose Money If I Invest in Bonds? 385
What’s the Easiest Way to Invest in Commodities? 386
How Long Will it Take for Me to Double My Money? 386
Do I Have a Say in How a Company I’m Invested in Operates? 387
How Can Deep-Discount Online Brokers Make Money Charging $5 or Less for Trades? 388
How Are Hedge Funds, Private-Equity Funds, and Venture Capital Funds Different? 388
If a Company is Buying Back Its Stock, Does That Mean the Stock is Cheap? 389
If I Own a House, Do I Need to Hold Real-Estate Investment Trusts in My Stock Portfolio, Too? 390
Index 391
