According to Investopedia, about 80% of mutual funds fail to outperform the S&P 500. So why take an 80% risk of underperforming the stock market with mutual funds when there are index ETFs, like the SPY, that track the S&P 500? The choice seems pretty clear! An S&P 500 ETF like the SPY is very easy to invest in and should outperform most mutual funds. Please note that index ETF's do have a small expense fee which will cause an index ETF like the SPY to slightly underperform the S&P 500. But the trading costs associated with creating the S&P 500 in your own portfolio would be far greater then the SPY's expense ratio. With this small fee an S&P 500 ETF should still outperform most mutual funds due to the already high percentage of mutual funds that can't beat the S&P 500.

Not only do index ETFs outperform most mutual funds, but they also have lower expenses ratios. Through our research, we found that on average mutual fund expense ratios are about 3 times more then the average Index ETF expense ratio. CNN Money claims that the average mutual fund expense is 1.35% and the average ETF expense is 0.41%. If index ETF performance alone isn't enough to convince you, hopefully the lower expense ratio of ETFs will. Also remember that expenses are usually not included in a funds reported performance.

Although index ETFs, like the SPY, perform much better then most mutual funds, the Market Flavor sample stock portfolio has greatly outperformed the S&P 500. We utilize quality stocks with good valuations and high growth potential to create a winning stock portfolio. Along with those top notch stocks we use different ETFs to give us access to strong industries and foreign countries. Give our simple online investment service a try!

Read more about the SPY index ETF at Yahoo Finance.

Below we have constructed a list of ETF's that are commonly used to invest in different indexes, industries, countries, bonds, and commodities.

Most Popular ETFs list
Nasdaq 100 ETF - QQQQ
Dow Jones ETF - DIA
Short Term Treasury Bond ETF - SHY
Short Term Bond ETF - BSV
Aggregate Bond ETF - AGG, LAG
Intermediate Term Bond ETF - BIV
Long Term Bond ETF - BLV
Energy ETF -XLE, VDE
Crude Oil ETF - USO
Gold ETF - GLD, IAU
China ETF - FXI
Europe ETF - VGK
Emerging Markets ETF - EEM, VWO
Latin America 40 ETF - ILF
India Fund - IIF
Canada ETF - EWC
Financial ETF - XLF, VFH
Russle 2000 Growth ETF - IWO
Natural Gas ETF - UNG
Brazil ETF - EWZ
REIT ETF - VNQ

Here is an article by fool.com that goes into more detail about how ETFs and Mutual Funds work.

High Yield online savings accounts are an easy and convenient way to invest extra cash without tying it up in a bank CD (Certificate of Deposit) or a Bond. Below is a list of some of the best banks that offer the highest yield for online savings accounts. The interest rate APY are the current rates at the time of this post.

4.75% Capital One - No minimum balance

4.7% Etrade (very nice if you have a brokerage account with them) - No account minimum

4.5% HSBC – No minimum balance

4.3% ING – No minimum balance

4.25% Citibank – No minimum balance required

Our experience is that it’s very easy to transfer money between a brokerage account and an online savings account or to pull money out through an ATM or by writing checks.

Please keep in mind that these interest rates are subject to change and are usually not locked in like a CD rate or Bond rate.

Investing in stocks can be a simple process if your know what to look for.

First know where we are in the economic cycle.

This can determine how much of your portfolio you should have invested in stocks and also if you should be buying stocks or selling stocks. Here are some articles on the economic cycle. When the economy doesn’t look so good, it’s smart to decrease your exposure to the stock market and keep more of your portfolio in cash then normal.

Second learn how to pick great stocks.

Use the Market Flavor portfolio to get help picking stocks!
The best way to pick a stock is to find a company positioned to do very well. This can be due to a new product, new business, good management or smart expansion.

Also consider the P/E ratio of the company. A P/E ratio under 20 is best but the P/E ratios of companies very by industry. That’s why it’s good to examine the P/E chart of a company.

See more tips on investing in stocks.

Step 1 - Sign up with a Stock Broker

We recommend using a reputable online broker. They are easy to use and available anywhere you have an Internet connection. When choosing an online broker you'll want to consider the trading fees, tools offered, and quality of their service.
See our online brokerage recommendations.
Article on great online brokers.

Step 2 - Become Familiar with Buying and Selling Stocks

The best way to get comfortable buying and selling stocks is through paper trading or using a stock simulator. This provides you with a great way to experience trading without risking any money.
Here are some links to stock simulators.

Step 3 - Picking Investments

The toughest part of investing is picking what to invest in. Picking a great stock can be as simple as finding a strong company with a lot of potential that isn’t overpriced. To find a stock like this, start with an industry that you know a lot about. Pick a stock within the industry that is doing very well financially and has a lot of growth potential. Finally you need to make sure the stock isn’t overpriced. By this we don’t mean the actual price but the relative price according to the PE ratio and PEG ratio (Read more about the PE Ratio and PEG Ratio). This stock picking method is similar to the value investment style made popular by Warren Buffet and Benjamin Graham.

It's also helpful to seek stock advice from a source like Market Flavor! There are also some good investing shows on CNBC such as Fast Money and Jim Cramer’s Mad Money. Online you can also find discussion boards that can provide assistance with picking stocks. Make sure you don’t buy overpriced stocks by always checking the PE ratio! Personally we prefer stocks with a PE ratio below 25.

Risk tolerance should also be considered when deciding what to invest in and how much of your portfolio to invest in stocks. Read our articles on asset allocation.

For more advice on how to invest in the stock market, sign up for updates through your RSS reader or by email.
Also check out the Market Flavor portfolio!

A fun and educational way to learn how to buy and sell stocks is to simulate stock trading. Learning to invest through trading simulations is also known as paper trading, virtual trading, fantasy investing, or stock simulation. This technique allows you to practice making stock trades without risking your hard earned money. Although virtual can be very beneficial, it can also be misleading. Here is a great article written by the Wall Street Journal that talks about the problems with fantasy investing. Because of the added emotions of switching to investing with real money, virtual trading should only be used to become familiar with the process of buying and selling stocks.

Good broker that offers paper trading
www.optionxpress.com

Websites that offer paper trading
Market Watch
Investopedia

You can also use portfolio tools to simulate stock trading
Google Finance Stock Portfolio
Wall Street Journal Stock Portfolio

Market Flavor Article on how to buy and sell stocks.
Get some recommendations from Market Flavor on stocks to invest in.

We keep stressing the importance of investing, but we also need to first stress no credit card debt. Credit card rates can range from 7% up to 30%, while the average annual stock market return is 10%. With that said it doesn't make a lot of sense to take a gamble on 10% when you know you're losing 15% or more on your credit card debt. Not only will paying off your credit cards make you more financially secure but it will also help your FICA score!

So while it's important to start investing, clearing credit card debt is much more important.

If you can’t afford to pay off your credit cards there are a couple options.

1. Consolidate debt to a long term, low interest credit card. Make sure to check the APR and fine print to see what other fees they might be adding on.
2. If you own a home you can use a home equity loan to pay off debt. The rate on a home equity loan is usually much lower then a credit card.
3. The last option is to use a personal loan from a bank. However, this rate can be higher then a low interest credit card.

There are some loans that are OK to have while also investing in the stock market. Car and house loans are usually under 8%, which can work out well with the average stock market return of 10%.

Once you have cleared your credit card debt check out our article on why it’s so important to invest!
Also see more of our articles on learning to invest.

Your age should play a major role in determining how you allocate your investment portfolio. However, there are other important non-age factors that also need to be considered in determining asset allocation. The basic philosophy about age and investment allocation is that younger investors can and should be more risky investors, and older investors should be cautious investors. Younger investors can afford to be more risky because they most likely don’t need the money right away. If something horrible was to happen to their investment portfolio, they are young enough to rebuild.

Older investors with a retirement portfolio should be much more cautious with their asset allocation. A large loss to their investment portfolio could really do damager to their retirement income. Bonds are a great somewhat safe place to put cash, but multiple bonds should be held to avoid default risk.

Please understand that everyone’s financial situation is different and what we mentioned above might not fit your particular situation.

Am I a younger or an older investor?

We can’t really answer that for you, but here are some clues to determine how risky or safe your asset allocation strategy should be.

When do you need the money you are investing? If you need your investing funds within 5 years you should be a safe investor. The closer you are to needing the money the more cautious you need to invest.

- Are you going to be buying a house soon with your investments?
- Are you retiring soon?

How well can you stomach a bad day in the stock market? How about a bad year in the stock market?

- If you are can sleep at night with Wall St. in a panic, then you can be a more risky investor. (As long as you don’t need your funds within the next five years
- If you are scared of a market crash, or you would be in financial trouble if the market crashed, you need to be a more cautious and safe investor.

This should give you a good idea of what kind of investor you are and how risky your investment portfolio should be. Age does play a big part in determining asset allocation, but financial needs and risk tolerance are also very important to consider.

Read some of our other posts about Asset Allocation and Diversification.

In our previous post about diversification we laid out the benefits of using portfolio diversification to protect your investment portfolio by making it safer. Now we want to explain the different investments you can use to help diversify your portfolio.

Diversification means that you hold multiple investments that are as negatively correlated as possible. For this post we want to talk about using different categories of stocks for portfolio diversification. Stocks are a very important part of a portfolio because they can provide great returns. But there are many different classifications of stocks and with diversification it’s best to own many types to make sure they are as negatively correlated as possible.

In this post we want to talk about investing in stocks with different market caps. Market cap deals with the size of the company. A large cap (large company) usually means that the stock is safer then a small cap (small company). However, a small cap stock usually provides a greater return on your investment (ROI). There is also mid cap which you guessed it, is a medium sized company.

Owning companies of different sizes can be very important to portfolio diversification. During a market recession large cap companies tend to do better because they often have larger cash reserves, more lending power, and a more stable customer base. Smaller companies can have a lot less operating cash and any bumps in the road can result in the end of the company. But when the economy is doing very well, small cap stocks tend to grow at a faster rate then large cap stocks.

For our next couple posts in this series we’ll talk about also investing in stocks from different industries and countries to help achieve greater portfolio diversification.

Read all of our posts about diversification.

Asset Allocation is the percentage of different types of investments that make up a specific portfolio. These percentages are usually broken up between different types of stocks, bonds, and cash, depending on the needs of the investor. When deciding on your asset allocation it’s important to consider your age, risk tolerance, and financial needs, to make sure your portfolio is best suited for your financial situation.

In the next two week we will address the importance that age, risk tolerance, and financial needs put on asset allocation and how to best allocate your portfolio for your financial situation. But we first wanted to give you a quick reference for basic asset allocation. This is not a Market Flavor tool but we feel it provides a great visualization of asset allocation and can give investors an idea of where to start for their particular situation.

Here is a great visualization to start with!

Buying more then a handful of stocks can really help your stock portfolio survive a market correction, recession, or everyday volatility. Diversification spreads risk over multiple securities allowing added protection if one stocks tanks or a whole sector tanks.

Let’s look at a definition of Diversification:
Diversification – Allocating your portfolio with many investment securities that are as unrelated as possible, and using a relatively equal weighting on each security.

Diversification deals with the payoff between risk and reward. Owning one great tech company can provide a big payoff, but what if they miss numbers or their new hot product is a flop. By owning many stocks, a drop in this tech company won’t devastate your investment portfolio as much. Diversification provides investors with the ability to lower their portfolio risk through many investments. However, Keep in mind that the more diversified you are, the more your investment portfolio returns will match industry averages such as the S&P 500.

If you have money to invest right now you’re going to want to make sure to use the Dollar Cost Averaging technique (DCA).

Dollar Cost Averaging – Breaking your total investment amount into smaller amounts and investing those smaller amounts over time.

If the market goes up over the time frame you are investing these smaller amounts, you won’t make as much as if you invested the whole amount from the beginning. But if the market drops you’ll end up with a much better price! This is a great technique to help you sleep at night knowing that you’re somewhat protected.

With the stock market somewhat risky right now, we strongly recommend using this technique.

You have probably heard that it’s important to save money and that it’s never too early to start saving. You have probably also heard that it’s important and smart to invest that money in the stock market. To illustrate why it's so important to invest in the stock market, we have constructed a chart to illustrate the benefits of investing in stocks over 20 years.

As noted the initial invest for all three scenarios is $5000. For the bank account scenario we used 3% for the return rate. There are online savings accounts that offer a higher rate then this but this number is also greater then most traditional checking accounts. We placed the return on stocks at 10%, which is a good historical average. For the last column we used the 10% return on stocks, plus $100 was added to the account each month. This chart shows the importance of investing and also the benefit of adding a portion of your monthly salary to your investment account.

Initial investment of $5000
Year	Bank Account	Stock Market	Stock Market with Monthly Deposits
1	$5,152.08	$5,523.57	$6,780.12
2	$5,308.79	$6,101.95	$8,746.65
3	$5,470.26	$6,740.91	$10,919.09
4	$5,636.64	$7,446.77	$13,319.02
5	$5,808.08	$8,226.54	$15,970.25
6	$5,984.74	$9,087.97	$18,899.10
7	$6,166.77	$10,039.60	$22,134.64
8	$6,354.34	$11,090.88	$25,708.99
9	$6,547.62	$12,252.24	$29,657.61
10	$6,746.77	$13,535.21	$34,019.71
11	$6,951.98	$14,952.52	$38,838.57
12	$7,163.43	$16,518.24	$44,162.03
13	$7,381.31	$18,247.92	$50,042.93
14	$7,605.82	$20,158.72	$56,539.64
15	$7,837.16	$22,269.60	$63,716.63
16	$8,075.53	$24,601.52	$71,645.15
17	$8,321.16	$27,177.62	$80,403.89
18	$8,574.25	$30,023.47	$90,079.79
19	$8,835.05	$33,167.32	$100,768.88
20	$9,103.77	$36,640.37	$112,577.25

Something that seems to hinder new investors is the myth of how much money it takes to start investing. Beginner investors have this idea that the money they have saved isn’t enough to start buying stocks. With the birth of online brokers, investing has become more affordable and much more convenient. The minimum amount required to open an online brokerage account is now almost non-existent! Many of the online brokers now don’t even require a minimum to open an account. This makes it accessible and almost a necessity to open a brokerage account.

Here is a quick list
TD Ameritrade – No Minimum (we use)
E*Trade - $100 (heard good things)
Share Builder – No Minimum (don’t know much about)

It’s also important to consider the level of service that comes with each broker. Just because the minimum is less then other doesn’t mean that the level of service is that great. Make sure to look at some reviews before you sign up!

Using ETF’s (Exchange Traded Fund’s) can be a profitable tool for investors. An ETF is a basket of stocks or commodities that trades like a stock. They are very similar to a mutual fund but can be traded throughout the day and often have cheaper management fee’s then mutual funds.

ETF’s give you access to stock markets and commodities that you might otherwise not have had access to. They provide portfolio diversification along with access to foreign markets, foreign currencies, and commodities. There are ETF’s for most major commodities including oil, gold, and silver, along with ETF’s for many foreign stock markets such as China, South Africa, and Russia. You can also buy ETF’s for specific industries in the US stock market. However, we find it’s more profitable to buy strong individual stocks within those industries. At Market Flavor we use ETF’s for diversified exposure to foreign stock markets and other commodities that are normally only accessible through futures.

One thing you’ll want to make sure and check when looking at an ETF is the expense ratio. A lower expense ratio leads to more profits or a smaller loss. Vanguard is known for their low ETF fees. It’s also good to check the top holdings of the fund. You might discover that you already own some of the stocks or that the top holdings aren’t that great, making the future profitability of the ETF questionable.

ETF’s can be a great source of portfolio protection during a correction or recession. Read our post about how to use short ETF’s to provide protection to your portfolio.

Here is a link to a great blog that talks about trends in the ETF world.

The economy and stock market go through cycles much like the four seasons (winter, spring, summer, fall). This cycle is also know as the business cycle. For part two of the "When to Buy Stocks," we are going to talk about the long term stock market cycle and how it can guide your investing to more profits.

This is the basic model for the business cycle from Wikipedia. This model is not constrained by time and can work over a short period of time (a couple months) or over many years.

It’s very important to understand approximately where the economy currently is on the economic cycle. Understanding what stage the economy is at can add to and protect your profits. When the market has reached its peak or is nearing its peak, its usually a good time to stop buying or to take some profits. I say take some profits because you don’t want to completely miss out on a market rally. When the market has hit the bottom (trough) or is recovering, its a good time to start adding to positions and making new investments.

Understanding this trend over the long term can really help you save money in a bear market and make more money in a bull market. Knowing where we are in the economic cycle is hard to guess, but by looking at the past its easy to pick approximately where we are. Also just because we are recovering doesn't mean we can't see a short term correction. We will go into short term trends in part 3 of the series.

In the long term view we are somewhere between the middle and end of the expansion cycle. It can be argued that we are still recovering but globally it appears we are in the prosperity range. This means now is a good time to hold on to your investments. We have been in this expansion cycle for about 4 years and we might still have room to run. But as some economic indicators are showing us, the economy has been slowing down. This could be signaling that the market is near the top.

Here are some other blogs about the economic cycle.
Current Economic Cycle Indicator
Alan Greenspan mentioned a while ago that we might be nearing the top of the cycle.
A post about how unemployment might be signaling we are near the top.
Interesting post about different sectors to invest in during different parts of the economic cycle.

Be sure to add this blog to your favorites or your RSS reader to see the next post in the "When to Buy Stock" series. The next post will be on short term stock market cycles.

The PEG ratio is a great tool for examining the value of a stock and a great addition to the P/E ratio. The PEG ratio takes the current P/E ratio and divides it by the forecasted growth of the company. The closer the PEG ratio is to 0 without being negative the better. A PEG ratio of 1 shows us that the stock is trading at a fair price compared to the forecasted earnings. A PEG ratio between 0 and 1 means the stock is undervalued and anything over 1 means the stock is overvalued.
Wikipedia PEG Definition
Investopedia PEG Definition

Yahoo Finance has been the best place we have found to find the PEG ratio for different stocks. To get the PEG ratio from Yahoo Finance you will need to enter the ticker symbol and then click on Key statistics, located in the left bar. Here is a link for the key statistics for Apple Inc (AAPL). To change to another stock, just enter the new ticker in the right symbol field.

We have found the PEG ratio to be a great tool for valuing growing companies. Here is an article that shows the average stock returns from 2003 for different PEG ratios. Even though the PEG ratio is a great tool, it doesn’t tell us the whole story. The main downfall of the PEG ratio is that the growth is estimated. The estimated growth of the company is almost guaranteed to change with changes in the company and in the economy. Here is an article that talks about the downside of the PEG ratio.

The Market Flavor opinion is that the PEG ratio is a great tool for valuing growing companies, but it needs to be considered along with many other tools and factors. The PEG ratio should only be a piece of the puzzle when you are looking at a stock. We still believe that strong companies that are well positioned for growth in the future should be the basis for picking stocks. The PEG ratio should help you value those strong stocks.

Market timing is very difficult task and often relies more on luck than skill. However, looking at stock market trends can often yield better returns as trends can guide buying opportunities and portfolio allocation. In this post we are going to explain two different ways to try and time the stock market when buying and also discuss how stock market trends and stock market cycles can influence when to buy stocks and portfolio allocation.

First off we believe that market timing is impossible in the short-term. If it were possible there would be more money running around than we can ever imagine. However, it is fairly easy to spot long-term trends and time the market over a longer period of time. History shows us that the most reliable gains are made through long term buying and holding. Warren Buffett has made his fortune from buying and holding strong companies with great price valuations. Taking that into consideration we can follow market cycles to find the most opportune times to buy into strong well priced companies.

Understanding long-term stock market trends can help determine opportune buying periods and also help guide portfolio allocation. Identifying longer term stock market trends is pretty easy. Our economy is either slowing, stable, or growing and there are numerous economic indicators to tell us how the economy is doing. Economic cycles can be used to our advantage by acquiring more shares near the end of a slowing economy and at the beginning of a growing economy. Inversely, that means we should sell or hold when the market is near the end of a growth period or starting to slow. You might think this is hard to do but it’s pretty easy when you look at a long-term GDP chart. Just remember that the stock market can swing widely in the short term creating very scary days. We want to concentrate on long-term trends and accumulating shares in strong companies at opportune times of the economic cycle.

Although we argue market timing is impossible in the short-term, there are ways to help get a better price when buying stocks. The best way to safely enter a stock is through Dollar Cost Averaging. This allows you to create a position in a stock with an average price over time. This can help protect your investment if that stock falls after you make your first purchase. Taking this a level further, it also helps to make purchases on a down day for the stock. This can help you get a slightly better price over time.

Look for the next edition of this article where we will explain economic cycles and how to identify different cycles. Sign up for a Free Trial and view the current Market Flavor market outlook and see where we are investing our money.

The P/E Ratio equals the price of a stock divided by the earnings. The higher the P/E ratio is, the more growth the company has seen or is expected to have. But this is also an indication that the company is overvalued and things could be about to turn around. A low P/E can signal a good time to buy, but it can also mean that the company is having problems. The P/E ratio can be very helpful in assessing stocks but it needs to be considered along with other important factors.

The P/E chart of a company or index over time can tell us a lot about how risky the investment is or if it’s a good time to buy in. When considered with future earnings, forecasts can be made on the future price of the company. At Market Flavor we tend to prefer stocks that have relatively low P/E ratios compared to a long term P/E chart. This shows us that the stock is trading at a relatively cheap price level and if we can justify growth in the company then we know it’s a good stock to invest in. However, sometimes there is nothing wrong with a company that has a relatively high P/E. A high P/E is OK when the company is growing rapidly and is going to continue to grow at an even faster rate. If they aren’t growing, or growing might slow, you should wait until the P/E comes down before buying. It’s also good to compare the P/E ratio of a company to that of its competitors. This can often be an apple to orange comparison but at least you can see how close they are and how their P/E charts compare.

P/E ratios contract and expand over time. This can be caused by the economy or earnings expectations. When you buy a stock that has a high P/E, like a tech company, you run the risk of the P/E contracting to fall back in line over time. Say earnings go up 20% but the P/E pulls back 20%, due to lower earning forecasts, you are left with a stock that didn’t go anywhere. So make sure to look at the P/E ratio of the company and a P/E chart to compare and consider the P/E trend. Also consider forward earnings and the strength of the company to decide if the P/E might expand or contract.

Here is a link to an advanced chart at Big Charts. You will need to expand the time period and also add P/E ratio as a lower indicator.

This link shows a price chart and P/E chart of the S&P 500. We are at very low P/E levels, which indicates we could see a BIG rally within the next year or so.

Read more about P/E Ratios at Investopedia.

When buying or selling stock you have the choice between using a market order or a limit order. Market orders are often easier to use and execute quicker than a limit order. Once you have been investing for a while and have a good understanding of the stock market and orders, using limit orders can provide a better price. When starting to invest we suggest using a market order if the following 3 criteria are met.

1) The average daily volume (the number of shares traded per day) is over 100,000. This is still a low number and a higher number might be better to use as a gauge. You can check the daily volume here.
2) The Bid and Ask prices are fairly close (also known as the spread). Within 0.40% of the stock price is usually a good measurement.
3) You are not buying a Large amount of shares. 1000 shares or less is usually OK.

If these three criteria are met then a market order is easy and works best. A market order means the order immediately executes at the best price available to meet your order amount. With a limit order you specify a price and someone else has to agree to that price. This can take longer depending on the volume of trading and the distance your price is from the opposite bid or ask. Once you have been investing for a while limit orders are often be a better choice. You can usually get a better price with a limit order allowing a slightly better profit.

Here are some things to consider when making your first buy or sell with an online broker. Most online brokers have a specific page or pop up window for orders. Often it’s the same form for buying and selling. To distinguish between a buy and a sell order there should be an option to pick which you want to do. While you are learning to invest make sure to start a position in a stock by using a BUY order. All brokers are different and the order form might be different than we described.

When entering a buy order, the main thing to consider is the amount of shares you want to purchase. We have constructed a simple formula to help you decide how many shares to purchase.

A = The amount of money you want to invest in the particular stock.
P = The current price of the stock (You can use the Last price or the Ask price).

S = This will be the amount of shares that you want to purchase.

A / P = S

This formula gives you the amount of shares you will want to purchase. This number usually won’t come out to a whole number so you will want to round up or down depending on your preference. Once you have your rounded S amount (share amount) you can multiply it by P (price) to see about how much the purchase will actually cost. When you are buying an expensive stock, say $400 a share, rounding up or down makes a big difference. Also keep in mind that stock prices are always changing so the amount you figured could go up or down with the stock price.

Selling is much easier. You should have a portfolio page or a statement page that tells you how many shares you own in a particular stock. It's good to check this and not assume it’s the same number you purchased. The share amount can be affected by a stock split. When you are ready to close a position in a stock just complete a sell order and put in the amount of shares that you own. If you only want to sell some of your shares, you can enter a smaller amount than you own. Say you own 100 shares, you can enter 50 and hold on to the other 50 shares.

Be sure to check back for other parts of the Learning to Invest in the Stock Market series! Sign up for a free trial and view this topic in more depth, along with other beginner investing topic in the members area. We also offer a well researched stock portfolio to help you successfully invest in the stock market!

Volume is very important to justify moves in the stock market, especially long-term trends. After the big drop a couple weeks ago there has been weak volume on attempted rallies. Today after the Fed’s decision to keep the interest rate flat, we saw a large rally in the stock market with a decent increase in volume. Volume is important to support a rally because it shows there is demand for stocks. The stock market works on supply and demand and without heavy demand it’s hard to sustain a rally.

Below is a chart of an ETF that follows the S&P 500. This chart shows one month with volume levels underneath the chart. You can see that with the two down days there was very high volume. For an upturn in the market we need to see some strong up days with supporting volume. In the chart you can see the trends up in the market after the drop days have declining weak volume. The rally today had the increased volume we have been looking for. However, one day does not make a trend. We will see if the market can continue up with supporting volume.

Beginner Investing

Congratulations on learning to invest in the stock market! Investing in the stock market can be very lucrative if you have patience and tolerance. Through our learning to Invest series we are going to explain the basics of investing and how to get started investing in the stock market.

Finding a Stock Broker

The first thing you need to do to start investing in the stock market is find a broker. This is the only way you will have access to trade stocks. Because you are reading this Blog, we are assuming you are familiar with a computer and the internet. This means you can take advantage of a online discount broker. With an online broker, transaction fees are low and you can access to your account whenever and wherever you have a computer and an internet connection. The two brokers we recommend you look into are:

TD Ameritrade
Etrade

At Market Flavor we use TD Ameritrade and are happy with their service. We don’t want to plug a particular online broker, but these are the two we know best. If you don’t feel comfortable investing online or would like someone to talk to about investing, we suggest using a traditional broker. A traditional broker is a company like Edward Jones or Smith Barney. They can cost more, but you get the advantage of a broker to talk to.

Getting to Know Your Online Broker

Once you pick your broker you will want to get acquainted with how they operate. This means taking some time to look around your online account and get to know the different features your broker has to offer. If a tutorial is offered we strongly recommend using it. Also, if you have any questions about how the site works or where things are, you should contact your broker’s customer service. When investing, it’s very helpful to know and feel comfortable with how your broker operates.

Be sure to check back for other parts of the Learning to Invest in the Stock Market series! Sign up for a free trial and view this topic in more depth, along with other beginner investing topic in the members area. We also offer a well researched stock portfolio to help you successfully invest in the stock market!