Planning to invest $150 in stock monthly, should I still look at price?
August 30, 2018 12:09 PM   Subscribe

I have just started to save up some money from income and want to have them invested in stock market monthly and just hold it without daytrading, say $150 per month. My question is should I still look at the price to buy once I freed up my $150 each month?

Since it's rather a small amount of money to put in, I am planning to focus on just 1 stock (started at $39.45). But my dilemma starts whenever I look at the chart every month seeing the price that keeps going up (not big jump though), I wonder should I have bought yesteday low at $39.69 or now $39.75 or then a minute later at $39.70 etc...? Or should I just buy each $150 can afford and forget about it? I am not sure how my mindset should be..... Anyone would share what you think and do towards this investing style/strategy?
posted by lanhan to Work & Money (16 answers total) 8 users marked this as a favorite
If I weren't investing in anything else, I would not invest in just one stock, as in, the way the stock market views a single company. I would invest in an index fund. If you're in the US, saving for retirement, and haven't maxed out 401(k) contributions, AIUI that's a good thing to do first for tax reasons.
posted by bagel at 12:23 PM on August 30, 2018 [18 favorites]

Few things can beat the simple advice below from Scott Adams. I totally support the suggestion to go for an index fund not individual stocks. Automating contributions is awesome. You didn't mention the basics though... do you have an emergency fund, retirement fund, etc. as those are foundational.

1. Make a will.
2. Pay off your credit cards.
3. Get term life insurance if you have a family to support.
4. Fund your 401k to the maximum.
5. Fund your IRA to the maximum.
6. Buy a house if you want to live in a house and can afford it.
7. Put six months worth of expenses in a money-market account.
8. Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement.
9. If any of this confuses you, or you have something special going on (retirement, college planning, tax issues), hire a fee-based financial planner, not one who charges a percentage of your portfolio.
posted by belau at 12:34 PM on August 30, 2018 [9 favorites]

Forget about price swings, read up on dollar cost averaging.
posted by JoeZydeco at 12:37 PM on August 30, 2018 [1 favorite]

Assuming there's some reason you can't access a retirement plan at work: Don't buy a single stock. Put the money in a "high-yield" online savings account like Barclays until you get the $1000 minimum needed to buy into the Vanguard Target Retirement aimed at your year of retirement. Then put the money there every month. Buying a single stock isn't really saving, it's gambling--you're too exposed to all the random things that can happen to any given company. A Target Retirement fund will spread your money broadly across domestic and international stocks and bonds, and Vanguard charges you a very very modest amount for doing so.

If your work doesn't offer you any sort of retirement plan, you can create an IRA at Vanguard to hold this investment. That will make your contributions, up to $5500 a year, tax-deductible. It's easy to do, but they can walk you through it on the phone.
posted by praemunire at 12:45 PM on August 30, 2018 [9 favorites]

I am by no means an expert but I do buy and sell stock and am in the black so my advice would be to save that $150/mo until you actually have a reason to invest in a particular stock and have enough money to buy enough stock to actually make it worthwhile.

These are kind of facile examples but if you for instance buy 5 shares of a stock at $30/share and it goes up to $35 you've made $25 (minus brokerage fees if you want to cash out) which isn't a whole hell of a lot and imo not worth the time I personally would have spent researching. If the stock miraculously goes up to $151 the next month you'll gain a good bit money from those 5 shares but you'll have left a bunch of money on the table than if you had had $300 or $450 or $600 to invest at the start (and you also wouldn't be able to get in because it would now be over your monthly budget and the moment you start going over your budget you need to stop before it turns into a gambling problem like any other.)

Now, the problem of leaving money on the table is always going to be the case if a stock you have does well, of course, but when you're talking about small handfuls of shares and the brokerage fees that eat into them (at a much higher ratio when you have more shares) it gets to be less and less worthwhile to invest in small amounts like this.

So, in conclusion: save your money, do your research, and try to make investment as little like showing up to the casino with $150 in your pocket every month as possible or you may as well just go to the casino.
posted by griphus at 12:46 PM on August 30, 2018 [2 favorites]

the brokerage fees that eat into them

To make this more concrete: if (for example) you're spending $10 in fees to buy $140 of stock, you're immediately down almost 7% on your $150. This is a much bigger difference than a few cents of price variance.
posted by We had a deal, Kyle at 1:52 PM on August 30, 2018 [2 favorites]

You're asking about dollar cost averaging. Generally the advice is: if you can make the fees a small fraction of the investment you should invest regularly rather than in lump sums.

But with respect, if you don't know what dollar cost averaging is, and it hadn't crossed your mind to do this investing inside an IRA or a 401k, you are not yet the kind of person who should be investing in individual stocks. Assuming all your other financial needs are addressed, put this money in an IRA every month (Vanguard is as good a place as any), and invest it in index trackers that hold a (large) basket of stocks. This has lower risk and, allowing for fees, more reward.
posted by caek at 1:59 PM on August 30, 2018

In my opinion, the only way to invest in individual stocks is to either be extremely lucky, or to have a very long time horizon with no understanding of comparable risk of any other stock, opportunity costs, or of investment risk. I think it's a fine hobby, but not a way to invest money for retirement/buying a house/whatever where you care about even single dollar up/down moves without having a heart attack.
posted by The_Vegetables at 2:03 PM on August 30, 2018 [2 favorites]

(The "efts" tag suggests that maybe OP is considering buying an ETF, not an individual-company stock.)
posted by We had a deal, Kyle at 2:14 PM on August 30, 2018 [1 favorite]

There are a lot of ways to "invest" as an individual that aren't just buying stocks via brokerage. I am self employed and generally just do whatever my tax pro tells me to, but their advice has always been to use tax advantaged accounts to make investments.

So when I first start freelancing I saved whatever the minimum account balance was and opened a SEP-IRA and made it auto-invest $50/week in some random Vanguard index fund. 10 years later it's added up and I didn't have to think about it. $100/week would almost max out the tax deduction for the year (~$5500?)

I also do the Health Savings Account thing because I figure even with ok insurance, eventually I will have some sort of bill to pay. The max tax deduction is something like ~3200/year or about $60/week. The money can be used with a debit card for anything medical related tax-free.

Both of these you can invest your contributions however you want. I make it my goal to try to max out the deduction each year if I'm able to. Even if you lost money playing day trader, you would still get the tax benefit. And you know, buy medicine if you needed it. The IRA has it's own exceptions.

I would ask some sort of tax professional this question, even if your taxes aren't complicated this sort of question is their bread and butter.
posted by bradbane at 2:38 PM on August 30, 2018

If you are buying and holding for the long term you shouldn’t look at the price. This is easier when you’re buying mutual funds and can just buy $150 of the fund and harder with etfs where you need to see the price to figure out how many you can buy with your $150, but regardless you should try to put it out of your head.

I struggled with the same thing when regularly buying etfs, until I really thought about how little money was at stake. You’re buying 3-4 every month, the price difference is a few cents... you could have bought last month instead or you could find a quarter or two in a couch cushion, same result to your overall wealth. What matters is consistency and time in the market.
posted by exutima at 2:39 PM on August 30, 2018 [1 favorite]

I would be very concerned about fees - both per-transaction fees and "account maintenance"-type fees - with the types of amounts described by the OP. As pointed out by w.h.a.d.k., even a small fee will make a serious dent in the investment. I agree that a better plan would be to participate in a workplace 401(k) plan or in an IRA (if either are available). If not, I agree that it would make more sense to save up until you have enough for the minimum investment in something like a Vanguard Target Date fund (I think about $5k), which has low fees.
posted by Mid at 3:01 PM on August 30, 2018 [2 favorites]

Obligatory disclaimer: I am not a financial professional, and even if I were I'm not your financial professional. This post is my opinion only, and in no way promises or advertises results of any kind.

When I've done something similar I've: 1) picked indices *, not individual stocks and 2) done it passively so that I don't panic or get greedy. Set and forget.

I seem to remember that statistically-speaking, market timing (which is what looking at the price when deciding when to do a scheduled purchase is) works out worse for most people in the long run.

* Even if you're not considering buying a single stock, a single ETF may not be the best bet. If it's a sector-specific or other non-market index it can be risky, depending. The usual choice for "I want to invest in one thing" is Vanguard's VTI. It's got a very low expense ratio, is passive, and has a beta very, very near to 1.0, so it's pretty much just "this does what the market does".
posted by -1 at 3:37 PM on August 30, 2018 [2 favorites]

Have not tried this, so you'd have to research it carefully, but this looks like it might suit your needs:
posted by hampanda at 8:20 PM on August 30, 2018

Yes, agree with everyone that a total stock market or target date fund is best. Vanguard is excellent but I think you need $1000 to start. On top of your fund investing it can be fun to buy single stocks, just don’t have expectations and hold forever if you can. Time in the market always beats timing the market. Which means, invest the money as soon as you have it and then leave it alone as long as possible.

We’re about a decade into an incredible bull market, so don’t be concerned if returns don’t continue at a steady climb like this. Best to ignore daily fluctuations and just keep investing, since 1928 the S&P 500 has returned 10% on average (7% inflation adjusted).
posted by rainydayfilms at 3:57 AM on August 31, 2018

If you're only investing $150 at a time, transaction fees may be important. E.g. a pretty cheap fee for a single purchase of a stock or ETF is $5 per transaction, but that's about 3% of your monthly $150! It might be worth finding a way to not pay fees (e.g. Fidelity doesn't charge fees for the purchase of certain specific ETFs, and they have no minimum account balance) or save up and invest in bigger chunks.

As for whether you should worry about the price varying up and down: basically, no, and certainly not the price within a single day. It's like a cliche or proverb that "you can't time the market".
posted by vogon_poet at 8:48 AM on August 31, 2018

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