Investing for Dummies

Here's your daily financial reading for the day.

I am a huge proponent of the Roth IRA. If you don't have one, go to E*Trade and set one up. There's no minimum balance, and you can start by putting $10 a week in it to save up for your retirement. And the cool part is you get to use that money in the account to buy stocks (yay stocks!) since that is always fun.

What you should look at when you buy a stock:

1) The 52 week high and low. Is the stock price at the highest it's been in a year? Or the lowest? This could influence your decision.

2) The Beta of the stock: this is a great way to measure how risky a stock can be. Beta is the volatility ratio of the stock compared to the S&P 500. If that sounds like investmentese to you, then let me break it down a little more: if the stock market goes up a little bit and your particular stock goes up a TON, then it's considered volatile (considered risky). If the stock market goes up a little bit and your particular stock does nothing, then it's NOT volatile (and relatively not risky).

Here's how you interpret Beta: if your stock is exactly as volatile as the S&P 500 (a collection of stocks used to generally measure the performance of the stock market in general), then the beta will be 1 for that stock. If your stock has a Beta of less than 1, (check out power companies like DUK or SO) then this means this stock has pretty stable pricing. The lower the Beta, the more stable the price should be. If your stock has a Beta higher than 1, then it's more volatile than the stock market on average. This is risky because it means the stock's price could rise and fall large amounts. You could stand to gain a lot... or lose a lot on a stock with a high Beta. Sotheby's (BID) has a Beta of 2.3, which is high as crap! It means that the price of BID is 2.3 times as volatile, on average, than the stock market in general!

So as you can see, Beta can help you decide whether or not you feel like being risky in your investing.

3) Check out the dividends, of course! This you can think of like the interest you'll earn for owning the stock. Some stocks pay dividends and others don't; you'll want to check that out before you purchase a stock. If you're looking at a stock quote, the "Div" is the actual dollar amount you'll earn annually on that stock. The "Yield" is what percentage return that will amount to. In my opinion, a stock doesn't have to pay dividends to be worth owning, but it's nice if they do!



Now that you know a few small things about stocks... happy investing :)