Investing in the Stock Market - from Fear to Action
My New Roth Account - What to do?
Spring of 2010, my husband asked me to move a small amount of money into a Roth account since I was eligible to do so. What do I do with it? In the past, I purchased mutual funds from my bank or from my employer's list of chosen funds. With this Roth account, I had an opportunity to buy something other than mutual funds. I started a wish list of stocks in Yahoo Finance and began tracking their performance. I filled it with companies that I knew like McDonalds, Nike, Microsoft, and Amazon. In a few weeks, I had about 30 stocks in my fantasy portfolio and I checked it every week. Most did well, a few did not. I started looking into the financial performance of the companies that seems to perform well. But still I waited. In fact, it took another 4 months before I decided to take the plunge and buy some stocks.
What Stocks to Buy?
I began with companies that I could afford a sizable number of stocks (which was anything under $50/stock): GE, Ford, Pepsi, Kimberly Clark, and Estee Lauder. My criteria were that they had historically done well and I felt I knew what they did. GE made appliances, Ford made cars, Pepsi made soft drinks, Kimberly Clark made toilet paper, and Estee Lauder owned lots of companies that produced beauty products. In fact, Estee Lauder was the only company I understand well since I am familiar with the products associated with Estee such as Aveda and Clinique.
Instead of following my stock purchases, I fell into my old habit of buying and forgetting. A few months later, I learned that three out my five stocks were at a lower price than when I purchased. Although upset with this outcome, there wasn't a lot of money at stake so I decided to wait and see. Another year ended and it was time for a little bit more money to be added to my Roth account. I checked to see how my stocks were doing and I was both happy and disappointed. The three losers from the last time I checked were either at the same price since I purchased them, or lower. However, I had two stars, Kimberly Clark, and Estee Lauder. In fact, Estee Lauder had risen 60%! Why did the other companies do poorly? I did some reading and learned that GE was exposed to the real estate housing bubble; Ford was earning money but was unpopular since it was an auto stock; and Pepsi didn't have good leadership (according to my husband, but couldn't verify).
Conclusions After My First Year of Investing in Stocks
From the outcome of my small portfolio of stocks, I came to this conclusion for the short term: I should consider buying stocks when I hear that the stock market is down, research about a company before purchasing and buy companies that are in industries that I am more familiar with.
Canadian "Roth" Account
- There is a yearly maximum contribution of $5,500 ($500 more than the US!)
- Contributions are not tax-deductible (you are using post-tax money)
- Earnings grow tax-free in the account. Dividends are tax-free! Sell you stock without incurring taxes!
- Withdrawals from the account are tax-free.
UP NEXT: Year Two
More Reading:IRS Roth FAQ
Government of Canada Canadian Tax-Free Savings account info
If you earn too much to have a Roth account there is a backdoor