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Investing in Stocks: 4 Simple Strategies for How to Pick Them

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Selecting a stock is not unlike shopping for most big purchases. You research the product, compare it to others for fit, quality, relative value and so on — perhaps compromising in some areas but not in others. Over time, you may become savvy enough to spot value or a prized possession easily.

You can approach stocks by looking to “buy what you know,” but you should also know what you’re buying from an investment standpoint. There are many lenses through which to view stocks, strategies to compare them and ways to hold them. Your goals as an investor can help determine how you analyze and hold stocks.

Here are some essential strategies to help you learn how to pick stocks.

1. Investment styles: Growth, income and value

For some investors, stock picking is all about finding stocks that fit a certain investment style.

Growth investors are looking for the next big thing, and are usually willing to pay a high price for a stock with future potential value. Companies in growth mode are reinvesting earnings and expanding quickly through hiring, new products, acquisitions and capital appreciation. Growth stocks tend to be more aggressive — as more investors drive up the price, it amplifies the risk that they won’t meet growth expectations for their valuation.

Income investors seek companies paying regular income to shareholders in the form of dividends. Even if you don’t need the income now, reinvested dividends function like regular returns that can help grow your investment. Income stocks tend to be found in older, more established firms, which may already be past peak growth years but are profitable and generally well run.

Value investors attempt to find underpriced bargains; that is, companies with underlying value not reflected in the share price. Specifically, they look for stocks with lower price-to-earnings ratios than the overall market, hoping the price will rebound. These are shares of companies that may no longer be in growth mode or may just have fallen out of favor. Value stocks are also more likely to pay dividends.

2. For long-term investors: Fundamental analysis

If you are looking for companies to invest in for an extended period of time, digging into the fundamentals can be a good way to understand its financial health and get to know the stock. Even if you’re not a business whiz, understanding these concepts and tracking them over time can help you compare the stocks of similar companies against one another.

Company fundamentalWhat it isWhat it tells you
Revenue How much money is coming into the company.If the company is growing. Increasing revenue year-over-year is generally a sign of growth, although it doesn’t necessarily mean increased profits.
Earnings per share (EPS)The company’s earnings divided by the total number of shares outstanding.How much of the company’s profits are returned to shareholders.
Price-to-earnings (P/E) ratioThe market value of the stock (or current price) divided by EPS.How much of a multiple investors are willing to pay for a share of the stock. A P/E ratio of 20 to 25 means investors will pay $20 to $25 for every $1 of earnings. High P/E can be a sign the stock will continue to grow or it may be overpriced. Low P/E may indicate a stock is undervalued.
Price/earnings to growth (PEG) ratioThe stock’s P/E ratio divided by expected 12-month growth.If the stock is fairly valued. While P/E ratio doesn’t account for a company’s growth, PEG does. A PEG of one is thought to be fairly valued, greater than one is expensive and less than one is undervalued.
Return on equity (ROE)Net income divided by average shareholder equity (which represents the company’s total assets minus liabilities).How efficient management is at passing earnings on to shareholders. ROE is expressed as a percentage. Investors may tend to stick to a percentage near the S&P 500, which was about 15.6% in 2017.

Many publicly traded companies file annual audited 10-K financials with the Securities and Exchange Commission (SEC), along with quarterly 10-Q updates. In these documents, investors can see a company’s revenue, debt, cash flow management and other metrics. Many financial websites and online brokerage platforms will provide fundamentals as part of their basic stock quote information, as well as access to analyst research and recommendations. Analyst reports often help add qualitative information to your research, such as competition, new products or brand equity.

3. For active investors: Technical analysis

Short-term investors and active traders making bets on what will happen shortly rely on something called technical analysis, which ignores the fundamental value of a stock and instead pays attention to moves in stock price or other types of trading data.

Technical analysis assumes that all information to be known about the stock is built into its price, and prices tend to follow certain repetitive patterns or trends due to investor psychology. These trends may come in the form of tides lasting a year or more, waves lasting one to three months or ripples lasting less than a month.

Investors chart a stock’s trading activity in different ways to uncover certain trend lines and that may be predictors of future moves:

  • Line charts track a stock’s closing price over longer periods, providing a broad view of the stock’s performance.
  • Bar charts give a sense of a stock’s daily movements, or opening price, high price, low price and closing price (OHLC). This view can provide a sense of a stock’s volatility.
  • Candlestick charts are similar to bar charts, with clear illustrations of the stock’s opening and closing prices. If the stock price closes higher than it opens, the difference or “wick” is positive.

A stock experiencing increasingly higher highs and higher lows over time is considered to be on an upward trend, and descending highs and lower lows would signal a downward trend. A sideways trend means that prices have been moving in the same general range. Looking at these charts, investors attempt to find levels of resistance, meaning points at which the stock may stop trending higher, or levels of support, meaning there’s strong enough demand to keep a stock from trending further downward.

Technical analysis can be complicated, which is why many active investors rely on tools offered by online brokers to help spot technical trends.

4. Broad stock picking: Diversified stock portfolios

An easy way to pick stocks is to buy many at once through an exchange-traded fund (ETF). These investments offer mutual fund-like diversification, but they trade like stocks. That means you can buy shares of the Standard & Poor’s 500 or NASDAQ 100 in the same way you might buy shares of Coca-Cola or Apple.

But ETFs come in many other shapes and sizes: You could use a handful of sector ETFs to build a full stock portfolio or balance stock holdings with a bond ETF. Interested in dabbling in commodities, currencies or hedge funds? There are ETFs covering alternative investments as well.

You can purchase ETFs through a broker, which means you might pay a transaction fee when you buy and sell them. Otherwise, ETFs tend to be very low-cost for investors who buy and hold.

Bottom line

Figuring out how to pick stocks seems to be as much about talent as skill, and even the most brilliant stock analysts can’t see around every corner. For the average person, investing in an ETF or mutual fund allows you to own stocks without having to select individual shares. You may not get the same shopper’s high, but there’s also less of a chance you’ll regret your purchase.

If you are determined to own individual stocks, it makes sense to start small and build slowly as your confidence in stock investing grows. You can even start with no money and a completely hypothetical portfolio. There are many stock market simulators online to help you experience stock trading without the risk. Either way, until you understand your appetite for volatility, individual stock investors should only risk excess or “fun money” you can afford to lose.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Melissa Phipps
Melissa Phipps |

Melissa Phipps is a writer at MagnifyMoney. You can email Melissa here

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Investing

CNote Review 2019

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

In recent years, finding stable, reasonable yield has been difficult for savers. A traditional savings account rarely offers an attractive yield and the bond market has been somewhat anemic in recent years. This is where CNote comes in.

CNote is a company that takes your money and invests it in community development financial institutions (CDFIs). Basically, these lenders issue loans to local governments, nonprofits and businesses owned by minorities and women. CNote invests your money with its partners and offers you a return.

CNote
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The Bottom Line: CNote offers you the chance to earn relatively stable yields that beat traditional savings accounts while allowing you to make a positive social impact in communities across the country.

  • Annual return beats that of most traditional savings accounts.
  • Investments are used for social impact.
  • CNote has no fees, but it does come with liquidity restrictions.

Who should consider CNote

CNote is meant as a savings account or bond market alternative. It’s not designed to offer inflation-beating potential returns like those seen in the stock market. Instead, it’s more likely to be appropriate for savers who are frustrated with their current yields and want a relatively stable way to boost what they’re earning each year.

Additionally, the social impact aspect of CNote could make it attractive to those looking for socially conscious ways to put their money to work. CNote’s CDFI partners invest in small businesses and community development projects, so for those who like the idea of doing good while their money earns interest, this can be an option.

However, CNote comes with limited liquidity. There are only four times a year that CNote allows for withdrawals (with 30 days’ notice), and at those times you’re limited to withdrawals of $20,000 or 10% of your balance, whichever is higher. (CNote does consider special circumstances and may allow larger or unscheduled withdrawals at their discretion.)

Those who need access to their money for goals in the medium term (four to seven years out) could benefit from CNote, but withdrawals require planning. As a result, it likely doesn’t make sense to use CNote as an emergency fund where immediate liquidity is needed.

CNote fees and features

Amount minimum to open account
  • $1
Commission$0
Account fees (annual, transfer, inactivity)
  • $0 annual fee
  • $0 full account transfer fee
  • $0 partial account transfer fee
  • $0 inactivity fee
Account types
  • Individual taxable
  • Trust
Customer supportPhone, Email

Strengths of CNote

CNote offers an interesting twist on social investing with the expectation of relatively stable returns.

  • Yield that beats traditional savings accounts: One of the stand-out features is CNote’s advertised return of 2.75% APY (or more). This is much better than most traditional savings accounts. In fact, as of this writing, CNote offers returns higher than the five-year Treasury yield. That means you could see a higher yield for medium-term savings than what’s available with other savings options.
  • No fees: CNote doesn’t charge any fees. Instead, the service makes money on the difference between what they pay you in yield and what they receive from investments made with CDFI partners.
  • Social impact investing: If doing good is important to you, CNote offers a way for you to do that. Your money goes toward helping provide affordable financing to underserved communities for projects like affordable housing, community development and minority-owned businesses.
  • Trust and business accounts: You can open a CNote account as part of a trust or use it for business purposes. Depending on your needs, this can be helpful in your asset management plan.

The service is fairly straightforward and comes with no costs, but it has the potential to help you earn a higher yield on money that might otherwise be sitting in a low-yield savings account.

Drawbacks of CNote

While CNote offers an innovative way to maintain a stable yield, there are some issues that you need to be aware of before you invest.

  • Limited liquidity: This isn’t a deposit account and your money doesn’t remain immediately accessible to you. CNote isn’t simply holding your money; instead, it’s investing your money with its partners. As a result, you need to provide advance notice before withdrawing your money — and you can only withdraw at certain times during the year.
  • Yield is still too low for long-term wealth building: Even though the yield is higher than a traditional savings account, it’s still not high enough for effective long-term wealth-building. If you’re looking for a way to build your nest egg, consider Stocks, Mutual funds and ETFs.
  • No tax-advantaged options: CNote doesn’t offer you the opportunity to invest with tax advantages. There aren’t IRA or 529 options.

If you decide to use CNote, it’s important to understand how you want to use it in your overall portfolio, since there are limitations to when you can access to your money and limited usefulness as a long-term investment vehicle.

Is CNote safe?

It’s important to note that CNote isn’t a depository institution and it isn’t protected by the FDIC. That means if CNote fails, there’s no guarantee you’ll get your money back. However, the loans made by its CDFI partners to community and municipal projects are generally considered low-risk with stable returns, on par with high-quality Bonds. Most of the projects funded by CDFIs are usually vetted heavily and CDFIs impose their own requirements on borrowers.

CNote also uses what it calls Triple Protection to limit potential losses. Because CNote isn’t a holding company, they don’t keep your money; instead, it goes to CNote’s CDFI partners. CNote only contracts with partners that use government-guaranteed programs, which offer a layer of protection. CNote’s partners are also contractually obligated to repay the loans they receive from CNote, even if something goes wrong. Finally, CNote has a loan loss reserve to help cover potential losses.

However, like any investment, there is still a risk, and you could lose capital in addition to missing out on returns.

Final thoughts

If you’re interested in boosting your yield on a chunk of capital that isn’t doing much, CNote could be an interesting place to park your cash. The returns could be fairly stable and may beat what you’ll get at with a savings account. Plus, you get the added bonus of feeling good about making a positive social impact.

However, you do need to be aware of the liquidity limitations and understand that pre-planning is needed before you access the money you invest using CNote.

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Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Miranda Marquit
Miranda Marquit |

Miranda Marquit is a writer at MagnifyMoney. You can email Miranda here

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Investing

SpeedTrader Review 2019

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

SpeedTrader is an online broker that caters to active day traders. It offers a choice of platforms and a full selection of research and data tools, making it a competitive option. You also get direct market access with more than 25 routing options, a choice of per-share or per-trade pricing, and the ability to trade Stocks, Options, and Bonds.

However, SpeedTrader has a higher minimum deposit requirement than TradeStation and Lightspeed, which are designed for active traders as well. SpeedTrader doesn’t offer as many options for trading platforms as Lightspeed does, and you won’t have access to multiple free trading platforms with SpeedTrader — unlike with either of its close competitors.

SpeedTrader
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The bottom line: SpeedTrader offers direct market access and advanced trading features, including point-and-click trading, real-time market data and hot keys for faster order entry.

  • SpeedTrader provides a choice of trading platforms, including ActiveWeb, SpeedTrader Pro, and SpeedTrader Mobile.
  • Investors get direct market access — with a choice of more than 25 routing options — to allow for faster execution and better filling of orders.
  • Commissions and fees are affordable, especially for high-volume traders.

Who should consider SpeedTrader

If you’re a day trader who needs real-time market data at your fingertips with the ability to place and execute orders as quickly as possible, then SpeedTrader could be an ideal broker for you. SpeedTrader allows you to save multiple screen layouts, create customized watchlists, stream quotes in real time, manage multiple trading accounts in one platform, and customize 100 different hot key options for the fastest possible order entry.

SpeedTrader also provides support for institutional clients, including hedge funds. Or if you are diving into day trading for the first time, you can request free virtual practice accounts with virtual buying power to make sure you’re ready before you risk any real money.

But if you’re looking for features that cater to hands-off traders, such as commission-free ETFs, no-load Mutual funds, or robo-advising services, SpeedTrader is the wrong tool for you. Online brokers such as Ally Invest, Charles Schwab and E-Trade would be more your speed.

SpeedTrader fees and features

Amount minimum to open account
  • $30,000
Account fees (annual, transfer, inactivity)
  • $0 annual fee
  • $75 full account transfer fee
  • $75 partial account transfer fee
  • $30 inactivity fee per quarter
Current promotions

When you open a new account with SpeedTrader, you can get up to $100 in free trades or one month of free trading.

Account types
  • Individual taxable
  • Traditional IRA
  • Roth IRA
  • Joint taxable
  • Rollover IRA
  • Coverdell Education Savings Account(ESA)
  • Custodial Uniform Gifts to Minors Act (UGMA)/Uniform Transfers to Minors Act (UTMA)
  • SEP IRA
  • Solo 401(k) (for small businesses)
  • SIMPLE IRA (Savings Incentive Match Plan for Employees)
  • Trust
  • Guardianship or Conservatorship
Automatic rebalancing
Tax loss harvesting
Offers fractional shares
Ease of use
Mobile appiOS
Customer supportPhone, Chat, Email

Strengths of SpeedTrader

Some of the key benefits of SpeedTrader include the following:

  • Affordable commissions: With SpeedTrader, you have a choice of how the commissions are structured. You could pay a per-trade fee as low as $2.95 if you make 500 trades or more per month or up to $4.49 per trade if you trade less frequently at under 200 trades in a month — or you could pay a per-share fee instead. Per-share fees start at just $0.0025 if your monthly share volume is at least 500,000 and goes up to $0.0044 if you trade under 250,000 shares. This is comparable to Lightspeed, which charges $0.0045 if you trade under 249,999 shares per month and as low as $0.0010 if you make 15,000,000 or more in trade volume per month. And it’s below TradeStation’s pricing of $5 per trade.
  • Tools to facilitate timely ordering: SpeedTrader is focused on allowing you to place orders as quickly as possible. That’s why you have direct market access with a choice of routing options as well as hot keys to facilitate trades. Most conventional brokers don’t offer direct market access, instead routing customer orders to centralized trading desks, which in turn route to other liquidity providers.
  • Advanced data, charting and research tools: SpeedTrader has multiple platforms, each of which offers customization and advanced tools to help active traders. Investors can create customized watch lists; view streaming quotes as well as time and sales data in real time; and choose from a full array of chart types, including candlestick and price charts.

Drawbacks of SpeedTrader

  • High minimum deposit requirements: SpeedTrader offers only margin and options accounts, and there is a minimum $30,000 deposit for U.S. and foreign clients. There is also a minimum $30,000 deposit if you want to open a day trading account.
  • Costly inactivity fees: There is a $30 inactivity fee per quarter if you execute less than 15 trades.
  • A lack of options for free trading platforms: Lightspeed offers two free trading platforms, while TradeStation doesn’t charge software fees and provides free access to its advanced trading tools. SpeedTrader, on the other hand, charges a minimum of $25 monthly for ActiveWeb unless you generate at least $199 in monthly commissions. And its other platforms are even costlier, with SpeedTrader Pro Level I starting at $49 monthly unless you generate $199 in commissions and SpeedTrader Pro Level II coming in at $104 per month if you have less than $499 in monthly commissions.

Is SpeedTrader safe?

SpeedTrader is committed to account security. It is in full compliance with all regulatory requirements, according to FINRA BrokerCheck. And client assets held with SpeedTrader are insured up to $500,000 since SpeedTrader is a member of the SIPC.

SpeedTrader clients also get additional protection through Lloyd’s of London for up to $24.5 million in assets. That means a combined total of $25 million per client is protected, including up to $1 million in cash.

This insurance does not, however, protect you if the assets you invest in lose value. There are inherent risks to investing, and you could end up losing money if your investments perform poorly.

Final thoughts

SpeedTrader, more than most other online brokers, focuses on facilitating the fastest ordering speeds possible, which is a big benefit for day traders. If speed is of the essence, SpeedTrader is likely the right choice for you. But if you’re looking for a wider choice of trading platforms and are interested in not paying a fee to use them, then you may want to consider Lightspeed or TradeStation instead.

Open a SpeedTrader accountSecured
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Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Christy Rakoczy
Christy Rakoczy |

Christy Rakoczy is a writer at MagnifyMoney. You can email Christy here

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