How to Buy Shadow Stocks
"Shadow stocks" is a fancy name for Exchange-Traded Funds (ETFs); they are so named because they shadow or mirror the performance of other groups of stocks, whether they be major indices or baskets of stocks in specific industries or sectors. They are like mutual funds in that they allow investors to own interest in a pool of stocks; but unlike mutual funds, ETFs can be traded during the course of a trading day through a broker-dealer.
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Instructions
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Choose an online brokerage account. If you do not already have a brokerage account, it is easy to open one. Many financial institutions offer online brokerage accounts, including the well-known names like Fidelity, Sharebuilder and Schwab. Each has its own features, but one important one is the lack of account minimums that Sharebuilder provides.
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Set up your investment account. Your investment objectives will determine the type of account you open. The available options include individual, joint and retirement accounts such as IRAs and Roth IRAs.
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Decide how much you want to invest. Of course, retirement accounts have annual limits prescribed by law. However for non-retirement accounts, you can invest as much as you want--and with no-minimum accounts like Sharebuilder's, as little as you want. A good way to invest is via automatic investments made monthly and paid for by a linked checking account.
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Research your shadow stocks and start simply. There are many ETFs to choose from, and the numerous options can be confusing. You may want to go with ETFs that shadow the major indices like the Dow, NASDAQ 100 and S & P 500, as well as other global indices.
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Link your brokerage account to your checking account and start buying your shadow stocks. Since ETFs can be traded just like stocks, once your brokerage account is all set and you have done your homework, it is time to buy your shadow stocks. If you set up an automatic investment account with Sharebuilder, you will be able to invest a fixed amount in a group of ETFs each month.
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Tips & Warnings
Shadow stocks or ETFs have the added advantage of low costs, as well as tax advantages. They also minimize the risk of individual stocks, and by their very nature provide diversification.
