how to buy stocks online

As I write this on 12/17/2010, the stock market is a few points away from being at its highest mark in over two years. It bottomed out in March of 2009 and it has been a steady ride back up ever since. It still has a way to go but anyone who didn’t panic during the sell off of 2008 and kept all their stocks has gotten a lot of their money back. Here is what the Dow chart looks like from the beginning of 2009 until today:

Unfortunately though, many did panic and sold at some point on the Dow’s free fall from the 14,000′s down to its low of about 6,600. The people that needed their money or couldn’t stand the pain sold their stocks at a loss and never came back in. That means they were never able to recoup any of their losses and have probably given up on stocks for good.

This is a good lesson for anyone buying stocks with money they will soon need or can’t afford to lose. Don’t do it! Stock investors should only be using money that they can afford to wait out a market correction or bear market with. Generally speaking, investors who panic are losing investors.

Going into 2008 I had 100% of my 401K in stocks and I also had stocks in my personal portfolio. Needless to say, they both took a significant hit when the market started going down but I didn’t sell anything. The key was that I knew I wouldn’t need that money for at least 15 years and I didn’t panic. Nevertheless, everyday I would see how much more I lost and wonder whether I should have been selling. Obviously others were selling and that was why the market was going down.

This mob mentality of sell, sell, sell, kept on going all the way to March of 2009 but I never sold a thing. My losses on everything were somewhere between 40% and 50% and it was enough to make me feel sick. A lot of people were feeling sick I am sure.

But today is a much better day as I look at my 401K account and see that it has come all the way back. My personal stock portfolio is not all the way back yet but it is looking much better indeed. Of course I don’t like the fact that I am still down overall from 2008 but I am much better off than all the people that sold their stocks in fear and never got back in.

So many people were at or near their retirement age and STILL had 100% of their money in stocks. That is a big no no (see stock investing and your age). Then when the market fell they had to get something back so they sold in a panic. Now, many of them are coming up short in their bid for retirement and are having to work longer than they wanted to. Their main mistake was having too much in stocks when retirement was around the corner. Their second mistake was selling in a panic.

Is it easy to hold on to your stocks when the market is diving and the world seems to be ending? No, it is very hard to hang on and not panic sell but experienced investors are able to do it. In fact, some were buying stocks all the way down and ended up very glad they did.

So before you go out and start buying stocks with your savings, make sure you have a game plan and don’t use money you will soon need for something else. Don’t invest with money you need to purchase a house, need for medical bills, or need for rent. That is just a disaster waiting to happen.