I want to start using some of my leftover money, but i have no idea how the stock market works other than the basics.
My main questions:
How exactly do you buy stocks (i know there are brokers but do you just sign up and pay them like 1-10$ for every transaction?)
Especially as you don't really know much, you should strongly consider something like a mutual fund. You buy a share of a mutual fund like you a share of stock, but you're buying a collection of stocks that way. You pay a bit more for this, but you spread your risk around. Think, do you want to buy apple or microsoft? One could go up, the other down, and you don't know which to choose. A mutual fund lets you choose a bit of both, with the idea that the gains generally outweigh the losses by a lot, and most people (make that almost all people) can't consistently pick winners, and especially over specific time lines.
Is it a good short term investment, say like 6 months?
No. We have no real idea whether particular companies or the market as a whole will be up or down in six months. It's a bit of a gamble. If you need that money again in six months, I think you're a lot better off keeping it safe in a savings account.
It's quite possible the stock market falls 10% in six months. So your $10k is suddenly $9k and you're really pissed if you need to take that money out. Of course, if it goes up 10% in six months, you've got $11k.
Also, you'll pay higher taxes on investments you turn over in less than a year.
If you can sit that money aside for quite a while, it's pretty likely to grow for you. For folks who aren't professional investors, consider it like planting a tree. It's not going to require constant attention, but 5 or 10 years down the road it can pay off really well even if there are short-term losses. You only have the gain or loss when you actually cash out.
Do brokers really F you in Commision?
Depends on who you go to and how you set up your investments. I would check out Vanguard if I were you. If you want to put some money aside for a few years, the easiest and cheapest way is to set up a mutual fund account with them. There are basically no commissions at all.
Any other info would be greatly appreciated
Like I said, you have to consider the time horizon you're looking at with your savings. How old are you? Are you planning to spend the money in the next couple of years (new house, car, etc)? Is it a fallback you might have to tap into if you lose your job? How much of a fallback do you need (should be based on your monthly expenses).
Once you answer those questions, you can start figuring out how to allocate the money.
As a general rule of thumb
* If you don't expect to need the money until retirement, set up a Roth IRA account and then put everything in a stock index fund. That'll give you a good return with little worry, fees or maintenance.
* If you expect it's money that you might use at some point a few years down the road for a home down payment, school, a business, go for a regular taxable mutual fund account, and split it between a stock market index fund and a bond market fund.
* The general rule of thumb on keeping some money for contingency purposes is 3-6 months worth of your income. EG, if you make $20k/yr, that's $1666/month you make. 3 months worth is $5000. Obviously most folks don't keep that much lying around in their savings account. You can pair it down to what you think you'd need to cover basic expenses, for example. Take that money, however much you decide it needs to be, and put it in a money market or just keep it in a savings account.
Background:
Been keeping about 10k in a credit association (some kind of savings account) for the last 2 years and they were originally paying out 5.5% but now they are down to 3.5% and i really want to do something else with my money
So, per above, consider your goals. If you need a safety blanket, keep that emergency fund in the savings account. Say for argument's sake it's $2000. You can always withdraw from your investments if you need to as well.
Take the other $5000, and put it in index funds. Give a stock market index fund like the Vanguard 500 fund 5 years to work on it, and you've got a few extra thousand dollars. Hopefully.
