Is online trading okay?

Dear Dave,How do you feel about online trading for building a stock portfolio? Assuming that someone has done their homework on which stocks to buy, is there anything else to know about do-it-yourself trading?Kevin

Dear Kevin,There’s one very important thing to know – don’t do it! This kind of thing is one rung below day trading on the ladder of stupidity.

Here’s the problem. When most people talk about “doing their homework” on single stocks they’re just barely skimming the surface. And most of the time this involves just talking to their broke friends. There’s no way you and your golfing buddy are going to dig up and decipher the kind of solid, reliable information you’ll need to be successful at this kind of thing.

I’d much rather go with a mutual fund that’s spent millions of dollars analyzing companies and doing real research. What you’re talking about is a million times riskier than using good growth stock mutual funds – selected by professionals – with 90 to 100 different stocks.—Dave

Dear Dave,Right now our debt is keeping us from investing. Do you recommend making investments with a home equity line of credit?Paul

Dear Paul,Let me answer this very, very carefully. No!

You don’t borrow on your home, Paul. You never want to put something as precious and important as your home in jeopardy just for the sake of investing.

Follow the Baby Steps. First, get $1,000 in the bank to start your emergency fund. Second, pay off all debts from smallest to largest – except for your house – using the debt snowball. This will lead you to Baby Step Three, which is fully funding your emergency fund with three to six months of expenses. Once you’ve done all this you’re ready for Baby Step Four, which is investing in Roth IRAs and other pre-tax retirement.

When you’re debt-free except for your house, you’ll find investing is easy because you’ve freed up your most important wealth building tool – your income!—Dave

Dear Dave,I know how you feel about leasing a car. But what about the car leasing programs that auto manufacturers offer their employees?Stephanie

Dear Stephanie,A few automakers do this kind of thing, but I’d advise investigating the deal very carefully. And it wouldn’t hurt to take a cold shower first – just to make sure you wash off any car fever you may have.

Some of the automaker offers are just another way for the company to fleece drivers. But some manufacturers offer their employees programs that aren’t a traditional lease. A few of them offer the use of a high-quality car for very little money per month and no hidden catches. In these cases it can work out pretty well. In some instances you’d lose more in value every month – even if you bought a car with cash – than you would pay out under a good employee program. Some companies even offer gas and more in the deal.

Just make sure you check the details thoroughly. Use your head and a calculator – not your heart – when making the decision!—Dave