Sharebuilder - Will it Destroy Me?

I'm determined to "understand" the stock market as much as possible. Instead of "investing" in an economics class, I'm putting my hard-earned money into stocks via Sharebuilder.

It all started this week when I realized Sharebuilder and ING were now one in the same. I trust ING, so I figured it was time to make the next leap in my financial journey -- ETFs and stocks. I wasn't going to do anything crazy and spend $1000 on one stock right away, but it's time to do some experimenting... especially since we're in a recession and the markets are fairly weak right now. It can't be that bad a time to buy, looking at a long-term investment.

I did a little research and with in my typical spontaneous and likely under thought fashion, I decided to quickly move on from my original $500 investment in Gold and one small cap company that I've liked since my reporting days (even though now that I think more about it, they're probably not the greatest investment). Sharebuilder had a neat feature showing losses and gains that I couldn't see unless I signed up for their monthly plan ($12 a month) which also features 6 free trades, so I gave in and spent the money. Probably a dumb idea. Potentially a very dumb idea.

But I'm young and it pays to be aggressive in my investments, supposedly. If my "safe" mutual funds are failing, then I know to expect that anything more aggressive will likely lose money too. I'm just hopeful 10-20 years down the line these purchases might pay off... maybe in time to move to a bigger place (or buy my first house) and have kids?

Regardless of how much you know or don't know about the stock market, it really all is one big guessing game that can be sorted through with the help of statistics and a fine understanding of the economy. Still, another bomb could go off anywhere in the world and send everyone's predictions completely out of whack. A part of me loves the excitement of the stock market. It's a grown-up game where you can win some money (or lose all your money, eek.)

Again, I'm not being totally stupid about it. I still have a good $12k in two crappy-interest CDs (I'll be moving those funds to one higher-interest CD as soon as they're liquid again) and at least my gains on my CDs and occasional take-home pay equaling more than I spend in a given month have helped balance my loss of $700+ on my Vanguard accounts.

Besides, if we are in or going into a major recession, I believe (after reading a bit on the topic) that certain cheap retail establishments will do well, especially if they have foreign sales power. I'm all about the foreign investments too. Not all in one country, but I'm going to buy a small amount of an index fund in Brazil, one hot company in Spain, and another index tracker in China.

"Going to" is because I have to wait a week and a day before any of these investments post. That's what Sharebuilder's automatic investing is all about. I still don't understand it completely. The "coolest" part about it (that seems to be its selling point compared to other online traders) is that you can purchase "fractional shares." How they do this beats me, but basically you say "I want to invest $X into company Y the 1st Tuesday of every month" and if you have enough money in your account (which you can set up to automatically transfer from your bank account) it will invest exactly that much into that company on that Tuesday.

The good here is that if a stock costs $600 ala Google and you really want a piece of that action, I guess you could go and invest $30 in it. But what i don't understand is how on earth Sharebuilder does that. Do they actually buy a full share of the stock assuming you will continue to buy the rest of it? They can't really do that, because when they place your next order, you buy it at the market price for that Tuesday. As far as I know in my limited knowledge of stocks, you can't just buy parts of a share. You have to take the whole thing. So how on earth does Sharebuilder do this? They don't really explain how they do it on their site, they just say they can and basically that it's an awesome feature for investors with a small amount of savings each month to invest. I like the idea, but please, someone explain this to me.

Anyway, I've set my account up to buy parts of six different stocks once a month for a total of $300. I figure I'm better off forgetting about $300 that I've made and investing it, and either it will make money (I am investing in a few large cap companies that seem to pay dividends, which looks to be a good thing to balance out my risk a bit) instead of looking in my bank account and spending more on food and clothing and such that I could get more cheaply. It will certainly force me to be more frugal, in a good way.

I just hate waiting for the investment window. What if Bush's recession tax plan passes the day before my investment and all the sudden the stocks soar? I'm confident that the stock market is sucking right now, and I've picked stocks and ETFs that seem to have long term potential that are also sucking at the moment. I'm so nervous that it won't be the case on Tuesday the 29th, when my bets should be posted.

Then supposedly I keep investing the same amount every month until I've built up a decent portfolio. I just can't wait until I log into my Sharebuilder account and see a few different stocks and really start following them and understanding what they do and why. If anything, this will help me learn... for future reference... what kills a stock and what makes it soar. Hopefully I'll learn more of the later.