My First Stock Purchase: Advantage Energy Income Fund
When I first decided to open up an investment account back in mid-January, I had no idea what I was doing (understatement). As I described in a previous post, I had decided to go with Sharebuilder.com due to their dividend reinvestment option and because of their relatively low fees (which are actually high compared to what I could get if I had a larger initial investment, but I had to start small). The only downside to Sharebuilder is that in order to achieve those low fees you must restrict yourself to making purchases through an automatic investment plan that allows you to place trade orders only on Tuesdays. If memory serves I opened my account on a Thursday, and I simply couldn't wait to make my first stock purchase until then. Now Sharebuilder also offers real-time trades for $15.95/trade, so I decided to give into temptation and place a real-time order for my first stock! Sixteen dollars is a huge chunk out of the $100 or so that I initially funded the account with, but I didn't care at the time. I was just so proud of myself for having the wherewithal to invest my money rather than blow it on junk food or DVDs. So that was my very first stock purchasing lesson: try to avoid outrageous fees. They can take a pretty big bite out of your investments if you are not careful.
So how about that first purchase? Like I said, I had absolutely no idea what I was doing. I hadn't learned about Exchange Traded Funds yet, so I was just looking at individual stocks. I did know that dividends were a good thing, though, so (foolishly) I figured I would buy the stock that paid the biggest dividend possible. Now this is a mistake because companies cannot usually sustain outrageously high dividends for long without seeing their share price come tumbling down also. But I didn't know that at the time; I was an excited investor! So I stumbled upon Advantage Energy Income Fund, which had been paying out a dividend of 14%–17% annually or so (about the most that is sustainable is usually 4%). I purchased eight shares exactly for a total of $108.31, including the $15.95 real-time trading fee. Over the next month, the stock price dropped steadily from $10.80/share to $9.80/share, adding an additional $8.00 to my total losses!
There is a light at the end of the tunnel for this one, though. The stock price is nearly back up to its original amount, despite the outrageously huge dividends. Speaking of which, I recently received my first dividend payment for this holding, which was automatically reinvested into additional fractional shares of AAV. I now own exactly 8.088 shares of Advantage Energy Income Fund, which might seem like small change; but over time, even this lemon of a purchase might serve me well if I keep reinvesting the dividends.
Why not just sell it off and start over? Well, Sharebuilder is designed for the long-term investor, so they purposefully make it expensive for you to sell off your holdings to encourage a buy-and-hold investing strategy rather than a day-trading strategy. Hence the fee to sell my 8.088 shares of AAV would be an additional $15.95. So it looks like I'm stuck holding my AAV until I can transfer my investments to a brokerage with lower fees once I have enough invested to meet a higher account minimum. I'm not sure I'm ready to give up on my AAV altogether, though. $9.80 was its lowest price in years, so maybe, just maybe, it will have a moderate upswing. In the meantime it is quite fun watching the monthly dividend payments (yes, AAV pays monthly dividends) get reinvested and watching the number of shares that I own increase. But now that I know better, I am sticking to my ETF portfolio!
