Subscribe to Entrepreneur for $5

Author Seth Godin

What you need to know about the stock market--in plain English

Opinions expressed by Entrepreneur contributors are their own.

Seth Godin has been called many things: the Prime Minister of Permission Marketing and a shaved combination of Leo Burnett, David Ogilvy, Bill Bernbach and Mark Twain, to name a couple. But there's one thing this best-selling author, entrepreneur and self-described agent of change doesn't answer to, and that's stock market expert. Never mind the fact that Godin's new book, If You're Clueless About the Stock Market and Want to Know More, offers readers a comprehensive guide to getting started in stock market investments as well as an overview of the market's history. As it turns out, along with being the founder and former CEO of Yoyodyne and former VP at Yahoo!, Godin also has a knack for explaining things in a way that transforms the complex into the startlingly clear. He can also answer questions some might feel timid asking, as he shares with us here. What's the most common reason people don't invest in the stock market?

Seth Godin: People in our society have trouble understanding that money grows. The way you accumulate real wealth and income is by having money invested somewhere that grows while you are asleep. It's one thing to try to live on your salary, but it's the money you put away that grows on its own and compounds that's responsible for making real money. It's so tempting to put every penny you have into your business and live off credit card debt, but if you take a look at the penalties associated with [those things, you'll see that puts you] in a real bind. We need to start with the idea that the stock market isn't a lottery or a roulette wheel; it's an engine that historically has helped money grow. What is a major pitfall people fall into when investing?

Godin: The biggest pitfall is they get impatient. The stock market penalizes those who are impatient by charging fees every time you do anything with your money. So if you churn your money back and forth, you give up all the advantages of having that money somewhere to begin with. If you look at the difference in profit between putting your money somewhere and not touching it for five years, or putting it somewhere and moving it every week or every day, it's astonishing. You say the Internet is one of the best investment tools available today. What's your opinion on handling transactions over the Web as opposed to using a traditional broker?

Godin: The goal is to keep the fees as low as possible, and to do as little as possible. Paying a significant broker fee to someone who has no better access to information than you do strikes me as being foolish. The idea is to find the smartest place to put your money [at the lowest cost]. That means no-load mutual funds instead of mutual funds with a sales commission. If you're going to do your own trade, it means doing it slowly and occasionally at the cheapest possible trade rates as opposed to doing them frequently with a human being who's going to charge you a lot. Research [stocks] on your own, invest your money, and don't pay it any attention for six months. You can't win if you look every day. The whole conceit of the stock market is that over the past 90 years, nothing has outperformed it as a place to put your money.