First things first: Purchasing stocks is an investment. Often, people will choose to buy stocks to diversify their financial portfolios and bring in additional income. And as with any financial market endeavor, owning stocks comes with both risk and reward. Typically, for individuals looking to gain investment experience, participating in the stock market is one of the most common ways to do so.
So, if you're looking to buy stocks for yourself, read on as we break down the process step-by-step.
How to buy stocks
Step 1: Select an online stockbroker and open a brokerage account.
To buy stocks, you need to set up a brokerage account. Usually, this can be set up online and only takes a couple of minutes. Next, you will need to set aside money for your account. You can transfer money from your checking or savings account.
Depending on your financial objectives and personal preferences, you’ll need to decide what type of brokerage account you want to open.
Direct stock purchase plans
This is when you purchase stocks directly from the company that is selling them. Not every company offers this option, but the majority of popular companies do. You aren't required to have a brokerage account to buy direct stocks but will most likely face extra fees.
Also known as traditional or managed brokerages, full-service brokerages offer an array of services to investors, including financial advice, research and reports, tax, budgeting, and retirement assistance, as well as exposure to market shares.
A broker acts as an intermediary between the investor and the market and manages the open brokerage account daily. This individual also takes a percentage of earnings as a commission.
Full-services fees are usually relatively high.
Robo-advisors exploded in popularity following the 2008 financial crisis. The primary purpose of these platforms is to streamline the investment process and keep costs low for investors. Specialized software that features mathematical algorithms helps you make investment decisions.
Online stockbrokers are arguably the easiest way for beginners to start investigating stocks because they operate using an automatic, hands-off approach.
Step 2: Research the stocks you want to buy.
An abundance of stocks are available for purchase, so it's best if you take the time to research the companies that interest you and see how their stock prices compare. Remember, owning stocks makes you a partial owner in a business. The more information you have, the more confidence you'll have when you commit to riding out the booms and busts with a particular organization in the long term.
It is standard practice among companies to issue an annual report to their shareholders that describes how the business is performing. This can provide invaluable insight, so if you're unsure where to start, start with this annual report.
Growth investing is specific to new companies that are rapidly growing. These stocks can produce significantly higher returns than the average market stock. As a result, they're relatively expensive to buy and to keep.
Simply put, value stocks are stocks sold at a lower price because they are undervalued or neglected by the market as a whole. Investing in these types of stocks means taking a chance that the market will eventually see their inherent value further down the road, which will boost their price. That said, this method of investing has become less popular in recent years. On the other hand, it is a more affordable option.
Dividends refer to when a company distributes extra earnings to its shareholders because they experienced a surplus in profits. So, a dividend stock is any stock that pays dividends that you are free to sell, trade, or reinvest back into the company. The more shares you own in a business, the higher your dividend payment will be.
Step 3: Decide how many shares to buy.
You do not need to buy many shares at once. What your purchase is up to you and what makes you feel comfortable and in control. Kicking off your investment journey by purchasing smaller, cheaper stocks is a smart way to go. Eventually, you'll come to understand market trends and can invest more as time goes on.
A relatively new option to keep in mind is that of fractional shares. This is when investors can purchase a portion of a stock, as opposed to the entire thing. These allow you to own pricer, riskier stocks issued by large companies like Amazon and Google for less.
Step 4: Choose your stock order type.
Described below are the two most common order types.
A market order is a request to buy or sell a stock at the best available price and as soon as possible. Since prices fluctuate, this type of order is best for stocks and stable companies.
Limit orders are requests to buy or sell a stock at a specific price or for a better-negotiated one only. This type of order offers investors more control and is best used to acquire short-term returns, especially with volatile stock. However, there is no guarantee that you will receive your stock's full asking price.
Step 5: Optimize your stock portfolio.
Stocks are wise investments for both the near and distant future. Not only do they help broaden your portfolio, but they can expose you to more complex economic entities, such as securities and mutual funds. They can also act as a financial safety net in terms of retirement or emergency income.
Step 6: Diversify and reduce risk.
Once you have your foot in the door, it is wise to diversify your portfolio. Not only does this reflect well on your financial history, but it’s also a good safeguard against risk and price volatility.
Another helpful strategy in reducing risk is to practice being proactive and to develop money-wise habits so that you’re in a better place to start investing with less worry. That said, allow us to introduce Point Card.
The stock market may be unpredictable but Point Card is anything but that. You work hard for your money, and Point always works hard for you in return. A transparent, easy-to-use alternative payment card, Point Card allows cardmembers to have financial independence and spend their own money while also receiving exclusive benefits, including unlimited cash-back on all purchases. Additional features include fraud protection with zero liability, rental car and phone insurance, and no interest rates, so you'll be able to save money for future endeavors like purchasing stocks or planning your dream vacation. Point members also benefit from bonus cash-back on subscriptions, food delivery, rideshare services, and coffee shops.
In short, Point is an excellent tool for intelligently navigating your financial journey.
Best online stockbrokers for beginners
Even though what is considered the "best" is relative, some platforms are more user-friendly than others, especially for beginners.
Are there minimums to open an account?
No minimum amount is required to begin investing in the stock market. It is good to start small and then gradually increase the volume of your investments once you gain a deeper understanding of economic phenomena.
But remember, only invest what you can afford to lose if things take a turn for the worst. Don't invest beyond your means.
What are the commissions and fees?
Full-service brokerages charge you the highest fees, including commission. Most firms charge an annual fee that covers the cost of the daily supervision of your account and any advice they happen to offer. That fee is approximately one to two percent of your account's value. Commission fees apply whenever a stock is bought or sold and range from $75 to $100 each time.
Discount and Robo-advisors are not nearly as costly, and the annual fees vary depending on your account type. They can be free of charge, as low as $5 or up to $30.
How do you buy stocks as a beginner?
In addition to following the steps in this article, it's important to remember there is no "best stock" for beginners. Starting with smaller investments or seeking professional advice are two intelligent strategies.
However, blue-chip and S&P 500 are some of the nation's most stable stocks, both of which are great starting points. The former refers to companies that are well-known and well-established. Blue-chip companies have an extensive history of high-performing stocks and paying dividends. The latter is an index that encompasses the 500 largest companies in the United States. Companies that report positive earnings and have outstanding market capitalization, or the total value of their shares is at least eight billion, are eligible for the index.
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