How To Buy Stocks: A Step-By-Step Guide | Bankrate
It’s never been easier to buy stocks. If you have a little money and a brokerage account, you can buy a piece of a publicly traded company. A share is an ownership stake in a company, and literally thousands of them are listed on a stock exchange, allowing anyone, even beginners, to become co-owners of the company.
Here’s how to buy shares and the steps you need to take to become a shareholder.
Reading: How to invest in stock market
1. choose your broker online
You’ll need to contact a broker to buy shares, but that only takes a few minutes. The broker allows you to buy and sell shares, holds the shares for you in an account, and collects any dividends that are paid. You’ll need to provide basic financial information to open the account, and you can connect your bank account to the brokerage to transfer money.
an online broker is a great first choice. Most brokers do not charge trading commissions on stocks and do not have a minimum account to start with. but you can also opt for a trading app, especially if you want to trade less frequently via mobile.
You can find a broker that suits your needs among the best brokers for beginners.
2. research and analyze stocks to buy
If you’re interested in buying individual stocks, you’ll need to do your research and determine if the stock is a good buy or a “bye-bye.” and that can take a lot of upfront work if you want to be successful.
You’ll want to understand the company, its products, its balance sheet, and its industry. therefore, you should read their filings with the Securities and Exchange Commission (SEC). that will give you a lot of details about what you are investing and its potential. but you may also want to use some of the best techniques from the pros, including first-hand research.
From your research you can develop an investment thesis for the stock or discard it and look for another potential candidate. You’ll want to buy a stock that looks poised to outperform for years to come rather than one that you think will outperform next week or month. that is, you want to invest for the long term and think like a business owner, not like a stockbroker looking to make a quick buck.
To measure yourself, ask yourself, “If the market closed tomorrow and I couldn’t sell this stock, would I want to hold it for the next ten years?” this can get your mind focused on the right time frame.
See also : Where Will NIO Stock Be In 5 Years? (NYSE:NIO) | Seeking Alpha
When you find an attractive stock, look at its ticker symbol, usually a three or four letter code.
3. calculate how much you can invest
You’ll want to determine how many shares you can buy right now. If you are just starting to invest, the good news is that you can invest with almost any amount of money, as many brokers allow you to trade fractional shares. so you can buy a partial share, even on really expensive stocks. it’s okay to start small. With commission-free online brokers, fees won’t eat up your money.
But real wealth is built by increasing your investments over time, ideally at regular intervals. therefore, you’ll want to find out not only how much you can invest now, but also how much you can add to your account over time. this can allow you to take advantage of dollar cost averaging, a process that spreads your purchases over time and reduces your risk.
If you’re investing more than a few thousand dollars, you’ll want to consider buying more than one stock, so you’re diversifying and spreading your risk.
4. place your trade
It’s finally time to perform your operation. Using the stock’s ticker symbol, you can enter an order with your broker. You will also need to specify what type of order you want to place: market order or limit order:
- market order: this type allows you to trade at the best price at the time you submit your order. you will have no control over the price at which you trade.
- Limit Order: This type allows you to trade only at the price you specify or better. if you cannot get your price or a better price, the order will not be filled. you can set a limit order to be valid for up to three months, although some brokers allow them to stay longer.
Market orders are best when trading only a few stocks or when stocks are large and liquid. Limit orders work best on smaller stocks that don’t trade many shares or when you’re trading a significant number of shares and don’t want your trade to move the price.
Once the trade is executed, you own the shares.
5. track your stock
Buying a stock is only part of the process of being a shareholder. You’ll also need to continue to follow the company, tracking quarterly or annual earnings and keeping up with the industry. And as the company performs well, you’ll be able to put more money toward the position. then you can add more stocks to your portfolio as your experience grows.
Along the way, your stock will decrease at some point, even if it’s only temporary. Understanding the company can help you decide if it’s time to buy more shares at a discount or sell.
Finally, if you’re looking to start investing, you should know that you have other options. As Warren Buffett advises: “If you like to spend six to eight hours a week working on investments, go for it. if it doesn’t, then the average dollar cost of index funds.”
See also : Thinking of Day Trading? Know the Risks. | Investor.gov
If you don’t want to waste time tracking your stocks, you have plenty of ways to make money in the stock market, including index funds. index funds often own hundreds of stocks, offering the benefit of diversification without the extra work of analyzing and evaluating individual stocks.
These are some of the best index funds.
purchase of shares: frequently asked questions
Do I need a broker to buy shares?
A brokerage account allows you to buy stocks and other securities (such as ETFs, options, mutual funds, bonds, and more). You can open an account with an online brokerage, a full-service brokerage (a more expensive option), or a trading app like Robinhood or WeBull. either of these options will allow you to buy shares in publicly traded companies.
however, your bank or other financial accounts will not allow you to purchase shares. But your bank may operate a brokerage, so you can open an account with the brokerage and buy shares there. For example, Bank of America owns Merrill Edge, J.P. Morgan Chase offers J.P. morgan self-direct investment and wells fargo operates wellstrade.
is now a good time to buy stocks?
The stock market rises an average of 10 percent per year, although returns can fluctuate widely from year to year. some years the shares may fall by 20 to 30 percent, while in other years they may rise similarly. But experts recommend long-term investing rather than trying to “time the market.” Timing the market means trying to find the best time to buy and sell.
experts have a saying for this: “time in the market is more important than time in the market”. that is, the returns on your investment, particularly a well-diversified portfolio, depend more on how long you stay invested than on how well you time your buy and sell points. In other words, research shows that passive investing tends to outperform active investing. so that’s one way even amateur investors can beat the pros.
Will I have to pay taxes on the profits?
Any earnings earned on your investments will create a tax liability on your taxable accounts (ie, accounts that are not an IRA, 401(k), or other tax-advantaged accounts). You’ll have to pay taxes on dividends, as well as realized capital gains – stock you sold for a profit.
The tax rate you pay depends on your income and how long you owned the security. If you owned the security for less than a year, you will have a tax rate equal to your income rate. if you owned a stock for more than a year, you’ll pay the long-term capital gains rate, which may be higher or lower than your short-term rate (and sometimes even at a 0 percent rate) .
Beginners interested in buying a stock should understand that it is easy to place a trade. But the hardest steps in the process are researching your investments and keeping a close eye on your stock after you’ve bought it. If you’re just starting out, it’s helpful to go small and invest small amounts until you’re comfortable with how you buy stocks.
Editorial Disclaimer: All investors are advised to conduct their own independent research on investment strategies before making an investment decision. furthermore, investors are cautioned that past performance of the investment product is not a guarantee of future price appreciation.