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how to buy stock

You’ve probably heard that investing provides a great way to grow and save money. But getting into the stocks business isn’t a one-and-done deal. It requires research and upkeep to make sure your investments continue to perform well. So how do you start the investing process in the first place? Read on as we walk you through how to buy stock step by step.

What Are Stocks?

Let’s start from the top. Stocks are shares in ownership of a company that you are allowed to buy. This means you become a partial owner of the company, no matter how big or small your share is. As the company grows, so does your stock’s value. Plus, becoming a shareholder increases your net worth.

Investing in stocks can give you the flexibility to buy and sell as you please. Some stocks pay dividends, which is extra money you see immediately rather than when you sell a share. Of course, investing in stock comes with some risk due to the stock market’s own flexibility. So it’s crucial to understand stocks prior to investing.

How to Buy Stock: Step 1 – Do Your Homework

Before diving into the stock market, it’s important to take a look at your finances and investing goals. Since investing in stock requires you to spend money, make sure there’s room in your budget to spend. You should take care of any debts or ongoing bills before you dedicate money to your stock ventures.

Then you’ll want to set some investing goals. What are you investing for? Are you trying to supplement your retirement savings or is investing just for fun? Do you want to constantly buy and sell shares or would you rather let them sit untouched?

You should also establish your tolerance for risk. Learn how the stock market works. Know that it is constantly fluctuating due to supply and demand, companies’ performances and world events, among other factors. Some stocks provide more security than others, depending on the company’s historic performance. Some investors choose to invest only in safer stocks to avoid possible losses. Others try to work with the market to balance high- and low-risk investments to maximize their outcome. However, it is virtually impossible to predict any changes in the market.

If you’re unsure about your risk tolerance or whether you’re ready to invest, it could help to see a financial advisor. Financial advisors can give you advice and recommendations on everything finance. Consulting an advisor can give you a better idea of what you can handle.

How to Buy Stock: Step 2 – Open a Brokerage Account

how to buy stock

Once you’ve determined what you want out of stock investing and how to go about it, you can go ahead and open a brokerage account. This requires shopping around for a broker with which to open your account. You’ll want to find a stockbroker with a Series 7 license, or a Registered Representative. This license signals that they are qualified to sell securities and provide investment management and advice.

Nowadays, you can easily find a stockbroker online. There are a number of robo-advisors, like TD Ameritrade and Blooom, who provide advisors and managers for your investments. They not only make recommendations, but they work to get the best outcome for you and your investments. If working with an online broker isn’t for you, you can certainly find in-person brokers to help you out. Keep in mind that brokers, whether online or not, will charge some sort of management fee for their services. This often represents a percentage of your assets, an hourly rate or a flat-rate fee.

To open a brokerage account, you’ll need to provide some personal information and proof of identification. You also have to fund the account, either with a check or electronically. If you work with a robo-advisor, they may have limitations on how you can fund the account. Some brokers also have limitations on the amounts you must deposit. For instance, some brokers will only accept deposits of thousands of dollars or more. Be sure to check any limitations with your broker beforehand. That way, you’re not surprised out of any money.

How to Buy Stock: Step 3 – Select Stocks

With so many stocks to choose from, it could help to research and make a plan first. That way you’ll know exactly which companies you want to buy into and how much you’ll spend for each share. Don’t forget that when you buy stocks, you’ll have partial ownership of the company. With that in mind, you may not want to go around buying stocks willy-nilly.

Although no one can predict the market, it can help to watch the stocks you’re interested in before buying. That way you can be more prepared for what you’ll see after you buy. It could also help to check up on a company’s performance. For one, you may end up rethinking buying a share in a company whose value is actively decreasing.

Of course you’ll also need to stick to your budget. If you can only afford to spend $10 per share, you’ll want to avoid any expensive shares, no matter how tempting. Your final budget will depend on the price of each share and how many shares you want to buy.

How to Buy Stock: Step 4 – Buy Stocks

how to buy stock

Now it’s time to actually go ahead and buy those stocks. There are a few ways to go about buying stocks. For one, you can submit a market order. This means that you want to buy a share at the best available current market price. This happens immediately, regardless of the share’s price. Keep in mind that since the market constantly fluctuates, so will the price you pay (or sell at).

Luckily, you also have the option of submitting a limit order instead. This kind of order sets the price point that you’re willing to pay for a certain company’s share. For example, say a share currently prices at $80, but you’re only willing to pay $60. You submit a limit order and your purchase (or sale) will only go through at $60.

This is when having a broker to manage your investments can really come in handy. Without a broker, you would have to make all these orders and moves yourself. A broker can lend a more professional view to your investments to make efficient trades. Plus, they’ll know more of the language specific to the stock market and trading.

Final Word

Did you buy stock? Congratulations! You’re now a partial owner of the companies you bought shares in. While you’ll probably be tempted to constantly check in on your investments, remember that the market is constantly fluctuating. Don’t worry too much if you check in after a few days and your stocks have gone down by a few cents. It’s the long-term goal that matters.

Tips for Preparing to Invest in Stock

  • No matter how hard people try, the stock market can’t effectively be predicted or beaten. Stock prices rise and fall each day, sometimes even minute to minute. These changes and your eventual payout will depend on a number of factors, including inflation. When you’re investing, it’s good to remember that you can’t entirely control your investments’ performances.
  • You’re going to want a diversified portfolio. This means that your investments range from different kinds of stocks to various bonds and more. You can determine your own asset allocation based on your risk tolerance and time horizon.
  • Not all stocks function similarly. You have a range of different types of stocks to choose from including blue-chip stocks and preferred stocks, as well as small-cap stocks.
  • You can also turn to a financial advisor for help determining your optimal asset allocation. A matching tool like SmartAsset’s SmartAdvisor can help you find a person to work with to meet your needs. First you’ll answer a series of questions about your situation and goals. Then the program will narrow down your options from thousands of advisors to up to three registered investment advisors who suit your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while the program does much of the hard work for you.

Photo credit: ©iStock.com/Avosb, ©iStock.com/Szepy, ©iStock.com/Drazen_

Lauren Perez, CEPF® Lauren Perez writes on a variety of personal finance topics for SmartAsset, with a special expertise in savings, banking and credit cards. She is a Certified Educator in Personal Finance® (CEPF®) and a member of the Society for Advancing Business Editing and Writing. Lauren has a degree in English from the University of Rochester where she focused on Language, Media and Communications. She is originally from Los Angeles. While prone to the occasional shopping spree, Lauren has been aware of the importance of money management and savings since she was young. Lauren loves being able to make credit card and retirement account recommendations to friends and family based on the hours of research she completes at SmartAsset.
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