Venturing into the world of stocks is a very daunting challenge for many. All the figures and the calculations can seem very complicated to understand. In addition, dealing with money matters often rattles even the most confident individuals.
However, we are here to show and tell you that buying stocks is not rocket science. This beginner-friendly guide on how to buy stocks is your ultimate guide for anyone who is testing the waters in the world of stocks.
Step by step guide to starting buying stocks
- Select an Online broker
- Research the stocks that you want to buy
- Decide on how many company shares to buy
- Diversify your stock portfolio
Selecting an online stock broker to open your account
Selecting an online brokerage account is effortless since there are many options to choose from. In addition, opening an account with one of the many online stockbrokers is the easiest way to buy stocks.
Online brokerage accounts give you the advantage of being a hands-on investor. Furthermore, you also get access to tax-advantaged and taxable accounts with online stockbrokers.
Some of the best online stockbrokers in our books include:
Are you interested in succeeding in Stock Trading? Check out our Best Online Stock Brokers to learn more about the best stock brokers and choose the one that is best for you!
Different online brokers have their preferred method of allowing investors to open their accounts. However, the basic procedures to open an online account remain the same. The option to open an account with a particular online stockbroker is usually at the homepage’s top right corner.
Many of the online brokers offer different types of accounts. This includes individual accounts, joint accounts, investors, institutions, and Individual Retirement Accounts (IRA). The process of opening any of these accounts with an online stockbroker is very easy.
Researching the stocks you want to buy
After successfully opening an account with an online stockbroker, you need to identify which stocks you want to buy. Researching the stocks you want to buy is critical as it decides whether you make money or not.
Some stocks you can consider buying are:
- Dividend stocks – These types of stocks are common in sectors such as telecommunications and utilities. Shareholders receive the earnings in the form of dividends. A great advantage of dividend stocks is that you get a steady stream of income irrespective of whether the prices of the stocks rise or fall.
- Growth stocks – Growth stocks are among the most rapidly growing company shares in terms of both revenue and profit. Investing in growth stocks will ensure that you gain sustained rapid growth over time. Often, companies both young and established with a lot of room to grow offer this type of stock.
- Value stocks – The strategy with buying value stocks is to buy the undervalued stocks and retain them for the long term to gain shares on sale. Value stocks typically have a lower price than the other types of stocks.
While researching for stocks to buy, take a good look at the stockbroker’s website of choice. They have invaluable tools that can assist you in making the right decision about which stocks to buy. These tools include tutorials, seminars, call transcripts, SEC filings, and quarterly reports.
In addition, most online brokerage online accounts have stock screeners, which can help you narrow down your search. A stock screener filters stocks by sector/industry, companies with declining shares, or those with high priced stocks, and small or large-cap stocks, and so on.
If you are unsure about where to start, start with a budget. Then use a tool that converts this dollar amount to shares, which your online stockbroker offers. Furthermore, for beginner investors, a fractional share is also a great start to the stock buying journey. This means that you can buy a portion of a larger share, so you can buy stocks from even the biggest names with a relatively small budget.
Deciding how many shares to buy
As you start buying stocks, it can be very tempting to fill your portfolios all at once. The temptation can be even stronger if you have the money. However, veteran investors will all agree that starting small by investing in a share or two is the best strategy.
Of course, you can increase the number of shares you want to buy as you get confident with the dynamics of buying stocks.
Diversifying your stock portfolio
Diversifying your stock portfolio is the most effective way to gain a steady foothold in the world of investments. It is also the only proven method to safeguard your money in case of a market crash.
In the beginning, diversifying your portfolio is not mandatory. However, as you start buying more stocks, this will become necessary. Here are the ways to diversify your stock portfolio.
- Consider expanding your investments – this can include buying mutual funds, index funds, and ETFs.
- Include different investments with varying rate of returns even within individual investments such as retirement account.
FAQs about how to buy stocks
How do I open an account with online stockbrokers?
As briefly mentioned above, opening an account with an online stock brokerage is very simple. You just need to access the homepage of the stock broker of your choice. Then locate the “Open an account” tab.
Here, you will be required to fill up an application form with personal details. This can include your annual income, security number, and initial deposit amount, among others, and then click the submit button.
Which is the best stock to buy for beginners?
Identifying a single best stock is tricky, whether it is for beginner or veteran investors. However, if you are completely lost, low-cost index funds are always a great place to start. In addition, blue-chip stocks from credible and established companies are also a good choice.
Can I buy stocks online without a broker?
It is possible to buy stocks online without a broker. Many companies offer direct stock purchase plans in the form of blue-chip stocks. Some of these companies include Amazon, Alphabet Inc, and ExxonMobil.
However, you need to watch out for factors such as minimum investment requirements and additional fees before proceeding as an independent investor.
What is the initial budget to start buying stocks?
To buy stocks online, you do not necessarily need a budget. Some companies such as Stash allow investors to start with 1 cent. In addition, other companies also allow minimum investment options such as $5 and $10.
However, you need to understand that not all stocks that are cheap will bring good returns. As always, with investment, with higher investment come higher gains.