It’s no secret that buying equities may be a tempting path to accumulate wealth. And if you’re a novice investor, we’re here to tell you that it isn’t as difficult as it appears. All you have to do now is create an online investing account and you’ll be good to go.
Whether you’re considering making a significant investment or simply dipping your toes in the stock pond, there are five key stages to follow when purchasing your first stock and expanding your portfolio.
Step 1: Create a brokerage account.
Stocks may be purchased and sold on stock exchanges, but you can’t directly purchase from them. To gain admittance to the platform, you must establish a taxable brokerage account.
Brokerage accounts work similarly to bank accounts, except they’re used to buy and sell stocks. You choose a broker and open an account online, move money into it, and you’re ready to purchase shares in a few clicks.
There are several licensed brokers to select from, and the decision is based on your own requirements and priorities. There are three primary alternatives when it comes to choosing a broker:
Full-service brokers: “Traditional” full-service brokers provide a wide range of services, such as specialized research and advice, retirement planning, tax assistance, estate planning, access to IPO shares, and more. As a result of this, they target wealthy clients who are willing to pay the high account charges.
Discount brokers: This is the type of broker who allows you to make your own decisions. Discount brokers merely act on behalf of clients but do not provide specialized investing advice. While they were formerly an exception, they are now the norm, preferred by investors because they are more cost-effective and charge no commission fees. What they lack in specialist advise, they typically make up for with a wide range of tools and educational resources.
Robo-advisors: Robo-advisors are automated investing platforms that select and manage investments on your behalf based on your specific goals and timeline, typically following a passive investing strategy by investing your money in inexpensive ETFs or index funds. They appeal to the “set it and forget it” type of investor who prefers to be more hands-off.
It’s also worth noting that brokers aren’t only a platform for investing; they’re also instructional tools. Once you’ve created an account with a broker, you’ll have access to research and analytical tools, so it’s best to familiarize yourself with them before making your decision.
To gain a more thorough perspective on where security stands and where it may be going, most broker platforms will provide you with company fundamentals including its prospectus, quarterly results, as well as relevant ratios and growth projections.
Step 2: Learn about the companies you’d like to invest in and choose them.
Thousands of publicly traded firms provide a wide range of products and services. If you’re feeling overwhelmed, remember that when you buy stock, you’re buying a stake in the firm. As a result, it makes sense to start with your own interests.
The first step is to narrow down your choices — perhaps you’ve found a few businesses in an area you’re interested in. It’s time to think like an analyst and conduct research now that you’ve narrowed down your possibilities. The company’s annual report, formally known as Form 10-K, is the ideal place to start since it offers a detailed financials overview as well as a letter to shareholders.
There are several options for selecting stocks. Another approach to consider when deciding what to buy is to build your portfolio with an investing strategy in mind.
For example, if you think that equities should provide you a consistent stream of cash, dividend stocks may be a good fit. If you’re willing to take a chance and are interested in early-stage growth firms, look into growth equities. Filling your portfolio with value stocks implies investing in businesses that are currently underpriced believing that they will grow and outperform the overall stock market over time.
In general, you’ll have access to all of the research material you need to reach your own conclusions, but it takes time and work to improve your analytical talents. Here are some more pointers for furthering your career while maintaining a strong portfolio:
Take a long view. Long-term investing is the most secure approach to go when you’re not looking to trade frequently and make a quick profit. That’s because long-term investments almost always outpace the market for a limited period of time, and impulsive or emotional trading may severely reduce investors’ gains.
Begin by diversifying your assets. Even if you’re just getting started, consider a broad portfolio — which simply implies having a variety of investments in different asset classes to reduce risk and volatility.
That is why many financial experts advocate for first-time investors to buy mutual funds or ETFs, which allow you to acquire a “basket” of stocks at a low price. Index funds, in particular, may be the foundation of a well-diversified portfolio.
Take note of taxes. Make use of tax-advantaged investments, and when feasible, try to benefit from long-term capital gains tax treatment by holding on to your assets as long as possible, in accordance with our counsel to think long-term.
Step 3: Set a budget for the campaign.
There is no requirement for a minimal sum of money to begin investing in equities. You may always start small and build your portfolio over time.
Although investing may have unpredictable results, it’s critical to invest only what you can afford to lose and to maintain a healthy risk tolerance.
The cost and number of shares you’re looking to buy ultimately determine how much money you should invest. However, keep in mind how much it will take to diversify your portfolio correctly. Look for a company’s name or ticker symbol on a brokerage platform to discover its price.
If the share prices of the stocks you’re looking at are beyond your means, consider buying fractional shares. You may purchase parts, or fractions, of a stock with fractional shares. For example, if a single share is worth $500, you could buy $50 worth of the stock to get a 10% stake in the company. Many online brokers from Fidelity to Robinhood now offer fractional shares.
Step 4: Place and execute orders.
After you’ve set up an account, outlined your objectives and plan, and researched which equities or funds to invest in, it’s time to act. US stock exchanges such as the NYSE and Nasdaq operate from 9:30 a.m. EST to 4 p.m. EST on weekdays.
When buying a stock, you must choose an order type, which affects the purchase process. There are two basic ways to complete transactions using a brokerage account: market and limit orders.
Market orders: These are a type of order in which your broker is instructed to buy the stock or security immediately, with no assurance that it will be bought at a specific price. Market orders are more popular than limit orders because they allow you to invest long-term, and their selling advantage is that as long as there are interested buyers and sellers, your order will be carried out.
Limit orders are used to place buy and sell orders at specific prices. If market orders want your broker to bring you into a stock as quickly as possible, a limit order dictates a certain price for your purchase. The order is only carried out if there is a seller who is willing to sell the shares at your specified price. Limit orders give investors more control over the prices they pay for securities. Just be wary of limit orders, since some brokers may charge greater fees for these more technical, intricate transactions.
To place your stock purchase, go to the platform of your brokerage firm and input the necessary information. Your portfolio will instantly update once you submit an order because to this software.
In the event that you don’t want to keep your shares for a long time, think about when you might sell them. Stocks have a lot of volatility, so following a buy-and-hold strategy can help you protect against it and reap the long-term benefits.
Step 5: Continue to add items to your portfolio.
You’ll never be “finished” building your portfolio since it’s an evolving procedure that improves with time as you gain knowledge and refine your objectives. After some time, reexamine your investments: Is the diversity in your portfolio sufficient to protect you against risk? Is there a possibility that your portfolio is too dominated by one sector?
Keep track of your investments’ development, but don’t put too much stock in daily fluctuations since, as previously stated, it’s better to think long-term when purchasing equities. Ask yourself or your financial advisor whether you’re on track to meet your objectives on a regular basis. It may be time to make adjustments to your portfolio allocation if you aren’t on track to achieve your goals.
The best moment to sell your stocks is when you need the cash, and this is determined by your pre-established timeline and whether your investment objectives are short or long-term. If you’re thinking about selling a stock, think about why you bought it in the first place and whether it still fits with your objectives.
The bottom line, in a nutshell
Investing for the first time may appear complex, but it needn’t be when you use your online broker’s resources to set objectives and track your progress.
The first stage in the investing process is establishing a brokerage account, and there are a few important factors to consider while building a portfolio, including determining your timeline and risk tolerance, making an effort to diversify, and selecting which stocks are best suited for achieving your objectives.