How Do Beginners Buy Stocks?
So, you’ve decided to invest in stocks. Great! Stock investing is one of the most accessible ways for everyday individuals to accumulate wealth. But before you can cultivate your portfolio, you’ll need to learn the fundamentals. How do beginners buy stocks? What do you need to become an investor? What implications come with stock investing?
Thankfully, these are all simple questions to answer. In fact, getting started as an investor takes only minutes. And while learning how to invest with confidence takes a little practice, there are plenty of ways to get your toes wet when it comes to learning the fundamentals.
Here’s your answer to the question of how do beginners buy stocks, and some tips for ensuring the process of buying your first shares goes smoothly.
Step 1: Open a Brokerage Account
Before you can invest, you’ll need to open a brokerage account. There are a few different ways you can approach this:
- Via your bank, such as with JPMorgan Chase or Wells Fargo
- Through a discount brokerage, such as Charles Schwab or Fidelity
- Through an internet brokerage, such as Robinhood or Webull
No matter how you open one, your brokerage account will be your gateway to the world of stock investing. Unlike a checking or savings account, your brokerage account will hold any securities you invest in. You’ll be able to buy, sell and monitor investments through your brokerage account as they fluctuate in value.
It’s important to remember that beginners only need a general brokerage account—not a margin account. Margin accounts allow you to execute more advanced trades with borrowed funds, but they’re not necessary (or advisable) for beginners.
Step 2: Deposit Funds
Once you’ve opened a brokerage account, you’ll need to connect it to your checking or savings account. This will allow you to transfer funds in to purchase stocks, as well as funds out after they’re sold.
When transferring money into your brokerage account, think about how much you’re willing to invest. The rule of thumb is that you shouldn’t need to touch this money for a set period of time: several months to several years, depending on your investing horizon. Moreover, you’ll want to think about how much buying power those funds afford you.
Say, for instance, you want to buy shares of Starbucks (NASDAQ: SBUX). If the stock price hovers around $80, you’ll need to think about how many shares you want to buy and how much money it’ll take to secure those shares. If you’d like to open a position with 10 shares, you’ll need to deposit at least $800 into your brokerage account (more if there are transaction fees).
Step 3: Choose an Industry or Sector
Speaking of choosing your investments, you’ll want to start at the highest level: industry or sector. What do you feel strongly enough about to invest in?
Consider what you know and how comfortable you are with certain industries as you think about buying stocks. Many beginners buy stocks because they have a good feeling about a company or they get a hot tip from someone they know. A better approach is to look at industries and sectors you have a fundamental understanding of. Ultimately, any investment you make in these areas will be one you feel more confident about because you understand it.
Step 4: Choose an Investment Type
Most beginners buy individual stocks because that’s all they’re familiar with. In reality, there’s a world of different equity investments out there, including ETFs and mutual funds. The type of investment you make needs to reflect your investment goals.
- Do you want to invest in a broad industry or sector? Try an ETF.
- Want a diversified investment someone else manages? Invest in a mutual fund.
- Feeling bullish about a particular company? Invest in individual stocks.
Consider risk and reward while you’re looking at different investment products. Usually, the safe and more stable an investment is, the less it’ll move the needle. More risk can equate to more reward. Assess your personal risk tolerance before pulling the trigger on a certain type of investment.
Step 5: Purchase Shares
Every step so far has led to this: it’s time to purchase shares and become an investor! Once you’ve funded your account and decided what to invest in, you’ll need to submit a day order to purchase. This will look similar on almost every investing platform: just specify the ticker symbol of the equity you’re buying and the quantity. Review the order and submit it, and in moments you’ll be the proud owner of stock!
Step 6: Diversify Your Portfolio
As you purchase more and more shares of different stocks over time, you’ll want to diversify your portfolio. This will help you hedge against risk and enable stronger portfolio performance by giving you exposure to different industries and sectors. Most brokerage accounts and investing apps will provide a breakdown of your portfolio by weighted position. Use this to influence where you allocate funds for new investments, as well as where you decide to trim your portfolio to take gains.
How Do Beginners Buy Stocks? Investing Practice Makes Perfect
How do beginners buy stocks? They take it step-by-step and gather information along the way that helps inform their decision-making. Don’t be afraid to experiment with paper trading, watch YouTube videos for beginners or subscribe to an investment newsletter to help further your education. Ultimately, the best experience is a firsthand one. Open an account, deposit some funds, research an initial investment and pull the trigger. You’ll learn as you go and become more confident as you do.