Skip to Content

How To Buy Stocks (Explained for Beginners)

Sharing is caring!

Introduction

It can be confusing to know where to start when buying stocks. 

You might feel overwhelmed by the different stock options available or not even know where to begin. So how do you figure out which stocks are worth investing in?

We’re here to help! This article will explain everything you need to know about buying stocks for beginners.

We’ll go over the basics of what stocks are and how they work, and how to research businesses and make a purchase.

With this guide, you’ll have everything you need to start your investment journey.

Apple stock

What are stocks, and how do they work?

A stock is a share of ownership in a company. When you buy a stock, you become a partial owner of the corporation whose stock you have purchased.

As the company grows and makes more profits, you also receive a portion of those earnings.

There are different types of stocks, including common stock and preferred stock.

Common stock is the most commonly purchased type of stock. It gives investors voting rights and the right to receive dividends from its profits.

Preferred stock, on the other hand, does not give voting rights but generally has a higher dividend rate.

Buying stocks is a great way to invest your money and potentially earn some returns from your investment.

However, it is important to do thorough research before making any purchases since stock prices can go up or down.

Here’s what you need to know about how to buy stocks

Now that we have a basic understanding of what stocks are and how they work let’s dive into the specifics of buying stocks. Before making any decisions, it’s always important to do your research!

This is especially important when choosing stocks since prices can change. Your goal is to buy stocks when they’re low and sell them when they’re high.

You can go the day trading route or hold on to your stocks for the long term.

We recommend starting with long-term investments since they tend to be less risky if you’re new to investing.

So, without further ado, here are some helpful tips for buying stocks:

Womans hand holding hundred dollar bill

Determine how much money you have and your plans for it

First, you need to determine how much money you have to use.

Do you have a large sum that you’re willing to invest over the long term, or are you looking to trade more frequently with a smaller capital?

Once you know how much money you have to work with, you need to decide your goals.

Are you trying to grow your wealth over time, or are you looking for more immediate gains?

Finally, you need to research the different types of available stocks and choose those that best align with your goals and risk tolerance.

By taking the time to consider all of these factors, you can increase your chances of success when investing in stocks.

How much money do you need before investing?

There is no right answer to how much money you need before investing in stocks.

Some people may be comfortable starting with a small amount, while others may prefer to wait until they have a substantial amount saved up.

Factors that can influence this decision include your risk tolerance, the length of time you plan on holding your investments, and your investment goals.

The key is to start investing when you feel ready and confident about doing so, even if you don’t have as much money to work with as you might like.

And by starting early and consistently contributing to your portfolio over time, you can build up your savings and help ensure a secure financial future for yourself.

Research which stocks fit your investment goals

When you start investing in the stock market, one of the most important things to consider is choosing the right stocks.

Many different factors can influence which stocks are right for you, including your investment goals, risk tolerance, and level of expertise.

For example, if your goal is to build wealth over the long term by maximizing returns, then you may want to choose stocks that pay generous dividends and have a stable track record of growth.

Alternatively, if you’re looking for more immediate gains and are willing to take on more risk, you may want to look at high-growth companies or emerging industries.

Ultimately, research is key when finding the best stock investments for your needs – so make sure that you take the time to do your homework before diving in!

How do I find the best long-term stock investments?

If you’re looking for long-term stock investments, the best place to start your research is with companies with a history of stability and growth.

These companies tend to pay regular dividends, which can provide income and help you grow your wealth over time.

Some examples of stable, growing companies that may be good long-term investments include tech giants like Google and Apple, consumer goods companies like Coca-Cola and Procter & Gamble, or financial institutions like JPMorgan Chase and Bank of America.

Overall, look for solid companies with strong financials, a clear strategy for future growth, and a history of paying regular dividends.

Etoro on phone

Open a brokerage account

There are many different reasons to consider opening a brokerage account.

For starters, having access to a wide range of investment options can help you to build a solid portfolio that can provide you with additional income and financial security in the long run.

Additionally, having an online brokerage account makes it easier to buy and sell investments, saving you time and hassle when managing your finances.

And finally, getting started with a brokerage account is surprisingly simple – all you need is some initial capital, and then you can begin trading almost immediately.

If you want to take control of your financial future, consider opening a brokerage account today. Doing so will allow you to manage your money in a low-maintenance way.

How much money do you need to open a brokerage account?

To open a brokerage account, you will need to have enough money to cover the initial deposit, typically between $500 and $5,000.

Some brokerages may require a higher minimum deposit, so it is important to check with the specific brokerage you are interested in.

Once you have made your initial deposit, you will be able to start trading stocks, bonds, and other securities.

Depending on the type of account you open, you may also be able to take advantage of other features, such as margin trading or research tools.

There is no exact sum of money required to start investing, but it’s crucial to remember that the more money you have accessible, the more chances you’ll have for profitable trades.

Are there any downsides to opening a brokerage account?

A brokerage account offers many potential benefits, but there are also some potential downsides that prospective investors should be aware of.

One downside of a brokerage account is that it requires a minimum investment. For some people, this may be a significant amount of money.

Another downside is that brokerage accounts come with fees and commissions that can eat into investment returns.

Finally, investors need to be aware of the risks associated with trading securities. While there is the potential to earn a profit, there is also the risk of losing money.

It is important to do your research before opening a brokerage account.

Which broker is best for beginners?

There are a lot of different brokers out there, and it can be tough to figure out which one is best for you.

If you’re a beginner, you’ll want to look for a broker with a low minimum deposit, no fees for account maintenance, and a user-friendly platform.

You’ll also want to consider the types of tradable assets, the size of the spreads, and the level of customer support.

With so many factors to consider, it’s important to do your research before committing to a broker.

Luckily, plenty of online resources can help you compare different brokers and find the best one for your needs.

Check out Bankrate’s list of the best online stock brokers for beginners

Do I pay taxes on a brokerage account?

Before answering this question, I just want to clarify that I am not a tax professional, and this should not be taken as tax advice.

That said, the answer to this question depends on a few different factors.

First, it is important to note that there are two types of brokerage accounts: taxable and tax-deferred.

A taxable account is one in which you will pay taxes on any gains you earn, while a tax-deferred account allows you to postpone paying taxes until you withdraw the money. 

In addition, the type of investment you are making can also impact your tax liability. For example, you will only be taxed on the gains you earn when you sell the stocks if you buy stocks.

However, if you invest in mutual funds, you may be subject to taxes every year based on the fund’s performance.

As a result, it is important to consult with a tax professional to determine your liability.

Do brokerage accounts show up on credit reports?

There is a lot of confusion surrounding whether or not brokerage accounts show up on credit reports.

The answer to this question depends on the type of account you have. There are two main types of accounts: margin accounts and cash accounts.

A margin account allows you to borrow money from the broker to place trades. While these accounts appear on credit reports, they are typically not reported to the major credit bureaus.

Also, this kind of account does not affect a person’s credit score, except for the component that measures credit history.

A margin account may help build a longer credit history if the account remains in good standing.

However, if the account falls into debt and needs to be liquidated, it will negatively impact the credit score.

On the other hand, cash accounts are not reported to credit bureaus. That is because the account holder cannot borrow money from the broker.

So, if you are looking to keep your brokerage account off of your credit report, it is important to choose a cash account instead of a margin account.

Person using a macbook pro

Fund the brokerage account

Starting a brokerage account can be a great way to grow your wealth.

However, funding such an account can often be challenging, particularly if you are just starting or have a limited income.

Fortunately, there are several different approaches that you can take to find the funds that you need.

For example, you can use money from savings accounts or other investments to kickstart your new brokerage account.

Alternatively, you may want to consider working with a financial advisor to explore other options for accessing capital, such as loans or lines of credit.

Finally, it’s critical to think carefully about all of your financing alternatives before deciding.

How long does it take to fund a brokerage account?

It generally takes two to three days for the funds to settle and be available for trading.

The amount of time it takes for the funds to settle depends on the type of security traded and the settlement procedures of the exchanges and clearinghouses.

For stocks traded on U.S. exchanges, the settlement is usually two business days after the trade date.

However, some brokerages may allow you to trade securities with unsettled funds as long as you maintain a certain level of equity in your account.

That is known as buying power. Buying power is the amount of money available in your account to purchase securities. It is typically two to four times the amount of settled funds in your account.

For example, if you have $10,000 in settled funds in your account, you may have up to $40,000 in buying power.

However, keep in mind that if you use all of your buying power and the security price goes down, you may be required to deposit more money or sell some of your securities to bring your account back up to the minimum equity requirement.

So while using buying power can allow you to get into a trade quickly, it also comes with risks.

Therefore, it’s important to understand how buying power works before using it in your trading strategy.

What is the fastest way to fund a brokerage account?

There is no single fastest way to fund a brokerage account, as the speed you can transfer money into your account will depend on various factors.

For example, if your account is set up with a bank wire transfer or a direct deposit from your employer, this will generally be a faster option than using a check or cash.

However, some brokers also accept credit cards and electronic transfers from personal accounts, which may be slightly faster than traditional methods in some cases.

It’s also worth noting that there may be costs associated with a few of these funding techniques, so it’s critical to investigate the costs and advantages before deciding on a method.

Roblox stock

Choose the stocks you want to purchase

Once your brokerage account is funded, it’s time to start making trades. To do so, you will need to choose the stocks you want to purchase.

There are many different ways to go about this, but one approach is to use a stock screener. A stock screener is a tool that allows you to filter stocks based on certain criteria.

For example, you can use a stock screener to find stocks that are trading below their 50-day moving average or have high dividend yields.

As mentioned earlier in this article, you must conduct your research before making any financial decisions after identifying a few possible prospects.

This research may include reading company filings, such as 10-Ks and 10-Qs, and articles from financial news sources.

How long should you hold on to a stock?

Based on what we’ve learned so far, it’s pretty clear that the answer to such a question isn’t as straightforward as we might hope.

It depends on many factors, such as your investment goals, risk tolerance, and the time frame in which you plan on holding the stock.

A few general guidelines can help you determine how long to hold stock.

Holding on for the long-term

If you’re investing for the short-term (i.e., you don’t plan to hold the stock for more than a year), you’ll want to be concerned with the stock’s price volatility. More volatile stocks tend to outperform stocks with lower volatility over shorter periods.

One way to measure a stock’s volatility is through its beta, found on most financial websites. Beta reflects how much a stock fluctuates in value relative to the overall stock market.

For example, a beta of 1.5 means that the stock is 50% more volatile than the market, while a beta of 0.5 means that it’s only half as volatile.

If you’re investing for the long-term (i.e., you plan on holding the stock for more than a year), then price volatility isn’t as important since you’re likely not to need to sell your stock quickly.

In this case, you’ll want to focus on other factors that can affect whether or not your investment will perform well over time.

Growth rate

One of the most important metrics here is the company’s earnings growth rate. Companies that are growing their earnings at a faster rate tend to outperform companies with slower growth rates.

You can find a company’s earnings growth rate by looking at its annual report or most financial websites.

Return On Equity

Another important metric is the company’s return on equity (ROE). This measures how well a company uses its shareholders’ equity to generate profits.

In general, you want to look for companies with high ROE values since this indicates that the company is doing a good job of generating profits for its shareholders. You can find a company’s ROE on most financial websites.

Once you’ve determined what factors are important to you, you can narrow down how long you should hold on to a particular stock.

Short-term investing

If you’re investing for the short-term, you’ll want to look for stocks with high beta values and strong earnings growth rates.

You’ll also want to make sure that the stock isn’t too expensive since this can make it more difficult to sell at a profit.

Here, a good rule of thumb is to only invest in stocks trading at less than 20 times their earnings.

Is it better to buy and sell stocks or hold them?

Some individuals may claim that frequent trading in stocks allows you to capitalize on market trends, making substantial gains by taking advantage of changes in stock prices.

On the other hand, others may point out that buying and selling can lead to high transaction costs and increased market volatility, impacting your overall returns.

Investing is a big decision. You need to think about your goals, how much risk you are willing to take, and how long.

While trying to outguess the market with each trade you make may be tempting, the wisest course of action generally involves holding stocks for the long term.

Doing so allows you to take advantage of compound growth and weather market fluctuations, potentially leading to higher returns over time.

Is it worth buying one share of stock?

This one is pretty tricky to answer. On the one hand, having just one share of stock in a company can provide you with some investment exposure and diversification, even if the overall value of your portfolio remains relatively small.

Additionally, owning shares in a company can give you some insight into how it operates and its key strategies and information about certain trends in the industry.

However, managing your investments can also be challenging when spread out over multiple companies and sectors.

Only you can decide if purchasing a single share of stock makes sense for you.

Online broker site

Place your order with the brokerage

It’s time to put your trading plan into action after you’ve decided on the companies you want to buy.

You will need to place an order with your broker to do so.

There are two main types of orders: market orders and limit orders.

A market order is an order to buy or sell a security at the current market price.

A limit order is an order to buy or sell a security at a specified price. 

Which type of order you use will depend on your trading strategy and the type of security you buy or sell.

For example, if you are purchasing a stock trading at $50 per share and want to limit your losses if the price drops suddenly, you may want to use a limit order.

On the other hand, if you buy a stock trading at $50 per share and want to take advantage of any potential price increases, you may want to use a market order.

In either case, it’s important to be familiar with the different order types to make informed decisions when trading securities.

Monitor your investments and make adjustments as needed

Keeping track of your stock investments and making adjustments to your portfolio as needed is critical to maximizing your returns.

Tracking your investments will involve you regularly monitoring market conditions and trends and paying close attention to the performance of your stocks.

Depending on how volatile or stable a given stock is, you may need to make frequent changes to keep your holdings balanced and minimize risk.

At the same time, it’s important not to be overly reactive or impatient when investing in stocks.

Instead, it’s essential to stay calm and remain level-headed as you decide when and where to invest.

Should I check my stocks every day?

Many investors wrestle with this question, as monitoring your investments daily can seem like an essential part of success in the stock market.

On the one hand, monitoring your stocks daily can help you stay informed about price movements and other changes in the market.

This can be especially important if you make trades or otherwise rely on certain stocks for your portfolio performance.

At the same time, obsessively checking your stocks every day can also lead to increased anxiety and problematic investor behaviors.

For these reasons, it’s important to carefully consider your individual investment goals, level of risk tolerance, and other factors before deciding how often you should check your stocks.

Business newspaper

Stay up to date with current events

As a stock market investor, staying up to date with current events is essential to making wise investment decisions.

However, staying up to date with current events can be challenging, especially as new information and trends emerge at an ever-increasing rate today.

However, there are various strategies that you can use to stay on top of the latest news and developments.

For example, you can regularly read financial publications like the Wall Street Journal or Forbes to keep abreast of the latest industry updates.

You can also subscribe to email newsletters from your favorite trading platform or brokerage firm to receive real-time alerts whenever important news breaks.

Additionally, subscribing to trading blogs and following relevant influencers on social media can help you get valuable insights into market trends and potential investment opportunities.

Work with a financial advisor to help you set investment goals

It is vital to have clear goals and a solid plan for investing. A financial advisor can help you set those goals and map out the steps you need to take to reach them.

Working with a financial advisor can help you stay on track with your finances. In addition, they can assist you in making informed financial decisions, such as saving for retirement or your child’s college education.

An advisor can help you prioritize your investments according to your risk tolerance and timeline with their expertise and guidance.

They will work with you to create a balanced portfolio that includes various asset classes, from cash-based savings accounts to stocks and bonds.

And they will be there to provide support and advice every step of the way as you work toward your investment goals.

So if you are serious about investing wisely, consider working with a financial advisor as part of your investment strategy. You won’t regret it!

Maintain good communication with your broker

It is important to maintain good communication with your stockbroker as an investor.

Your stockbroker is the person who will be buying and selling securities on your behalf, and you must trust them to make decisions in your best interest.

The best way to maintain good communication with your stock broker is to keep them updated on your financial goals and objectives.

You should also provide them with pertinent information about your investment portfolios, such as asset allocation or risk tolerance changes.

By maintaining good communication with your stock broker, you can help ensure that your investments are managed effectively.

Conclusion

So, there you have it! Everything you need to know about how to buy stocks.

This article is a basic overview, and there are many more details that we could go into, but this will give you a good foundation.

If you’re just starting, we recommend doing some additional research on your own to become familiar with the terminology and concepts involved in stock investing.

Are you new to investing in stocks? Let us know in the comments below!

FAQ’s

What is a stock?

A stock is a type of security that represents ownership in a corporation. When you buy stock, you buy a small piece of the company.

Publicly-traded stocks can be bought and sold on stock exchanges, such as the New York Stock Exchange (NYSE) or the Nasdaq.

How do I buy stocks?

If you want to buy stocks, you will need to open an account with a broker. A broker is a firm that facilitates the buying and selling of securities.

You can use a traditional brokerage firm or an online broker. Once you have opened an account, you will need to deposit money into it so that you can start buying stocks.

What are the different types of stocks?

There are two main types of stocks: common stock and preferred stock. Common stock is the most common type of stock, and it represents ownership in a company.

Preferred stock is a type of stock that entitles the holder to certain privileges, such as preference in dividends or assets in the event of liquidation.

What is a dividend?

A dividend is a distribution of profits that a corporation pays to its shareholders. Dividends are usually paid out quarterly. When you own shares of a company that pays dividends, you will receive a payment.

What is a stock split?

A stock split is when a company divides its existing shares into multiple new shares. A stock split can be either a 2-for-1 split or a 3-for-2 split.

A 2-for-1 split means that each shareholder will receive two new shares for each share. A 3-for-2 split means that each shareholder will receive three new shares for every two shares they own.

What is the difference between a stock and a bond?

A stock is a type of security that represents ownership in a corporation. A bond is a debt instrument in which an investor loans money to a company or government entity.

The entity then pays periodic interest payments to the investor and pays back the principal amount of the loan at maturity.

What is the difference between a growth stock and a value stock?

A growth stock is a type of stock associated with companies growing rapidly. As a result, these companies tend to have high valuations and higher levels of risk.

A value stock is a type of stock associated with companies that are undervalued or ignored by the market. As a result, these stocks typically have lower valuations, but they also come with less risk.

What are full-service brokers?

Full-service brokers are traditional brokerage firms that provide a wide range of services, including investment advice, retirement planning, and tax preparation.

What is a blue-chip stock?

A blue-chip stock is a type of stock that is associated with large, well-established companies that have a history of paying dividends. As a result, blue-chip stocks are less risky than other stocks.

What is the difference between an online broker and a traditional broker?

Online brokers are firms that provide a platform for you to buy and sell securities. As a result, online brokers typically have lower fees than traditional brokers.

Traditional brokers provide a wide range of services, including investment advice, retirement planning, and tax preparation.

What is a Direct Stock plan?

DA Direct Stock plan is an investment account that allows you to buy shares of stock directly from a company. Your purchase will automatically be on a set schedule, once per month or quarterly.

What are Robo Advisors?

Robo Advisors are online investment platforms that use computer algorithms to invest your money. These platforms typically use low-cost ETFs (Exchange-traded funds) or index funds, and they automate the entire investing process.

You Will Also Like:

How Do Stocks Work? (All About The Stock Market)

7 Best Investing Tips for Beginners (+ Bonus Investor Tips)

Top 20 Financial Goals Everyone Should Have For 2022

Sharing is caring!

This site uses Akismet to reduce spam. Learn how your comment data is processed.

This site uses Akismet to reduce spam. Learn how your comment data is processed.