Buy Stocks in 6 Steps
Thinking about investing in stocks? Developing a healthy stock market investment portfolio doesn't have to be any more complicated than shopping at the supermarket. Do your research, start small, and don't be afraid to ask for help along the way. Just as you can trust your personal grocery shopper to pick out perfectly ripe avocados, you can also lean on the support of financial advisors when shopping for stocks.
Financial advisors at your local credit union are there to help you with your financial goals, including stock investment education. Find a credit union near you with our Credit Union Locator Tool, and discover fresh stocks ripe for the picking! Meanwhile, learn how to invest in stocks in six easy steps.
How to Buy Stocks in 6 Steps
When buying stocks, you get to personalize your shopping experience. From determining the amount you’d like to invest to picking the stocks you’d like to buy, learn how to get started with our six-step guide.
1. Decide the Amount You Want to Invest
How much you invest in the stock market is up to you and will depend on your income, expenses, and comfort level. With this in mind, many financial professionals recommend following the 50/30/20 rule when managing general finances and investments. The rule explains that 50% of your income should go to needs (housing, food, transportation), 30% should go to wants (trips, clothes, activities), and 20% should go to savings and investments (retirement, stocks).
However, you should also factor in your comfort level when investing for the first time. For example, in his book How to Make Money in Stocks, William O'Neil recommends starting your investment journey with as little as $500 and growing from there.
2. Research What Stocks You’d Like to Buy
Once you've determined how much you'd like to invest in the stock market, you can research what stocks you'd like to buy. There are three main types of stocks to consider: individual stocks, funds, and fractional shares.
- Individual stocks: When you purchase an individual stock, you buy ownership into a single publicly held company and become a shareholder. When you purchase an individual stock, you bet that the company will grow, and in turn, so will your investment value.
- ETF and mutual funds: ETFs (exchange-traded funds) and mutual funds don’t represent individual shares in a company but rather pooled investments. Funds are professionally managed and include a range of assets, including stocks, bonds, and securities. When purchasing a fund, you buy into a larger “basket” that is a more diversified investment. ETFs and mutual funds are similar. However, ETFs are bought and sold during market hours and tied to the current market price, while mutual funds are priced independently on a weekly, quarterly, or annual basis.
- Fractional shares: Fractional shares are like individual stocks but offer more financial flexibility. While individual stocks require you to purchase the entire share, fractional shares allow you to invest a specific dollar amount, even if that means getting only part of the share. It’s like being able to buy half a box of cereal at the grocery store (without having to worry about the stock going stale).
3. Choose Where to Buy Stocks
You have choices when buying your groceries. For example, you can go to the supermarket, local grocer, or farmers market. Similarly, there are different places where you can buy stocks. Your options include:
- Financial advisors: You can invest with the help of financial advisors at locations like a brokerage or a credit union. Financial advisors can help assess your goals and plan for retirement. They are a great resource when investing for the first time and work on commission or salary, so there is typically no upfront cost.
- Online brokers: Online brokers allow you to purchase and trade stocks on your own, typically free of cost or with low fees. These sites are good options for hands-on investors familiar with the market.
- App trading: Like online brokers, stock trading apps allow you to make quick purchases and sales from your phone with minimal fees. However, their fast-moving platforms can encourage hasty decisions among inexperienced investors.
- Robo-advisors: Similar to human financial advisors, robo-advisor platforms use an algorithm to assess your financial goals and manage your portfolio automatically. These platforms are typically limited to EFT trading.
4. Choose Order Type
When ordering stocks, it's not as simple as picking your stock and ringing it up with the cashier. There are two order-type methods available, and you must choose one before making a purchase. Each has its pros and cons, depending on your financial goals:
- Market order: Market orders quickly complete a stock transaction by buying a stock immediately at the lowest price. This is an excellent method to use when your eyes are set on a specific stock.
- Limit order: With a limit order, you can set the maximum amount you are willing to pay. So if the stock doesn’t come down to match your price point, the order doesn’t go through. This is a good method to use when you want to stick to a budget.
5. Place Stock Order
The business of buying and selling stocks is fast-paced. It’s kind of like grocery shopping the day before Thanksgiving when everything is flying off the shelves. Except the stock market is like that every second!
Once you’ve chosen stocks to buy, you can place your order through your financial advisor or online broker. Sellers are then matched with your order specifications, and the trade is confirmed. Just like that, you’ve invested in the stock market!
6. Continue to Build Out a Diversified Investment Portfolio
It’s no secret that the stock market can be volatile and comes with its share of risks. Therefore, you never want to put all your eggs in one basket when investing. For example, only buying stock in one company would put you at greater risk if something were to happen, like a corporate closure or bankruptcy.
Instead, work to build out a diversified investment portfolio comprising a combination of individual stocks and funds. The right variety of stocks, bonds, and cash will keep your investments in check and offer more security.
Further Resources on How to Invest in Stocks
Here are a few additional information sources to help you prepare for your first stock purchase or even look into alternative investments:
- Follow the trends. Stay current on stock market trends and predictions by following Nasdaq, one of the main stock exchange markets in the U.S.
- Learn the tools. Get access to introductory investment tools through Investor.gov.
- Reduce the guesswork. Plan your goals with an investment calculator.
Get Started on Your Stock Market Shopping List
Shopping at the supermarket always goes smoother if you have a shopping list guiding the way. Similarly, doing your research will make building your investment portfolio much easier. And, if you’re still wondering, “Should I invest in the stock market?” don’t hesitate to ask for help from the experts. Use our Credit Union Locator to find a credit union near you with financial advisors who can help you navigate the aisles of stocks like a pro.