On the surface, buying stocks and investing in the stock market seem confusing. Undoubtedly, many would-be investors never get past the first step(s) and spend their lives missing out on what is arguably the best way to invest for retirement. After all, with interest rates languishing near zero for the last handful of years, it is virtually impossible to grow your savings any other way than learning about stocks and how to buy them.
This step by step guide probably won’t answer all your stock market questions (here is a list of 13 FAQ’s with their answers) but it will lay down a simple path for you to follow of the things you need to do and learn to get started building your own portfolio of stocks. If you have questions you can leave me a comment and I will do my best to answer.
1) Stocks Are Bought And Sold Through A Broker Account
Anyone interested in buying stocks needs to open a broker account. The stocks you buy and sell will be kept track of in that account and it is all done online. You don’t get a physical copy of the stocks you buy – instead you will get (or have the option to print) a summary of the trades you make which will include all pertinent information for your records.
The stocks you own will go up and down every day the market is open and there is nothing you have to do. It is all taken care of by a computer and you will be able to see the value of your stocks at any time by viewing your account online. You can decide to sell any or all of your stocks any time the stock market is open and you will have access to your money in a day or two after selling.
2) Picking An Online Stock Broker
There are many online stock broker companies to choose from and some of the more well known are: E*Trade ($9,99 per trade), TD Ameritrade ($9.99), TradeKing ($4.95), Scottrade ($7.00), Merrill Edge ($ 6.95), OptionsHouse ($4.95), Charles Schwab ($8.95), and Fidelity ($7.95). Those fees are for online trades and if you prefer to talk to a live person to make your trades you can do that, but the fee will go up by anywhere from about $20 to $40 depending on the broker.
All the brokers listed above are proven and have been in business for over 10 years so your money will be safe with all of them. To open an account you must fill out a variety of information online that should take you under 30 minutes. The process is not unlike opening any other account online other than the fact that supplying a United States Social Security number or a taxpayer identification number is required for all of them.
If you are not a USA citizen or are living overseas you may have to do some additional research to find a broker that will let you sign up and trade stocks on the US exchanges.
3) Fund Your Account Right Away
Once you open an account, you will need to send money to be deposited in that account and most people transfer the money through a bank wire but you can send a paper check as well. There may be other options that will be listed on the website of the broker you choose.
***It is important to follow through with this important step of putting money in your account as some first time investors get cold feet and never take action. An online account that is empty does you no good!
Is your money safe? That question is a resounding “Yes” as all the brokers listed above carry FDIC insurance of up to at least $250,000 or more. The money you have in the “Cash” portion of your account is insured by the US government and the amount of money you have in company stocks is, well, in those stocks. You will never lose the shares you buy in a company because you own them but the price of those shares can go up or down any day. This means you will make or lose money in the stocks you buy because the price of the shares you own will fluctuate and that is the risk in owning stocks.
4) Waiting For Your Account To Be Funded
While you wait for your money to be transferred into your account, you will have 24 hours or more. During that time, you might consider signing up to Wall Street Survivor (free to sign up) and use their stock market simulator. At sign up, you will be given $100,000 in virtual currency and you can use that fake money to buy and sell stocks just like you would at a real broker’s website.
There are various training courses and videos (you have to pay for those) at WSS but the stock simulator is free and is similar to the real thing. By using it you will be able to get a feel for what trading stocks is like as the mechanics and options closely mirror what you will be doing in your real broker account.
5) Buying Stocks Once Your Account Is Active
Once your account in one of the mainstream online brokers is funded, you will then see your money show up in your account under “Cash”, “Available Cash”, “Money Market”, or something similar. That money will earn a very small fraction of a percent in interest and is guaranteed by FDIC. That money will also be available immediately to buy stocks or withdraw at a moments notice.
You will then be able to buy any stock on the NYSE, Nasdaq, AMEX, and many stocks on over the counter markets. You will also be able to buy popular mutual funds and ETF’s which many investors prefer. My personal preference is individual stocks and you can find out why here but you may want to buy other things as well. The bottom line is that with cash in your new online stock account, you can start buying shares of most publicly traded companies that are listed on a major US exchange as well as mutual funds and ETF’s.
***Please note that I have no idea what penny stocks you can buy or not buy with any online broker account. I strongly suggest you steer clear of them because in most cases trading penny stocks is no different than gambling. I do not buy and sell penny stocks and I NEVER recommend buying them.
6) Your Portfolio Will Be Started Automatically
With any online broker, you will have a main page that might be called your “Dashboard” or some similar name. On that page you should be able to see how much money you have in cash, how much money you have in stocks, as well as a list of each stock you own including details of number of shares, stock price, your purchase price, gain or loss amount, and total market value of each holding. You can always see an updated snapshot of my $300,000 portfolio dashboard here and yours will look somewhat similar.
The nice thing about buying stocks in today’s Internet world is that everything is so easy from an investor’s perspective. You can always see your portfolio as long as you have Internet access and you can place trades that get filled in seconds. Access to financial reports, analyst recommendations, training materials, and other things is always just a computer mouse click away.
Buying stocks is an important part of most successful people’s investing game plan. Simple savings you get at a bank or through a Treasury Bill just won’t cut it for retirement and you will eventually lose money to inflation. Even though investing in the stock market may seem intimidating at first, if you take the plunge and open your first broker account (and fund it!), a whole new world of opportunity will open up. Don’t be mistaken, there is a lot for you to learn and it might take you awhile to really understand how things work but getting started is the first step in that important journey to educate yourself about how to grow your hard earned savings for your eventual retirement.