How to Buy Stocks on Your Own
So you think you might want to start investing in the market. Do you enjoy reading financial blogs and articles? Do you have friends or coworkers that talk about their investments? Investment recommendations from non-professionals are usually a recipe for disaster. What works for one person may not be a good fit for another. The best approach to buy stocks on your own is to do your homework and choose investments that fit your specific goals.
Stocks are shares of ownership in a publicly traded company. They are available for purchase through a registered broker, a retirement plan administrator, a robo-advisor company or directly from the company. Stocks can either be common or preferred. People and businesses invest in stocks as a way to participate in the opportunity for financial growth and profit. As a stockholder, you own a small portion of that company along with thousands of other investors.
The best place to begin your investment journey is to choose a few trustworthy financial resources. Read multiple sources so you can hear different perspectives and opinions. Over time this will help you learn what to look for and how to do better research on your own. Here are a few websites I follow, in no particular order: Motley Fool, Investopedia, Google Finance, Yahoo Finance, Investors Business Daily and The Wall Street Journal.
Read what analysts have to say about the company quarterly reports. All public companies also issue annual reports packed with details about culture, business values, leadership and future goals. Learn what you can about employee satisfaction (Glassdoor), supply chains, top customers and which external factors can influence their success the most. I like to use the product or service, if possible, to see for myself how they measure up with the competition. This will help you build confidence to buy stocks on your own.
Keep good notes. Companies are organic and ever-changing. Make a list of companies you want to learn more about. Write down some reasons you think they might be worth investing in. Jot down their stock symbol, most recent price and 52-week high/low. Once you make a purchase, be sure to save your confirmation in a secure place for future reference.
Build Your Portfolio Over Time
As you get started, here are a few best practices to consider:
- Work your way up to 10 or more different stocks – 25 to 30 are even better to spread the risk of loss
- Strive to have no more than 5% of your total investments in any one individual stock
- Invest in as many different sectors as possible
- Have a mix of Large Cap, Mid Cap and Small Cap companies – based on your tolerance risk, goals and needs
- Take advantage of Dollar Cost Averaging to invest smaller amounts over time
- Compare online brokers to find the best option for your needs and set up your own Self-Directed brokerage account
- Or consider purchasing stocks directly from the company with a Direct Stock Purchase Plan
- Finally, be sure to take advantage of the option to reinvest dividends tight back into more shares
A Few Final Thoughts
Make sure you are contributing to a retirement account first and foremost. The funds inside your retirement account (401k, IRS, Roth, 403b) can be invested in stocks, bonds, mutual funds and other options depending on where your account is held. Mutual Funds are made up of dozens of stocks and bonds, depending on their fund target. Mutual funds, stocks and bonds each have a prospectus that tells about the investment. Definitely review the prospectus before making a purchase.
Pay close attention to fees, commissions and any other costs associated with the purchase or sale of an investment. Remember that your broker works for you. If you aren’t getting the service and guidance you need, consider switching brokers. Do your research and ask as many questions as you need to. It’s a good idea to have a reserve set aside to make a purchase at any time. If the funds are on deposit with the brokerage account it can make it easier to act quickly. The sale of stocks or mutual funds may take up to several business days for receipt. Plan accordingly.
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