Our writers and editors used an internal natural language generation platform to assist with parts of this article, allowing them to focus on adding information that’s particularly useful. The article was reviewed, fact-checked and edited by our editorial staff before publication.
It has never been easier to buy shares. If you have a little money and an investment account, you can buy part of a publicly traded company. A stock is a share of ownership in a company, and literally thousands of them are traded on an exchange, allowing anyone – even beginners – to become part owners of the company.
Here’s how to buy shares and what steps you need to take to become a shareholder.
1. Choose your online broker
You’ll need to use a broker to buy shares, but that only takes a few minutes. The broker lets you buy and sell shares, holds the shares in an account for you and collects any dividends that are paid out. You must provide basic financial information to open the account and you can link your bank account to the broker to transfer money.
An online broker is a good first choice. Most brokers don’t charge trading commissions on stocks and don’t have an account minimum to get started. But you can also opt for a trading app, especially if you want to trade less often via a mobile device.
Among the best brokers for beginners you will find a broker that meets your needs.
2. Research and analyze stocks to buy
If you’re interested in buying individual stocks, you need to research and find out if the stock is a good buy or a “see you soon.” And that can take a lot of upfront work if you want to succeed.
You want to understand the company, its products, its balance sheet and its industry. So you need to read the filings with the Securities and Exchange Commission (SEC). That gives you a lot of detail about what you’re investing in and what its capabilities are. But you may also want to use some of the best techniques from the pros, including your own first-hand research.
Based on your research, you can develop an investment thesis for the stock, or throw it away and look at another potential candidate. You’ll want to buy stocks that look poised to outperform for years to come than stocks that you think will outperform next week or month. That is, you want to invest for the long term and think like a business owner, not like a stock trader looking to make a quick buck.
To gauge yourself, ask yourself, “If the market closed tomorrow and I couldn’t sell this stock, would I want to own it for the next ten years?” This can help keep your mind focused on the right time frame.
When you find an attractive stock, take note of the ticker symbol, usually a three- or four-letter code.
3. Find out how much you can invest
You want to determine how many shares you can buy now. If you’re new to investing, the good news is that you can invest with almost any amount of money, as many brokers allow you to trade fractional shares. So you can buy a partial share even on those really expensive stocks. It’s okay to start small. With commission-free online brokers, your money won’t be eaten up by fees.
But real wealth is built by growing your investments over time, ideally at regular intervals. So you not only want to know how much you can invest now, but also how much you can add to your account over time. This allows you to take advantage of dollar-cost averaging, a process that spreads your purchases over time and reduces your risk.
If you invest more than a few thousand dollars, you may want to consider buying more than one stock so that you spread and diversify your risk.
4. Place your trade
It’s finally time to place your trade. You can enter an order with your broker using the stock’s ticker symbol. You must also specify what type of order you want to place: market order or limit order:
- Market order: This type allows you to transact at the best price at the time you submit your order. You have no control over the price at which you transact.
- Limit order: This type only allows you to trade at the price you specify, or better. If you cannot get your price or better, the order will not be filled. You can set a limit order to be valid for up to three months, although some brokers allow them to remain in place for longer.
Market orders are better if you are trading only a few stocks or if the stocks are large and liquid. Limit orders work better on smaller stocks where not many shares are traded or when you are trading a significant number of shares and don’t want your trade to affect the price.
Once the transaction is completed, you own the shares.
5. Track your inventory
Buying a share is only part of the process of being a shareholder. You should also continue to monitor the company, track quarterly or annual results, and keep track of the industry. And as the company performs well, you can allocate more money to the position. You can then add more stocks to your portfolio as your expertise grows.
Gradually, your inventory will decrease at some point, even if only temporarily. Understanding the company can help you decide whether it’s time to buy or sell more shares at a discount.
Finally, if you want to start investing, you should know that there are other options. As Warren Buffett advises, “If you like to spend six to eight hours a week investing, do that. If you don’t do that, you have to put dollar-cost averages into index funds.”
If you don’t want to spend time tracking your stocks, there are many ways to make money in the stock market, including index funds. Index funds often own hundreds of stocks, which offers the benefit of diversification without the extra work of analyzing and evaluating individual stocks.
Here are some of the best index funds.
Buying shares: frequently asked questions
Do I need a broker to buy shares?
With a brokerage account you can buy stocks and other securities (such as ETFs, options, mutual funds, bonds and more). You can open an account with an online brokerage, a full-service brokerage (a more expensive choice), or a trading app like Robinhood or Webull. Each of these choices allows you to buy shares in publicly traded companies.
However, you cannot purchase shares using your bank account or other financial accounts. But your bank may have a brokerage firm, so you can open an account with the broker and buy shares there. For example, Bank of America owns Merrill Edge, JP Morgan Chase offers JP Morgan Self-Direct Investing, and Wells Fargo operates WellsTrade.
Is now a good time to buy shares?
Historically, the stock market has risen an average of 10 percent annually, although returns can fluctuate widely from year to year. Some years, stocks can fall 20 to 30 percent, while in other years they can rise similarly. But experts recommend investing for the long term rather than trying to “time the market.” Timing the market means trying to find the best time to buy and sell.
Experts have a saying for this: “Time in the market is more important than timing the market.” That is, your investment returns – especially with a well-diversified portfolio – depend more on how long you stay invested than on how well you time your buys and sells. In other words: research shows that passive investing often performs better than active investing. So that’s one way even amateur investors can beat the professionals.
Do I have to pay tax on the profit?
Any realized gains on your investments will create a tax liability in taxable accounts (that is, accounts that are not IRA, 401(k) or other tax-advantaged accounts). You must pay tax on any dividends and on realized capital gains (shares you have sold at a profit).
The tax rate you pay depends on your income and how long you owned the securities. If you owned the security for less than a year, a tax rate applies that is the same as your income rate. If you owned shares for more than a year, you’ll pay the long-term capital gains rate, which can be more or less than your short-term interest rate (and sometimes even at a 0 percent rate).
In short
Beginners interested in buying a stock should understand that it is easy to place a trade. But the most difficult steps in the process are researching your investments and continuing to monitor your stocks after you buy them. If you’re just starting out, it’s helpful to start slowly and invest small amounts until you feel comfortable buying stocks.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making any investment decision. In addition, investors are advised that the past performance of investment products does not guarantee future price increases.
