This guide is for newcomers to stocks and investing. It will show you how to buy stock and all you need to get started in this exciting area.
To invest in stocks, you will need a funded brokerage account and an idea of how you want to invest. This is not as confusing as it sometimes seems. By following some simple steps, you will soon be successfully buying stock.
If you are interested in investing and managing your money, you may also need a solution for holding multiple currencies. The Wise Account offers an easy solution - you can hold up to 56 currencies and convert at the real, mid-market rate.
The first step to buying stocks is to open a brokerage account. Only a licensed stockbroker can buy stock, and they do this on your behalf once you have an account.
Many beginning investors opt for a simple online broker, but other types of brokerage could be better for some people.
An online brokerage account can be funded and managed online. The online operation can lead to lower costs, but of course, without personal interaction.
A full-service broker is a traditional stockbroker service. They can offer personalized guidance for managing your investments and making trades.
A robo-advisor is an automated solution. This type of brokerage will invest for you. Usually, this is in index funds, chosen to match your investment goals and risk level. It can automatically adjust these investments over time.
Once you have opened and funded a brokerage account, it’s time to start deciding how to invest. Most investors will start with investments in either funds or individual company stocks.
Funds will include investments in several different stocks. The key types to understand are:
Index funds. These track market indices (such as the S&P 500), by investing in a portfolio of stocks that represent the index. They are usually the lowest-priced funds and offer a balanced portfolio.
Mutual funds. These are more wide-ranging funds. They target specific investment sectors or have particular investment objectives. Funds could include investments in stocks, bonds, or other assets. They could also be spread across different markets. Fees will be higher than for index funds to reflect the management required.
Stocks are individual holdings in companies. Investing this way allows you to have more control over your investment decisions. This is sometimes referred to as ‘active investing.’
But if not managed carefully, it is easier to become over-exposed to particular companies or sectors.
Researching potential stocks is important for anyone choosing to invest this way.
You are likely to have experience and knowledge of some companies through your everyday dealings as a consumer, or through your education or work background.
This is a good starting point, but some more thorough research will support this.
Areas to look at vary depending on how much detail you want to go into. Some of the best sources include:
Company annual reports. In particular, the ‘letter to shareholders’ gives a good overview of the company. And financial results can be easily compared between years.
Key annual and quarterly financials filed with the Securities and Exchange Commission (SEC). These will usually be available through broker websites. There are plenty of good guides on which financials to focus on, and you can develop this over time.
More qualitative research. Look into the company’s management, prospects and plans, and how it differentiates itself. Reviews by analysts can support this.
There is no need to rush in and make large initial investments in any particular stock. Diversification is key to lowering risk. So having several smaller investments can be better than a single larger one.
This is especially true with online brokers, where costs per trade are low - or zero.
As a beginner, it’s a good idea to start small. You can always increase investment later on.
Practically then, how many shares should a beginner buy? It makes sense to split your initial investment over several different stocks if the amount allows.
An investment of $1,000, for example, could be invested in three of four different stocks.
The number of shares will, of course, depend on the stock price. Many brokers will allow fractional purchase of shares. This is particularly useful for shares with high individual prices. Amazon, for example, was trading at over $3,000 per share in March 2021².
Stockbrokers use an array of terms to describe prices and orders. Don’t let this confuse you - it’s quite simple.
There are two key order types you need to know about when getting started.
- Market order
This is a request to buy or sell a stock at the current market price. Your broker will place the order as soon as possible (usually immediately if the market is open).
Prices change constantly, so there can be a small difference in the price even for orders executed immediately. Market orders are best for more highly traded stocks, with smaller swings in pricing.
They are also good for longer-term investors, where a small change in price is less important.
- Limit order
This is a request to buy or sell stock, up to a specified limit. The broker will place the order only when the price is within the limits set.
Such orders are best for investors who want more control. For example, you may believe that a price will drop, so you place a limit order to buy only at that price.
Limit orders are also useful for stocks with smaller trading volumes, and therefore more volatility. Or for orders placed outside regular market hours.
Other important terms that come up when placing orders include:
Ask price: The price sellers are willing to sell a stock for. Relevant when buying stock.
Bid price: The price buyers will pay for a stock. Relevant when selling stock.
Spread: The difference between the bid and ask prices.
Once you understand how to place orders and deal with your chosen broker, you can expand your investments.
Building up investments over time, and diversifying across different areas, is central to good long-term performance.
Markets fluctuate, and no investor can beat the market all the time. But over the long term, and with perseverance, you can come out on top.
As you build up your portfolio, you can also look to other types of investment. Mutual funds can add new areas to invest. You can also consider other regions or markets – most brokers can handle this.
A brokerage account can be just the first part of broader investment plans. Consider looking further into other beneficial investment areas, such as Individual Retirement Accounts (IRAs).
Investing in stocks is not just something for wealthy individuals or professionals. These days, it is more straightforward and more accessible than ever for anyone to invest.
You can invest with a long-term view or focus on market movements and changes in stock values from day to day. With a longer horizon of at least five years, you can focus on investments that should perform.
Staying invested rather than trying to predict the high and lows is important if you choose long-term investment.
One report from CNBC in 2020 for example, showed that $10,000 invested in the S&P 500 from 1999 to 2018 would have grown to $30,000 if left invested³.
There is no reason not to get started as a beginner. Just make sure you have funds available, take a sensible approach to holding investments, and introduce diversification in your portfolio over time.
There is no instant guide to which stock is best, but here are some areas to consider when starting out:
- Index funds could make a better starting point than individual stocks, especially for low amounts. You can move into stocks as your portfolio builds up.
- You can start with larger, more stable companies, such as those in the S&P 500. Investing in new or startup companies is exciting but higher risk.
- Look at yields as well as past stock performance and growth. Some more stable stocks can offer good returns.
- For most investors, long-term performance is key. Look at how a stock (and company) has performed over time – don’t just trade based on the immediate past results.
Any time is a good time to invest. If you have funds available, it makes sense to start investing.
Individual stocks, and markets in general, will always fluctuate. This makes timing the perfect entry very difficult – it is much better to invest over time steadily. Putting a little in today and more again later spreads the risk.
You do not need to wait to have a large initial investment available to start buying stock. In fact, starting small and growing a portfolio can be a lower-risk approach.
There are some things to consider, though, and a few factors which affect your minimum investment.
- Some brokerage accounts will have a minimum balance or initial deposit requirements. Many online brokers do not, however.
- There may be per trade transaction fees. Again, many online brokers offer zero fees - but not necessarily for all markets or regions.
- Consider the importance of a diversified portfolio. If you only have a small amount to invest initially, an index fund might be better than putting all your funds into one stock.
- Check if your broker allows fractional share investments. If not, the minimum per stock is essentially the share price.
Also, remember to budget appropriately. Investing in stocks should only use a portion of your total available money. Having funds available for your other needs, as well as emergency cash reserves, is important.
If you have funds in different currencies or want to include foreign trading in your investment approach, consider the Wise Account.
If you have a USD brokerage account in your name, you can easily send money to your Wise Account. You can pay, receive and hold money with your account. If you need to convert your money, you will get the real exchange rate (the same one you find on Google).
All sources checked 24 March 2021
This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date.
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