How To Buy Stocks: A 5-Step Guide For New Investors

It’s never been easier to buy stock. If you have a little bit of money and a brokerage account, you can buy a piece of a publicly traded company. A stock is an ownership share in a business, and literally thousands of them trade on a stock exchange, allowing anyone — even beginners — to become a part owner of the company.

Here’s how to buy stock and the steps you need to take to become a shareholder.

1. Choose your online broker

You’ll need to set up an account with a broker to buy stock, but that often takes only minutes. The broker lets you purchase and sell stock, holds the shares for you in an account and collects any dividends that are paid. You’ll need to provide basic financial information to open the account and can connect your bank account to the brokerage to transfer money.

An online broker is a great first choice, since they don’t charge any trading commissions on stocks and have no account minimum to get started. But you could also go with a trading app, especially if you want to trade more easily via a mobile device.

You can find a broker that fits your needs among the best brokers for beginners.

2. Research and analyze stocks to buy

If you’re interested in buying individual stocks, you’ll need to research and figure out whether the stock is a good investment. And that can take a lot of upfront work if you want to succeed.

You’ll want to understand the company, its products, its balance sheet and its industry. So, you’ll need to read through its filings with the Securities and Exchange Commission (SEC). That will give you lots of detail about what you’re investing in and its potential. But you may also want to use some of the top techniques of the pros, including doing your own first-hand research.

From your research, you can develop an investment thesis for the stock or discard it and look for another potential candidate. You’ll want to buy stocks that look poised to outperform for years rather than ones you think will do better next week or month. In other words, you want to invest for the long term and think like the owner of a business, not a stock trader looking to make a quick buck.

To find this information, it’s helpful to look at a company’s stock quote page, which can tell you about the business’s current and past performance and even investors’ sentiment toward the stock. You can also judge how the company has performed in the past, giving you an idea of how it might perform in the future.

As a test, ask yourself: “If the market closed tomorrow and I was unable to sell this stock, would I want to own it for the next 10 years?” This can get your mind focused on the right time frame.

When you find an attractive stock, note its ticker symbol, typically a three- or four-letter sequence of letters.

3. Figure out how much you can invest

You’ll want to determine how much stock you can buy right now. If you’re just starting to invest, the good news is that you can invest with almost any amount of money, because many brokers allow you to trade fractional shares. So you can buy a partial share, which comes in handy for those really pricey stocks. It’s OK to start small. With no-commission online brokers, your money won’t be eaten up by fees.

But real wealth is built by adding to your investments over time, ideally at regular intervals. So you’ll want to figure out not only how much you can invest now, but also how much you’re able to add to your account over time. This can allow you to take advantage of dollar-cost averaging, a process that spreads your buying over time and reduces your risk.

If you’re investing more than a few thousand dollars, you’ll want to consider buying more than one stock, so that you’re diversifying and spreading your risk.

4. Place your trade

It’s finally time to place your trade. Using the stock’s ticker symbol, you can enter an order with your broker. You’ll need to specify what kind of order you want to place: either a market order or a limit order.

• Market order: This type lets you transact at whatever the best price is at the moment you send in your order. You won’t have control over what price you transact at.
• Limit order: This type lets you transact only at a price you specify or better. If you can’t get your price or better, the order won’t execute. You may set a limit order to be valid for up to three months, though some brokers allow them to sit longer.

Market orders are better when you’re transacting just a few shares or when the stock is large and liquid. 

Limit orders work better on smaller stocks that don’t trade many shares or when you’re trading a significant number of shares and don’t want your trade to move the price.

Once the trade is executed, you own the stock.

5. Monitor your holdings and track your stock’s performance

Buying a stock is only part of the process of being a stockholder. You’ll also need to continue following the company, tracking quarterly or annual earnings and keeping up with the industry. And if the company performs well, you can allocate more money to the position. Eventually, you can add more stocks to your portfolio as your expertise grows.

Along the way, your stock will decline at some point, even if it’s only temporary. Understanding the company’s business can help you decide whether it’s time to buy more stock at a discount or sell.

As an alternative to buying individual stocks, consider ETFs instead

Finally, if you’re looking to get started investing in stocks, you should know that you have other options. As Warren Buffett advises: “If you like spending six to eight hours per week working on investments, do it. If you don’t, then dollar-cost average into index funds.”

If you don’t want to spend time following your stocks, you have lots of ways to make money in the market, including index ETFs, short for exchange-traded funds. Index ETFs often own hundreds of stocks, offering the benefit of diversification without the extra work of analyzing and evaluating individual stocks.

FAQs about buying stocks

Bottom line

If you want to buy a stock for the first time, but don’t know where to start, it’s pretty simple to place a trade. The hardest part is doing your research when it comes to seeing whether a stock is a good fit for your investing portfolio and overall financial goals. If you’re just starting to invest, take it slow. Only invest in what you feel comfortable with, and don’t invest more than you can afford to lose.

— Bankrate’s Logan Jacoby contributed to an update of this article.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.