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Thinking about buying stocks for the first time? Where to start is a common question from beginner stock investors.
It’s easy to get lost in the ebb and flow of stock investing. However, with some research and practice you can be on your way to owning your first stock.
Investors can buy stocks thru an online broker, a full service broker and directly from some companies.
The investment decision, what to buy, is made by you when using one of these options.
There are many online brokers and full-service brokers you can research.
You can open a stock broker account at these platforms with a small amount.
For direct buying, DRIPInvestor.com, is a website with a list of companies offering direct investment.
The fees for these purchases are often low. However, this method is most appropriate for long term investing.
Using Robo advisors is another way to buy stocks, however the buying decisions are made by a robot or algorithm. Your investor profile determines what the robot will buy for you.
If you’re a total newbie, it helps to understand what a stock is and what it isn’t.
The definition of a stock is an investment granting partial ownership of a publicly traded company.
A stock is not a loan, is not a gambling instrument and a stock doesn’t guarantee return.
One of the most important factors for beginners buying stocks, is the broker commissions. High costs can eat up your gains and/or your principle, therefore it’s important to keep them low.
If you’re a total beginner to the stock market, here are some tips and resources to help you in your research.
- Invest in the stock market only money you can actually afford to lose.
- Start investing in small amounts until you understand how the stock market works.
- Be careful of success stories claiming to be making a killing in the stock market over a short period of time.
- Decide if you want to be an active investor vs a passive hands-off approach investor.
- It is extremely difficult to time the market. So, is better to plan an exit strategy ahead of time.
- For beginner investors is better to stick to stocks of companies you are familiar with. At the beginning stage try to stay away from volatile sectors. (penny stocks, FOREX, Bit coins, options etc.)
- Understand that if you participate in your company’s 401K plan, you may be already invested in the stock market.
- Learn how to set Stop Limits (prevent loses) and Market Orders (get a desired price).
- Investopedia is a very good site to learn about stock market’s terms
- Practice stock market investing at sites like, uptown.com and Cboe.com.
- Just because a company trades in the stock market doesn’t mean it is a good company. Do your homework.
- Learn about other options to stock investing. Instruments like mutual funds, ETFs, REITs.
- Think about an investment strategy. Buy and hold (investment) vs buy and sell (trading).
- Decide on an investment platform. You have choices like; online brokers, Robo advisers.
- You can buy some individual stocks directly from some companies without a Broker account. This is done using a Dividend Reinvestment Plan.
- Watch financial and business programs. Also, read financial magazines and websites. Listen to podcasts.
- You have to pay taxes when you make a profit in the stock market, so save some of your gains.
- There are two types of analysis you can do to decide if a stock is attractive. These are fundamental and technical analysis.
- Read the company’s financials. Things you may want to look (See #19-26)
- Price earning or PE ratio. This number tells you how expensive the stock price is compared to earnings.
- Compare the PE ratio to the revenue growth (year-over-year).
- Review the company’s debt figures. Is there too much debt?
- Look at the costs and are these rising.
- Take a look at the industry. Is the industry growing or declining?
- Is the company’s product or service successful and will it continue to be successful.
- Some investors ignore technical analysis, they just like the company and want in it.
- Look for the stock price patterns before buying.
- Understand that buying stock on margin is borrowing money against your own account. Using Margin should be done for short term.
- Know how much is your broker fee.
- Most online brokers and traditional ones offer research tools and investment guidance, use them. These comes in videos, articles and webinars free of charge.
- Some stocks, not all, pay dividends thru out the year normally every quarter.
- Follow some of the market experts. This way you get broader perspectives. Two of my favorites are; Kim Forrest of Bokeh investment and Joseph Foresi, Cantor Fitzgerald. You can find both of them on social media. Kim is a regular on Bloomberg TV.
- Read stock investing websites like Morningstar and Seeking Alpha.
- It is generally recommended to have a 5-year time span to invest in the stock market. You shouldn’t need the money before 5 years.
Related content: 3 ways to make money with passive income dividend investing
Final thoughts on Things to know before buying your First Stock
Stocks are a good option for investing retirement money, educational funds money and for growing your own portfolio.
Overall the stock market has averaged positive returns. However, stock prices are dynamic and they move up and down.
There are other options for beginner stock investors, such as mutual funds, REITs and ETFs investing.
The world of stock market investing can be overwhelming. But, as a beginner investor, you can take advantage of the many free resources available to learn the stock market, specially those provided by your broker.
Resources: SEC stock education