Guide to Buying Stocks
Stocks, if managed correctly and effectively, can be a great tool to improve your financial worth and assets. So, what are stocks? Stocks are a financial instrument that gives stockholders a share of ownership of a business or company. In holding a share of the company, a stockholder is entitled to dividend payments, capital appreciations, and the control to potentially influence the company with share votes. Stocks can be a very risky investment, but if handled right, can deliver a great reward.
There are pros and cons to buying stocks. Pros include:
- You are entitled to rights of the company you have stocks with. Along with other shareholders, you are able to vote on matters regarding what direction the company will go, who is on the board, and how it is managed. This can give you a sense of control regarding your future money.
- Some companies pay a dividend to its shareholders. After established, you can use this as a source of income, or return the funds back into your investments.
- You have the option to sell any number of your shares for a profit, especially if the company is doing well.
- Stocks can have some of the highest payout, when compared to other methods of investment.
As always with pros, there comes cons. Some of these are:
- There is always the chance your company will tank, bankrupt, or close. If you still have stocks when this happen, you can lose some or all of your investments.
- Not all companies pay dividends, as it is not required.
- If you decide to sell while a particular company isn’t doing great, you have the potential to lose money. This can be hard, especially if the company climbs back up later.
- This isn’t a “get rich quick” type of investment. If you are looking to make money immediately, this is not the option for you. Stocks can take years to show impressive results.
Before diving too deep into the decision of buying stocks, it is important to make sure you are financially ready to make a commitment this big. It’s never a good idea to head into this endeavor as an experiment. It is a long term responsibility that should not be taken lightly. If you are in good standing with your current bills, and have emergency funds, retirement funds, etc. set up and established, then buying stocks can be your next step. Relying on money made from these stocks to live is not your best option.
After assessing your financial situation, and deciding buying stocks are the right idea for you, the first thing you will want to do is open a separate account for your stocks. You don’t want to mix this with your every day or savings accounts, and there are accounts designed specifically for these investments.
Next, you should decide whether or not to hire a broker or an advisor. While more experienced investors may decide to go it alone, an amateur has the best chances at succeeding by hiring one or the other. A professional can help you make informed decisions and help you with when and what to buy and sell. The act of buying stocks can be a daunting task, and having an educated helper in the know can really lessen your fears and anxieties. On the other hand, brokers and advisors do charge a commission, and it is known that not all of them will keep your best interests in mind. So it is important to do your research before deciding on a broker, should you go that route. Some companies, however, will not even allow individuals to buy stocks without a broker. There is also the option of an online broker, which is a little more low maintenance. Additionally, there is the option of discount brokers. They do the bare minimum, but charge the same.
Most people know to “buy low and sell high”, but there is a lot more that goes into the process of deciding which stocks to buy. The first step would be to research the company. Size of the company, how long they have been established, and stock prices over the last few years are some good things to look at when deciding on whether or not to buy their stocks. It’s also smart to take a look at the projected future. Does the company fit in with where the world is headed? Is this something people will still be interested in a year, five years, or ten years down the road? While there is no sure way to tell, making an educated decision can surely make a difference.
After narrowing it down a little more, look at what the company offers. Are there dividends? Maybe the stock is already in a fund like a ETF dividend fund. Are there minimum purchase amounts? You have to take all of this into account, and decide if the demands are worth the effort and potential reward. If you are working alone, make sure they do not require a broker. Do online research and see what the company is worth, what others think it is worth. While the latter is how stock prices are based, it will be useful to consider all information.
Finally, either through your stockbroker or advisor, through an online broker company, or through the company itself, you can buy your desired stocks, and begin your investment career.