How To Buy Into The Stock Market

Investing in stocks is a great way to build wealth by harnessing the power of growing companies. Getting started can feel daunting for many beginners looking to get into the stock market despite the potential long-term gains, but you can start buying stock in minutes.

how to buy into the stock market

How much you invest depends entirely on your budget and time frame. While you may invest whatever you can comfortably afford, experts recommend that you leave your money invested for at least three years, and ideally five or more, so that you can ride out any bumps in the market.

One solution is to invest in stock index funds and ETFs. These often have low investment minimums (and ETFs are purchased for a share price that could be lower still), and some brokers, like Fidelity and Charles Schwab, offer index funds with no minimum at all.

In our view, the best stock market investments are often low-cost mutual funds, like index funds and ETFs. By purchasing these instead of individual stocks, you can buy a big chunk of the stock market in one transaction.

Investing in stocks will allow your money to grow and outpace inflation over time. As your goal gets closer, you can slowly start to dial back your stock allocation and add in more bonds, which are generally safer investments.

While stocks are great for many beginner investors, the "trading" part of this proposition is probably not. A buy-and-hold strategy using stock mutual funds, index funds and ETFs is generally a better choice for beginners.

Stocks offer investors the greatest potential for growth (capital appreciation) over the long haul. Investors willing to stick with stocks over long periods of time, say 15 years, generally have been rewarded with strong, positive returns.

The risks of stock holdings can be offset in part by investing in a number of different stocks. Investing in other kinds of assets that are not stocks, such as bonds, is another way to offset some of the risks of owning stocks.

Direct stock plans. Some companies allow you to buy or sell their stock directly through them without using a broker. This saves on commissions, but you may have to pay other fees to the plan, including if you transfer shares to a broker to sell them. Some companies limit direct stock plans to employees of the company or existing shareholders. Some require minimum amounts for purchases or account levels.

Dividend reinvestment plans. These plans allow you to buy more shares of a stock you already own by reinvesting dividend payments into the company. You must sign an agreement with the company to have this done. Check with the company or your brokerage firm to see if you will be charged for this service.

Stock funds are another way to buy stocks. These are a type of mutual fund that invests primarily in stocks. Depending on its investment objective and policies, a stock fund may concentrate on a particular type of stock, such as blue chips, large-cap value stocks, or mid-cap growth stocks. Stock funds are offered by investment companies and can be purchased directly from them or through a broker or adviser.

Before you can start purchasing stocks, you need to select a brokerage account to do it through. You can choose to go with a trading platform offered by a traditional financial company like Fidelity, Schwab or Vanguard, or you can look at online brokers like Ally or Robinhood.

Consider the variety of investment vehicles the broker offers in addition to stock trading, such as retirement saving via IRA accounts. You'll also want to take note of any maintenance fees, account minimums and commissions the broker charges for executing trades.

Setting up your brokerage account takes only about 15 minutes and will require you to provide some basic personal and financial information. For faster access to the market, you can choose to transfer funds into your account electronically from a linked bank account.

In order to continue growing your investments and to build real wealth, set up an automatic transfer to your brokerage account so you're regularly contributing over time. Remember that money you invest in individual stocks should be money you can afford to lose since there's always some risk.

Before buying stock in a company, understand what that company does, the product(s) it offers, its business model, how it makes money and its historical performance. You can also reference credible investing sites like Morningstar, a reputable resource for stock research and ratings.

Some brokers even offer the option to purchase fractional shares, or portions of a single share instead of the whole share. This allows investors to buy pricey stock in companies like Amazon, whose share price is over $3,000 as of writing.

A market order means you're buying the shares at the best available current market price when you place the order. Market orders are best when you're buying just a few shares or buying large, blue-chip stocks whose prices don't fluctuate drastically.

A limit order means you're buying the shares at your specified price or better, leaving you in more control of what you pay. With a limit order, the trade may not happen if the price doesn't get to where you want it. Limit orders are best if you're trading a large number of shares or for smaller stocks that have greater price volatility.

Money you invest in individual stocks should be money you are comfortable having tied up for at least the next five years. To maximize your returns, your best bet is to hold for the long term, especially during times of volatility.

After reviewing the above features, we based our recommendations on platforms offering the widest range of investment options, robust educational tools and resources, user-friendly technology, as well as the lowest fees and expense ratios. We also looked into each company's customer support structure, available avenues of communication and app reviews.

You must buy and sell Vanguard ETF Shares through Vanguard Brokerage Services (we offer them commission-free) or through another broker (which may charge commissions). See the Vanguard Brokerage Services commission and fee schedules for full details. Vanguard ETF Shares are not redeemable directly with the issuing fund other than in very large aggregations worth millions of dollars. ETFs are subject to market volatility. When buying or selling an ETF, you will pay or receive the current market price, which may be more or less than net asset value.

Your online brokerage of choice might also ask if you want to open a margin account. With a margin account, the brokerage lends you money to buy stock. This lets experienced investors buy more shares of stock with less of their own money in exchange for some additional costs and much more risk.

Direct purchase plans are almost always administered by third parties, rather than the companies themselves. The two most common direct purchase plan administrators are ComputerShare and American Stock Transfer & Trust Company (AST). Both firms charge additional fees for direct purchase plans. In contrast, most online brokers charge zero commissions to buy and sell shares of stock.

Full-service brokers provide well-heeled clients with a broad variety of financial services, from retirement planning and tax preparation to estate planning. They also can help you buy stocks. The trouble is full-service brokers charge steep commissions compared to online brokers.

For wealthy individuals without a lot of extra time to stay on top of their complicated financial lives, full-service brokers offer special treatment as well as a high level of trust. If all you want to do is buy stocks, a direct purchase plan or an online brokerage is a better choice.

There are thousands of different publicly traded companies offering shares of stock on the market. That makes it daunting to decide which stocks to buy. One way to think about researching the stocks you want to buy is to adopt a well-thought out strategy, like buying growth stocks or buying a portfolio of dividend stocks.

Whichever strategy you choose, finding the stocks you want to buy can still be challenging. Stock screeners help you narrow down your list of potential stocks to buy and offer an endless range of filters to screen out all the companies that do not meet your parameters. Nearly all online brokerage accounts offer stock screeners, and there are more than a few free versions available online.

With a stock screener, you can filter for small-cap stocks or large-cap stocks or view lists of companies with declining share prices and stocks that are at all-time highs. They also generally let you search for stocks by industry or market sector. Filtering by P/E ratio is a great way to find shares that are overpriced or underpriced.

If you do decide to give your broker the sell order, be sure you understand the tax consequences first. If the stock price has gone up since when you first bought it, you may have to pay capital gains taxes. Gains on shares you owned for a year or less are subject to the higher ordinary income tax rate, up to 37%, depending on your income. Shares sold after more than a year get taxed at the lower long-term capital gains rate of 0% to 20% in 2020.

Ben is the Retirement and Investing Editor for Forbes Advisor. With two decades of business and finance journalism experience, Ben has covered breaking market news, written on equity markets for Investopedia, and edited personal finance content for Bankrate and LendingTree.

Stock represents an ownership stake in a company as a common shareholder. Common stocks allow shareholders to vote on company issues, with most companies granting one vote per share. Some companies also offer stockholders dividend payouts, giving investors a stream of income on top of the market value of the stock. These payouts typically change based on the company's profitability.

Stocks are considered a risk asset that can provide growth and income to an investment portfolio. This means it's an asset class that carries a high degree of price volatility. With stocks, beginner investors must consider the degree of risk that they can take. Typically, the more risk in an investment, the greater the potential reward. But you need to be willing to take the risk of losing money in case high returns don't come. History shows that stocks have been a reliable asset class for strong annual average returns over time. 041b061a72