A friend of mine said these simple words to me “Where can I learn how to buy stocks?” She’s over 50 and has never bought stocks before. And she thinks it’s finally time to learn what everyone else seems to already know.
Although I have other posts that talk about stocks and investing, I realized I need something even more specific. An easy-to-follow guide making it painless for her to learn to buy stocks.
How to buy stocks
Once you decide to go ahead and put some money into stocks, please take time to educate yourself first. Your investment in time now can go a long way to help protect your hard-earned money. So where to start?
⇒ EXTRA: I Don’t Understand Stocks at All!
Step 1: Think about your investment preferences & goals
If you want to learn to buy stocks, you need to do some research first. You’re about to invest your money in an actual company. With actual publicly-traded stock. So what kind of company do you want that to be? And where do you start to help you figure that out?
This is where your good old friend the internet comes in. While you could just throw darts at a list of stocks (this has been done), I’d suggest finding stocks you feel good about, for whatever reason.
Step 2: Look at the types of companies and industries
Stocks are shares in a company. So think about the types of companies you would be proud to own. If you’re an environmentalist, would a company known for polluting or one that does fracking feel ok to own? Or if you just had a fight with your cable company, do you really want to buy stock in their parent company? Unless you are doing it just to get your voice heard …
The case of “shareholder activism” (Source: Chron.com)
“Small stockholders can bring up issues that concern them at annual shareholder meetings, nominate their own board candidates and solicit other stockholders’ proxy votes. Some activists acquire small stakes in a company for the sole purpose of attending shareholder meetings to advance their agendas.”
Also, think about your personal goals for buying stock. Are you looking to turn a quick profit? Or are you putting away money for your retirement? Are you a risk taker? Or do you prefer more traditional, highly-rated stocks with long histories? (Not that anything is guaranteed.)
There is no wrong answer here as far as I’m concerned. It’s true that I have strong political beliefs that influence some of what I buy. But my question is about what feels ok for YOU to own. The company philosophy. What they specialize in. Do they focus on quick profits or slower long-term growth?
Examples of company types / “sectors”
- Tech companies
- Real estate
- Health care
Other things to consider
- Domestic companies
- International companies
- Aggressive growth stocks
- High dividend stocks
- Stocks that are listed on an index (like the Dow Jones or S&P)
- Large companies (large cap)
- Medium-sized companies (mid cap)
- Small companies (small cap)
- Emerging technologies
- Social responsibility
If your mind is swimming from all the things I’m asking you to think about, let me give you some comfort. These are just things to consider. If something leaps out at you or if you have particular interest in that side of things, great. It can help guide you. And, help you ask questions.
Step 3: Dig deeper into the things you are considering
After narrowing down the kinds of things that matter to you most, you can begin digging deeper. This is the time to look for news, opinions, research, and forecasts on specific stocks or industry trends.
Good sources include newspapers, magazines, financial podcasts, and even your own daily observations. None of this is mandatory — just a good way of getting your mental feet wet as you learn to buy stocks. Also a great way to add to your financial education.
Where to learn about stocks online
Here are just a few good basic info sites to help:
- Fool.com (The Motley Fool)
A bit overwhelming? Fear not. Just gently wander through some of these and see what grabs your eye. Also, if you have a broker (more on that later) they should have access to some good market research and info. (But still wise to come armed with your own knowledge.)
How to look at stock charts
Some of the sites I mentioned will present you with a stock chart, like this one for AT&T from Morningstar.com:
[Click on chart above for a larger view in a new window]
This is the chart for AT&T at one point in time. You can find a chart (as of right now) at Morningstar here. Things to initially look for include Last Price, Yield (this stock pays a dividend), and the 52-week price range.
You can also find a 30-day price graph on that same linked Morningstar page. If you’re curious, you can change the date range. And you can find even more by clicking the various chart tabs above the Price
Next to the company name on Morningstar, you will also see some stars. This is their rating system, with 5 stars being their highest. But that doesn’t mean companies with less stars aren’t potential stocks for you.
There’s more to chart analysis, and I’ll go into that at another time. This is just a quick intro to get you used to looking at stock charts.
Step 4: Where to actually buy stock
Let’s assume you’ve finally come up with some stocks you want to buy. Let’s also assume you don’t already have a broker if this is your first time buying stock. So where do you go?
Doing it on your own
Well, you can do it on your own. There are plenty of online discount brokers — Fidelity, Ally (Self-Directed), E*Trade, TD Ameritrade, Merrill Edge, Charles Schwab, etc. (in no particular order of recommendation).
But again, you’re on your own. So if this is your first time, maybe start small. And pay very careful attention to the small print, including any extra fees, minimum amounts, etc.
Also, while your savings and bank CDs are FDIC insured, stocks are not. So there are no guarantees however you buy your stocks. Not trying to discourage you. Just smart to know the whole picture before you invest.
What about full-service brokers?
Maybe you’re thinking about a full-service broker who can help guide you through the process. And work closely with you as you learn to buy stocks. If it’s your first time, this might feel more comforting. Especially if you’re lucky enough to find a good one who really gets what you need and listens. (If they don’t listen and keep talking over you, look elsewhere.)
Just know you’ll be paying much higher commissions and maybe annual maintenance fees. Also, they and their firm may have a special interest in pushing certain stocks or other investments. So stay alert and ask questions. Any broker who discourages that should also get the boot. (And if you hear the word “annuity” just say no.)
But if you’re lucky, maybe you’ll find a broker you can trust as an investment partner and ally. Just do your research first and come in with questions. And be sure to ask carefully about any commissions and fees. (You might want to get out your calculator and run those numbers. They can add up!)
NOTE: Many banks also have brokerage services. But recent changes to their policies may mean they won’t be able to advise you. Unless you hire them to manage your portfolio, for an annual fee. That can be very costly. So come prepared — and ask questions.
Looking to get into some IPO action?
An IPO is an Initial Public Offering of a stock. Before a company goes “public” its stock is owned privately — meaning you, an average investor, can’t buy it. Once public, anyone who has the money can buy it.
On the big day the stock goes public, there’s often a lot of hype. And excitement. And the stock can soar on that day. Or on the first few days. You are getting in on the ground floor, as a newly listed public stock goes on the market. But what does that really mean?
In most cases, not much. Sure, you might miss something great by not buying. But you also will probably get a chance later on to pick up that same stock at a lower price — if you want. But if you did buy that first day and see the price tumbling, that’s not always a good reason to sell.
On its first day of trading, Facebook’s price ended up at about $38. I know someone who bought it because they believed in the product. Then a few month’s later, it fell by about $20, and he panicked. And sold. Now it’s worth over $170 as of the day I’m writing this.
So there was no need to rush in. Plenty of time to pick it up later. But also, if you buy stocks for the quality of the company and not the hype, there is a good chance you’ll be ok. Yes, you might miss some IPOs that continue to skyrocket. But so what?
A smart investor plays it cool — and doesn’t sweat what they missed out on. If you really want to learn to buy stocks for yourself, just trust that there are always other places for your money to grow!
More to help you learn to buy stocks for yourself