Category: How to buy stock ?

The ideal time to sell your stocks is when you need the money. Long-term investors should have a strategy centered on a financial goal and a timeline for achieving it. That means it should include a plan to start tapping your investments and using the cash you’ve accumulated when the time is right.

That also means that deciding when you should sell a stock has very little to do with what the stock or broader markets are doing at any given moment. Unless you’re day trading and looking to turn a quick profit—which is much riskier than long-term investing—you don’t even have to worry about watching day-to-day price movements.

If you’re second guessing whether you should hold onto a losing stock, think again about why you bought it in the first place and decide whether anything has fundamentally changed. If not, a dip in the price might actually be a good time to buy more.

Stock Sales and Capital Gains Taxes

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.

If the price has gone down, you can use the loss to offset gains you may have earned elsewhere in your portfolio. For example, let’s say one stock you own fell by $10 a share. If you own another stock that gained $15 a share, you can sell both stocks and owe taxes only on the $5 a share difference. But watch out for the wash-sale rule: Once you take advantage of this tax benefit, you cannot buy back the stock you sold at a loss, or any similar stock, for 30 days.

The trouble with stock markets is that prices fluctuate constantly. You may have your eye on a stock that looks reasonably priced today, but who’s to say whether the price will be higher or lower tomorrow?

Dollar-cost averaging provides a solution to this problem: Buy stocks with a set amount of money at regular intervals, and you may pay less per share on average over time. Crucially, dollar-cost averaging allows you to get started buying stocks right away, with a little bit of money, rather than waiting to build your balance. This mitigates the risk you buy either extremely high or low since you’re spreading out your purchases across a long period of time.

Let’s say you use dollar-cost averaging to buy your target stock at $5 a share in week one, $10 a share in week two, and $9 a share in week three. On average, you’ve paid $8 a share—better than if you had mistimed your purchase and gone all in at $10 a share, only to see the price drop. Plus, investing the same dollar amount each time would buy you more stock at $5 a share than at either of the other price points.

Buy low and sell high is a mantra for successful stock purchasing you’ve probably heard more than once. But practicing it can be psychologically challenging, and it can be very, very difficult even for experts to agree what “low” and “high” are for a given stock. Automated, recurring stock purchases that use dollar-cost averaging help you sidestep the challenge and make investing routine.

Once you’ve opened and funded a brokerage account and then identified stocks you’d like to buy, it’s time to execute trades in your account. Before you put in an order to buy stock, you need to understand a few details about the process—purchasing stock isn’t as simple as just pressing a buy button on an app. You’ll generally have to pick an order type, which provides instructions on how you want to purchase a stock.

Two of the most common order types you’ll have to choose from:

• Market order. This type of order instructs the broker to buy stock immediately at the lowest price available. The current stock price you see when you enter a market order isn’t necessarily the price at which your market order will be executed—prices change in milliseconds, and you’re only telling the broker to get the lowest price available.
• Limit order. You name your price, and the buy only gets executed if the stock falls to that price or lower within a selected time period. If the stock never reaches the specified price before the limit order expires, your trade gets canceled.

If you have a small balance in your account but the share prices of stocks you’re looking to buy are very high, consider fractional shares. Take Google parent, Alphabet, Inc.: As of late September 2020, Alphabet is priced at nearly $1,500 a share. With fractional shares, you could invest as little as a few dollars in the stock. A growing number of brokers—including Charles Schwab, Fidelity and Robinhood, to name a few—sell fractional shares.

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.

Growth stocks are shares of companies that are seeing rapid, robust gains in profits or revenue. They tend to be relatively young companies with plenty of room to grow, or companies that are serving markets with lots of room for growth. Whether the shares of a growth stock seem expensive or not, investing in growth stocks assumes that continued rapid growth will deliver strong price gains over time.

Value stocks are shares of stock that are priced at a discount and stand to see price gains as the market comes to recognize their true value. With value investing, you’re looking for “shares on sale,” with low price-to-earnings and price-to-book ratios. The aim is to buy stocks that are underpriced and hold on to them over the long term.

Dividend stocks pay out some of their earnings to shareholders in the form of dividends. When you buy dividend stocks, the goal is to achieve a steady stream of income from your investments, whether the prices of your stocks goes up or down. Certain sectors, including utilities and telecommunications, are also more likely to pay dividends.

Use a Stock Screener to Find Stocks to Buy

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.

An online brokerage account is the most convenient place to buy stocks, but it’s far from your only option. If you see yourself as a hands-on investor who likes researching companies and learning about markets, an online brokerage account is a great place to get started buying stocks.

Online brokerages offer taxable accounts and tax-advantaged accounts. If you want to buy stocks to fund your retirement, consider an individual retirement account (IRA) that offers you certain tax advantages, like tax-deferred growth of your investments and potential tax credits on your tax return. If you’re investing for a day sooner than retirement—or you’ve already maxed out your retirement accounts—look to a taxable brokerage account. While they don’t offer the tax advantages of IRAs, they also don’t have any limitations on how much money you can deposit or when you can withdraw funds.

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 Stock Purchase Plans

If you’re already identified stocks that you’d like to buy, you may consider a direct stock purchase plan. Not all publicly traded companies participate in direct stock purchase plans, but many of the largest, most popular names do, and you don’t need a brokerage account to buy stocks this way. You’ll most likely be charged additional fees, however.

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.

Take Coca-Cola. You can buy a one-time amount of $500 of Coca-Cola stock on ComputerShare for a $5.00 fee, or set up at least 10 recurring $50 purchases for a $2.50 fee. Either way, there’s a $0.05 processing fee for every share bought. Reinvesting any dividends incurs a charge of 5% amount invested up to a maximum of $5. ComputerShare will round up your investment with fractional shares, if necessary.

With the ready availability of low- and no-fee online brokerages, many direct purchase plans have fallen out of favor. However, they may allow investors to purchase a specific company’s shares at a slight discount, which may help make up for the fees they charge. Carefully evaluate the benefits of investing using a direct stock purchase plan before you make your first purchase.

Full-Service Brokerages

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.

Robo-advisors

Robo-advisors are automated investing platforms that evaluate your financial goals, investing timeline and risk tolerance. When you sign up for a robo-investor, the platform asks you a series of questions to evaluate these factors and then invests your money in a managed portfolio of exchange traded funds (ETF) that’s tailored to your needs.

The thing about robo-investors, though, is that you’re not buying stocks directly—you’re buying a portfolio of ETFs. Some of those funds will almost certainly be stock ETFs, like the SPDR S&P 500 ETF Trust (SPY), which strives to match the performance of the S&P 500 stock index. But others could be broad bond funds, like Vanguard Total Bond Market ETF (BND), which invests in fixed income securities.

That doesn’t make robo-advisors a bad choice for your investing dollars, especially if you’re more of a hands-off investor. Just keep in mind that robo-advisors may not be your first choice if you want to buy stocks.

We hope your first stock purchase marks the beginning of a lifelong journey of successful investing. But if things turn difficult, remember that every investor — even Warren Buffett — goes through rough patches. The key to coming out ahead in the long term is to keep your perspective and concentrate on the things that you can control. Market gyrations aren’t among them. But there are a few things in your control.

Once you’re familiar with the stock purchasing process, take the time to dig into other areas of the investment world. How will mutual funds play a part in your investment story? In addition to a brokerage account, have you set up a retirement account, such as an IRA? Opening a a brokerage account and buying stocks is a great first step, but it’s really just the beginning of your investment journey.

Don’t be put off by all those numbers and nonsensical word combinations on your broker’s online order page. Refer to this cheat sheet of basic stock-trading terms:

Term	Definition
Ask	For buyers: The price that sellers are willing to accept for the stock.
Bid	For sellers: The price that buyers are willing to pay for the stock.
Spread	The difference between the highest bid price and the lowest ask price.
Market order	A request to buy or sell a stock ASAP at the best available price.
Limit order	A request to buy or sell a stock only at a specific price or better.
Stop (or stop-loss) order	Once a stock reaches a certain price, the “stop price” or “stop level,” a market order is executed and the entire order is filled at the prevailing price.
Stop-limit order	When the stop price is reached, the trade turns into a limit order and is filled up to the point where specified price limits can be met.

There are a lot more fancy trading moves and complex order types. Don’t bother right now — or maybe ever. Investors have built successful careers buying stocks solely with two order types: market orders and limit orders.

Market orders

With a market order, you’re indicating that you’ll buy or sell the stock at the best available current market price. Because a market order puts no price parameters on the trade, your order will be executed immediately and fully filled, unless you’re trying to buy a million shares and attempt a takeover coup.

Don’t be surprised if the price you pay — or receive, if you’re selling — is not the exact price you were quoted just seconds before. Bid and ask prices fluctuate constantly throughout the day. That’s why a market order is best used when buying stocks that don’t experience wide price swings — large, steady blue-chip stocks as opposed to smaller, more volatile companies.

Good to know:

A market order is best for buy-and-hold investors, for whom small differences in price are less important than ensuring that the trade is fully executed.

If you place a market order trade “after hours,” when the markets have closed for the day, your order will be placed at the prevailing price when the exchanges next open for trading.

Check your broker’s trade execution disclaimer. Some low-cost brokers bundle all customer trade requests to execute all at once at the prevailing price, either at the end of the trading day or a specific time or day of the week.

Limit orders

A limit order gives you more control over the price at which your trade is executed. If XYZ stock is trading at $100 a share and you think a $95 per-share price is more in line with how you value the company, your limit order tells your broker to hold tight and execute your order only when the ask price drops to that level. On the selling side, a limit order tells your broker to part with the shares once the bid rises to the level you set.

Limit orders are a good tool for investors buying and selling smaller company stocks, which tend to experience wider spreads, depending on investor activity. They’re also good for investing during periods of short-term stock market volatility or when stock price is more important than order fulfillment.

There are additional conditions you can place on a limit order to control how long the order will remain open. An “all or none” (AON) order will be executed only when all the shares you wish to trade are available at your price limit. A “good for day” (GFD) order will expire at the end of the trading day, even if the order has not been fully filled. A “good till canceled” (GTC) order remains in play until the customer pulls the plug or the order expires; that’s anywhere from 60 to 120 days or more.

Good to know:

While a limit order guarantees the price you’ll get if the order is executed, there’s no guarantee that the order will be filled fully, partially or even at all. Limit orders are placed on a first-come, first-served basis, and only after market orders are filled, and only if the stock stays within your set parameters long enough for the broker to execute the trade.

Limit orders can cost investors more in commissions than market orders. A limit order that can’t be executed in full at one time or during a single trading day may continue to be filled over subsequent days, with transaction costs charged each day a trade is made. If the stock never reaches the level of your limit order by the time it expires, the trade will not be executed.

You should feel absolutely no pressure to buy a certain number of shares or fill your entire portfolio with a stock all at once. Consider starting small — really small — by purchasing just a single share to get a feel for what it’s like to own individual stocks and whether you have the fortitude to ride through the rough patches with minimal sleep loss. You can add to your position over time as you master the shareholder swagger.

New stock investors might also want to consider fractional shares, a relatively new offering from online brokers that allows you to buy a portion of a stock rather than the full share. What that means is you can get into pricey stocks — companies like Google and Amazon that are known for their four-figure share prices — with a much smaller investment. SoFi Active Investing, Robinhood and Charles Schwab are among the brokers that offer fractional shares. (SoFi Active Investing and Robinhood are NerdWallet advertising partners.)

Many brokerages offer a tool that converts dollar amounts to shares, too. This can be helpful if you have a set amount you’d like to invest — say, $500 — and want to know how many shares that amount could buy.

Once you’ve set up and funded your brokerage account, it’s time to dive into the business of picking stocks. A good place to start is by researching companies you already know from your experiences as a consumer.

Don’t let the deluge of data and real-time market gyrations overwhelm you as you conduct your research. Keep the objective simple: You’re looking for companies of which you want to become a part owner.

Warren Buffett famously said, “Buy into a company because you want to own it, not because you want the stock to go up.” He’s done pretty well for himself by following that rule.

Once you’ve identified these companies, it’s time to do a little research. Start with the company’s annual report — specifically management’s annual letter to shareholders. The letter will give you a general narrative of what’s happening with the business and provide context for the numbers in the report.

After that, most of the information and analytical tools that you need to evaluate the business will be available on your broker’s website, such as SEC filings, conference call transcripts, quarterly earnings updates and recent news. Most online brokers also provide tutorials on how to use their tools and even basic seminars on how to pick stocks.

The easiest way to buy stocks is through an online stockbroker. After opening and funding your account, you can buy stocks through the broker’s website in a matter of minutes. Other options include using a full-service stockbroker, or buying stock directly from the company.

Opening an online brokerage account is as easy as setting up a bank account: You complete an account application, provide proof of identification and choose whether you want to fund the account by mailing a check or transferring funds electronically.