How to Buy Stocks. Steps When Buying Stocks and the Benefits of Buying Stocks
Below is a step by step guide on how to buy stocks:
First of all, you need to decide what type of stock market trading system that you want to use. There are many different types of plans out there, and they vary in price from $50-$1000+. If this is your first time buying stocks, I would recommend starting with the basic package as it will give you everything you need for a meager cost. You can always upgrade later if you feel more comfortable about investing money into the software. The most popular packages include;
The Basic Package - This includes three main features, which are;
Stock Market Simulator. SMS allows you to simulate real-life scenarios, such as when shares go up or down. It also gives you access to historical data, so you know precisely where shares have been before.
Portfolio Manager. PM lets you manage multiple portfolios at once. For example, you could be managing one portfolio while another trades automatically.
News Alerts. NAL lets you receive email alerts whenever new news comes up regarding any company within your chosen sectors.
Next, choose whether you invest using paper-based methods, online brokers, or direct investment companies. Each method has its pros and cons, but ultimately it depends on personal preference. Paper-Based Methods Online Brokers Direct Investment Companies Pros Cons Paper-Based Methods Easy to Use No Fees Can Be Time consuming Not suitable for everyone Online Broker Convenient Fee structure More suited to beginners Direct Investment Company Suited To Beginners Low fees High risk.
Now we move on to choosing a broker! Choosing a good broker is very important because it affects your overall experience. Some brokers charge high commissions, whereas others offer free demo accounts. Try to find a broker who offers both options. Many people think that only big brokerage houses like Etrade, etc., count, but don't forget that smaller brokers exist. Also, make sure that their customer service department speaks English; otherwise, things may get complicated.
Once you've decided on a broker, signup for them, most brokers now allow customers to open an account without depositing funds upfront. However, some require deposits ranging between $250-$500, depending on the size of your order. Deposits usually take around two days to clear; however, sometimes, it takes longer than expected. Make sure you check the status of your deposit every day until it clears.
After depositing funds, wait for the confirmation mail to arrive. In most cases, this should come within 24 hours. Confirm your details, including name, address, phone number, bank sort, code date of birth, etc. Don't worry if you haven't received anything after 48 hours. Just contact email@example.com, and they'll send you a copy of your registration form by post.
Finally, log in to your account and start trading! Remember not to trade unless you're sure that you understand how the markets work. Trading involves risks and losses; therefore, please ensure you fully understand these risks before commencing trading.
Benefits of Buying Stocks
You can earn money from dividends that are paid out in cash or stock. Dividends are profits made by corporations. They usually pay shareholders either through cheques or via electronic transfer into their bank accounts. The amount varies according to each corporation.
If you hold shares long enough, then eventually, you will become a shareholder yourself. This means that you will benefit directly from all future earnings generated by the company. If you sell off your shares at any time, you lose access to those benefits forever.
Stock market investing also allows you to diversify your portfolio. By owning different types of securities such as bonds, commodities, currencies, real estate, etc., you reduce the chances of losing everything when one asset declines in value.
Investing in stocks gives you exposure to many industries. For example, if you have invested in Microsoft Corporation, you would be exposed to technology-related businesses. Similarly, if you had bought IBM Corp, you'd be exposed to business services.
Stock Market Investing Is Tax-Free: As mentioned earlier, there's no tax payable on capital gains earned from selling stocks. On the other hand, dividend income is taxed at 15% plus applicable surcharges.
It provides liquidity. When you invest in stocks, you own part of a company. Therefore, you gain direct control over its operations. This makes it easier to liquidate your investments whenever necessary.
You could choose to sell your holdings immediately or let them mature first. Either way, once you decide to sell, you won't need to go through the hassle of finding buyers. All you need to do is inform your broker about your intentions, and they will handle the rest.
Stock market investing offers excellent potential returns. According to statistics compiled by Forbes magazine, the average annual return on US equities was 9.2%. That translates to an increase of almost ten times your initial investment.
There's always room for growth. With stocks, you don't know what tomorrow holds. But with mutual fund investing, you get a fixed percentage of interest per year.
It helps build wealth. Over time, stocks tend to appreciate at a price. So even though you may only make small amounts of profit initially, this adds up quickly. 6. It has low risk. Unlike some risky ventures like gambling, buying stocks doesn't involve taking substantial financial risks. Most people who successfully invest in stocks did so without putting much effort into research.
The most significant disadvantage of stock market investing is that it requires discipline. You must learn how to manage your emotions and resist temptation. Otherwise, you'll end up making bad decisions.
Another drawback is that you cannot predict where the markets might take us next. There are just too many variables involved. However, we've seen plenty of examples of investors who were able to ride out significant downturns.
Frequently Asked Questions
What are dividends?
Dividends are payments made by companies to their shareholders. They're usually paid quarterly but can come monthly or yearly, depending on the type of company. The amount varies based on the size of the shareholding.
How does the stock market work?
Stock exchanges allow traders to purchase and sell shares of publicly traded corporations. These transactions occur via brokers called dealers. Once they receive orders, these dealers match buyers and sellers until both parties agree upon terms. Then, trades happen instantly.
Why should I consider investing in stocks?
Stocks give you access to various sectors of the economy. If you want exposure to manufacturing, then look for stocks listed under industrial names such as Boeing Co., Caterpillar Inc., Ford Motor Company, etc. If you prefer to finance, check out banks like Citigroup Inc., JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co., UBS AG, Deutsche Bank AG, HSBC Holdings Plc, and Barclays PLC.
Who should buy Stocks?
If you have money saved from previous jobs, you can use those funds to start investing. This means you can avoid paying high fees when using brokerage accounts. Alternatively, you can convert part of its value into cash and put it towards investments if you already own property.
Who Shouldn’t Invest in Stocks?
People who lack experience in managing finances shouldn't be expected to understand all aspects of trading. Also, anyone who lacks self-discipline isn't likely to succeed at it.
Finally, there are certain types of securities that aren't suitable for everyone. For example, options contracts require special skills and knowledge.
Investing in stocks allows you to participate in the global economy. As long as you follow basic rules, you won't lose any sleep over whether the market goes up or down. You could potentially earn a lot more than what you'd get with other investment vehicles.