Friday, January 06, 2012

The Basics: How To Buy Stocks

Article originally published on NYSE Euronext
01/06/2012

Buying stocks is a simple process that can be completed with or without the assistance of a licensed stockbroker. Once you have money in a brokerage account, buying shares of stock is as simple as making a phone call or clicking a button on your computer. However, actually choosing suitable stocks — those with the highest potential for an increase in value — is an extremely challenging task, one that requires extensive time and research.

Investing With a Traditional Brokerage
Step 1
Choose an investment firm. There is no shortage of firms and representatives eager and highly qualified to provide advice and instruction. Meet with advisers from several reputable firms. Choose the one with whom you are most comfortable, and with whom you believe your money will be best managed.

Step 2
Fill out the necessary paperwork to open a new account with the firm. Provide any details or additional documentation required to open and fund your new brokerage account.

Step 3
Determine risk tolerance and time horizon. Complete questionnaires provided by the firm regarding your goals and intentions for the money you plan to invest. These surveys help advisers understand your personality and comfort level as they pertain to your money, allowing for more tailored and suitable recommendations.

Step 4
Consider investment portfolio options. Once your risk tolerance and time horizon have been established, the firm's advisers will present recommendations and options most appropriate for your given situation. Evaluate the facts, paying close attention to any fees, charges, or other expenses. Decide which of the recommendations you feel most comfortable with, particularly the possible downsides and worst-case scenarios.

Step 5
Initiate transactions. Inform the firm of your decision to proceed, then complete the paperwork necessary to begin purchasing the stocks in the portfolio you chose. The representatives at the firm will handle the rest once your approval has been received.

Investing With an Online Brokerage
Step 1
Compare available online brokerage firms. Examine the details of several investment websites that allow consumers to buy and hold stocks. Pay particular attention to transaction fees and other charges that may not be plainly obvious.

Step 2
Choose the most appropriate online brokerage firm for your purpose and follow the website links to open a new account. Enter your personal information in the required fields and answer all relevant questions as they pertain to your new brokerage account.

Step 3
Arrange for the initial deposit into your new online account. Most Internet-based firms allow new accounts to be funded via wire transfer or personal check.

Step 4
Utilize the firm's Internet resources and research tools to evaluate, compare and choose the stocks you want to buy. Build a mock portfolio containing the stocks that you believe show potential, then monitor that portfolio's performance until your choices are validated.

Step 5
Initiate purchase transactions when your mock portfolio satisfies your criteria. Follow the steps on the brokerage website to confirm your choices and place the trades.

Tips
Avoid buying a stock simply because a friend or relative also bought it. What is suitable and appropriate for one person may not be good for another.

Keep emotion out of your investment decisions. Buying or selling stock should not be influenced by your attitude or emotions, but rather based on statistical analysis, industry experience and practical determinations.

Warnings
Do not invest money that you cannot afford to lose.

References
MSNBC: How Do You Buy a Share of Stock?
Wall Street Journal: How to Buy a Stock

Resources (Further Reading)

Author Bio
Gregory Gambone is senior vice president of a small New Jersey insurance brokerage. His expertise is insurance and employee benefits. He has been writing since 1997. Gambone released his first book, "Financial Planning Basics," in 2007 and continues to work on his next industry publication. He earned a Bachelor of Science in psychology from Fairleigh Dickinson University.