Investing in stock is not that easy as a pie. You say you want to invest, but you don’t know where to start? This investing article walks beginners through a step by step process along the way to becoming a shareholder.
You must be asking this time, where shall I begin then with stock investment? It’s a question we get a lot around here: How do I buy stocks? It sounds simple to experienced investors, but getting started can seem daunting and difficult. With this article, I’ll take new stock investors through each step of becoming a shareholder, a successful one at that.
What’s a stock? First, let me answer this question:
What is a share of stock?
Corporations sell shares of stock to raise their company’s cash to fund their operations. The first time that a company sells its shares is termed its initial public offering (IPO). Most companies make additional stock offerings from time to time to raise additional funds.
When you buy stock, you are buying in a way ownership in the underlying corporation. For example, if ABC Corporation has issued 100 shares, and you buy one share, then you have purchased a 1% ownership stake in ABC.
If for instance a corporation sells its shares, it doesn’t receive any direct benefit if its share price goes up further although its executives may hold shares and thus be motivated to try and increase the share price — hopefully by making the company more profitable.
The first step in buying shares is deciding who will help you buy them. The most likely middle-man is a stockbroker, of which there are two main types:
Full-service brokers provide financial planning and advice on selecting investments such as stocks and mutual funds. They usually have offices you can visit, and an individual broker is usually assigned to each customer. Full-service brokers are the more expensive way to buy shares. You’ll typically pay around $70 to buy or sell a batch of shares, compared to $20 or less with a so-called discount broker. That can be enough money well spent if you don’t have the time or interest required to manage your portfolio on your own.
The second type is discount brokers which caterto investors willing to do their own research and make their own investing decisions. Most don’t have local offices — they typically operate online or over the phone — and don’t give investing advice. Because their trading commissions are low, discount brokers are a good choice if you pick your own funds and stocks. Some brokers, straddle the line between full-service and discount, operating branch offices and offering some financial advice.
Moreover, there are two basic ways to invest in the stock market: You can buy stocks of individual corporations, or you can buy mutual funds.
Now what are mutual funds? Mutual funds invest the pooled funds of thousands of investors. By investing in mutual funds you gain the various benefits and advantages of professional management. Because most funds hold dozens, if not hundreds, of stocks in their portfolios, investing in funds also gives you automatic diversification.
That is an important advantage. Even if you’re a gifted stock-picker, inevitably something unexpected will happen that will sink the share price of one of your stocks. Such an event could be a disaster if you own only a few stocks, but would be no big deal for a mutual fund holding a hundred or so stocks.
Mutual funds often specialize in specific market niches, such as small companies, health-care stocks, fast-growing companies, etc. You can buy mutual-fund shares directly from a fund, which offer a variety of fund types — or through a stockbroker.
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In conclusion, investing for a stock could be very beneficial to you and for your future as you retire because this will surely give you more than enough money for all your retirement and post retirement needs. Stock investment have a high return of investment thus you must not think twice of investing with stock for as long as you studied very carefully the ins and outs of doing this business.
