How to Invest in Stocks

First Steps to Investing in Stocks

To go from potential investor to actual, self-directed investor, start with three easy first steps to investing:

Set up a brokerage account.

Find a great stock to buy.

Buy and hold your investments.

You're on track already!

Open a Brokerage Account

Before you can buy or sell a stock, you need an account with a broker. There are thousands of possibilities and countless choices, but you can narrow the field substantially. First, look for an online broker. This will let you buy and sell stocks on your own. You'll pay a small commission for each trade (pay no more than $10, possibly less than $5), but if you do this on your own, you'll be in control of your own investments, and you will avoid unnecessary broker fees.

Fortunately, many good online brokers are looking for your business. Any reputable broker with commission-only fees and the willingness to let you buy and sell on your own will work.

Setting up your account should take no more than a couple of days. You have to fill out some paperwork, but then you're on your own. You'll be able to transfer money in and out of your brokerage account as if it were a bank account. (This is a fantastic way to save money for investments every month!)

Start with a thousand dollars in your account (plus a few dollars for your first commission). While you're saving up, you get to move to the fun part.

How to Buy Stocks on your Own

You already have an advantage in the stock market. You know something that many other investors don't. You need to identify what that is, though.

When picking a good stock, think about what you know. Maybe it's an industry, like cars or publishing. Maybe a product you love is getting more and more popular. Maybe the company you or a friend works for is public. You know something about it, and you know the ups and downs of how it makes money. That's your advantage.

Make a list of the public companies you know something about. These are your candidates. These are the companies to research! One of the best pieces about making this list is that they're more likely to be fun stocks to invest in.

Finding a great stock means thinking like an owner by going through financial data and figuring out the story behind the business. While some investors love making lots of spreadsheets, crunching the numbers, and whittling down a list of potentials into two or three, Trendshare does that for you—including an analysis of the price to pay for each share of stock in the companies you like.

Buy Great Stocks and Hold Them Forever

When the time is right (when the price is right and the company's story makes sense) you make the choice whether to buy. Sign in to your brokerage account. Take your $1000 (plus a few dollars for commission) and buy as much of the stock as you can.

Now comes the hard part. Stocks go up and stocks go down, and you'll go a little crazy if you watch the market all day, trying to verify your choice. Instead, leave it. Check on it every month or so. We're investing for the long term.

If you've done good research and waited for the right price, you can afford to be patient. Over time, good companies make good money and their stock prices will reflect that. In the meantime, start over at step two again. Build up another thousand dollars in your account. Find more good candidates. Wait until their prices are right.

Invest Well by Controlling Your Own Portfolio

This process is simple, though not always easy. You've already taken steps along the path to become a successful investor (and good for you!). Now you know what to do next. You know how to invest money in the stock market.

The process takes time, but it has its rewards, as you see your wealth grow from you controlling your own investments. Perhaps you'll find a little manufacturing company in the wilds of Canada with great profits and low risk, and over the next few years you'll triple or quadruple your return. Perhaps you'll be patient and wait for one of the dogs of the Dow to present an opportunity, and you'll cash dividend checks reliably every quarter for the next forty years.

You'll get there, if you're patient and thoughtful and keep in mind your goals. You've already taken the first step. Keep going!

How Much Money Do You Need to Start Investing in Stocks?

You don't need $1,000 to get started. Many brokers now offer fractional shares and have no minimum account balance, so you could begin with $50 or $100. It's more important to build the habit of researching adding to your investments consistently. Starting smaller also has an advantage while you're learning: mistakes cost less while you're building your research process.

Common First-Time Investor Mistakes to Avoid

• Buying based on a tip instead of your own research. If you can't explain why a company is a good investment in your own words, you're not ready to buy it.
• Checking your portfolio daily (or hourly). Short-term price swings are normal and mostly meaningless to a long-term investor; constant checking encourages panic decisions.
• Putting all your money into a single stock. Even a well-researched pick can be wrong. Spread your risk across multiple positions or a core of index funds.
• Ignoring fees. Look for a broker with low or no commissions—fees compound against you the same way returns compound for you.