HOW TO BUY AND SELL STOCKS

Vault’s Viewpoint

• The stock market is a popular resource for investors who want to build wealth and generate cash flow.
• To buy stocks, you’ll need to create a brokerage account, choose the type of order and confirm how many shares of the stock you want to buy.
• Make sure you know key investing strategies before putting your money into the stock market.

Terms to Know

How to Buy Stocks

Investors can choose from thousands of stocks. New corporations list their shares on the New York Stock Exchange and the Nasdaq Stock Exchange each year. The best investors analyze several corporations before picking a few stocks.

But all of the stock analysis won’t matter if you aren’t sure how to buy stocks. You can follow these basic steps to buy stocks and add them to your investment portfolio.

Create a Brokerage Account

You’ll need a brokerage account to buy stocks. Investors can choose from many firms like Vanguard and Fidelity when they are getting started. It’s possible to have accounts open at multiple brokerage firms.

Investors should compare features for each account. Some brokerage firms have low-cost mutual funds and exchange traded funds (ETFs), while others match your IRA contributions. You can create multiple portfolios within the same brokerage account to group your investments. For instance, an investor can create separate portfolios for their growth and dividend income investments.

Choose a Stock to Buy

Stock analysis can get detailed. Investors look at a company’s earnings, press releases, catalysts, competitors, and other factors. You don’t have to get as detailed when you first start out. Investors will learn more about the stock market and various corporations as they accumulate knowledge, invest more money, and stay on top of the latest developments.

If you’re buying a stock for the first time, only put a small amount of money into your initial investment. It’s better to learn and make mistakes with $500 compared to making those same mistakes with $5,000.

You’ll have to remember the stock’s ticker. For instance, an investor seeking to buy Amazon stock has to input the AMZN ticker when placing an order in their brokerage account. You can find a stock’s ticker by putting “Amazon stock” into your favorite search engine. Some brokerage firms autosuggest the ticker if you provide the company’s name.

Choose the Type of Order

When you place an order with your brokerage account, you can choose from several types of orders. Most people initiate market orders or limit orders. Market orders allow you to buy a stock at its current market price. These transactions go through immediately as long as you have enough funds to support the transaction. Market orders may take longer to go through if a stock is less liquid, but this is rare.

Limit orders take place at your specified price target. Some investors may look at a $100 stock and believe that it is only worth $99. Instead of placing a market order and buying shares at $100 apiece, these investors may place a limit order for $99.

Under this scenario, the order will not immediately go through. But the purchase will get executed the moment the stock falls below $99/share. You can save money if the limit order goes through, but you will also miss out on the potential upside if a stock never falls below the limit you specified.

Confirm How Many Shares You Want to Buy

Your brokerage firm will invite you to indicate how many shares you want to buy. An individual looking to invest $200 in a stock valued at $20/share would have to purchase 10 shares. Most brokerage firms let you see the total cost of the transaction before it goes through.

Many firms have also made it easier for investors to do fractional trading. Fractional trading allows you to invest in a stock even if you do not have enough cash to buy a single share. If you want to buy a $150 stock and only have $30 to invest, you can buy 0.20 of a share. Accumulating fractional shares can help you get to a whole share and lead to more frequent investments.

Some brokerage firms also let you specify how many dollars you want to invest. After you provide the dollar amount, the firm will calculate how many shares you can buy with your allocated cash.

Place the Order

The final step is to place the order on your brokerage account. Most orders go through within seconds. You can refresh your screen to see the new shares waiting in your account. Investors can also visit the “Activities & Order” tab to confirm that the recent purchase went through. You can also see other transactions and the price per share that you paid.

Some brokerage firms let you place automatic orders, so you don’t have to log into your account as often. Automatic orders are usually for the brokerage firm’s mutual funds. These automatic orders ensure that you won’t forget to grow your portfolio each month.

How to Sell Stocks

It is a good idea to buy stocks with the intent of holding on to them for a long time. But it may make sense to sell a stock for several reasons. A corporation can announce a bad earnings report, your financial goals may change or you may want to diversify your holdings. If you need to sell a stock for any reason, follow these steps to convert your shares into cash.

Go to Your Active Position

Most investors can only sell shares if they already have a position in the stock. You can go to your portfolio, review your positions and see which stock you want to sell. Investors can trim their position by selling some shares or rid themselves of a stock by selling all of their shares.

Click the Sell Button

You will have to click on the position and look for the “Sell” button. After clicking that button, your brokerage firm will provide an order ticket. This ticket should take up some or all of your screen.

Select the Type of Order

Most investors will choose between market orders or limit orders. Market orders go through immediately while limit orders have to reach your designated price per share for the sale to go through.

Specify the Number of Shares

You will have to indicate how many shares you want to sell, but this number can’t exceed the size of your position. If you have 10 shares in your portfolio, you can’t sell 20 shares. Investors can also sell fractional shares or opt to sell a dollar amount instead of a number of shares. If you select a dollar amount, your brokerage firm will convert that dollar value into the equivalent number of shares.

Place the Order

After you review the information, the final step is to place your order. If you have many lots of the same stock, it is a good idea to review your capital gains for each position. Investors can specify which lots they sell to reduce capital gains taxes and even end up with a net loss to lower their total tax bills.

Key Investing Strategies to Know

It gets easier to navigate your brokerage account over time. Soon, you’ll be a pro at buying and selling stocks.

But there’s more to generating positive long-term returns than buying and selling stocks. Investors have to know what strategies work for them and take the time to analyze corporations. These are some of the key investing strategies that can guide you along the journey.

• Buy and hold: With a buy-and-hold investment strategy, investors look for funds and stocks that they believe can perform well over several years. This strategy doesn’t involve much movement after you buy shares. Investors accumulate more shares in their favorite companies and wait for corporations to realize their full potential.
• Dollar-cost averaging: This strategy involves investing a fixed amount at regular intervals. A rising stock market lifts the portfolio, while a declining stock market lets you lower your cost basis. Cost basis is the average cost per share you have incurred for a position.
• Lump-sum investing: This investing strategy involves putting a large sum of capital into the stock market and then not investing again for several months. Lump sum investing is sporadic at times, but there is some strategizing. Investors may wait for the stock market to go through a correction or for a company to post earnings before allocating considerable capital into their portfolios.
• Growth investing: This strategy involves focusing on stocks that are exhibiting high revenue and earnings growth. It’s more geared toward younger investors who have lengthy time horizons. The best growth stocks can outperform the market by wide margins but often have frothy valuations. Growth stocks can justify their high valuations if they continue to deliver, but some of these stocks can crash under the weight of their expectations. Nvidia and Crowdstrike are two examples of growth stocks.
• Dividend growth investing: Investors focus on stocks that have high dividend growth rates. These stocks don’t always pay high yields right now, but investors think of the cash flow they can receive in 10 to 20 years. Many dividend growth stocks also perform well. Microsoft and Broadcom are two examples of dividend growth stocks.
• Dividend income investing: Dividend income stocks have higher yields and lower growth rates. This strategy is more suitable for retirees who want stable income without sharp volatility. Procter & Gamble and Verizon are two examples of dividend income stocks.
• Value investing: This strategy involves buying stocks with solid fundamentals, reasonable valuations, and competitive moats. Value investors often look at a company’s financial growth and price-earnings (P/E ratio). A rising profit margin is also a good sign for value investors. The best value stocks tend to have higher margins of safety, which means the market values of these stocks are below their intrinsic value. Value is in the eye of the beholder, but American Express and Marriott International have the characteristics of value stocks.
• Momentum investing: Investors accumulate shares if a stock has been performing well lately. These investors follow the crowd and want to enjoy the ride. But it’s important to monitor these stocks. Changes in momentum can lead to significant losses in a short amount of time. Supermicro’s early 2024 run-up demonstrates how quickly momentum investors can generate sizable returns or lose money depending on when they entered and exited.

The post How to Buy and Sell Stocks first appeared on Newsweek Vault.

2024-04-22T18:21:21Z dg43tfdfdgfd