There are many methods for investing, and each has its own benefits and risks. Buying individual stocks is somewhat more difficult and riskier than investing in a diversified portfolio or mutual fund, but you have the opportunity to see skyrocketing gains if you choose correctly. Historically it has made sense to buy individual stocks as the market as a whole has greatly increased, but many companies have failed and have brought their stocks down with them. Buy low and buy smart and you should do OK.
Items you will need
- Trading account
Get a trading account. You'll need the ability to make transactions in order to buy your stock pick. The easiest way to do this is to register with an online discount trader such as E*Trade or Scottrade. Most discount brokers usually charge around $10 per trade. Another alternative is to use a traditional stock broker, but they generally require a high minimum in order to get started and push for a mixed portfolio. A third option is to approach the company itself -- many companies will sell you stock without getting into the open market.
Choose your stock. Here is where you lose the advantage of a mutual fund in that you need to do the stock picking. Before spending any money, do a lot of research into the company's financials. Read through financial publications such as the Wall Street Journal and follow company news. Build your confidence in the company and then buy it. You can also get advice from a stockbroker or financial planner before your purchase. Most discount brokerage offices offer professional stock picking advice for a fee, often around $50.
Get whatever free or cheap advice you can get. Subscribe to stock picking newsletters such as the one offered by the Motley Fool to see expert opinions. Contact the American Association of Individual Investors, which offers tons of tips and recommendations for as low as $29 a year.
Determine how much you can invest. While you can open a mutual fund account with as little as $250, it often hard to invest in individual stocks with this amount. A low-priced stock won't get you too many shares, so you'll have to wait a longer time to see any returns, and adding $50 a month will be costly since you'll have to pay a transaction fee each month for your two or three shares. It''s better to invest more at once and wait until you have pooled enough money for another trade.
- Try to buy at a low to see higher returns.
- Read business news daily to monitor your investments.
- Don't bet on hype. Invest in well-researched and strong companies.
- Jupiterimages/BananaStock/Getty Images