There are as many reasons to invest as there are people who make investments, but the primary purpose for investing is to create wealth. Investing should not be confused with saving, which is also important to your financial well-being. Investing, including investments in the stock market, involves risk. Most investment transactions that involve buying shares of stock are conducted by investment brokers through stock exchanges.
Consider your investment goals. Determine if you are looking for an investment that will provide a steady stream of income. If so, you might want to consider a utility stock that has a long history of paying regular and increasing dividends. If you interested in growing your wealth without incurring a current tax liability, you may wish to consider buying shares of stock in a company that is pouring all of its resources back into growth, since any increase in the value of the underlying stock will not be taxed until you decide to sell it.
Determine your aversion to risk. If you like to roll the dice and the idea of losing 25 percent of your money in a volatile investment doesn't faze you as long as you also have the prospect of making 25 percent, you probably have a high tolerance for risk. If you lay awake at night wondering if your savings account at the local bank is safe, you have a serious aversion to risk. You will need to keep your investment temperament in mind when selecting stock you want to buy.
Determine your level of expertise in choosing your own investments, then open a brokerage account. If you are the kind of person who loves to do your own research, or if you prefer to go with your gut feeling on a particular stock, you may want to consider using an online brokerage firm that only charges a transaction fee. This is the least expensive type of brokerage account. If you want to access help from a seasoned professional on occasion, you might choose to open an account with a discount brokerage firm. They will charge more than online firms, but they give you access to more services. If you need someone to make recommendations and handle all the details for you, you will probably want to work with a full service brokerage firm. These are the most expensive of all brokerage firms.
Place your order. Your broker will transmit the order to a floor broker at a stock exchange where the stock is listed. Most stock purchase orders are made in round lots, or groups of 100 shares, of a particular stock. You may order an odd lot, which is any number of shares less than 100, but there is usually a premium added to the price. You can place an order At the Market, which will execute at whatever price the stock is offered on the exchange, or your can designate a bid price that you are willing to pay. This order will only execute if someone offers to sell their stock at the price you have offered.
Determine whether you want to take possession of the stock certificate or if you want your shares of stock to be held in street name. Shares held in street name will show the brokerage firm as the owner of record of the stock. The brokerage firm will register you as the owner and will provide you with proxy information for your voting rights. They will also forward any dividends paid by the company to your account.
- All investments in the stock market involve some risk. You may lose some or all of your investment. Past performance is never a guarantee of future results.
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