Getting started with stock investments might seem like an overwhelming task. If you’ve seen corporate financial data, charts and risk analysis information, it all looks like a foreign language that’s impossible to learn. In truth, starting to invest in stocks is fairly straightforward. You don’t need to know what all the charts and numbers mean to make your first stock purchase. There are a few simple steps you can follow to make your first trade. As you invest more often the foreign numbers will become familiar and as comfortable as an old sweater.
Write out your investment goals. The National Endowment for Financial Education recommends beginning your investment journey by creating goals that are specific, actionable and that have a concrete time frame. This will help you decide how many shares to buy and will guide your decisions around the right investment for each goal on your list.
List stocks you’re familiar with and whose products you enjoy on a sheet of paper. Financial guru Peter Lynch recommends beginning your portfolio with stocks of companies you know because you’re more likely to follow them closely and understand how product and management changes make the stock fluctuate. Don’t invest in these companies immediately. You'll need this initial list to decide which stocks are investment-worthy.
Research each stock on your list using online screening tools such as those available on Yahoo! Finance, Wall Street Journal Online or CNN Money. Compare the price-to-earnings ratio, commonly referred to as a PE ratio, of your stocks with competitors. A lower PE may mean the company is undervalued. Read the company news for management or product development events and scour the stock charts to see recent trading trends in the stock price.
Open a brokerage account to trade stocks. If you like working alone and don’t want a professional second-guessing your moves, look toward discount and online brokerages to save some money on trading fees. Compare a few brokers’ services, commission schedules and research tools before deciding on one. If you want a professional guiding you in your trading decisions, ask friends for a few professional broker recommendations. Check your broker’s record and experience on the Financial Advisory Regulatory Authority BrokerCheck site.
Place your first trade by calling your broker or trading online. You’ll need the number of shares you want to purchase and the name of the company to trade. Use a market trade if you want to make sure and secure the stock immediately. Use a limit order if you want to pay less for the stock. Limit orders allow you to place a trigger point below the current price. If the stock declines the trade will execute once the stock price hits your target.
- If you don't feel comfortable making your first trade with real money, look for sites that will allow you to use play money to simulate a few trades first.
As a former financial advisor to companies and individuals for 16 years, Joe Andrews knows financial planning and marketing from start-ups to personal budgets. He also writes on motor racing, board games and travel. Andrews received his B.A. from Michigan State University in English. He is currently working on a young adult novel.