6 Steps to Buying Your First Share

6 Steps to Buying Your First Share

Choosing a Broker

  1. Understand Your Investment Needs

Before you begin your search, determine what kind of investor you are. Are you a day trader looking for quick profits, an active trader investing in a higher volume, or a long-term investor seeking steady growth?

Example: If you want to keep your retirement savings in check, you’ll need a broker with strong retirement planning.

  1. Evaluate Account Minimums

Different brokers have different minimum account requirements, and this can act as a barrier to beginning investors. It ranges from $500 to $10,000 or no minimum at all.

Tip: Find out whether the minimum amount of the broker you are considering matches your budget.

  1. Check Fees and Commissions

Brokers may charge fees for trades, inactivity, wire transfers, limit orders, or certain services. The commissions of low-cost independent brokerage companies are usually lower than $5 per trade, while full-service brokers charge more than $50.

Pro tip: Beware of unexpected fees, such as account maintenance and inactivity.

  1. Examine the Trading Platform and Tools

Your broker’s trading platform and tools should fit your trading style and software capabilities. Beginners need a user-friendly environment and extensive educational facility. Customers of full-service brokers are offered charts, stock screening software, and relatively complex tools and APIs.

Example: A site-based, active trader might be interested in interactive charting tools, and a long-term investor is in the research report.

  1. Research and Educational Resources

The quality of the brokers depends on the amount and quality of research tools and educational facilities. Find brokers with comprehensive timely market information, research production, alerts, and webinars/ videos.

Tip: If you’re a first-time investor, chose a broker that offers webinars or one-on-one coaching. This can shorten the learning curve.

  1. Test Customer Service

As with any other business, the response of the brokerage’s customer service staff in times of trouble, such as market fluctuations or problems with the site system, is very important. Call an e-mail or chat on the message, no matter what method of communication, test the response time.

Pro tip: Contact us at the different time of day.

  1. Safety and Regulation

Ensure that the broker is regulated by the appropriate regulating authority, either the SEC or FINRA. In addition, look for encryption technology, two-factor authentication, and SIPC insurance accommodations.

Researching Stocks

  1. Analyze Financial Statements

Identify a company’s financial health by first reviewing its financial statements, including the balance sheet, income statement, and cash flow statement. Pay attention to trends in revenue growth, profit margins, and debt levels over time.

Example: If a tech company continues to realize 15% annual revenue growth year over year, and it is not taking on excessive debt, then the growth may be sustainable.

  1. Determine Competitive Position

Explore what gives the company a competitive advantage and how it compares with its competitors. Maybe the company is the market leader because of patented technology, experienced management, or brand strength.

Simple approach: Look at its gross margins compared to competitors to ascertain pricing power and cost efficiencies.

  1. Check Out Industry Trends

Look at wider industry trends and external factors that might influence the company’s future. Is the market saturated or still growing? Are there new regulations or technologies on the horizon?

Example: If electric vehicles are becoming popular, then traditional car companies without strong electric options may struggle.

  1. Review Management and Leadership

The management team of a company has a significant influence on its success. Analyze the CEO and board members’ prior accomplishments, compensations, and leader status.

Plain tip: Look for a management team that necessarily owns enough of the company’s stock to more than incentivize them.

  1. Use Valuation Metrics

Employ valuation tools such as the price-to-earnings ratio and the price-to-book ratio or the enterprise value to EBITDA to explore whether the stock is reasonably priced.

Plain tip: To reach conclusions about whether one-specific-equity is overvalued or fairly valued, always compare the ratio to historical averages or industry peers.

  1. Watch the Latest News

Changes in management, FDA approvals of new drugs, earnings reports, or new products could be signs that the company is doing well or is set to make money.

Example: A biotech company that gets a new FDA application such as a covid vaccine approved could see a major surge in company stock price.

  1. Review Analyst Ratings

Many services publish ratings of companies or stocks. While these viewpoints differ, they might help to tell what the general consensus about a stock is.

Plain tip: However, most of the information provided by the analysts is non-actionable and are just opinions that one should not typically base an investment decision on.

  1. Consider the Risk

Every company has inherent risks, and the annual reporting done in annual reports or 10-K filings will detail these risks.

Example: Mining and extraction companies often have unique political threats that could lead production interruptions or export restrictions.

  1. Track Insider Buying and Selling

An individual might want to pay attention to selling or purchasing by company executives. If the company owner is selling hand over foot, it may be time to put up some red flags. The same is true when the company insiders are buying cheap stocks hand over fist.

  1. Monitor “Wait, What?” Moments

Social media, forums, stock market surveys, or company surveys show what retail investors are excited about. The excitement indicates that one might have to look closer into the situation, and if it is something that sounds like good company research, then it is likely overhyped.

Understanding Stock Quotes

Identify the Ticker Symbol

A ticker symbol is a shorthand code that a company’s shares go by on an exchange. You should be familiar with the ticker symbols of companies you are interested in.

Illustration: Apple Inc trades under the ticker symbol “AAPL.”

Understand What Last Price and Change Mean

Last price refers to the price at which a share was last transacted. Change, on the other hand, is the difference between the latest closing price and the previous one. Both are usually shown as an amount and then a percentage.

Tip: Note that the price change points towards significant news or market sentiments.

Analyze Bid and Ask Prices

The ask is the price that a seller wants to get for their share. The bid, on the other hand, is the price at which the buyer is ready to settle at. The difference between the two known as the spread indicates whether the stock is liquid or not.

Pro tip: The tighter the spread, the higher the level of liquidity and vice versa.

Check the Volume

Volume is the number of shares that have been transacted within some time, often a day. You are likely to note a significant change as a response to the shift in market interest.

Illustration: A sudden high volume indicates that investors are reacting to some significant announcements.

Check the 52-Week  Range

A stock’s trading range over the past year is shown by the 52-week range. It is important in determining the current stock price concerning its past performance.

Example: If a stock is near its 52-weeks high, the investors are likely to see it as strong. However, it might mean that it is overbought.

Market Cap

Market cap refers to the total value of a corporation when you multiply its prevailing share price with the total number of shares in circulation. It is useful when determining the size and stability of a company.

Tip: Smaller market caps are riskier, while the larger market caps are likely to be more stable.

Check the Dividend Yield

Dividend yield refers to the annualized dividend payout, the transaction of every share’s price. It is essential to income-focused individuals.

Pro tip: The high dividend yields might seem enticing, but it signifies that the company is in financial trouble.

Check P/E Ratio

The price-to-earnings shows if a share is being over or undervalued concerning its competitors. It helps in determining the price to pay for every dollar earned.

Illustration: If the price is significantly above the industry standard, the share is undoubtedly overrated.

Learn about Trading Hours

Stock quotes alternate throughout the business period. The pre-market and the after-hours are additional trading session quotes.

Placing an Order

  • Access the Trading Platform

To start, log into a brokerage account of the trading platform that has been chosen for making stock purchases. Each broker slightly changes the interface, so ensure that the layout and the way to navigate the website or an app are familiar. To prevent making mistakes, try practicing via a demo account if the feature is available.

Expert tip: make sure to utilize the help of a broker to get to know navigation around the platform you are using.

  • Select the Stock

Now, using the search function found at the top of the screen or manually surfing the platform, choose the stock you want to purchase. Make sure to carefully confirm the ticker symbol, especially for such kinds of companies as Coca-Cola or Covidien and their respective producers and manufacturers.

  • Choose the Type of Order

Define the type of order you are making based on experience and trading strategy:

  • Market Order: gets bought or sold instantly at the best available price.

  • Limit Order : trade allowed at a maximum or minimum price entered by a trader.

  • Stop Order : order gets executed at a certain level reached by a stock.

  • Stop-Limit Order : combination of the two where a stop order gets executed within a limited level.

    Expert tip: use market orders to get quick sales but possible higher prices during volatile market conditions. Limit orders have better control but may miss the chance to sell or buy on the same day.

  • Insert Quantity

Input the number of shares you want to purchase or sell. Some brokers let customers purchase or sell a fraction of the whole share, which may be sidestepped and a solid amount entered. For instance, wanting to buy 50 shares of a $20-worth stock is equal to $1,000. Commissions and fees apply, too, once an order is placed.

  • Add the Remaining Parameters

Choose the time in force:

  • Day Order: buy or sell orders gets expired with the market at the end of the day when set and not executed.

  • Good ‘Til Canceled Order : remains active until an execution is made or a trader cancels it manually; up to 60 days.

    Illustration: when the price target is not reached on the same day, chose GTC.

    • Check All the Information

Before clicking on a confirmation order, ensure that the information about the stock, the number of shares and the type of order is correct. The reason behind double-checking is to prevent accidental immediate trades.

  • Check the Order Summary

Press a button called “Submit” or “Place Order” to send the order to the exchange. After an order is made, monitor on the platform the status of the orders and checks that the buy or a sell is running as ordered.

  • Check the Order Summary

The last step is to check on the presidency an order executed. Check that the desired price and the number of stocks match.

Managing Investments

  1. Define your financial goals.

Once an investor knows what they want to achieve, it is easier to develop a strategy to meet such objectives. For instance, if one plans to retire in 20 years, long-term investment such as index funds or bonds seems to be a proper choice.

  1. Select an asset allocation strategy.

Investments can be classified into various types, such as stocks, bonds, or real estate. Deciding on the proportion of each type of investment is important and should reflect one’s goals and the time they are planning to stay invested.

  1. Diversify your portfolio.

The investment in each asset class should be distributed among various subcategories to protect oneself from any potential risk. For instance, if the investor decides to invest in stocks, they might distribute their budget between technology companies, such as Twitter, Google, or international tech corporation and healthcare company, such as Pfizer, and Coca Cola and General Motors as industrial stock.

  1. Review the performance of investments.

At the end of the year, one should review the performance of their investments and see how they compared to the S&P 500 or other benchmarks. Moreover, it is also important to determine if the selected investments help to achieve particular objectives or they need to be changed.

  1. Rebalance your investments.

In case the investor realised that a percentage of stocks in their portfolio increased to 70% instead of 60, they need to sell some stocks and buy more bonds. One should not forget about rebalancing their investments at least once a year.

  1. Invest in a tax-efficient manner.

Investing in an individual retirement account can be beneficial in terms of reducing the sum of tax returns or avoiding it at all. One can also come up with a tax harvesting strategy, which is about offsetting losses among gains.

  1. Stay informed about the trends.

A developer should always stay informed about everything that happens in the economy and financial conferences and fairs.

  1. Review the expenses.

The investor should know what the expenses are and how it may impact their budget. Before purchasing mutual funds, which may include significant fees, the investor needs to examine their annual expense ratio.

  1. Understand when it is time to adjust the investment strategy.

Marriage, career changes, and having children may require one to adjust their investment strategy.

Review and Adjust Strategy

Revisit Your Financial Goals

From time to time, review your financial goals to make sure they still match your life situation. Are you still saving for retirement, a new home, or your child’s college tuition?

Example: If you are close to retirement and your bonds have been consistently underperforming, you can shift to more conservative investments.

Analyze Portfolio Performance

Compare your overall rate of return to relevant benchmarks for different time periods. Has your portfolio selection been outperformed by most alternatives in the market?

Pro tip: Make sure to look at both absolute returns and risk-adjusted returns to understand the balance of risk and reward.

Examine Asset Allocation

Review your asset allocation compared to your original target. Is your asset distribution significantly different now?

Illustration: If the stocks in your portfolio outperform bonds significantly, you should sell at least some of the stock positions and compensate with additional bonds.

Review Individual Holdings

Assess the performance of all individual investments, such as stocks, mutual funds, or ETFs. Are there consistently underperforming entities on the list?

Tip: If a particular investment is consistently worse than its peers, reconsider whether its fundamentals have changed or if it is likely to bounce back.

Assess Market and Economic Changes

Consider adjusting your strategy based on new market and economic changes. Are there any emerging trends, new regulations, or changes in demand and supply?

Example: A global pandemic or trade war might hurt supply chains and create new demand for industries relatively unaffected.

Evaluate Fees and Expenses

Review all fees attached to your portfolio, including fund management fees, trading commissions, or expense ratios. High fees might have a significant impact on long-term returns.

Pro tip: Swapping to cheap index funds or trading platforms without fees should improve your net return.

Adjust for Changing Risk Tolerance

Both your risk tolerance and your time horizon might change throughout your life, depending on age, income changes, or further personal experiences.

Illustration: Younger individuals might prefer growth stocks to income-producing securities; on the other hand, those on the way to retirement prefer dividend-paying stocks or bonds.

Incorporate New Financial Needs

Life changes, such as marriage, children, or an inheritance, might create new financial needs. Make sure you adapt to them, and your future goals remain attainable.

Consult Professional Advice

Consider turning to professional financial advisors if you need help with a complex situation or specialized strategy. They can offer additional experienced advice on tax minimizing, retirement planning, and diversification optimization.

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