Did you know how the seventh richest man in the world, Warren Buffet get rich? The answer: he began investing on stocks. In fact, Warren Buffet is now the Chairman and CEO of Berkshire Hathaway as well as noted philanthropist and investor because a lot of his wealth comes from stocks.
At the age of 11, Warren Buffet made his first investment in the stock market and continues doing so.
There’re countless such examples of people worldwide that’re now millionaires and billionaires because they began investing on stocks.
In those days, Warren Buffet and many other investors did not have the facility to buy stocks online. Because, the Internet simply didn’t exist and computers as we know them today, were in their embryonic and infantile stages.
Today, it’s possible to buy stocks online. And you can invest on stocks right from the comfort of your office or home, using a smartphone or computer.
If you’re among those people that would love to invest on stocks, read this article fully. Because this is a complete, step-by-step guide on how to invest in stocks online.
Why Invest on Stocks?
Investing in stocks over a span of time can help you build a wonderful portfolio and pave the way to get rich. In fact, buying stocks can also ensure you’ve enough money for retirement.
While stocks is indeed a way to get rich, they also offer several other benefits.
- Owning stocks means buying into a company: That’s right. When you buy stocks, you become an investor in that particular company. Companies will invite you to their annual meetings where they declare profits and losses and send email or letters whenever there’s some important development in the organization.
- Stocks help your money grow: Though stock prices tend to go up or down depending upon various factors such as economic situation in the country, disasters and political scenarios, you’re never a loser. Stock prices always swing upwards and continue rising over a period of time.
- Stocks offer two sources of earnings: There’re two ways you make money with stocks. One is when stock prices rise. Second is through dividends, when a bank shares part of its profits with shareholders.
- You can build diverse portfolio with stocks: Buying stocks allows you to invest in various companies with different business activities. For example, you can buy stocks of manufacturing companies, banks, Internet giants such as Google and top retailers including Walmart and Amazon, among others. There’s no limits to the number of sectors where you can hold stocks.
As we can see from the above points, buying stocks is a superb way to grow your money and build an excellent portfolio of holdings in all sorts of companies in the US and abroad too.
Actually, there’re three main ways to buy stock online. If you’re planning on investing on stocks, these are some superb options to consider. Continue reading to learn more about these.
Three Ways to Invest on Stocks Online
You can invest online on stocks in three different ways. These depend on what’s known as your “investor risk profile.” In simple words, it translates as how much risk are you willing to take with your money.
You can buy stocks online through a stockbroker or stock trading account. There’re two options available. Companies that’re going public and will list their stocks on stock exchanges in the US and elsewhere.
Therefore, they launch something known as Initial Public Offering (IPO). An IPO gives you the opportunity to buy stocks of a company before they open for trade on the stock market.
Generally, stock prices during an IPO are fixed. Meaning, you’ll pay only a specific amount to buy a block of say 100 stocks or a certain quantity that the company fixes. The price doesn’t change unless it gets listed on the stock market.
This provides you an opportunity to buy stocks for a lower price by subscribing directly to the IPO through your stock trading account.
The second is buying stocks in what’s known as the secondary market, or after the company and its shares start trading on the stock exchange. Here you can buy stocks online through a stockbroker. Unlike an IPO, there’re no lower or upper limits on the number of stocks you can buy on any given day.
Another way to invest on stocks is through equity based Mutual Funds. This is a relatively safer way to invest on stocks.
Basically, a Mutual Fund is a basket of different stocks that an Asset Management Company or a financial institution buys. They divide this basket of stocks costing millions of Dollar into small bits known as Units. And investors can buy these units online.
When you buy a unit of a Mutual Fund, you’re actually holding fractions of several stocks that’re in the basket. You don’t become a direct investor in those companies, unlike stockholding.
Mutual Funds have their distinct advantage. The first being, a qualified and experienced Fund Manager handles the portfolio of stocks in the Mutual Fund. They will buy or sell stocks in the basket to reduce losses while giving you highest possible returns.
The second advantage is that your money grows when the price of each Mutual Fund unit rises, depending on the stocks it holds. And you have the option of getting the dividend on these stocks in cash or by direct investment into more units of the same Mutual Fund.
You can buy Mutual Fund units online in the primary market from a financial institution during New Fund Offers (NFOs) or in the secondary market, when they reopen for subscriptions.
Mutual Funds aren’t traded on the stock market. Instead, you’ll have to buy or sell units online through the financial institution or a stockbroker.
Exchange Traded Funds
Equity-based Exchange Traded Fund are also a form of Mutual Fund because they consist of stocks of several companies. However, Exchange Traded Funds are listed on stock markets and their prices rise or fall daily, depending upon the value of stocks in its portfolio.
You can buy and sell ETFs on the stock market. Similar to buying stocks, you can buy or sell any quantity of ETF units through a stockbroker. There’re no lower or upper limits.
There’s a distinct advantage that ETFs offer: You can invest in a particular industry without having to buy stocks or that particular thing. For example, you can invest on real estate ETFs and make your money grow as property prices spiral upwards.
This means, you don’t need to actually buy a house or land. The ETF will consist of stocks of companies that’re in the real estate business.
Buying ETF units online also saves the hassles of investing in individual stocks of companies. Instead, you’ll be shareholder in several companies at the same time.
Nowadays, vice and gold ETFs are very popular among all investors. That’s because vice ETFs consists of stocks of American and foreign companies that make liquor, tobacco products, own casinos or grow and process Marijuana.
Given these three ways to invest on stocks of American and foreign companies, let’s explore the best ways to buy stocks online.
Buying Stocks Online
Buying stocks online is a very simple process. But if you’re serious about becoming an investor and make your money grow, you’ll need to follow certain steps. Therefore, go through these steps carefully: they might make you a millionaire or even a billionaire someday.
Study the Stock Market
The very first step to buying stocks that make your money work and grow is by studying the stock market. You can find a lot of information online, from websites such as Nasdaq.com.
These websites usually carry reports on upward and downward movements of stocks on US and foreign stock exchanges. And these reports will clearly mention the reasons for the rise or fall of a specific stock price.
This is very important because stock prices are always volatile. Meaning, they’re subject to change rapidly. However, a good stocks investor can almost predict when a stock price will fall or rise.
Because it depends upon a lot of external factors such as economy of a country, demand and supply for a product or service, wars and conflicts, famines, floods and pandemic as well as political scenarios.
For example, stock investors that saw the Covid-19 pandemic looming in early 2020, quickly bought stocks of medical and healthcare companies because they would rise.
And they did. The same holds true for Internet giants. As work-from-home becomes order of the day, sharp investors put their money on Internet companies to find their stock prices rising.
It’s possible for you to benefit from these scenarios, when you study the stock markets before buying stocks online. It’s your hard-earned money and hence, such study into the stock market could help prevent any losses.
Studying the stock market also helps in many ways, such as finding the right online stockbroker and stocks, which I’ll discuss further in this guide.
Take a Free Online Course on Investment
The second step towards buying stocks online is to take a free course on investment. Or you can opt for a paid one too, available online from Udemy and other e-learning providers.
You can find an excellent range of free online course on investments. Register for any of these and learn all the tips and tweaks they teach you.
While some of these online courses are fairly basic, they do give a lot of insights into various terms and phrases or jargon that’s commonly used for buying stocks online and trading. It’s very important to learn such jargon if you wish to make the best of your stock buying online.
Research Stocks You Want to Buy
The information and knowledge you gain from the first two steps would help you understand the nitty-gritties of buying stocks online and investments. ntArmed with these, the next step is to research the stocks that you wish to buy.
Researching into stocks might seem like a scary or difficult process. But it isn’t. All you need to do is simply read the annual reports of the companies listed on the stock market.
Usually, you’ll find them on the company website itself. Or you can check the website of the US Securities and Exchange Commission (SEC), which regulates stocks and stock markets.
Some of the things that you should be looking from an annual report include the past performance of the company, expansion plans and future growth prospects as well as assets and liabilities. Because these factor decide whether a stock price will rise or fall.
Also check whether the company would survive unforeseen situations such as pandemics, economic downturns, political uncertainty and swings in trade between various countries.
For example, Amazon stocks rose exponentially during the Covid-19 pandemic as increasing number of people began buying their household stuff online.
While at the same time, stocks of airlines, travel companies and the hospitality industry came tumbling down as people had to stay indoors and couldn’t visit other cities or distant countries.
Shortlist Your Stocks
Obviously, it’s not possible to invest heavily to buy all the stocks you want online. Therefore, start shortlisting the stocks that you’re actually interested in and believe would rise in value over the years.
You can add many more later. But as beginner, it’s good to start with three to five stocks or ETFs, depending upon your choice.
Upon creating the shortlist, watch for the rise and fall of these stocks and ETFs online. You can get this information from the New York Stock Exchange website and NASDAQ’s MarketWatch.com.
All stocks are known by the Stock Symbol or International Securities Identification Number (ISIN). For example, Walmart’s Stock Symbol is WMT while the ISIN is US9311421039. This information is easily available if you Google the company name.
It’s also possible to view the live ticker that shows the changes in prices of stocks.
You could select four or five stocks from the same or different sectors. Or create a combination of stocks and ETFs that you wish to buy online.
Draw Your Weekly or Monthly Budget
It’s good to have a weekly or monthly budget to buy stocks online. This helps you plan the investments for a year in advance. It helps in planning to keep away some money from your income and savings for investing on stocks.
Additionally, a proper budget can help prevent over-investment in stocks. A lot of people get very enthusiastic and are carried away by the prospects of making a quick buck on the stock market. Hence, they end up over-investing, sending their household budget on a tailspin.
You could either keep aside money from your main income or take a side-gig to earn extra income to buy stocks online.
Having a budget also helps you practice the Income-Savings=Expenses formula. It forces you to save money from income and use only the balance for expenses. However, use the formula after careful consideration of household budget and other necessary expenses.
Also use the Time Value of Money formula to find out how your investments on stocks would help overcome the depreciation of the Dollar value over time and conventional savings methods.
These would help you to draw a good budget to buy stocks online.
DIY, Financial Planner or Robo Advisor?
Before you buy stocks online, decide whether you’d like to be a Do-it-Yourself (DIY) investor that requires no external assistance on investing. Or would you rather use the services of a professional Certified Financial Planner or a Robo Advisor.
A CFA would charge fees but provide you best advice to buy stocks online. A human CFA is ideal if you wish to buy stocks online worth a large sum of money. A good CFA can guide you well on where to put your money for building a superb portfolio of excellent stocks.
On the other hand, a Robo Advisor is a computerized program that several banks and financial institutions offer for a small monthly fee or even free of cost.
Robo Advisors are good for beginners and smaller investors since they can guide you correctly. They can help in financial planning to help achieve your goals despite having smaller amount of money to invest on stocks.
And if you wish to use the DIY way, study the stock market and various techniques that I mention above very carefully. Remember, we’re talking of money here and discussing ways how buying stocks online can help build wealth.
Select Best Online Stockbroker
The next obvious step is to select the best online stockbroker. There’re several of these in America. But you can choose one depending on your budget and features. Refer to this list of top online stockbrokers in the US, their features and services.
You’ll require a stockbroker for two reasons. The first and most important: you can’t buy stocks directly on a stock exchange as individual. Therefore, having a stockbroker is necessary and compulsory.
And secondly, a stockbroker account is the place where you can hold the stocks. It’s somewhat similar to a bank account where you can deposit or withdraw money. A stockbroking account allows you to buy or sell stocks online.
Full Service Broker or Discount Broker
While selecting an online stockbroker, consider whether you prefer a Full Service Broker or Discount Broker. Both have their distinct pros and cons, though both offer online services.
A Full Service Broker provides vital insights on stocks, provides some advice on investments and helps execute trades. However, all these services come at a small fee. They’ll charge a fee on every transaction and trade. As beginner, some of their tips can prove very useful to buy stocks, ETFs and Mutual Funds online.
On the other hand, a discount broker doesn’t charge commissions on trades. It’s all DIY. This means, you’ll have to do the necessary research on buying or selling stocks on any particular day. There won’t be any expert advice available from a discount brokerage.
Weigh these pros and cons carefully before you settle for one stockbroker and open an account with them. This is the first and most important decision before you buy stocks online.
Consider Using Apps
Nowadays, it’s also possible to use various apps to buy stocks online. You can download these apps free from Google Play and Apple Store.
The most popular such app is Robinhood. An advantage with Robin Hood: they allow you to buy fractional shares.
Meaning, even if you don’t have enough money to buy a full stock of any large company because of its price, Robin Hood allows you to buy a part of that stock. By frequently investing small amounts of money, you can become the owner of one very high value stock.
It’s possible to buy stocks online with as low as $5 on Robin Hood. Additionally, they also provide excellent information about companies and stocks that helps you invest.
The other such app is Webull. They don’t charge commissions when you buy any stocks online. They also have a referral program for US investors. If you refer a friend successfully to Webull, you can get a stock worth $8 to $1,600 for free.
Also check out IQ Option, which offers a full trading platform as app. For $10, you can get started with IQ Option. This app allow you to invest as low as $1 on stocks and ETFs. And if you hold Bitcoin or its fraction, the Satoshi, you could buy stock online with that cryptocurrency too.
Buying Foreign Stocks Online
It’s also possible for Americans to buy stocks in foreign countries. In fact, some foreign stocks can prove to be very safe because those companies have a long history and are financially stable. Furthermore, a lot of people buy foreign stocks to diversify their portfolio and override any volatility in the local stock markets.
If you’d like to buy foreign stocks online, open a global investment account.
Check out the links below for opening a global investment account.
Before rushing to buy foreign stocks online, it’s better to research a bit about the economy of that country and details of the company too. You can also invest indirectly in foreign stocks online with Mutual Funds and ETFs.
Generally, investing in a portfolio that includes American and foreign stocks is one of the best ways to build wealth.
Building a Portfolio
There’re two main purposes for buying stocks online. One is to build a strong portfolio of some of the best stocks whose prices will increase over the years while earning you enough dividends.
The other purpose is to trade in stocks to make profits regularly.
First, let’s look at what it takes to build a superb portfolio by buying stocks online.
Regardless whether you choose American stocks or foreign ones or a mix of the two, one thing is for certain. Always research well into the company and its stock prices. And arrive at a realistic figure on how much stocks do you wish to own at the end of a particular year.
This helps you to plan the way you buy stocks online and arrange the necessary amount of money in advance.
Also consider how the company would fare in the future. For example, some companies might not be doing too well right now and hence, their stocks are cheap.
Other companies may have limited future scope but their stocks could come at very high price. Proper research would help you identify such stocks.
Buying Stocks for Online Trading
Trading in stock can be quite thrilling, if you get all things right such as research and external factors that can affect prices.
There’re two distinct ways to buy stock online for trading.
- Value Buying: This is done when you buy several stock of one or more companies when the price is low and wait for the prices to rise to the highest possible value.
- Prospective Trading: A system followed by investors worldwide. They buy and sell stock without actually owning any. Instead, they make money on prospecting on stocks. They bid for the stocks at lower prices and sell off when its value rises.
Here’re some terms and phrases that you’ll require when you buy stocks online.
- Ask Price: This is the price that which sellers want for their stock.
- Bid Price: The amount of money you’re willing to pay for a stock.
- Market Order: Place a market order when you’re willing to buy stock online at the prevailing rate.
- Limit Order: If you’re looking at or expecting a price drop of a certain stock or ETF, it’s possible to place a limit on the money you wish to pay for it. You’ll own the stock when the price drops to the limit you’ve set.
- Stop Loss: This is a system that investors use to sell stocks when the prices are falling. It allows you to fix a limit for the price you want for the stock. Your stock gets sold only when the price reaches that level and prevents your losses.
You can learn a lot about how to buy stocks for portfolio building or trading from any good online investing course that I mention above.
Rules to Buy Stocks Online
To buy stocks online, you’ll require a lot of discipline to invest. Here’re some rules you should remember to become a successful investor.
Avoid Panic While Buying Stocks
This is the golden rule when you buy stocks online: never panic. This means, don’t worry if the prices of one or more stocks in your portfolio suddenly start plunging downwards.
This could be temporary phenomenon due to low investor sentiment, effects of foreign stock exchanges on American ones or political scenarios or anything. If all stock prices start dropping, it might indicate an opportunity to buy more.
At the same time, find reasons why stock prices are falling. If prices of a single stock begin spiraling downwards, something could be wrong with the company.
Avoid Emotional Attachment to a Stock
That’s right. A lot of investors have some vague emotional attachment towards a stock and are unwilling to let go even if the prices start dropping drastically due to some problems with the company.
Or, they get too greedy and start buying a stock online heavily when prices drop in the hope of making quick money.
These are things to be avoided at all costs. As Steve Forbes puts it, never get emotionally attached to a stock. Instead, go on investing small amounts on them gradually and at the right time.
Diversifying Your Portfolio
Buying stocks online makes it easier to invest in multiple sectors. And that’s exactly what you should be doing. As the old adage goes- never place all eggs in the same basket.
Similarly, never invest heavily on stocks from a specific company, industry or sector. Instead, diversify your portfolio by buying stocks from different companies in different sectors.
Diversification of portfolio allows some hedging or protection against stock market volatility. If your stocks in a particular industry are down for the moment, other stocks in different sectors would cover up the loss.
Generally, a well-diversified portfolio consists of stocks held also as Mutual Funds and ETFs. Therefore, consider buying these online too for diversifying portfolio.
Buying Stocks Online is Addictive
And finally, a word of warning. Buying and selling stocks online can be highly addictive. It can disrupt your normal lifestyle while sending your finances haywire. Therefore, use extreme caution while buying and selling stocks online.
Online stock trading isn’t exactly gambling but it does cause a similar rush of adrenaline when one thinks about the money that’s to be made from stock trading online.
One of the reasons is that all stock trading platforms are also available as apps and on computers. This online facility to buy stocks can prove addictive.
Before concluding, here’s a famous quote about buying stocks by Ben Graham. The American economist, professor and investor says: “Investors should purchase stocks like they purchase groceries, not like they purchase perfumes.” Following Ben Graham’s piece of advice can prove valuable to buy stocks online.