How to Get Started With Investing
March 1, 2020
You might find yourself here after reading our “Why should I invest?” page. You may have also perused our Seven Investing Principles, which outlines our thoughts on both the way we think about investing as well as how we find and analyze our monthly stock recommendations.
In any case, you’re finally convinced the stock market really is the wealth-compounding machine we’ve described, and you want in on the action. But you’ve never bought stocks before, and it sounds so intimidating! So how in the world do you begin?
It’s easier than you think.
In fact, with the recent advent of online brokerages, zero-commission trades, and fractional share purchases — and don’t worry, we’ll elaborate more on those topics below — stocks are more accessible to individual investors today than they’ve ever been before.
Open your online brokerage account
First, you’ll need to set up an online brokerage account.
Think of your brokerage account as similar to a bank savings account that lets you use your cash to buy and sell small pieces — or shares — of publicly traded companies.
It’s up to you which brokerage account you choose, and there are dozens of viable candidates. But we suggest sticking to some of the larger players in the space that — as of late 2019 — no longer charge commission fees for the stock purchases or sales you complete. Previously, every buy or sell transaction would cost you between $4 and $7.
Charles Schwab (schwab.com), TD Ameritrade (tdameritrade.com), E*Trade (etrade.com), and Fidelity (fidelity.com) are all solid options. Stockpile.com and Sofi.com also have zero-fee brokerage options and fractional shares trading. Each of their sites should have an easy-to-find link to open an account (choose “brokerage account” when you’re asked which type), and the process should take no more than 10 to 15 minutes to complete.
*A note on recent mergers
We’d be remiss if we didn’t note the brokerage industry is currently experiencing significant consolidation through mergers and acquisitions.
In mid-February, 2020, for example, Morgan Stanley announced a $13 billion deal to acquire E*Trade — though as it stands the companies have indicated little, if anything, will change for E*Trade account owners after the transaction closes in late 2020.
Only a few months earlier, Charles Schwab announced its own $26 billion deal to acquire TD Ameritrade. The investing-industry stalwart then suggested after the acquisition closes (also later this year) — and following around 18 to 36 months of “integration” work — “the combination will bring together the best of the two firms’ innovative and client-centric platforms, products, and services.”
*Regarding fractional share purchases
You should also keep in mind most of the larger brokerages don’t enable you to purchase fractional shares today — that is, to buy less than one whole share of any given stock regardless of its share price.
For instance, if “Company XYZ” currently trades at $100 per share, you’ll only be able to buy the stock in increments of $100 to pick up whole shares rather than, say, paying $50 for half a share. That said, there are smaller brokerages that allow for fractional share trading today — but unlike the industry leaders above, many still charge commission fees on your buy and sell transactions for the privilege.
But that will change soon. Both Charles Schwab and TD Ameritrade recently announced plans to implement support for fractional share trading by the end of 2020, and we can be fairly sure the rest of the commission-free industry players will follow suit shortly thereafter. So if you don’t mind waiting for fractional share trading to arrive at these larger brokerages in the coming months — and if you’d rather not go through the hassle of transferring an account to a new brokerage down the road — we still suggest starting out with one of the bigger brokerages.
Deposit the cash you want to invest
Once you’ve opened your brokerage account, you’ll need to link your checking or savings account in order to transfer in the cash you want to invest.
As we urged in our third investing principle (“Don’t stress yourself out”), we think you should only invest money in the stock market that you won’t need for at least three years. It’s difficult to predict what stocks will do in the next few months, but extending your time frame to years drastically increases your chances of generating outsized returns.
Here again, assuming you have your checking/savings account details handy, the process of linking and funding your brokerage account should take no more than a few minutes — though the actual deposits sometimes take one to two business days to arrive.
Also, none of the four brokerage companies above require a minimum balance to open an account. You may, however, be able to take advantage of promotions that give you a small cash bonus (anywhere from $500 to $2,500, depending on the deposit amount) if you opt to make a larger initial deposit.
Find (and buy) your stocks
Finally, you’ll need to determine which stocks you want to buy, and — drumroll please — actually buy them!
Of course, our monthly recommendations can help you determine which stocks might represent the most compelling buying opportunities at any given time.
Then, once you’ve decided which stocks you want to add to your portfolio, you’ll generally find the interface to do so through a “trading” link or tab on your chosen brokerage company’s website.
You likely won’t be able to simply type the company name to find it, however. Rather, each publicly traded stock is identified by its own unique stock “ticker” or symbol — a short string of letters that usually ranges from 1 to 5 characters. For example, Microsoft is identified by the ticker “MSFT”, Apple’s ticker is “AAPL”, Tesla’s is “TSLA”, and Netflix is “NFLX”.
We’ll also caution that stock tickers aren’t always an intuitive abbreviation of their respective company names. Sometimes they’re quippy and fun; Harley Davidson’s stock ticker is “HOG”, Papa John’s is “PZZA”, and brewing giant Anheuser-Busch Inbev’s is “BUD”.
Once you’ve typed your chosen stock ticker on your brokerage’s trading page, you’ll need to finish the transaction by completing the rest of the simple electronic form on the trading page. The remaining fields will include some variant of:
- Action: “Buy” or “Sell”
- Quantity: The number of shares you want to buy.
- Price Type: Start with “market” orders to simply buy the stock at its current asking price.
- Duration: “Good for day” is generally what you’ll select here.
Finally the site will almost certainly ask you to “Preview” the transaction to confirm all details are correct. But assuming you approve of the preview and choose to submit your order, it shouldn’t take more than a few seconds for your brokerage company to complete it.
And voila! You should now see the stock you chose to buy available in your brokerage account holdings. Congratulations! You’re now a proud shareholder of the company you picked, and you’ve taken the first enormous step toward investing in your future.