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Step 1
Do your homework before you invest in a stock. Start by reading the company's annual report. Almost all major corporations let you download their annual report from the "Investor Relations" section of their website. Pay particular attention to the recent history of earnings and stock performance (the last 3 to 5 years). Examine the company's balance sheet to assess its current condition and future prospects. Get independent reports on the company as well. Some companies provide links to outside analysts on their websites. Alternatively, you can read reports from financial information publications like "Kiplinger's Personal Finance" (Kiplinger.com) or "The Wall Street Journal"'s online resources at Marketwatch.com.
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Step 2
Find out the options available for investing in a stock. Check to see if the company offers a direct stock purchase plan (DSPP). The traditional method to invest in a stock is to buy it through a brokerage firm and that's often the only way to purchase shares in a company. However, almost 2,000 major corporations such as Kellogg's, McDonalds, and Walmart now allow investors to open DSPP accounts that require smaller minimum investments than brokers, and charge lower fees. For most investors, especially those with limited money to invest, this is a great alternative that can save them money.
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Step 3
Open a DSPP account with the company's transfer agent if this option is available. With a DSSP account you need an initial investment of $250 to $500, payable in $50 monthly installments for most plans. The investment is made through the transfer agent who typically charges only $1 to $3 per transaction plus 3 to 5 cents per share. Some companies like Exxon Mobil pay transaction costs for purchases so all your money goes entirely into stock. Most plans also have other features like free reinvestment of dividends that can be set up as IRAs. If a company has a DSPP the details will be on its Investor Relations website.
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Step 4
Choose the type of brokerage account provider you want if a DSPP is not available. Novice investors often pick a full service brokerage that offers research tools, industry and company reports, and investment counseling. These brokers are more expensive, and if you are able to do your own research, a discount broker may be a better choice. The discount broker offers few additional services but charges far less in commissions.
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Step 5
Open the brokerage account and purchase the stock. For investing in a stock, a cash account is the basic type of brokerage account. You'll need a valid government issued ID, and information about your income, net worth and employer. If your employer handles any kind of securities, you must obtain its permission to open the account (this is a federal rule to guard against abuses such as insider trading). Most brokers require a $1,000 minimum deposit to open a cash account. Once the account is open, simply place your order with the broker and he will take care of the rest.
