Learn How to Invest in Stocks

By Bill Herrfeldt

  • Overview

    You've decided that now is the time to begin putting money aside for investing in stocks. But first, you need to know the basics, like what a stock is, where to go to buy it and its cost. Start by reading these tips, then go and make your fortune.
    • Step 1

      Learn what a stock is. Companies sell pieces of themselves to individual investors--these are called shares. By buying shares in a company, you become one of its owners and share in its profits--but also its losses. Many companies pay dividends on their stock as a way for them to share earning with their stockholders. In addition, there are two kinds of stock, common and preferred. If you own preferred shares, your dividends may be higher than if you owned common, but preferred shares tend to move up more slowly than common shares. If the company has to go out of business, the people who own preferred stock will be paid ahead of those who own common shares, so preferred shares are safer.
    • Step 2

      Find out where to buy stock. Most people buy stock through a stock brokerage company. Theoretically, it brings together a buyer and a seller of a stock; but in reality, most of the work is done by the stock exchange where a particular stock is traded. You can choose to go to a full-service brokerage company and trust them to make the right decisions for you. They provide research about many stocks, but you will pay a large commission for each transaction. If you want to do the selecting yourself and save money in commissions, you can either go to a discount broker our one of the many you will find online.

    • Step 3

      Go directly to the company if you choose to accumulate shares of a single company instead of buying different stocks. You can buy stock through a company's Dividend Investment Plan, if it has one. The benefit is that you can make affordable deposits to your account each month and the company will issue your shares, free of commission, as your account accumulates. Also, you can also reinvest that company's dividends in more shares by taking part in its Dividend Reinvestock Plan. The drawback is that you will have all of your eggs in one basket.
    • Step 4

      Think about investing in mutual funds. A mutual fund is the pooling of lots of investors' money that is used to purchase stock in a number of companies. By buying shares of a mutual fund, you will take a much smaller risk than if you bought one stock or just a handful of stocks, because it is more diversified. You can start investing in mutual funds by depositing as little as $50 each month into an account. There are two types of mutual funds, load mutual funds and no-load mutual funds. You will buy load mutual funds from mutual fund companies or online brokerage houses, while you will pay a commission to a stockbroker to buy them for you.
    • Skill: Moderately Challenging
    • Warning:
    • There is always a risk of loss when you buy individual stocks or mutual funds. So you should do your homework before you make any investment.

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