How to Invest in Stocks

A stock is a financial security that represents an ownership stake – equity – in a publicly-traded company. Stock shares are proportionally claim on the company’s net assets and future earnings, and can be bought or sold between investors on the public marketplace (known as a stock market). While there are many ways to invest in stocks, a few basic steps can help you begin to explore this potentially rewarding investment opportunity.

Before you buy any stocks, determine how much money you can afford to invest. Remember that the stock market is volatile, and can experience dramatic changes in price at any time. As a result, investing in stocks requires a long-term commitment. It is also important to avoid investing any money that you will need for immediate expenses.

Companies sell stock to raise money for various reasons, including investing in new products or services, growing the business or paying off debt. The process is known as an initial public offering, or IPO. Once a stock is on the market, it can be traded among investors, either individually or in groups through mutual funds.

Investors can also benefit from dividends – a portion of the company’s profits paid to shareholders. Most publicly-traded companies pay dividends quarterly, and they can provide a steady stream of income that helps offset the risks of owning stocks.

In addition to the financial benefits, most stocks offer voting rights, which can be a significant factor in how well a company performs. As a result, the most successful investors build diversified portfolios that include many different stocks in a wide variety of industries.

There are numerous avenues to buy and sell stock, from the NYSE and Nasdaq (which act as behind-the-scenes facilitators of most trades people place in their investment accounts) to over-the-counter transactions between individuals outside of exchanges. In general, it is recommended that you use a registered broker or investment firm when buying and selling stocks. This ensures that your transactions are properly recorded and supervised to protect against fraud and ensure the highest level of service.

Most brokers offer online trading platforms that allow you to purchase and sell individual stocks for a small fee, or in some cases for free. Some brokerages also have tools to help you calculate how many shares a certain dollar amount will buy at a given share price. Other brokers offer fractional shares, which allows you to own a smaller slice of expensive stocks that you might not be able to afford on your own.

You can open a brokerage account with as little as $100, and many employers will match the contributions that you make to your retirement or investing accounts. This can amplify the impact of your investments and help you reach your financial goals more quickly. Before you dive into the stock market, be sure to thoroughly research both the companies and sectors in which you are interested, and understand the risks involved in this type of investment.