Investors purchase stock to become part owners of a company and share in the profits of the company when the stock price rises. This is a major benefit of stocks as it can offer better potential returns than other types of investments such as bonds and real estate.
However, investing in stocks is not without risk. History shows that those who stick with it over the long haul have been rewarded with higher returns than other types of investments, but there are no guarantees. In order to protect yourself from some of the risks, you can take steps to diversify your investment portfolio by spreading your money amongst a number of different stocks.
There are many ways to buy stock, including directly through the company, through mutual funds and exchange-traded funds (ETFs), or on your own via a brokerage account. You can also invest in stock through your employer if the company offers 401(k) plans with matching contributions, which may be the best choice if you’re looking to maximize your retirement savings.
Companies generally sell stock to raise capital to grow their business or pay dividends to shareholders. Once the company has sold enough shares to investors, the company is considered public and its stocks can be traded on the market. This is known as an initial public offering, or IPO. Once a company’s stock is on the market, its shares can be bought and sold by anyone with an internet connection and a brokerage account.
Investing in stocks can be a great way to save for retirement, but it’s important to consider all of your options, including other types of investments and income sources. You should also speak with a financial professional to learn more about the benefits and risks of individual stocks.
Before you dive into stock trading, it’s a good idea to start small and work your way up. Practice with paper trading, or with a simulator that lets you trade with play money. This will help you understand how stocks work and whether you have the fortitude to keep your cool through a rough patch.
Once you feel comfortable, you can move on to a real brokerage account. The most common method for funding a brokerage is to link it to your bank account, which you can usually do online. Some brokers also accept wire transfers for faster processing, but these typically cost more.
You’ll want to choose a broker that has low fees and minimums, as well as a wide selection of investment choices. NerdWallet’s ratings of online brokers and robo-advisors use a comprehensive scoring formula that takes into account several factors, including fee structure, minimums, investment choices, customer support and mobile app capabilities.
It’s a good idea to link your brokerage account to your bank account to make it easy to transfer funds when you’re ready to buy or sell. You can also set up periodic transfers if you’re planning to buy and sell regularly. You can then decide how much you want to invest each time, based on your budget and goals.
