How to buy stocks

Key points

• You can buy stocks with a stock broker or online brokerage firm. 
• Stock-picking can be tricky for beginners.
• Stocks trade on stock exchanges.

Stock investing can be an excellent way to build long-term wealth and reach your financial goals. After all, the stock market, historically, has provided an annual return of 10% (closer to  6% or 7% when accounting for inflation), according to the Securities and Exchange Commission. Many years of consistent investing can help prepare you for the future financially.

But getting started with stock investing can also seem easier said than done. There’s a lot to consider, including which brokerage firm to choose, the different types of stocks and the logistics of placing a stock order. 

Where to buy stocks

Stocks trade on stock exchanges, with the most popular being the New York Stock Exchange and the Nasdaq Composite. But as an individual investor, you don’t have to go directly to the stock exchange to buy. Instead, work with a broker that executes trades on your behalf.

Many retail investors have accounts with online brokerage firms where they can buy and sell stocks at any time during market hours. 

Robert Johnson, a chartered financial analyst and finance professor at Creighton University’s Heider College of Business, recommends brokerage firms such as TD Ameritrade, Schwab and Fidelity. 

“Competition has driven trading commissions to near zero, and any of these firms are solid choices for investors,” he says.

But you can also buy stocks through a full-service brokerage or directly from the company, too. 

How to start buying stocks 

1. Select a stockbroker

The first decision you’ll have to make when buying stocks is which broker to use. There’s no shortage of online brokerage firms to choose from. Many of the old familiar names like Charles Schwab and Fidelity are still around and have a robust menu of investment options.

“Look for brokerages that offer low and ideally zero fees for trading, account maintenance and other services,” says R.J. Weiss, a certified financial planner and founder of the personal finance site The Ways to Wealth. “These fees can add up over time and can eat into your returns.”

Trading commissions have fallen over the years, and many of the most popular trading platforms and brokerage firms now offer commission-free trading on stocks and exchange-traded funds. But fees aren’t the only thing you should consider.

“Finding a brokerage firm that offers responsive and helpful customer service is crucial,” Weiss says. “Many new platforms don’t provide phone support, so if there’s an urgent problem, you may be waiting for an email back.”

2. Research the stock you want to buy

Once you’ve chosen a brokerage firm, it’s time to start researching the stocks you want to buy. The good news — and the bad news — is that there are many options than you can compare. 

To give you an idea of how many stocks are available, a total stock market index fund, which includes just about every stock in the U.S. market, holds more than 4,000 different stocks.

There are a couple of different approaches you can take to choose stocks.

1. Companies that interest you. When investors are dipping their toes into the waters of investing, they often start by investing in companies that excite them. While it can help you learn the ropes of investing, there are better ways to build your portfolio.

2. Stock analysis. Fundamental analysis involves using data about a company, including its financial reports. On the other hand, technical analysis uses past trends to predict future price movements. Past performance doesn’t always guarantee future performance.While these methods of researching stocks can be effective, they also require a lot of work. Stock screeners and other tools to help simplify the process. 

Tip: Johnson and Weiss recommend that beginners avoid choosing their own stocks. Instead, they recommend index investing, where you buy shares in an index mutual fund or ETF. Index funds track the performance of a specific stock index or portion of the market. Examples include an S&P 500 Index fund or a total stock market index fund. Some popular choices include the Vanguard Total Stock Market Index Fund (VTSMX) or SPDR S&P 500 ETF Trust (SPY).

“The idea behind index investing is ‘if you can’t beat ‘em, join ‘’em,’” Johnson says. “Investors simply can’t afford to make oversized bets on individual securities.”

3. Understand the different types of stocks

Not only are there many different stocks to choose from but there are also many types of stocks. Certain types may only be available from specific companies, brokerage firms or to certain investors.

Common stock:

In most cases, the stock you buy from a company will be common stock. 

Common stock gives investors voting rights in the company. In some cases, common stock can come with dividend payments. That said, most of the profit comes from the stock price increasing over time.

“If you buy 100 shares of Coca-Cola Co. (KO) stock, you’re most likely buying the common stock,” Johnson says. “The shares of common stock are the typical shares being sold by the company. Common stock, at most companies, accounts for the vast majority of the shares outstanding.”

Preferred stock:

Preferred stock is another type of share that some companies issue. Like common stock, it still gives investors a share of ownership in the company. But it doesn’t come with voting rights like common stock does. 

One benefit is that preferred stockholders get dividend payments before common stockholders, often in a higher amount.

Despite the name, preferred stock isn’t better for most investors, Johnson says.

Though preferred stockholders have priority for dividends, it’s not a guarantee they’ll get dividends. Companies aren’t required to pay dividends and can stop doing so. 

The trading price of preferred stock may not rise when common stock prices do. Rather than being tied to the stock market, preferred stock prices are often tied to interest rates. 

Different classes of stocks:

Some companies issue multiple classes of stock shares. For example, a company might offer both Class A and Class B shares, each comes with different shareholder rights and benefits.

A great example of a company with different share classes is Google’s parent company Alphabet. Google issues three primary classes of stock.

An investor can buy Google’s Class A stock (GOOGL), which gives them voting rights, capital appreciation and the chance to earn dividends. But Google’s Class B stock comes with 10 votes per share. This class of stock is owned almost entirely by the company’s founders to ensure they’ll always have the majority vote. Finally, Google’s Class C shares (GOOG) possess no voting rights.

Fractional shares:

The final type of stock you can buy is a fractional share. When you buy a fractional share, you’re buying only a percentage of an entire share of stock.

Suppose you wanted to buy stock in Microsoft (MSFT), but forking more than $200 per share might be a bit out of your budget. 

In that case, you could open an account with a brokerage firm that offers fractional shares. Instead of buying an entire share of Microsoft stock, you can buy a partial one. For example, you can buy half or a quarter of one.

4. Choose your stock order

At this point, you’ve chosen a brokerage firm and decided what type of stock to buy. But when you purchase your stock, you may encounter some unfamiliar jargon. 

The first three terms you’ll need to understand in placing a stock order.

• Ask price. The minimum price a seller is willing to accept for a stock.
• Bid price. The maximum price a buyer is willing to pay for a stock.
• Bid-ask spread. The difference between the ask price and the bid price.

The market is liquid when there’s a very small spread between ask prices and bid prices. As with other types of markets, generally, the buyer with the highest bid price will ultimately get to buy the stock.

Next, you’ll need to understand the different orders you can place when purchasing a stock. The table below breaks down the types of stock orders and what each one means. The most common order for “buy and hold” and beginner investors is a market order. The small differences in trade are less important if you’re investing in a particular stock for the long haul.

The process may look slightly different if you’re buying funds instead of individual stocks. 

ETFs trade like stocks, so you can choose the same types of orders. But mutual funds are a bit different. You can place a buy order for a mutual fund at any time, but all orders are executed simultaneously at the end of the trading day.

Weiss says that buying a stock or fund isn’t something you do just once. It’s important to make consistent contributions over time to build long-term wealth.

Remember that for most people, investing is a long-term game. While buying your first stock or investment is a major feat, investing continuously over many years will help you build wealth, reach your financial goals and attain a comfortable future for yourself. 

Frequently asked questions

Do you need a broker to buy stocks?

You don’t necessarily need to work with a stockbroker to buy stocks. You can open an account with an online brokerage firm and place your own stock orders. While stockbrokers can offer advice and more personalized services, they are also likely to charge commissions that you can generally avoid with an online brokerage account.

What is the easiest way to buy stocks?

The easiest way to buy stocks is generally through an online brokerage account. Once you’ve set up your account, you can typically purchase stocks from the website or app in just a few clicks.

How old do you have to be to purchase stocks?

You must be at least 18 years of age to buy stocks with your own brokerage account. But if you’re under 18 or have children under 18, there are custodial accounts where a parent or adult can buy stocks on behalf of a minor.

Editor’s Note: This article contains updated information from previously published stories:

• How to invest when interest rates are rising
• New investors beware: The easy money you made in the stock market probably won’t continue
• How to buy stocks: A basic introduction guide to the market for first-time investors