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How to buy stocks—and what to watch out for before selling

Select breaks down 4 steps to purchasing a company's stock, plus why not to sell too soon.

Joshua Lott | Getty Images

Buying stocks is a way for individuals to own equity in a publicly traded company — and ideally build their wealth over time.

For those who are new to the investing world, purchasing shares may sound like a complicated process, but it's actually quite simple.

Here are four steps to buying a company's stock, plus what to consider before selling your shares.

Step 1: Choose a broker and fund your account

Before you can start purchasing stocks, you need to select a brokerage account to do it through. You can choose to go with a trading platform offered by a traditional financial company like Fidelity, Schwab or Vanguard, or you can look at online brokers like Ally or Robinhood.

Consider the variety of investment vehicles the broker offers in addition to stock trading, such as retirement saving via IRA accounts. You'll also want to take note of any maintenance fees, account minimums and commissions the broker charges for executing trades.

Setting up your brokerage account takes only about 15 minutes and will require you to provide some basic personal and financial information. For faster access to the market, you can choose to transfer funds into your account electronically from a linked bank account.

In order to continue growing your investments and to build real wealth, set up an automatic transfer to your brokerage account so you're regularly contributing over time. Remember that money you invest in individual stocks should be money you can afford to lose since there's always some risk.

Step 2: Do your research on what stocks to buy

Purchasing stocks through your broker's website can be done in just minutes. Given that almost anyone can buy stock in little time, the barrier to entry is low — which is all the more reason to understand your risk tolerance and do your research beforehand. Picking out individual stocks requires much more education than investing in diversified assets like index funds since stocks carry more risk.

Before buying stock in a company, understand what that company does, the product(s) it offers, its business model, how it makes money and its historical performance. You can also reference credible investing sites like Morningstar, a reputable resource for stock research and ratings.

When choosing stocks, it's not a bad idea to stick with the Warren Buffett mindset that you're going to buy and hold these shares for years, even decades, to come.

Step 3: Calculate how many shares you want

A share represents your ownership in a public company. Deciding the number of shares to buy will depend some on how much money you have to invest.

Share prices vary by company and constantly go up and down, but, as an example, if you have $600 you are willing to invest and the share price is $60, you can purchase 10 shares. Some brokers have tools that allow you to see how many shares you can afford to buy.

If this is your first time buying individual stock, you might want to start off buying just a single share so you can get a taste of the market before committing more money.

Some brokers even offer the option to purchase fractional shares, or portions of a single share instead of the whole share. This allows investors to buy pricey stock in companies like Amazon, whose share price is over $3,000 as of writing.

Charles Schwab lets investors buy a fractional share of any stock listed in the S&P 500 through its program called Schwab Stock Slices™. You can buy a single slice (fractional share) or up to 30 slices (30 fractional shares) for as little as $5 per slice. Fractional shares at Schwab are traded commission-free online, similar to regular stocks.

SoFi Invest® is another broker option that offers fractional shares with zero trading commissions. Investors can start with just $5 and access more than 4,000 stocks and ETFs.

Step 4: Place your trade

To enter your order on your broker's platform, use the stock's three- or four-letter ticker symbol. You'll have the option of choosing between a market order or a limit order.

A market order means you're buying the shares at the best available current market price when you place the order. Market orders are best when you're buying just a few shares or buying large, blue-chip stocks whose prices don't fluctuate drastically.

A limit order means you're buying the shares at your specified price or better, leaving you in more control of what you pay. With a limit order, the trade may not happen if the price doesn't get to where you want it. Limit orders are best if you're trading a large number of shares or for smaller stocks that have greater price volatility.

What to beware of before selling your shares

As you track your stocks along with the performance of those companies you invested in, be wary of cashing out too soon.

Money you invest in individual stocks should be money you are comfortable having tied up for at least the next five years. To maximize your returns, your best bet is to hold for the long term, especially during times of volatility.

In fact, not giving your investments time to grow is one of the biggest investing mistakes experts say to avoid.

Ready to start?

Select reviewed over 12 online brokers that offer zero-commission trading and narrowed down the top six platforms for all sorts of investors: TD Ameritrade; Ally Invest; E*TRADE; Vanguard; Charles Schwab and Fidelity.

These six offer the widest range of investment options, user-friendly technology, quality customer support and educational resources. You can read more about our methodology on selecting the best $0 commission trading platforms below.

Our methodology

To determine which $0 commission trading platform offers the best services for consumers, Select narrowed down offerings to a list of 10 initial platforms. We then analyzed and compared each one based on the following factors:

  • Account minimums
  • Account types
  • Account and advisory fees
  • Customer support
  • Expense ratios of available investments
  • Selection of investments
  • Trading fees
  • Available technology, including mobile platforms
  • Educational tools and resources

After reviewing the above features, we based our recommendations on platforms offering the widest range of investment options, robust educational tools and resources, user-friendly technology, as well as the lowest fees and expense ratios. We also looked into each company's customer support structure, available avenues of communication and app reviews.

Note that with all trading platforms, there are no guarantees you'll earn a certain rate of return or current investment options will always be available. To determine the best approach for your specific investment goals, speaking with a reputable fiduciary investment advisor is recommended.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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