While there is no doubt that the most popular way to buy and sell investments is by opening a brokerage account, many new investors ask how to buy stock without a broker. For those of you who want to go down this path to business ownership, you can do so with varying degrees of success - there is no requirement that you have to work with a broker to invest in stocks or mutual funds, particularly equity funds. Direct investing offers some advantages and disadvantages, which you will need to weigh based on your personal situation, but our goal in describing how it works is to provide you with an overview so you have a better handle on how to invest without a broker by the time you're finished reading.
There are three caveats, however. The first is that you will have to meet the minimum account balance required to open a brokerage account. The second is that the selection of commission-free ETFs is limited and, from a performance and strategy standpoint, you may be better off paying commissions to get the ETF you want. Three, both ETF and mutual fund capital gains and distributions can be subject to taxes, which hurts your realized returns. (You will not incur taxes on capital gains or dividends from for funds and stocks held in a tax-deferred account, such as an IRA. Taxes are due when a distribution is made from a traditional IRA account.)
When investing, look to get in with stocks in the areas you typically follow and have an interest in. If you’re already reading news and keeping up on these things anyway, it’ll make it that much easier to keep up on your investments. If you have expertise through interests or work, you likely know enough about the sector to make intelligent investments.
By creating a budget, you can determine how much money you have to invest. You can assign portions of your income to various savings goals, ranging from shorter-term ones, like buying a house, to longer-term ones, like retirement. Before you allocate money to your investment goals, however, many financial experts recommend putting aside money for an emergency fund.
If your savings goal is more than 20 years away (like retirement), almost all of your money can be in stocks, Waldman says. The stock market can be unpredictable, with huge ups and downs depending on how well the economy is doing, but you’re likely to make more money there than with less risky assets (like bonds, or keeping cash in a savings account). Over nearly the last century, the stock market’s average return is about 10% annually.
If you wanted a single investment that has you covered from a performance and diversity standpoint you could always go with something like a Vanguard Lifecycle fund and pay as low as 0.15% in fees and that’s it. On a side note, we have a list of our favorite Vanguard funds and investments for beginners that you should probably check out if you know what’s good for you.
A more reliable investment income strategy is to never sell your principle, and instead live off dividend and interest income. A diversified collection of dividend-paying blue chip stocks that have historically grown their dividends even through recessions, combined with some other assets for diversification, can produce more reliable investment income and makes it so you don’t have to touch your principle.
Most Wall Street pundits will tell you it's impossible to time the stock market. While it's unrealistic to think you'll get in at the very bottom and out at the very top of a market cycle, there are ways to spot major changes in market trends as they emerge. And by spotting those changes, you can position yourself to capture solid profits in a new market uptrend and keep the bulk of those gains when the market eventually enters a downturn.
Fixed-income securities actually make up a few different types of securities, like U.S. Treasury bonds, corporate bonds, municipal bonds and CDs. These investments are generally reliable, as they appreciate via a specific interest rate. While this safety is surely appealing, the return potential of fixed income securities is weaker than, say, stocks.
One type of broker isn’t necessarily better for everyone. In fact, many people use both types of services over their lifetime. A saver who is just starting out might have more reason to use a discount broker, so as to save money while accumulating assets for retirement. Given a full-service broker might charge you as much as $500 in fees to invest $10,000 in a fund, whereas a discount broker might charge as little as $5, the cost difference alone is reason enough for new investors to use a discount brokerage firm.
Certificates of deposit. These are among the safest investments because they are insured by the Federal Deposit Insurance Corp. Because the United States is insuring your money, it's impossible to lose money in a CD. If you put $1,000 into a CD, the only risk you're taking is that if you need the money, you won't be able to access it without paying a penalty until the time period is up. For instance, if you invest money in a 1-year CD, you can't get that $1,000 for another year without paying a penalty that typically includes about six months' worth of interest.
Avoid buying on hope and selling on fear. It's very easy and too tempting to follow the crowd when investing. We often get caught up in what other people are doing and take it for granted that they know what they're talking about. Then we buy stocks just because other people buy them or sell them when other people do. Doing this is easy. Unfortunately, it's a good way to lose money. Invest in companies that you know and believe in — and tune out the hype — and you'll be fine.
Investing in stocks can be very costly if you trade constantly, especially with a minimum amount of money available to invest. Every time that you trade stock, either buying or selling, you will incur a trading fee. Trading fees range from the low end of $10 per trade, but can be as high as $30 for some discount brokers. Remember, a trade is an order to purchase shares in one company - if you want to purchase five different stocks at the same time, this is seen as five separate trades and you will be charged for each one.
Now, imagine that you decide to buy the stocks of those five companies with your $1,000. To do this you will incur $50 in trading costs, which is equivalent to 5% of your $1,000. If you were to fully invest the $1,000, your account would be reduced to $950 after trading costs. This represents a 5% loss, before your investments even have a chance to earn a cent!
Andrew: 01:35 We should slap this person on the wrist. I’m cautiously putting it in a mere $600 into a variety of stocks. I was wondering if you could cover how a company’s stock gets affected if they get acquired by a larger company. Is it a good time to buy when that happens? Is it the worst time to buy? So something that you know we can cover and then we’ll try to keep it short because these things can be very, very complicated. But it’s important to know just as a generality what goes on in an acquisition if you’re the company being acquired and also what happens in spinoffs so you can kind of lump them all together because they are these special situations that you’ll see with stocks for a company being acquired. Let’s say you’re a shareholder. And you know, I believe when I did the back to the basics series episodes ago, right?
As the name implies, the “GARP” approach combines elements of value and growth investing, seeking to buy companies whose prices don’t fully reflect their solid growth prospects. For example, a company might be stuck in an out-of-favor industry sector but have new products in the pipeline that could propel it into a more attractive category. The particular emphasis given to growth and value varies considerably, although one or the other is usually clearly dominant. Among professional investors, GARP is sometimes used as an exception to give a value manager more flexibility to buy higher-priced stocks.
How much liquidity (i.e. resources that can easily be converted to cash) do you need for your shorter-term goals and to maintain a proper cash reserve? Don't invest in stocks until you have at least six to twelve months of living expenses in a savings account as an emergency fund in case you lose your job. If you have to liquidate stocks after holding them less than a year, you're merely speculating, not investing.
Which brokerage offers the best educational videos? TD Ameritrade, hands down. TD Ameritrade's educational video library is made entirely in-house and provides hundreds of videos covering every investment topic imaginable, from stocks to ETFs, mutual funds, options, bonds, and even retirement. Progress tracking is also part of the learning experience.
Lend to others. We aren't talking about lending your brother $100. We are talking about peer-to-peer lending. Companies like Lending Club and Prosper offer automated programs for you to invest as little as $25. You can lend your $100 to 4 different people. This helps diversify your risk and bring you a higher rate of return. P2P lending is often faster than traditional bank lending. It also offers a low cost way for borrowers to get the money they need.
Congratulations! By making it to this article you've taken an important first step in your investing journey -- picking a broker. There are many stock brokers to choose from, and each offers something a little bit different. See our article below for more info on what you should be looking for, along with a list of our top online stock broker picks for beginners.
How much money should I invest in stocks? If you’re investing through funds — have we mentioned this is our preference? — you can allocate a fairly large portion of your portfolio toward stock funds, especially if you have a long time horizon. A 30-year-old investing for retirement might have 80% of his or her portfolio in stock funds; the rest would be in bond funds. Individual stocks are another story. We’d recommend keeping these to 10% or less of your investment portfolio.
The easiest option is to buy what's known as an ETF (an exchange-traded fund) like SPY (SPY). It trades like a stock, but it means you own a basket of stocks. In the case of SPY, the basket is made up of 500 of America's largest companies. Sure, a few might struggle, but all 500 probably aren't going to tank at the same time, so it helps lower the risk.
How you implement these strategies depends on your personal preferences and appetite for risk. Some investors prefer one strategy and concentrate on finding a diverse set of stocks all of which embrace that particular philosophy. Others instead choose to use multiple strategies in their efforts to diversify their portfolios, and that can involve owning several different kinds of stocks. Either method can produce the long-term results you want as long as you're comfortable with the overall investing plan you choose and stick with it.
Andrew: 01:08 Yeah, sure. So I think when you talk about stock picks from the past, it’s much more useful to talk about your mistakes rather than your successes. Um, we can, we can all buy stock. I can go out for a multitude of reasons, but you know, if you can look at how you kinda messed up and maybe you can avoid that in the future and maybe some people can kind of recognize a situation like this and maybe stay clear or in the case of, of my, like my personal kind of experience with this and the way that maybe I wish I would have played it is I would have waited longer to, to get into this stock because it was clear that the fallout from the stock hadn’t completely finished. And so I’m keeping this stock on my radar and I’m watching to see how it progresses.
You can think of investing in bonds as lending money to the government or a corporation, and in exchange, they pay you interest. Treasury bonds are very “safe” in that they are backed-up by the U.S. government. They also pay very little to hold them. Corporate bonds pay more interest, but they are more risky because just like stocks, the company could go bankrupt.
Do you know what to look for when it comes to stocks, bonds, mutual funds, ETFs, and so on? Do you understand the terminology and how to react to certain trends? Is the company you’re investing in worthwhile, with a dependable financial history and sustainable cash flow? These are just some of the factors you should be researching before you actually put any money on the table.
Some retirement plans and accounts also have asset protection benefits. For instance, some have unlimited bankruptcy protection, meaning that if you suffer a medical disaster or some other event that wipes out your personal balance sheet and forces you to declare bankruptcy, your retirement savings will be out of the reach of creditors. Others have limitations on the asset protection afforded to them, but still reach into the seven-figures.
Review your needs and use the discount broker for dividend investors table to compare them and assess which platform will work for you. It’s easy to transfer in and out of Questrade, Qtrade or Virtual Brokers but the bank platforms are much easier if you bank with them. Nevertheless, it’s really easy to switch discount broker when you have a decent size portfolio as all the fees will be covered in case you are not happy with your first choice.
Commissions can play a big role in how profitable your investing can be, especially if you're only trading on a little bit of money. This is why commissions matter in investing. For example, if you're investing $100, and pay a $7 commission - that's the equivalent of losing 7% of your investment on day 1. Given that the stock market returns about 7% on average - you're literally going to be lucky to break even for the entire year!
The types of publicly traded stocks you own may differ based on a number of factors. For example, if you are the type of person that likes companies that are stable and gush cash flow for owners, you are probably going to be drawn to blue-chip stocks, and may even have an affinity for dividend investing, dividend growth investing, and value investing.
The main difference between ETFs and index funds is that rather than carrying a minimum investment, ETFs are traded throughout the day and investors buy them for a share price, which like a stock price, can fluctuate. That share price is essentially the ETF’s investment minimum, and depending on the fund, it can range from under $100 to $300 or more.