Flight Path

4 Easy Steps for Beginners in Buying Stocks 

Investing in stocks for the first time is a daunting task. It can be scary because real money is at risk of loss. However, equities are the path to building wealth because they represent ownership of a company and a claim on future profits and earnings. An investor buys stock now, hoping that it is worth more later.

Some investors buy stocks to create a growing passive income stream, or a dividend growth strategy. The idea is simple and works, and many real-life stories exist of people building wealth from equities. The question then is how to buy stocks for beginners? What steps are essential to know? What follows is a step-by-step guide that answers those questions and put you on a path to build wealth.

You Probably Already Own Stocks

Most workers probably own stocks indirectly through their company’s retirement plan, whether a pension or 401(k). For example, a 401(k) plan will provide employees with various mutual fund investment choices. The funds are managed by an asset manager, like Vanguard or Fidelity, and the fund manager picks the stocks.

Basics of Stocks

A beginner must first understand the basics of stocks. A stock is also known as a share and represents the percentage ownership of a company. For example, if you own ten shares of a company with 100,000,000 total shares, you own 0.00001% of the company.

Risks for Stocks

Stocks are not risk-free. Most people are familiar with low-risk savings accounts and Certificates of Deposit (CDs) that are, in many cases, insured by the Federal Deposit Insurance Corporation (FDIC). On the other hand, stocks have more risk and investors can lose money because stock prices may decline during a correction or a bear market. For example, in 2022 the broader stock market was down more than (-10%). This decline is considered a market correction.

However, some trendy growth stocks are down even more. For example, Netflix (NFLX) has declined by about (-67%) year-to-date. In addition, public companies can perform poorly and declare bankruptcy, effectively wiping out shareholders. Hence, a beginner should focus on safer stocks and diversification.

Putting all your money in one high-risk stock places the principal at risk for loss. Assuming you have educated yourself about stocks and the risks, beginners asking how to buy stocks should start by selecting a brokerage firm.

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