How to Invest in Stocks: Best Ways to Buy and Sell Shares

Millions of people invest in stocks every day – and the process has become simpler in recent years due to the increasing number of online brokers.

Today’s investors can easily buy and sell a wide variety of assets and mutual funds via the mobile phone apps of various investment platforms.

Their enthusiasm means the global online trading market is predicted to grow 6.4% per year to an estimated $13.3bn by 2026, according to Statista.

But how do stocks work, and what are the best stocks to invest in? Our guide on how to invest in stocks for beginners and professionals alike will tell you everything you need to remember.

Key Takeaways

  • A stock – also known as a share – is a type of security that effectively gives you part-ownership of a company that’s listed on a global stock exchange.
  • There are currently 57,650 publicly traded companies with a combined equity market capitalization of $101.17 trillion, according to the World Federation of Exchanges.
  • The three main ways to invest in stocks are buying individual stocks, investing in stock ETFs, or opting for a stock mutual fund.
  • You can buy stocks via an online broker, hire a financial adviser, or opt for a robo-adviser that can guide you in making investment decisions.
  • Buying individual stocks can be expensive. Even a single share in some companies can be traded for many thousands of dollars.
  • There are many different stocks, including blue chips, growth stocks, small caps, and dividend stocks. You will need to research the area to determine which best meets your needs.

How to Invest in Stocks: Key Facts to Know

In this section, you will learn how to invest in stocks, explore the role of global stock markets, and view the types of stocks available.

What Is a Stock?

A stock – also known as a share – is a type of security that gives you part-ownership of a company that’s listed on a global stock exchange.

Companies will sell stock (shares) in their business to raise money. This process, which involves listing on a stock market, is known as an initial public offering (IPO).

The value of a company’s stock will fluctuate due to factors such as the views of analysts, financial results, and the launch of new products or services.

They can also be affected by political and economic events, such as wars disrupting supply lines or rising inflation making products more expensive.

Why Invest in Stocks?

The main reason to invest in stocks is to increase your wealth. In its simplest form, you buy a company’s stock for $10. Its value then rises to $100, and you’ve made a handsome profit.

However, note that the stock price can always go in the opposite direction, and you can lose your money.

Of course, investing in stocks is never that simple! Numerous factors can affect stock prices. Some can be influenced by the company, while others will be out of their control.

Another reason to buy stocks is that it’s fun. Many of the companies you invest in will be household names, so you’ll be aware of what they sell and how they’re developing.

However, it’s not for everyone. Stock markets can rise and fall sharply, so buying stocks is best suited for those who aren’t intimidated by such fluctuations.

While you can never avoid risk completely, there are ways of reducing it by holding a diversified number of stocks in your overall portfolio.

The Global Stock Market and the Infinite Choice of Stocks

When it comes to buying stocks, you are truly spoilt for choice with everything from innovative, growing businesses to multinational giants available.

There are currently 57,650 publicly traded companies with a combined equity market capitalization of $ 101.17 trillion, according to the World Federation of Exchanges.

This list includes the best tech stocks to invest in, oil majors, pharmaceutical giants, transportation firms, utilities, financial companies, and those operating in the hospitality industry.

The largest companies each have market capitalizations – calculated by multiplying the share price with the number of outstanding shares – of more than $1 trillion.

Many of these corporate giants are household names and will be very familiar to investors, such as technology giants Apple, Microsoft and Amazon.

Largest Companies by Market Cap

Types of Stocks to Invest in

You can potentially invest in thousands of companies, so what are the different types of stocks, and what do you need to know about them?

Here are the four major types of stocks you can explore to decide which stocks better fit your investment goals.

Types of Stocks to Invest in

Blue ChipsSmaller CompaniesGrowth StocksDividend Stocks

Investing in Blue Chips

Let’s start with the so-called blue chips. These are large capitalization companies that often have multinational businesses and enviable reputations.

They often command the biggest positions in a stock market index and are regarded as stable, reliable investments that have long track records.

They are also followed by a small army of stock market analysts who pore over their accounts and can often predict future successes and problems ahead of time.

Investing in Smaller Companies

This is a potentially exciting area for stock investors as these businesses are normally innovative younger companies with the potential to surprise on the upside.

Some of the smaller companies include penny stocks, shares with a small market capitalization that trade at relatively low prices.

As they are followed less closely by stock market analysts, there’s more scope for them to deliver better-than-expected results to impress investors.

The dream of most investors in smaller companies is to have bought shares in a business that ends up expanding to become a global multinational giant.

Investing in Growth Stocks

These companies are focused on the future. Any profits generated will usually be reinvested back into the business to help it grow.

This cash injection can be used to fund expansion into new markets, build more factory capacity, or develop new product ideas.

Although this often means investors aren’t rewarded with dividends, the hope is that the stock price will end up rising substantially over the coming years.

Investing in Dividend Stocks

Investors wanting some passive income will prefer investing in dividend stocks and choose companies that pay stable and growing dividends to their investors out of the annual profit generated.

They may also make special, one-off payouts after the completion of a particularly lucrative transaction, such as selling one of their divisions.

Such businesses tend to be well-established and respected names in their particular industries, with large international customer bases.

The top dividend stocks in the final quarter of 2023 included China Construction Bank, PetroChina, China Mobile, and BHP Group Limited, according to an analysis by Janus Henderson Investors.

Different Ways to Invest in Stocks

So, how to trade stocks? There are three main ways of investing in stocks: buying individual stocks, investing in a stock exchange-traded fund, or opting for a stock mutual fund.

Let’s take a look at each of them in turn.

Top 3 Ways to Invest in Stocks

Buying Individual Stocks

The first option is to buy stock (shares) in individual companies.

In this case, you get to decide exactly what stock to own. You research the company, decide the price could rise, and buy into its story via your online broker.

A positive and a negative is that this will give you undiluted exposure to movements in the stock price. If it rises, the value of your holding will also increase. But remember, the opposite is also true.

It’s also worth noting that individual shares can be very pricey. Some of the most expensive are valued at thousands of dollars each.

This means it’s very difficult to build up a substantial portfolio of individual positions in leading stocks unless you’re extremely wealthy.

However, you can consider buying fractional shares in companies if the current stock price puts it out of your reach.

Buying Stock ETFs

Exchange-traded funds are baskets of securities that generally replicate the performance of a specific index. However, there are also active ETFs that aim to outperform the underlying asset.

ETFs are traded on stock markets. This means you can buy – or sell – them at any time during the day. This makes them flexible and convenient for many investors.

These products can be a great way to get exposure to equity markets in a diversified way. This means spreading your risk without having to buy hundreds of individual company shares.

You can even invest in stock market indices. For example, you can buy an S&P 500 ETF that will track the combined performance of around 500 leading US companies.

However, you still need to do your research before investing in ETFs, as the market for these products has grown enormously – in terms of both number and complexity – over the past decade.

Buying a Mutual Fund

The third option is buying into a stock mutual fund that can invest in a broad number of companies and sectors.

There are thousands of mutual funds available. Some invest in large capitalization businesses, while others concentrate on smaller businesses.

Funds can also have investment goals. For example, its mandate may be to generate a set amount of income, which will see it drawn to the highest dividend stocks.

Actively managed portfolios are run by professional investors whose job will be to make asset allocation calls, choose securities, and try to outperform the wider stock market.

The subsequent purchases, which depend on the fund’s stated aims and objectives, will be made out of the combined inflows from many investors.

Separately, there are passively managed funds. These products aim to track or replicate the performance of a particular sector or stock market index.

Best performing funds in January 2024.
Source: Morningstar

How to Buy Stocks: Get Advice – or Do It Alone?

Investors wanting to buy stocks will face several options when it comes to completing their transactions:

  1. Opening a Brokerage Account
  2. Finding a Financial Advisor
  3. Using a Robo-Advisor

The final decision will depend on their knowledge and experience, depth of financial resources, and how actively they want to be involved in managing their portfolio.

Firstly, they can opt to go it alone and buy stocks via an online broker. This is the cheapest option, but you’ll be responsible for making all the decisions.

At the other end of the scale is recruiting the services of a financial advisor who can help them make such key decisions.

This is a safer option – although with the usual caveats that no one can be right all the time – but it’s also going to be a lot more expensive.

A third way is embracing the concept of robo-advisers. This approach sits in the middle ground between an advisor and doing everything yourself.

Robo-advisers can take the form of online questionnaires that guide customers towards particular investment choices based on their risk appetite.

Diversify Your Portfolio

Having a diversified spread of assets is also worth considering, as it means you won’t be keeping all your investment eggs in one basket.

When it comes to buying stocks, this means having exposure to a broad array of companies and sectors within your overall investment.

Diversification is important as spreading your risk can help build long-term gains, according to the Financial Conduct Authority, the UK-based regulator.

“Don’t be tempted to jump straight to high-risk investments until you’ve been investing for a while, and fully understand both the risks and opportunities,” it stated.

It also pointed out that while high-risk investments can offer potentially better returns, there’s a risk of losing all your money if something goes wrong.

Revisit Your Decisions

It’s also crucial to monitor your chosen investments to ensure they’re performing as expected and still meeting your needs.

One of the biggest mistakes you can make is buying assets and then just presuming they’ll carry on increasing in value or generating an income.

Take a look at how individual assets or funds are doing. If they’ve underperformed, try to understand the reasons behind it.

Has it been down to issues that are outside of management’s control, or is it due to serious problems that have emerged? This information will help you decide if it’s still worth holding.

Keeping on top of your positions will also enable you to rebalance your overall portfolio should you feel it’s necessary.

When the value of different investments changes, it can alter its construction. For example, you may discover a greater percentage of your overall wealth is now in higher-risk areas.

This may require some trading to return it to its original positioning.

At this stage, it’s also worth revisiting your investment aims and objectives. Are they the same, or has something changed in your life that has affected your financial goals?

How to Choose the Best Stocks to Invest in?

A burning question for those looking at how to trade stocks is deciding which are the best stocks to invest in.

Investment newbies might wonder, what are the best stocks for beginners with little money? Meanwhile, investment pros might look for the next exciting investment option among high-risk, high-reward stocks.

Unfortunately, there’s no magic formula when it comes to picking the best stocks. If it was easy, then everyone would be basking in the glow of bumper double-digit returns.

A final choice will depend on your investment objectives. For example, if you want to generate an income, you’ll be drawn toward companies that pay dividends to investors.

However, if you’re more interested in the very long-term – and aren’t fazed by short-term stock market turbulence – then a smaller company investment may be more suitable.

You will also need to carry out as much research as possible. There is certainly no shortage of information available. It can be argued there’s almost too much.

Listed companies publish their financial results and other relevant announcements on their websites, so this is a great place to start your investigation.

You should also pay attention to how a company has performed over various periods and try to establish what has caused past share price fluctuations.

There are also plenty of news articles and research available – particularly on the largest listed companies – as well as the views of stock market analysts.

However, remember there’s no guarantee that these opinions will be correct. It’s down to you to do your homework before investing in stocks.

The Bottom Line: Should I Invest in Stocks?

It all depends on your experience, knowledge, and attitude to risk. Investing in stocks can be an exciting and interesting way to increase your overall wealth.

If you choose wisely and your chosen stock performs even better than expected, you could enjoy returns that are well above the rate of inflation.

However, investing in stocks can also be a very unpredictable area, so you must never invest more than you can realistically afford to lose.

While no one likes to see the value of their investment fall, there’s a difference between losing some spare investment money and risking your last penny.

Do your own research and always remember your investment decision depends on your attitude to risk, your expertise in the stock market, the spread of your portfolio, and how comfortable you feel about losing money.

The information in this guide does not constitute investment advice and is meant for informational purposes only.

FAQs

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References

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Rob Griffin
Financial Journalist

Rob is a seasoned journalist with over three decades of experience spanning across business and finance journalism. Before embarking on a freelance career in 2002, he contributed his expertise to the business desks of notable publications such as the The Guardian, Yorkshire Post, Sunday Business (now Business Post), and Sunday Express. Throughout his freelance journey, Rob has been a regular contributor to a wide range of national newspapers, consumer magazines, trade publications, and websites. His work has appeared in titles such as The Independent, Citywire, Daily Express, FT Adviser, and Sunday Telegraph, covering an array of subjects from market trends…