How to Buy and Sell Stocks and Bonds
Study the Difference in Stocks & Bonds
Learn the two major different types of capital investments in the market. There are a lot of other ways to invest your money, from CDs (certificates of deposit), equities, real estate, mutual funds and so on. But if you want to learn the basics of investment, start by studying how to buy and sell stocks and bonds.
- Stocks – A stock is a share in the ownership of a company. Each stock represents 1 unit of ownership interest. The value of that stock rises or falls, including past profits and future outlook. The trick to stocks is to buy low and sell high, though knowing what “high” and “low” is tricky. Some stocks pay a quarterly dividend, based on profits.
- Bonds – A bond is a loan made to a corporation, government or city. These are debt securities, where you are guaranteed a rate of interest on the loan, until the maturity date (When the loan is paid back).
Stocks and bonds are two quite different transactions, though most big dollar investors eventually diversify their portfolio over a range of the two. Stocks tend to be more volatile, but offer the greater lure of profits. Bonds tend to be safer investments, but have a fixed rate of interest (profit).
Don’t Follow One Guru
When investing in stocks and bonds, don’t follow the advice of just one individual. Do your own research by reading numerous market experts and analyze the logic of their writing. Everyone has advice for playing the stock market and getting rich through investment, but it stands to reason that not all of them are right.
When investing in stocks, learn who the management of the company you’re investing in is, then learn about their experience. Read annual reports, then read quarterly reports. Read industry news and press releases from potential investments. Learn about this company’s major competition.
Once you study the market yourself, then compare this against what the experts and gurus are telling you. You should be able to see whether they make sense, once you can fill part of the role as your own investment advisor. If you say to yourself that you don’t have the time to learn the market this way, that’s true: find one small part of the market and learn it well.
Open a Brokerage Account
This how you start to buy and sell stocks and bonds. Once you start to understand the fundamentals of market investment, open an account with a brokerage that lets you buy and sell stocks, along with bonds. The general rule is: the more money you pay to a brokerage, the more work they do for you.
So if you want to hire a full-service broker who handles the research and investment angle of your portfolio, you’re going to end up paying higher commission fees. If you want brokers who simply execute the buy and sell orders without getting a lot of advice, hire a discount broker. These brokerages tend to release some of their investment research, but leave the thought process largely to you.
Buying and Selling Stocks & Bonds Online
You can hire an online brokerage and handle all of your money transactions over the Internet, if you want to. Research and choose the e-brokerage you like the most, such as eTrade, ScotTrade, OptionsXpress or TDAAmeritrade. Open an account, knowing you’ll need to apply and link to your bank account. You’ll need to include social security and personal information, so find a reputable online broker.
Once you have an online stock account, fund the account with a limited amount of funds. I suggest $500 to $2000 for beginning investors, and no more (unless you are a person of means). Don’t invest so much that a full loss hurts your future.
Now you have the tools to trade online. It’s a matter of making buy and sell orders and having your broker execute them on the trade floor. Learn the difference in a market order and a limit order and you’re ready to start investing.
Consider Investments in Mutual Funds
Mutual funds are a good place to start investing in the stock market. A mutual fund is a pool of money that invests in a wide range of investment opportunities, often from a particular industry or a particular type of stocks, bonds and other securities.
There are two advantages to a mutual fund, at least for the beginning investor. One, the fund is managed by an expert, who is handling the research and making the investments, so you are investing in this person’s expertise. Two, the investment is diversified, so the mutual fund is less likely to falter than stock in one single company; you’re already diversifying. Of course, the profits aren’t likely to be as great, either.
Buying and Selling Stocks and Bonds
It doesn’t take long to learn the basics of how to buy and sell stocks and bonds. Mastering the art of investment takes a lifetime of study and experience. That’s why I suggest you dip your foot into the pool at first, because you are going to be learning how to invest as you are putting your hard-earned money on the line.