How to Buy Stock in a Company
When it comes on how to buy stock in a company, investors, especially those first-timers, should consider important things before making an investment.
For example, they should know what kind of stockbrokers they need, what type of stocks are the most financially viable, and all the risks associated with buying stocks.
By knowing the proper steps on how to buy stock in a company, a person can reduce the financial risk on such investment while increasing his chance to gain more profits.
To raise more cash that can be used to fund their operations, companies sell shares of stock to the public. This activity is called the initial public offering (IPO) if it is the first time a corporation sells its shares. However, most companies will have additional stock offerings from time to time to raise more funds.
When a person buys a stock, he will own a percentage of a company. He will then gain profits based on the percentage of his ownership and the market activities.
Stockbrokers are categorized into two kinds: the full-service brokers who give financial advice and planning to a would-be investor and the discount brokers who charged less service fee to investors who are willing to make their investing decisions and market research.
Individual Stocks and Mutual Funds
After seeking the help of a stockbroker, the next step for investors is to determine what type of stock they want to buy: the individual stock or the mutual funds.
Individual stocks allow a person to trade any stock that is listed on a major stock exchange. Meanwhile, its price will depend on the supply and demand rate. For example, the stock price is higher if many investors want to buy shares from the same company.
On the other hand, mutual funds consist of funds from thousands of investors and these are run by professional management, making these ideal for novice investors who want to lessen the financial risk.
Another advantage of mutual funds is that the sinking price of one share will not have a significant impact to the overall funds, unlike in individual stock where it could be a disaster especially if an investor only owns a few stocks.
When selling and purchasing funds, investors are required to pay the stockbrokers with a percentage of commission, usually 5.75 percent of the share price (especially when buying funds).
Aside from commission, investors should also consider the pros and cons of managed funds and index funds. For example, investors choosing managed funds will benefit from having a fund manager who will pick the stocks that are the most financially viable. On the other hand, index funds, which is consisted of stocks from a particular industry (large companies, healthcare firms), will provide investors with profit gains of the entire business category.
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