How to Buy Stocks (for Beginners)

When you buy stock, you own a small part of that company. Twenty years ago, people mainly bought stocks on the advice of brokers. Nowadays anyone with a computer can buy and sell stocks with a brokerage firm. If you’re new to the stock market, you’ll probably be overwhelmed with the amount of information you need to learn. With a little knowledge, you can buy stocks and make money on those investments.

Table of Contents

Establish a framework for investing

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Set goals. Spend some time thinking about why you want to invest in stocks. Do you want to invest to build an emergency fund for the future, to buy a house or pay for school? Are you investing for retirement? ^{[1] X Research Source}

In general, you should write down what makes you want to invest in stocks. Try to convert to a specific amount, assessing how much money you need for your goal.
For example, to buy a house, you have to pay the initial amount and the final amount is 1 billion VND. Retirement plan needs 2 billion or more.
Most people have more than one investment goal. These goals often have different priorities and timelines. For example, you want to buy a house in the next three years, pay for your children’s school fees in 15 years, and retire in 35 years. Writing down your investment goals will help you see the problems and focus on their priorities.

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Determine the timeframe. From your investment goals, you will determine how long you need to maintain those investments. The longer the investment period, the greater the probability of a positive return. ^{[2] X Research Source}

If your goal is to have money to buy a home in the next three years, the investment timeframe is relatively short. If you invest for retirement in 30 years, the investment timeframe is much longer.
The S&P 500 is a stock index based on shares of the 500 largest companies by market capitalization. For 10-year investments between 1926-2011, there were four times when the S&P 500 index caused investor losses. For a holding period of 15 years or more, investors never lose money. ^{[3] X Source of Research} If you’ve bought and held these stocks for a long time, you’ve probably made a profit.
By contrast, holding a stock in the S&P 500 index with a term of just one year resulted in losses 24 times in the 85 years from 1926-2014. ^{[4] X Source of Research} In a short period of time, stock prices fluctuate greatly. ^{[5] X Research Sources} Therefore, the risk for short-term investments is greater than for long-term investments. Smart investment will help you make more profit, otherwise you can lose everything.

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Evaluate your risk tolerance. All investments carry risk. There is always the possibility that you will lose some or all of the money. Stocks are the same way. There is no guarantee that you will get a return on your investment, nor can you guarantee that you will get your initial investment back. “Risk tolerance” is the limit of risk you are willing to take.” ^{[6] X Research Source}

Before investing you need to ask yourself, “How much money am I willing to lose if something bad happens?”
Usually, the greater the risk tolerance, the higher the potential profit, but at the same time, the greater the risk of loss.
For example, an investment that is expected to double in value in one month is riskier than an investment that doubles in value in ten years.
No investment is worth your loss. If certain investments make your life more difficult, then you should rethink your goals. You should then adjust the timeframe or the goals themselves.
For example, let’s say your goal is to make enough money to pay off the initial $500 million payment of a $2 billion home in 3 years. You can adjust your goal to 350 million for a house worth 1.5 billion in 3 years. You might consider extending the timeframe instead. Earning 500 million to buy a house of 2 billion in 5 years is probably an easier goal to achieve. Or you can both reduce your target and lengthen your investment timeframe.
One of the first principles of investing is to avoid losses if possible. Don’t take an investment risk when it’s not necessary.

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Calculate the investments required to achieve the goal. Use one of the investment calculators or retirement planners available on the internet. ^{[7] X Research Source} Calculate the rate of return you must have and the amount of investment required to achieve your goal.

For example, suppose you need 350 million dong in three years, but you can only invest 6 million/month. You need a huge return of about 38%/year over a three-year period to achieve this goal. That means you have to accept a huge amount of risk. Most people see it as an ill-advised investment decision.
It is better to extend the investment timeframe to 4.5 years. Then the margin requirement will be much lower, about 4.8%.
You can also increase your monthly investment from 6 to 9 million. Your target of 350 million will be achieved with a more realistic profit margin of about 5%.
Or you can reduce your financial goal from 350 million in 3 years to 230 million in 3 years but still keep the investment of 6 million dong/month. To achieve this goal you only need to have a rate of return of 6%/year.

Choose an investment type

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Learn about different types of investments. The next task is to choose the type of investment that works best for you. The first step is to understand the types of investments available in the market.

You can buy shares in a company. Buying shares of a company means that you have become the owner of that company. Therefore you will enjoy the same profits as the owner of any company. ^{[8] X Source of Research} If a company’s sales, profits, and market share increase, so does its value. This is especially true over long periods of time.
In the short term, a company’s market price depends on people’s speculations about its future. Their feelings, rumours, and perceptions will drive a change in values. ^{[9] X Research Sources} The price of buying and selling will determine whether you are profitable or not.
You can also invest in mutual funds. Mutual funds allow many people to invest in different stocks at the same time. The result is lower risk but also lower returns, especially in the short term. ^{[10] X Research Source}
In recent years, exchange-traded funds (ETFs) have grown in popularity. Many people refer to them as “index funds” and are similar to mutual funds. An exchange-traded fund consists of common stock portfolios that are not overseen by a management organization. Most of these funds copy the movements of an index such as the S&P 500, Vanguard Total Stock Market, or iShares Russell 2000. ^{[11] X Source of Research}
Like individual stocks, ETFs are traded on the market. The value of an ETF can change within a day. ^{[12] X Research Source}
Some ETFs invest in specific industries, commodities, bonds, or currencies.
One advantage of index funds is that they are spread out. An index fund reflects the holdings of the various asset classes that make up the index. ^{[13] X Research Source} You can invest in a number of index funds with very little or no commission fees. They are therefore a less expensive investment. ^{[14] X Research Source}

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Understand important terms. Many people rely on financial news to learn how stocks or the market in general are performing. To make the most of these resources, you must understand many important terms.

Earnings per share (EPS): the part of a company’s profits that is paid out to shareholders. If you hope to receive a dividend on your investment, this is an important parameter! ^{[15] X Research Source}
Market capitalization: the total value of all shares of a company. It represents the overall value of the company. ^{[16] X Research Source}
Return on Capital (ROE): a company’s earnings, relative to the amount invested by shareholders. This information is useful for comparing companies in the same industry, helping you determine which is performing better. ^{[17] X Research Source}
Beta: A measure of a stock’s volatility, relative to the market as a whole. This is a useful metric for assessing risk. ^{[18] X Research Source} As a general rule, a beta below 1 represents relatively low volatility. Values greater than 1 indicate high volatility.
Moving Average: The average price per share of a company over the given time period. This is useful information to determine if the current stock price is a good buy. ^{[19] X Research Source}

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Attention analysts. Stock analysis is a time-consuming and complicated job, especially for new players. Therefore, you should use research information from stock analysts. Often an analyst will closely observe certain companies to gauge their performance.

There are a number of reputable and free websites that provide content summaries of analysts’ opinions. ^{[20] X Research Sources}^{[21] X Research Sources}
They usually give advice in the form of one or two recommendations for a particular stock. Some recommendations are very obvious like “buy”, “sell” or “don’t sell”. Or they may say more confusingly like, “this sector is not performing well”. ^{[22] X Source of Research}
Each analyst company uses different language to recommend investors. Financial websites often provide guides to explain the terminology used by each company. ^{[23] X Research Sources}

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Determine your investment strategy. After gathering the information, it’s time to think about your investment strategy. Every investor has a different approach and there are many factors for you to consider.

Diversify investment portfolio. Diversification is the extent to which you spread your money across different investments. Investing all your money in a few companies can make you big if they do well. But this approach also exposes you to greater risk. ^{[24] X Research Sources} The more spread out the investment, the lower the risk.
Reinvestment. It’s about you continually investing your earnings. If you reinvest your earnings, you will generate a larger return on the initial dividends. ^{[25] X Research Resources} Some companies allow you to do this automatically. ^{[26] X Research Sources}
Investment and trading. Investing is a long-term strategy that focuses on making a profit based on long-term growth. Prices will rise and fall, but the long-term hope is bullish. Trading is a more dynamic process. You have to pick stocks that will appreciate in the short term and sell quickly. ^{[27] X Research Sources} The “buy low, sell high” approach can generate great profits, but requires constant observation, along with higher risks.
Stock traders must predict how others will feel about a company by interpreting historical price data. Their goal is to buy when the stock price is rising and sell before the price starts to fall. Short-term trading carries great risks and is not for inexperienced investors. ^{[28] X Research Sources}

Start buying stocks

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Consider working with a full-service broker. There are many ways for you to buy stocks, each with its own advantages and disadvantages. If you have little or no experience buying stocks, you should get a full brokerage at first. Full service brokers charge high fees but they have good consultants. ^{[29] X Research Sources}

For example, a broker’s job is to guide you through the stock buying process. Their job is to answer the questions. For example, you might ask, “Which stock do you think I should buy based on my risk tolerance?” and “Do you have research papers on the stock I’m going to buy?”
There are many brokers to choose from, so you can ask others to recommend one. For example, your friends or relatives may know a trusted brokerage firm, or they have been using its services for a long time. If not, you can look into large and reputable brokers. In Vietnam, there are a number of companies such as Saigon Securities Joint Stock Company, VNDirect Securities Joint Stock Company and so on.
Keep in mind that if you use the services of a full-service broker, you will have to pay a higher commission. Commission is the amount you pay whenever you buy or sell shares. ^{[30] X Research Source}
For example, if you buy 500 million VND of shares of HAGL, the brokerage company may charge a commission of 15 million VND to execute the transaction.

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Consider using a partial brokerage. If you don’t want to pay high commissions for stock market activity, you should use a partial brokerage or an online brokerage. ^{[31] X Research Source}

The disadvantage of using a partial brokerage is that you don’t get the same advice as a full-service brokerage. That benefit is lower brokerage fees and you can buy shares online. ^{[32] X Research Source}
In the US there are a number of reputable partial brokers such as Charles Schwab, TD Ameritrade, Interactive Brokers and ETrade.

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Learn options to buy stocks directly. These programs allow investors to buy shares directly from the company of their choice. There are two programs to choose from: the direct investment program (DIP) and the dividend reinvestment program (DRIP). ^{[33] X Research Sources}

These programs allow you to buy stocks without a broker.
These are cheap and easy ways for investors to buy stocks for small amounts periodically. Not all companies offer this option.
For example, Tuan joins the DRIP program that allows him to invest 1 million VND in Coca-Cpa common stock every two weeks. By the end of the year, he had invested 24 million in this stock and paid no commission.
The downside to investing through a DRIP or DIP program is probably the paperwork. If you invest in more than one company, you will have to fill out multiple forms and check the statements of each company.
For example, if you invest in 20 DRIP or DIP programs, you will receive 20 quarterly statements. On the other hand, if you invest 20 million VND every two weeks, you will save a lot of commission fees.

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Open an account. Regardless of which option you choose, the next step is to open an account. You will fill out some forms and perhaps pay a deposit. ^{[34] X Research Source} The information to be filled out will vary according to the option you choose to buy shares.

If you use an all-inclusive brokerage, you should choose a company where you don’t feel shy about sharing your personal financial information. If possible, you should meet with the broker to explain your needs and goals in detail. The more information they have, the easier it will be to address your wishes.
If you use a partial brokerage, you will need to fill out some forms online. ^{[35] X Research Sources} You will need to mail other forms that require a physical signature. In addition, you also have to deposit money depending on the value of the first transaction.
If you invest through a DRIP or DIP program, you must complete both online and physical filings before purchasing shares. You must also make a cash deposit for any transaction prior to execution.

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Place buy order. After setting up an account, your first purchase is quick and easy. However, the details of the steps depend on how you buy shares.

If you use full brokerage services, you just need to call the broker. They will buy stock for you. Your account is already open so they will ask you for the account number. They must make sure that you are one of the account holders. The broker will then confirm the buy order before submitting it to the system. Listen carefully! Brokers are human, so they can make mistakes when placing orders.
If you use a partial brokerage, you must place a buy order online. ^{[36] X Research Sources} When doing this you must follow the instructions carefully. Don’t confuse the stock price with the amount you want to invest. For example, if you want to invest 20 million dong in a stock that costs 10 thousand dong per share, you must NOT place an order to buy 20 million shares. This transaction will cost about 200 billion instead of 20 million.
If you are in a DRIP or DIP program, you can find registration documents on the company’s website. If not, call the company’s shareholders’ office to ask them to send you the papers.

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Keep track of investments. You must know that stocks and the stock market in general are always volatile. Stock prices rise and fall, especially in the short term. If you find one of your investments regularly loses money, it may be time to change your portfolio.

Prices reflect people’s feelings. They will react to rumors, misinformation, expectations and fears, whether true or not. ^{[37] X Research Sources} There is no point in tracking stock prices on a daily or weekly basis if your investment timeframe is a year or longer.
Watching too closely can easily lead to impulsive decisions, and can result in larger losses. You should monitor the stock’s performance over the long term.
You need to be aware that one of the companies you own may have a business problem. For example, if a company loses a major lawsuit or has to compete with a new competitor in the market, prices can drop very quickly. In this case you should sell the stock.

Advice

There are many useful books, magazines, and websites about stocks and the stock market. You should do your own research before buying stocks.
Before buying stocks, you should practice paper trading for a while. Here’s how to simulate stock trading. Track stock prices and record the buying and selling decisions you would make if you were actually trading stocks. Then check if your investment decision is profitable or not. Once you are familiar with the workings of the market, you can buy and sell real stocks. ^{[38] X Research Source}
Invest in a company that you feel is a good fit.

Warning

All investments carry risk. Do not invest more than you can accept to lose.

Steps

Establish a framework for investing

Choose an investment type

Start buying stocks

Advice

Warning

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