What’s the Point of Buying Business Shares?
Buying stocks is a way to diversify your savings and find more profitable investments. Also, it can be wise for investors looking for diversification and a long investment horizon—namely, five years minimum in order not to be too exposed to stock market fluctuations. Even so, buying business shares is not without risk. Before venturing into it, it is advisable to master the functioning of the stock market and understand its vagaries. Furthermore, as in any investment, the alert rule requires that you invest only the sums of money that you are ready to lose.
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Who Can Buy Business Shares?
Anyone can buy business shares. Listed securities can be acquired in two markets:
- the primary market, on which a company is listed on the stock market and offers shares for the first time at an issue price established in agreement with the authorities responsible for regulating the market
- the secondary market, on which investors trade shares at a price fluctuating according to supply and demand
The investor has two means at his disposal to buy business shares: invest directly, via a BEA or a securities account, or go through collective investment, through a manager who takes care of creating and managing a portfolio.
If a trader chooses to buy shares directly, the investor will manage his stock portfolio, deciding alone which securities to buy or sell. This strategy is time-consuming and involves staying informed about economic activity in the broad sense of targeted companies in particular. Since a share is nothing other than a share of the capital of a company, buying shares amounts to investing in a company and, therefore to receiving dividends if the latter makes profits. Why finance guru Warren Buffett recommends investing only in what we know, in terms of the envelope, the investor wishing to buy shares directly must have an account opened with a financial institution (bank, broker, etc.). Two main types of accounts are possible: the securities account or the PEA.
Like life insurance, securities accounts involve account maintenance fees, which must be kept in mind when choosing the best offer offered by establishments. Similarly, brokerage fees are charged to the investor for each stock market order placed with the intermediary, that is to say, each request to buy or sell for a specific action. However, collective investment also incurs costs since the investor must then pay entry fees and running costs.
Buy Business Shares Through a Low-Cost Broker
The rise of the Internet has allowed the emergence of low-cost online brokers. They offer to execute all trading orders placed online from a computer, tablet, or smartphone. Most low-cost brokers have meager commissions, usually less than $20.
Some even offer to acquire shares at no additional cost under certain conditions. Indeed, other transactions may prove to be profitable, the treatment of dividends for example.
Low-cost online brokers allow individuals to manage their portfolio themselves while benefiting from advice and tools to help securities research. However, it is necessary to open an account, and make a deposit that the broker will invest in the securities chosen by his client. The minimum amount of this deposit varies between $500 to $1000.
The chosen intermediary must have a license and be authorized to operate.
Buy Business Shares Through a Full-Service Broker
Full-service brokers offer identical services to those of their low-cost counterparts. However, having their commission, they encourage their customers to buy, as to sell shares, even if it is not necessarily in their interest.
Extreme vigilance is therefore very advised, despite the advantages of the offers of full-service brokers (market analysis, paid streaming tools to see the evolution of shares in real-time, etc.). Beginning shareholders, in particular, are urged to pay extra attention.
Conclusion
Buying your first stock should be the beginning of a lifelong adventure of successful investment. If things turn wrong, keep in mind that every investor passes through rough patches. To come ahead in the long run, you have to invest in mutual funds, concentrate on things you can take control, make sure you have the right tools, and choose the proper brokerage account.
