How to Buy Stocks: A Beginner's Guide

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Do you want to buy stocks but feel at a loss on where to start? Many beginners aim to build long-term wealth through stock investments, leveraging the power of compound interest to grow their funds. You can consider the following reasons to think about why you should start investing:

• Investing in stocks is a reliable way to build long-term wealth.
• Early investment contributes to wealth accumulation due to the effect of compound interest.
• The stock market offers an average annual return of about 10% for patient investors.

Before taking action, you need to understand your financial situation, investment goals, and risk tolerance. These preparations will help you take the first step in buying stocks with greater confidence.

Key Points

• Investing in stocks is an effective way to build long-term wealth, and early investment can leverage the power of compound interest to accelerate wealth growth.
• Before buying stocks, clarify your financial situation and investment goals to help you create a reasonable investment plan.
• Understand your risk tolerance and use risk assessment tools to stay calm and avoid emotional decisions.
• Simulated trading can help you become familiar with the buying and selling process, boost investment confidence, and reduce errors in actual operations.
• When choosing a suitable broker, pay attention to service scope, trading tools, and fee structures to ensure smooth investing.

Pre-Investment Preparation

Finances and Goals

Before buying stocks, you must first clarify your capital and investment goals. Only by understanding your financial situation can you plan your investment amount reasonably, avoiding over-investment that affects daily life. Many beginner investors set the following goals:

• Saving for retirement
• Buying a house
• Building long-term financial stability
• Children’s education

You can choose one or more goals based on your actual needs. With clear goals, you’ll be more motivated to stick to your investment plan.

Risk Assessment

Investing in stocks involves risks. You need to understand your risk tolerance. Different people have different levels of risk acceptance. You can use some common risk assessment tools to help you evaluate:

You can choose one or more methods to seriously evaluate your risk preference. Only by understanding your risk tolerance can you stay calm during market fluctuations.

Simulated Stock Trading

If you’re new to stock investing, you can start with simulated stock trading. Many investment platforms offer simulated trading accounts. You can use virtual funds to operate and experience the real buying and selling process. This way, you can familiarize yourself with basic operations like placing orders and checking positions without financial risk. Simulated trading also helps you identify your investment habits and psychological reactions, laying a foundation for actual investing.

Tip: It’s recommended to record the reasons and outcomes of each operation in simulated trading to improve your investment skills faster.

Stock Basics

Stock Concept

When you buy stocks, you’re actually purchasing partial ownership of a company. Stocks represent a portion of a company’s ownership. Owning stocks means you own a certain percentage of the company. This includes the company’s assets, such as chairs, vehicles, and buildings, as well as a portion of the company’s profits.

• Owning stocks means you become a shareholder of the company.
• You can participate in company dividends and enjoy profits from the company’s growth.
• You have the right to attend shareholder meetings and vote on major company matters.

Tip: Even if you hold just one share, you’re considered a partial owner of the company, but your actual influence depends on the number of shares you hold.

Profit Methods

You can earn profits from stocks in two main ways:

• Dividends: After a company makes a profit, it may distribute a portion of it to shareholders. You’ll periodically receive cash or additional stocks as a return.
• Capital Appreciation: When a stock’s price rises, you can sell it at a higher price to earn the difference. This is called capital gains.

When investing, you can choose to focus on companies with stable dividends or those with strong growth potential and rising stock prices. In the U.S. market, many investors flexibly combine these two profit methods based on their goals and risk preferences.

Tip: Before buying stocks, it’s advisable to understand different companies’ dividend policies and historical stock price performance to make more informed investment decisions.

Opening an Account to Buy Stocks

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Choosing a Broker

To buy stocks, the first step is to choose a suitable broker. A broker is the bridge between you and the stock market. You need to use a broker’s platform to place orders, manage your account, and check market data. When choosing a broker, you can focus on the following aspects:

• Service Scope: Some brokers support trading in multiple markets like U.S. stocks and Hong Kong stocks, while others support only a single market.
• Trading Tools: High-quality brokers provide rich analytical tools and real-time market data to help you make smarter decisions.
• Customer Service: The responsiveness and professionalism of a broker’s customer service are crucial when issues arise.
• Fee Structure: Different brokers have varying commissions, platform fees, and other transaction costs. You need to understand these in advance to avoid high fees impacting your investment returns.

You can refer to the table below to understand common fee items for major brokers and related institutions:

Tip: When choosing a broker, don’t just look at commissions; also consider platform fees, stamp duties, and other costs. For long-term investments, these fees can affect your overall returns.

Account Opening Process

After selecting a broker, you can follow these steps to complete the account opening:

1. Prepare Documents: You need to prepare identification (e.g., passport), proof of address (e.g., bank statement), and contact information. Some brokers may also require tax information.
2. Online Application: Most brokers support online account opening. You just need to fill in personal information on the broker’s website or app and upload photos of relevant documents.
3. Identity Verification: The broker will verify your identity through video witnessing, SMS verification, or third-party authentication.
4. Risk Assessment: You need to complete a risk tolerance questionnaire. The broker will recommend suitable investment products based on your answers.
5. Sign Agreements: You need to read and sign agreements online, including account agreements and risk disclosure statements.
6. Account Activation: After approval, you’ll receive account information. Some brokers may require an initial deposit to activate the account.

Note: The account opening process may vary slightly depending on the broker and region. You can consult the broker’s customer service in advance to ensure all preparations are complete.

Post-Account Opening Preparation

After opening an account, you need to make the following preparations to buy stocks smoothly:

1. Research Investment Options: You can use the broker’s platform analysis tools to understand different companies’ fundamentals and market performance. Doing your homework helps you select stocks that suit you.
2. Develop a Trading Plan and Exit Strategy: You need to set conditions for buying and selling in advance, such as buying at a certain price or selling when losses reach a certain percentage. This helps control risks and avoid emotional decisions.
3. Familiarize Yourself with Order Types: You can learn the differences between market orders, limit orders, and stop-loss orders. Market orders allow quick transactions at the current price, limit orders help control the buying or selling price, and stop-loss orders automatically sell when the stock price drops to reduce losses.
4. Fund Management: You need to allocate investment funds reasonably and avoid investing all your capital at once. Buying in batches can reduce risk.

Suggestion: Before buying stocks, practice placing orders and managing positions with a simulated account. This helps you get familiar with the process and boosts confidence.

Stock Selection Methods

Fundamental Analysis

When buying stocks, you should first learn to analyze a company’s fundamentals. Fundamental analysis helps you assess a company’s true value. You can focus on the following key metrics:

• Revenue and Profit Growth: Observe whether the company’s revenue and profits are consistently growing.
• Valuation: Compare metrics like Price-to-Earnings (P/E) and Price-to-Book (P/B) ratios to determine if the stock price is reasonable.
• Management and Corporate Governance: Understand the capability and integrity of the company’s management team.
• Economic and Industry Factors: Consider how macroeconomic changes like inflation rates and GDP growth affect company performance.
• Debt Levels: Focus on the company’s Debt-to-Equity (D/E) ratio to assess its ability to repay debts.
• Return on Equity (ROE), Return on Assets, and Earnings Per Share: These metrics reflect the company’s profitability.
• Dividend Yield: Understand the company’s dividend policy to assess long-term holding potential.

Tip: You can find this data on broker platforms or financial websites and combine multiple metrics for a comprehensive evaluation.

Market Trends

You also need to learn to analyze market trends. Market trend analysis helps you time your buying and selling. Common methods include:

• Technical Analysis: Predict future trends using historical price and volume data.
• Moving Averages: Smooth price fluctuations to identify trend directions.
• Relative Strength Index (RSI): Determine if a stock is overbought or oversold.
• Bollinger Bands: Analyze price fluctuation ranges to identify breakout or decline signals.
• Fibonacci Retracement: Identify potential support and resistance levels.

You can combine these tools to assist your investment decisions.

Avoid Herd Mentality

When selecting stocks, maintain independent thinking. Don’t blindly follow others’ stock purchases. Everyone’s investment goals and risk tolerance differ. You should make decisions based on your own analysis and judgment. Blindly following the crowd can lead to buying at highs and selling at lows, increasing loss risks.

Suggestion: Develop your own stock selection criteria and stick to them long-term to avoid emotional decisions.

Stock Buying Process

When formally buying stocks, you need to master order placement, buy instructions, and position monitoring. Familiarizing yourself with these processes helps you complete transactions smoothly and improve investment efficiency.

Order Types

When placing orders on a trading platform, you can choose different order types. Each type suits different scenarios. The table below summarizes common order types and their characteristics:

Tip: When choosing an order type, adjust flexibly based on your trading goals and market conditions. Limit orders help control costs, while market orders ensure transaction speed.

Buy Instructions

When placing buy orders on a U.S. stock trading platform, you typically follow these steps:

1. You need to open a U.S. brokerage account. Choose a compliant broker platform and prepare identification and proof of address.
2. After account activation, log into the trading platform and select the stock you want to buy.
3. Choose the order type, such as market or limit order. Enter the purchase quantity and price (if using a limit order).
4. Confirm the order details and submit the buy instruction. The system will match the order based on your chosen type.
5. Check the order status in the order history. Market orders usually execute immediately, while limit orders execute only when the market price reaches your set price.

Suggestion: Before placing an order, double-check the stock code, purchase quantity, and price to avoid losses due to errors.

Monitoring Positions

After buying, you need to regularly monitor your positions. Most U.S. stock trading platforms offer portfolio management and position tracking functions. The table below lists common position management tools and their main functions:

You can check the current market value, profit/loss status, and historical transaction records of each stock in real-time on the platform’s “Positions” or “Portfolio” page. Some platforms also provide chart analysis and risk assessments to optimize your investment decisions.

Tip: Regularly review your positions and adjust your portfolio structure to reduce risks from single stocks.

Portfolio and Risk Management

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Asset Allocation

When investing, proper asset allocation can help you diversify risks. Different goals require different allocation strategies.

• If you have long-term goals, like retirement, you can allocate more funds to stocks to pursue higher growth potential.
• If you have short-term goals, like major expenses in 2-3 years, you can prioritize liquidity and low risk, placing funds in high-yield savings accounts or money market accounts.

You can refer to the following common asset allocation methods:

1. Stocks: Higher risk but high long-term returns, suitable for long-term investments.
2. Bonds: Lower volatility and moderate returns, suitable for nearing goals.
3. Cash and Cash Equivalents: Safest with the lowest returns, suitable for short-term goals.

You can flexibly adjust the asset allocation ratio based on your actual needs and risk tolerance.

Stop-Loss and Take-Profit

During investing, stop-loss and take-profit strategies are crucial. Stop-loss helps you maintain discipline during market fluctuations and avoid emotional decisions.

• You can set a stop-loss point for each investment, such as selling automatically when losses reach 15% to 20%, protecting your capital while allowing for market fluctuations.
• You can also adopt the 2% rule, ensuring the maximum loss per investment doesn’t exceed 2% of your total portfolio.
• Keep the stop-loss ratio for each position below 20% to reduce frequent stop-losses due to short-term fluctuations.

Setting stop-loss and take-profit points in advance helps you better control risks and protect investment returns.

Investment Mindset

When investing, maintaining a good mindset is equally important. Many beginner investors are easily influenced by psychological factors. The table below summarizes common psychological factors and their impacts:

You may overestimate your judgment due to overconfidence or miss opportunities due to conservatism. You may also be influenced by availability bias, focusing only on readily available information. Staying calm, patient, and continuously learning can help you reduce these psychological pitfalls and make more rational investment decisions.

Common Pitfalls

Following the Crowd

When investing, you often see hot stocks or investment opportunities discussed online. Many beginners blindly follow the crowd without conducting their own analysis and judgment.

• Relying on Heuristic Decision-Making
• Overconfidence
• Herd Behavior
• Gambler’s Fallacy
• Representativeness Bias

These common psychological pitfalls can lead you to make decisions without thorough research. You may follow others’ profits, buying at highs and facing greater risks.
The table below shows potential consequences of blindly following the crowd:

Suggestion: Before investing, maintain independent thinking and align with your goals and risk tolerance to avoid blindly following the crowd.

Relying on News

You may frequently follow market news, social media, or rumors, trying to seize every “opportunity.” This approach can lead to overtrading and chasing short-term trends.

• Overtrading increases unnecessary transaction costs, reducing overall returns.
• Chasing trends may cause you to overlook a company’s fundamentals, leading to flawed investment decisions.
• Over-focusing on daily headlines may make you lose sight of long-term goals, selling high-quality assets prematurely.
• When market news is frequent, you may develop “fear of missing out,” buying unsuitable stocks at highs.

Research also finds that the emotional tone of online rumors affects your investment intentions. Information conveying happiness and trust may prompt impulsive buying, while anger and fear may make you hesitant. You need to be cautious of emotions affecting decisions and stay rational.

Tip: Base decisions on a company’s financial data and long-term performance, reducing reliance on short-term news.

Facing Losses

You’ll inevitably encounter losses during investing. Staying calm and rational when facing losses is crucial. You can adopt the following practices:

• Adopt a long-term mindset, leveraging the market’s long-term upward trend.
• Avoid day trading to reduce high-risk operations.
• Develop an exit strategy, set stop-loss orders, and periodically evaluate investment fundamentals.
• Maintain emotional stability, create a clear investment plan, and avoid frequent market checks.
• Understand your risk tolerance and adjust your portfolio structure.

Only by adhering to these principles can you protect your capital during market fluctuations and gradually build investment experience.

Learning the Basics

Learning Resources

To improve your stock investment skills, you can start with various learning resources. Systematic learning of basic knowledge helps you better understand market operations and investment logic. Here are common learning resources for beginners:

• Read authoritative guides, such as Understanding the Stock Market: A Beginner’s Guide. Such “Stocks 101” content helps you understand basic stock market concepts, operations, and beginner investment methods, even with limited funds.
• Use online resources and tools. The NEA Member Benefits website offers rich resources and tools, including a retirement glossary and information on allocating stocks and bonds reasonably.
• Take online or offline investment courses. You can choose courses related to the U.S. stock market to systematically learn investment theory and practical skills.
• Follow professional financial websites and investment communities to stay updated on market trends and investment case studies.

Suggestion: Combine reading, courses, and practical exercises to enhance your investment literacy from multiple perspectives.

Key Terms

When learning stock investing, mastering common terms is essential. The table below lists some common basic terms in the U.S. stock market and their brief definitions:

You can refer to these terms repeatedly during learning and operations to build your investment vocabulary. Mastering basic terms helps you quickly understand U.S. stock market information and investment reports.

You’ve now learned the basic process of buying stocks. Keep the following points in mind:

• The market rewards those with patience. You don’t need to feel pressured by others.
• Stick to your investment process and avoid being swayed by news.
• Accept fluctuations and setbacks, continuously learning and refining your methods.
• Focus on long-term goals, reduce frequent trading, and lower costs.
• Let compound interest work for you to gradually build wealth.

Investing involves risks. You can start with small, diversified investments to gradually gain experience. Take the first step now and begin your journey to wealth growth!

FAQ

How much capital do you need to start buying U.S. stocks?

You can start investing in U.S. stocks with very little capital. Many brokers allow you to buy fractional shares with as little as 1 USD. You can decide the investment amount based on your situation.

What documents are needed to buy U.S. stocks?

You need to prepare identification, proof of address, and contact information. Some brokers may also require tax information. Ensure all documents are valid during account opening.

How soon can you sell U.S. stocks after buying?

You can sell stocks anytime after the transaction settles. The U.S. market supports T+0 trading, allowing you to buy and sell the same stock on the same day.

What fees are required for investing in U.S. stocks?

You need to pay commissions, platform fees, and some transaction taxes. Refer to the broker’s fee schedule for specifics. Fees can affect your returns in long-term investments.

Is there a minimum holding requirement for U.S. stocks?

Most U.S. stock brokers have no minimum holding requirements. You can flexibly adjust your position proportions based on your funds and investment plan.

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