Luisa Rollenhagen is a journalist and investor who writes about financial planning for Wealthsimple. She is a past winner of the David James Burrell Prize for journalistic achievement and her work has been published in GQ Magazine and BuzzFeed. Luisa earned her M.A. in Journalism at New York University and is now based in Berlin, Germany.
Buying stocks and shares online is easier than ever. With a wide variety of online brokerages and trading platforms at your disposal, you’ll be able to buy stocks at much lower fees than you would with a traditional financial planner.
How to buy stocks and shares online
Thanks to online shopping, you can buy stocks and shares as easy as you as you can buy a fifth Pokémon figurine (It's for our nephew!). Here's how to do it:
1. Open an account online
If you want to buy something online, you’re often going to have to open an account on the site where you’re buying. The same goes for stocks. Regardless of whether you buy online or in real life, you’ll need to go through a brokerage or a robo-advisor. Online brokerages and investment platforms are plentiful and generally have lower fees than a brick-and-mortar bank. But it’s still worth taking some time to research what’s out there and compare fees, account minimums, and whether the firm charges commission for trades. Some investment platforms offer no account minimums and commission-free trades.
When you open a brokerage account you'll have to pick stocks yourself and you won't have access to any advice. When you invest with a robo-advisor they pick investments for you and reinvest your dividends. Many offer advice over the phone. Once you’ve chosen the online investment platform suits your needs, signing up is a breeze. Usually you just need a home and work address, a phone number and a social security or social insurance number. You’ll probably also want to connect your bank account so you can add money to start investing.
2. Set a budget
Once you know which investment platform you’re going with, you’ll have to decide how much money you want to spend. Remember: Investing in stocks has its risks, since they are by nature volatile and can rise and fall suddenly. Many investors see government bonds as a “safer” option however in the past their returns have generally been lower. Always remember that past performance is no guarantee of future results. So set a certain amount of money aside each month that’ll go towards your portfolio, and be prepared to leave that money untouched for quite some time. The market will have its ups and downs, but leaving your investments alone will help you withstand those highs and lows, making it less likely you'll need to take your money out in a down turn.
3. Choose your stocks
Now’s the time to pick your players. Here’s where you’ll need to do a bit of research to see what kinds of companies you want to be investing in. If you’re familiar with the market and with certain companies, you can simply pick and choose the stocks that you want to invest in and create your own portfolio. But keep in mind that even Warren Buffett, the godfather of investing, said that focusing too much on individual stocks is not a strategy he’d recommend: “The goal of the non-professional should not be to pick winners... but should rather be to own a cross-section of businesses that in aggregate are bound to do well.”
So start looking into different sectors to get a good selection across the market, and keep in mind the 5% Rule, which states that no one investment or sector should account for any more than 5% of an entire investment portfolio. That’ll ensure that you stay diversified—a core tenant of investing. For those of us who might not be so sure, or don’t have the time to do some in-depth research on all the companies we could buy stock in, you can invest in a mutual fund or bundle your portfolio in ETFs (exchange traded funds). Mutual funds are portfolios that are managed by a fund manager and contain stock from various segments of the market. ETFs trade on exchanges just like individual stocks, but many contain dozens or even hundreds of stocks. That way, you’re getting a diversified slice of the market and reducing your risk.
4. Decide how many shares to buy
Once you’ve decided what companies or ETFs to buy stock from, choose how many shares you want. This will depend on your budget and your portfolio. In some cases, a single share of a company like Amazon or Alphabet might be a bit out of reach for the average investor—some stocks trade for a cool $1,000 a share. So fractional shares—the most common being ETFs—are a great way to invest in major companies that would otherwise be too expensive.
5. Choose your stock order type
So you’ve chosen your stock, and how many shares you want. Now it’s time to proceed to checkout. Before you hit that “purchase” button, you’re going to have to choose your “order,” or the kind of trade you want to make. The most common is a market order, which is a request to buy or sell a stock at the price it’s currently listed as on the market. But some traders might also choose to buy a stock only when it hits a specific price. This is known as a limit order.
6. Buy your stock
Now that you’ve got all the details ironed out, it’s time to hit that “trade” or “place order” on your brokerage’s website, and you’re done! Congratulations, you are now a stock owner.
You can buy stocks online through an online brokerage, a financial planner, a robo-advisor, or through a trading app. All of these provide a similar service that allow you to easily choose the stocks, mutual funds, or ETFs you want to buy and purchase them with a linked bank account.
Where to buy stocks online
There are plenty of places where you can buy stocks and build a diversified portfolio. The most common is an online brokerage or online trading platform, where you open an account, link it to an existing bank account, and start building up your portfolio.
You can also choose to use an online financial advisor, which is going to usually be more expensive than a simple trading platform. Online financial advisors will develop a portfolio for you and give you advice on how to manage your money.
If the fees of a financial advisor are a bit too steep for your taste and wallet, you might want to consider its more affordable cousin, the robo-advisor. Robo-advisors are basically automated investment services that will do the job of wealth managers or investment advisors by using sophisticated algorithms to help you pick stocks and create a portfolio based on your financial goals and your risk tolerance. Robo-advisors are usually lower in fees, since they tend to offer commission-free trading and usually create portfolios consisting of inexpensive ETFs. With a robo-advisor, you can also manage your portfolio entirely online, which is a pretty big plus for those of us who get minor anxiety at the though of picking up the phone and having to talk to another human being.
Another option that’s especially beginner-friendly are stock trading apps like Stash or Acorns, which allow you to get your start in trading in a low-key, low-stakes way. These also tend to be free. They usually invest your money in ETFs. The downside with these apps is that they’re not necessarily designed for managing large assets. Instead, think of them as training wheels for your investment journey, or as smaller supplements to other investments.
How to buy stocks online for free
Although getting bespoke professional advice is still going to cost you, especially if you go with a financial advisor, it’s easier than ever to buy stocks online for free. With the proliferation of online trading platforms and the rise of robo-advisors in particular, the options to buy stocks commission-free has gained traction and is allowing more people to enter the stock market.
It is also possible to buy some stocks directly from companies like Coca-Cola through direct stock purchase plans (DSPPs). Because you’re not going through a brokerage, there’s no commission to pay—although you will need a broker if you want to sell those shares later. DSPPs can be an attractive choice for investors interested in a specific company, though they should be a relatively small percentage of your portfolio. Another option for getting more stocks without the price tag? Enroll in a dividend reinvestment program (DRIP), which re-invests any dividends you earn from a stock right back into the company, thereby buying you more shares.
Note that commission-free trading doesn’t mean free trading. You’ll probably still have to pay yearly maintenance fees. Be sure to read the fine print for any other extra charges for services like portfolio rebalancing and reviews. Luckily, there are choices out there that offer free perks like portfolio reviews, portfolio rebalancing, and features like dividend reinvestments to make sure your investments are in good hands.
Has all this talk about stocks made you keen to get started? Still have questions? That’s normal, and we’re here to help. Wealthsimple will help you plan for your financial future and get you acquainted with the ins and outs of investing, all at a low cost and with professional financial advice. Sign up here to get started.