 Personal Finance Powerpoint Presentation. How to buy and sell stocks. Prepare to get financially fit by practicing personal finance. Most of this information comes from Investopedia. How to buy and sell stocks for your account, which you can find online. Take a look at the references, resources, continue your research from there. This by Adam Hayes, updated March 8th, 2022. In prior presentations, we've been looking at investment goals, investment strategies, investment tools. Keeping them in mind, we're now asking how to buy and sell stocks for your account. Now remember, as we're thinking about buying and selling stocks, we've talked about in prior presentations, first freeing up the cash or thinking about when we have the cash flow necessary. For example, paying off the debt, having the cash flow, deciding where to put the cash flow at that point in time in terms of investments, which might be savings accounts, CDs, stocks, bonds, for example. Many people, when they first get a real look at their investments, are going to do so under the umbrella, say, of a 401k plan, or an IRA, often utilizing the tools of mutual funds and ETFs, which are a little bit different than simply buying individual stocks. We've talked about that a little bit in prior presentations as well. You can be using mutual funds, index funds, ETFs, for example, outside of an IRA or a 401k plan as well. When you're thinking about buying individual stocks, then that's something that's going to be a little bit different, but similar in nature in that we're dealing with trying to invest basically in the stock market. Keeping that in mind, to buy stocks, you'll typically need the assistance of a stock broker since you cannot simply call up a stock exchange and ask to buy stocks directly. So typically, we've got the stock broker that is going to be involved and they're going to be acting on your behalf, facilitating the trade and so on. When you use a stock broker, whether a human being or an online platform, so notice these days you may be able to access a stock broker function through an online platform, which hopefully could cut down costs in some cases if you want to take that route. You can choose the investment that you wish to buy or sell and how the trade should be handled. So in this vein, there are two broad categories of brokers to choose from. You've got a full service broker or an online discount broker. Below we discuss how you can use these options to trade stocks on your own. So we'll also talk about a third option, the direct stock purchase plan. That's the DSPP, whereby investors can obtain shares directly from certain public companies. So where to buy stocks? Most of the time stocks are listed and traded on exchanges. We've talked about exchanges in prior presentations, noting that when companies or corporations get to a certain size, they might want to generate capital, get more money, for example, for them to grow faster. One way to do that is to try to get money from the public by issuing, say, stocks to the public. In order to do that, they would typically want to get on an exchange because the exchange will help to facilitate those types of transactions, but to do so, they're going to have to adhere to regulations of the exchange, such as standardizations of reporting and so on, so that people can trust the information provided on the exchanges. So when we're trying to invest as individual investors, we're often not going to the company and basically doing a personal audit of the company to determine if they're worthy of our money. We're depending in large part on the information provided through the exchanges, including the financial information and so on at that point. So most of the time, stocks are listed and traded on exchanges, licensed venues where buyers and sellers meet, often with the assistance of a broker or other intermediary. So these intermediaries will be members of the exchange and use their access to buy and sell shares on your behalf. Major exchanges in the United States include the New York Stock Exchange, the NYSE and the NASDAQ market. Smaller companies with less liquid shares and minimal market caps, some type called penny stocks, may alternatively trade over-the-counter OTC on more loosely regulated platforms, such as the OTC pink sheets. Shares of these companies are often more volatile and risky, so investors choosing to trade on the OTC market should engage in extra due diligence and understand the risks involved. So when you're looking at the over-the-counter markets, you don't have as much regulation over them, so you need to be more mindful and careful in those instances. So buying stocks with a full-service broker. Full-service brokers are what some people visualize when they think about investing, well-dressed business people sitting in an office and chatting with clients. These are the traditional stockbrokers who will take the time to get to know you personally and financially. They will look at factors such as a marital status, lifestyle, personality, risk tolerance, age, time horizon, income, assets, debt, and more. So you're getting the full kind of scope of someone trying to help your whole financial and, you know, kind of picture or outlook while constructing a financial plan in that instance. By getting to know as much about you as they can, these full-service brokers can then help you develop a long-term financial plan. These brokers can not only help you with your investment needs, but also provide assistance with estate planning, tax advice, retirement planning, budgeting, and any other type of financial advice. So oftentimes this kind of financial planning is going to be more and more necessary as we get more and more high-net-worth individuals because the investments themselves become more complex, the taxation related to it becomes more complex, and then you have got estate planning and so on that also can add a significant level of complexity if it's subject to estate planning. So hence the term full-service. They can help you manage all your financial needs now and long into the future and are for investors who want everything in one package. In terms of fees, full-service brokers are more expensive than discount brokers, but the value of having a professional human investment advisor by your side can be well worth the additional costs. So it kind of depends where you are financially and how much time and effort and knowledge you have and want to put in to your own personal investment strategies. Accounts today can be set up with as little as $1,000. Most people, especially beginners, would fall into this category in terms of the type of broker whom they require. Buying stocks online, online discount brokers on the other hand, do not provide any investment advice and are basically just order takers. So you might be saying, hey, look, I would like to do my own kind of investments. I want to facilitate my own trades. I'm not looking for advice on what trades I want to do. I just want to facilitate the trades that I've already determined what I want. So they are much less expensive than full-service brokers since there's typically no office to visit and no certified investment advisors to help you. So cost is usually based on a par transaction basis and you can typically open an account over the internet with little or no money. Once you have an account with an online broker, you can usually just log on to its website and into your account and be able to buy and sell stocks instantly. Remember that since these types of brokers provide absolutely no investment advice, stock tips, or investment help of any kind, you're on your own to manage your investments. So again, this would be something that you're saying, I'm going to do my own kind of investment strategy. I just need something to facilitate the trades. Clearly, if you're talking to someone or you're using a type of broker, a type of system that's just facilitating the trades, they almost are inclined to or would want to have a complete hands-off system because they don't want to be liable for giving bad advice or anything like that, whereas if you're talking to a full financial planner type of broker, their job is to give advice and they're taking on that risk and so on in doing so in that instance. And of course, they're going to be paid to be doing that. So the only assistance that you will usually receive is technical support. So clearly, if you're looking at this case, you're trying to find something that's just facilitating the trade and you're looking if there's a problem or technical support to help you facilitate the trade, not support in terms of should I make this trade. So online discount brokers do offer investment-related links, research and resources that can be useful. So you might have other resources that they're going to be linking you to and so on. But again, you would think them themselves are going to try to distance themselves from giving advice that could possibly get them sued or anything like that. So if you feel that you are knowledgeable enough to take on the responsibility of managing your own investments or if you don't know anything about investing but want to teach yourself, then this is the way to go. The bottom line is that your choice of brokers should be based on your individual needs. Full-service brokers are great for those who are willing to pay a premium for someone else to look after their finances. So again, we've talked a little bit about different kind of investment strategies when you take into consideration things like, for example, mutual funds and ETFs, which can be a way to kind of diversify your portfolio. And we've got these questions as to whether or not and when a full-service broker could be useful or more advantageous. Can they beat the market? Can the stock picking do better than basically an indexed portfolio, for example, or even a fund indexed type of fund system? And then of course when you get into more high net worth individuals, you have other questions with regards to financial planning, like estate planning, and so on. So online discount brokers, on the other hand, are great for people with little start-up money and who would like to take on the risks and rewards of investing upon themselves without any professional assistance. Buying stocks via a direct stock purchase plan. Sometimes companies, often blue-chip firms, will sponsor a special type of program called a direct stock purchase plan, the DSPP. DSPPs were originally conceived generations ago as a way for businesses to let smaller investors buy ownership directly from the company. Participating in a DSPP requires an investor to engage with a company directly instead of with a broker, but every company's system for administering a DSPP is unique. Participating companies will often will offer their DSPP through transfer agents or another third-party administrator to learn more about how to participate in a company's DSPP and investors should contact the company's investor relations department. How to trade once you have a broker. So once you've chosen your broker platform, you will need to establish and fund an account before you can begin trading. So clearly you're going to need the money in some way to be funding the account in order to facilitate the trades. Today, it's easier than ever to link a bank account online and transfer funds to electronically roll over an existing brokerage account to another firm. So some of the issues that you might have when you're dealing with an online broker and so on is you might be saying, first, how do I get the initial money? You can link the bank account a lot more easily these days. Two, you might be moving from one place to another and you're trying to roll over from one broker to another. Now, even if you're dealing with automated brokers, you might be able to obviously, if you're dealing with a full-service broker, you can actually contact them and they're going to be very motivated to roll over and help you with that process of rolling over the money into the under their current management system. But even if you're using somewhat automated brokerage kind of systems, they are also still kind of motivated to help you to roll over the money to their brokerage system as well. So that is actually beginning easier and easier to do. You can also choose to make reoccurring deposits into your brokerage account to increase your portfolio on a regular basis. Now, this is common for people that they want just a fixed amount that's going to roll in in some way so you can kind of automate a lot of things these days a lot more easily so that it can roll into possibly a brokerage account, possibly even roll into an investment, possibly into a mutual fund or something like that on a periodic basis. Once funded, you simply need to go online or call your broker to place a trade. Stocks are designated by a unique ticker symbol. So when we think about different stocks, you can say the name of the company, you want the ticker symbol to be helping out to determine the individual stocks. It's a one to four letter mnemonic assigned to a particular company. MSFT, for instance, is the ticker for Microsoft Incorporated and AAPL is the ticker for Apple Incorporated. If you don't know the ticker of your stock, it is easy to look up online or via your broker. So you can easily find that these days using the interwebs. When you select the stock ticker that you would like to trade, you'll be met with a price quote, a set of information about the stock's price and activity. So remember that we're on an exchange when we're thinking about an exchange because the stocks are all basically the same in nature. You can see what the stocks have been trading for and that will help determine what the current market price of the stocks are given the fact that again, they're all kind of the same in nature. So this will show you the last price at which the shares traded, as well as a bid and an offer. The bid is the highest price at which somebody in the market will buy a share and thus is the best price at which you can sell to them. The offer or ask is the lowest price at which somebody in the market is willing to sell and thus is the price at which you can buy from them. The difference between the bid and offer prices is known as the spread. The narrower spread typically indicates the market for the stock is quite active and liquid. So you can imagine if the spread is pretty close, those two things are close together. More trading would be happening, you would think. A wider spread indicates the opposite after considering the price quote, market orders are the most basic type of order and will give you immediate execution at the prevailing market price. A limit order on the other hand allows you to set a specific price at which to buy or sell. If the price never reaches that limit level, then the trade will remain active until it is canceled. Many such trades are day orders that will remain good until the end of the trading day. If you want the order to be active only briefly, you can instead specify with your broker that it is immediate or cancel IOC. Alternatively, if you want the order to remain in force for longer than a day, you can designate it a good till canceled GTC. Other conditions can also be placed on an order such as stop loss. Once your trade is executed in whole or in part, you will receive a fill, a summary of your orders details. How old do you have to be to trade stocks? You must be at least 18 years old in the United States to open a brokerage account and trade stocks for somebody younger than 18. A parent can set up a custodial account on their behalf. Is it possible to buy and sell stocks for free? Yes, several online brokerage platforms such as Robinhood offer commission free trading in most stocks and exchange traded funds. That's the ETFs. Note that these brokers still earn money from your trades, but by selling order flow to financial firms and loaning your stock to short sellers. What is the easiest way to buy stock? The easiest way in terms of getting a trade done is to open and fund an online account and place a market order. While this is the quickest way to buy stocks, it may not always be the wisest. Do your own research before deciding what type of order to place and with whom? Did you need a broker to buy stocks? Some publicly traded companies offer a direct stock purchase plan. That's the DSPP where you can buy shares directly instead of using a broker that company transfer agent manages the transaction. What's the bottom line then? You can buy or sell stocks on your own by opening a brokerage account with one of the many brokerage firms after opening your account. Connect it with your bank checking account to make deposits which are then available for you to invest in. So remember when you're thinking about trading the stocks, you want to think about your overall financial strategy. Now we're getting into kind of the logistics of how you would actually go through it. Also, make sure that you're keeping in mind the concept of should I be investing in individual stocks as an individual investor? Should I be investing in mutual funds primarily? ETFs primarily? Should I be using managed investments, for example, or managed funds? Or should I be looking more at say index funds? What's my overall strategy? And once you have those kind of overall strategies and components in mind, start to think about how to facilitate that strategy and put that strategy basically into action. So however, do not equate the ease of opening an account with the ease of making good investment decisions. It is generally recommended that beginners speak to a qualified financial advisors. New investors might benefit from reading the key book, The Intelligent Investor by Benjamin Grayham. Smart investing can be highly satisfying. So take it slow, do your research and seek out a broker that suits your interest and goals.