Guest Author - Rhonda Cliett

Stock – A share of stock represents a small ownership in a company. The important thing to remember about purchasing stock is that it involves risk. Over a certain time period the market will most likely decline and the value of your stock will be reduced. Generally, this is a short-term change and over the long-term the value of your stock will rise. As a result, you should only invest money that you will not need for 3-5 years. Stock prices are not guaranteed, so if you cannot handle the risk, do not purchase stock. Are you ready to take the risk? If so, here is what you need to know.

How to Buy Stock – The most common approach to purchasing stock is to select a broker and open a brokerage account. The services provided by brokers vary so you should select a broker that meets your objectives.

• A discount broker is less expensive than a full service broker because they offer less service. For instance, they do not offer investment advice and many have online sites that allow the investor to manage their own account. If you do not mind doing the required research and you are interested in saving money, then a discount broker may be the best choice. Some of the most popular discount brokers are: Charles Schwab, TDWaterhouse, and Scottrade.


• A full service broker offers a variety of investment products such as advice, research, account management, and more. They receive commission based on the number of shares and the dollar amount involved. If you are not comfortable making your own investment decisions then a full service broker may be the best choice. Some of the most popular discount brokers are: AG Edwards, PMG Securities, and Vanguard Capital.


• It is possible to buy stock without a broker. Many companies allow you to buy stock directly from the company through a direct stock purchase plan (i.e. Walt Disney). You can also purchase stock through a Dividend Reinvestment Plan, or DRIP. A DRIP is run by a publicly traded company for its investors. Many times you are only required to purchase one share of stock in order to enroll in the DRIP. Rates vary but there generally is no fee to the investor when the shares are reinvested. Some of the most popular companies offering DRIP’s are: McDonalds, British Airways, and Sony.

How to select a discount broker – You need to compare broker fees and services. An excellent resource is the Motley Fool’s Broker Comparison Table.

How to select a full service broker – Once again, you need to compare broker fees and services. An excellent resource is Smartmoney’s Full-Service Broker Rankings.

You might also enjoy this article: Investing 101.

Do you have a question regarding stocks? If so, follow the link below to post your question in the forum.