How to Invest in Common Stock

The majority of stocks--whether listed on a major exchange or trading over-the-counter--are in the form of Common Stock. Sometimes referred to as shares, Common Stock represents proportionate ownership in a company and entitles the holder to a portion of profits as well as liability for losses up to the entire amount of your investment. Ownership of Common Stock generally includes certain voting rights and may include the right to vote on the members of the board of directors. People invest in Common Stock with the anticipation of capital appreciation as the underlying company grows, and for income provided by dividend payments. Investing in Common Stock is moderately easy to do, but because varying levels of financial risk are involved, it is best to have a plan before you start.

Difficulty: Moderately Easy

Instructions

Things You'll Need:

• Access to investment research
• Telephone or computer with Internet access

1. Determine your investment objectives. Standard objectives may include Capital Preservation, Income, Capital Appreciation or a combination of any of these.

2. Determine the amount of money you have available for investing in Common Stock. Determine whether you will be making a one time investment, or if you are beginning a regular cycle of investing.

3. Determine your level of investing experience, your research ability and your level of confidence in your own ability to make an investment decision. The answers to these questions will determine whether you should rely on the advice of a professional financial adviser and need to engage the services of a full-service broker, or if you are confident enough to make your own investment decisions and can save on commissions by engaging a discount broker or a no frills on-line broker.

4. Instruct your broker to place a Buy order for the stock of the company you have selected. You may specify the price you are willing to pay, which may be lower than the stock is trading. This order will only be executed if someone is willing to sell their stock at that price. If no sale is made, the order will typically be canceled at the end of the day. You may also place the order At The Market and the trade will be made at the price the stock is currently selling at or slightly higher.

5. Investigate the employee benefits plan where you work. Many companies allow their employees to purchase shares of their Common Stock without paying a brokerage fee.

6. Research Common Stock mutual funds with similar investment objectives. Many mutual funds may be purchased directly from the mutual fund company without a brokerage fee. Mutual funds have the advantage of broad diversification and professional management to help reduce risk and provide a more stable rate of return.

Tips & Warnings

• There are more than 11 thousand publicly traded companies in North America.
• Historically, Common Stock has averaged an 11 to 12 percent real rate of return.
• Best investment advice: Don’t put all your eggs in one basket.
• All stocks involve risk. Your original investment is not guaranteed, and it is possible to lose some or all of your investment.

Resources

• New York Stock Exchange