How to Buy Stocks and Bonds

Start investing - buy stocks & bonds

Learning how to buy stocks and bonds is one way to protect your financial future. Historically, stocks and bonds have offered the highest returns on money. Of course, there are always risks when investing, but the extra time you spend researching and developing an investment strategy will lessen the chance of losses. Whether your goal is to accumulate money for your future retirement or to send your children to college, investing in stocks and bonds should be part of your financial portfolio.

Instructions

1. Learn the difference between stocks and bonds and why they are both important instruments in your investment portfolio.

   • Stocks are a way for individuals to share ownership in a company. A share of stock represents an ownership interest and the value of the stock goes up and down depending on a number of factors. Stocks have the greatest opportunity for return if you can "buy low" and "sell high." Some companies pay a dividend, paid quarterly, which is a special payment based on the company's profits.
   • Bonds are debt securities. It is an ownership interest in a loan made to a government, municipality or corporation. In return for this loan, a bond guarantees a specific rate of interest until the loan paid back, known as the maturity date.

2. Do your own research. A lot people will have advice as to what stocks and bonds to buy. Some will want money for that advice, while others will be free with their counsel. Your best bet is to become your own investment advisor and do your own research and analysis. A lot of information can be found on the Internet. Some things you will want to look at:

   • Read annual and quarterly reports
   • Read industry and press releases
   • Listen to conference calls
   • Check out a company's competition
   • What cash or assets does the company have
   • Who is the management and what is their experience

3. Open a brokerage account so you can buy and sell stocks and bonds. Deciding on a broker comes down to how much work you want someone else to do and how much you are willing to pay for it.

   • Full-service brokers offer research and investment, but will cost you higher commission fees.
   • Discount brokers buy and sell stocks and bonds for set prices. They do not offer advice, but usually do make some investment research available.

4. Start investing in mutual funds as a first step to building your investment portfolio. Instead of buying individual bonds or stocks, a mutual funds pool money from investors and invests in stocks, bonds, and/or other securities. There are thousands of mutual funds specializing in different type of investments (i.e., index, large-cap, and small-cap) or types of industry (i.e., healthcare or technology). Some funds may focus in bonds or combine bonds with stocks in a balanced fund. Mutual funds are purchased through brokers or directly from mutual fund companies.

Tips & Warnings

• Many municipal and federal bonds directly through government agencies

• A company's past performance is one criteria for judging whether to buy or not, but it's not a guarantee of future earnings.

Resources

• How to Buy Gold Now