4/18/2023
To start investing in shares of the US stock exchanges all you need is a brokerage account, any online brokerage account from any of the brokers operating in the United States will do.
Although opening an account and starting to buy stocks can be simple, it is about starting right and we are going to show you information so that you know how to start investing in the right way.
The most important thing is that you know all the possibilities you have when it comes to investing in stocks and know the market, the stock market and brokers.
When you invest in stocks you buy a share of a company, and that means taking some risks. It is important that you understand the risks and evaluate your investment options before you jump into buying.
Tips before investing in the U.S. stock market
Before you start investing you must first know your financial situation and calculate how much money you want to invest in the stock market, it is about doing the math and see how much of your assets you are willing to risk. Many times it happens that we have to invest in the long term, that means that we cannot use the money we have in shares.
It could also happen that some of our investments go wrong and for example, the company in which we have invested goes bankrupt, we will have to take that into account to invest an amount of money that we do not need in the short term.
A good idea might be to ask yourself what would happen if you suddenly lost all the money you had invested in stocks, would you still be able to survive and cover your expenses? The idea is that if that happened you would be able to get on with your life, so invest in stocks at most the money you can lose without it affecting your daily life.
Investing for the long term
Investing in the stock market has proven to be one of the best ways to increase wealth over the long term. For several decades, the average stock market return in the United States is around 10% per year.
However, remember that this is only an average of the entire market: some years will go up, some years will go down, and individual stocks will vary in their returns.
For long-term investors, the stock market is a good investment no matter what happens day to day or year to year; it is that long-term average that they are looking for.
Basics when investing in stocks
Investing in stocks means buying shares of a publicly traded company and, by investing in them, expecting the company to grow and make good profits over time.
When that happens, the stock may become more valuable and other investors may be willing to buy it from you for more than you paid for it. That means you could make a profit if you decide to sell them.
A good rule of thumb is to have a diversified stock portfolio and stay invested, even when the market goes up and down, owning shares of several companies in different sectors makes you less at risk.
Some brokers offer simulated brokerage accounts, they do not operate with real money and serve for beginners to begin to understand the different ways to invest in stocks. It is interesting to try one of these demo accounts to learn how the stock market works and how to buy and sell.
Stock Exchanges in the USA
When it comes to investing in stock market in USA you have mainly 3 stock markets, plus other markets such as cryptocurrencies or Forex. We are going to focus on the traditional stock markets, which are the ideal ones to start investing.
The main stock exchanges in the United States to invest in stocks if we are beginners are the Nasdaq, the New York Stock Exchange and the local markets.
New York Stock Exchange
We all know the New York Stock Exchange as the Wall Street Stock Exchange, although its name is NYSE (New York Stock Exchange). It is the world's largest stock market, the one with the largest number of listed companies and the largest by market capitalization.
The NYSE is regulated by the SEC and the US Commodity Futures Trading Commission or CFTC.
The annual volume of the New York Stock Exchange is about 36 trillion dollars, and 12 trillion of them correspond to foreign companies, which gives us an idea of its size and importance.
NASDAQ stands for National Association of Securities Dealers Automated Quotation. It is the second largest automated and electronic stock market and stock exchange in the United States, the first being the New York Stock Exchange.
It has more trading volume per hour than any other stock exchange in the world. More than 7,000 small and mid-cap stocks are traded on the NASDAQ. It is characterized by comprising high-tech companies in electronics, computers, telecommunications, biotechnology, and many others. Its most representative indexes are the Nasdaq 100 and the Nasdaq Composite.
Local markets
Although less known in the United States, it is possible to buy shares in other markets, such as the local markets, which give investors the possibility of buying shares of smaller companies.
These are riskier stocks, but because they are smaller companies, they also have greater growth potential and can provide higher returns over short periods of time.
They can be invested in many local markets, some examples are:
- Chicago Stock Exchange
- EDGA
- EDGX
- IEX
- MEMX
- Miami International Securities Exchange
Choosing a Broker or Brokerage Account
We already know the amount of money we want to invest and we know the main stock exchanges in the United States. The next step is to hire a broker and a brokerage account in order to start investing in stocks.
The ideal is to hire an online broker that allows us to invest from home and with low commissions in the markets and stock exchanges in which we want to buy shares.
If you have little money to invest it is convenient to hire a broker that allows you to invest in fractions of shares, think that if there is a share of a company that costs about $3,000 and you only have $500 you could never buy a share, but with a broker that allows you to buy fractions of shares you could invest in those companies that have a very high price per share.
In addition to the above when choosing a broker you should look at:
- The broker must be registered with the Financial Industry Regulatory Authority, this guarantees that it is regulated and supervised.
- Check the commissions you will have to pay for each purchase and sale.
- Look for a company that has a proven track record and good reviews from other people.
- Take a look at the minimum amounts of their accounts to know that you will be able to invest.
- Evaluate the fees on the accounts.
- See if they offer investment, analysis and research tools.
Choosing stocks to invest in
The best advice for beginners who want to invest in the stock market in the United States is to invest in companies you understand, investing in companies you do not know or do not know what they do is a mistake. As we gain experience we will get to know the activity and results of a greater number of companies.
In addition to investing in companies that we know, it is interesting to diversify the investment among several companies in order to have less risk. If we invest all our money in one company and that company goes bankrupt we will lose everything, but if we have invested in 5 different companies we will only lose 20% of our invested money.
For example, a start-up investor may think about investing in stocks of companies in which he spends money, such as Visa, CocaCola, Apple or Netflix. In this example we see companies that an investor may know, and that also belong to different sectors to diversify the risk.
That is a good way to start, but it is interesting to start reading opinions of other investors, to find out the profits and forecasts of the companies we like, or to look at share price charts.
It is a matter of starting to invest in things you know, but also to inform yourself about the accounts of those companies, because it often happens that profitable businesses of a short time ago are not so profitable today, and it is necessary to know the evolution of the industry.
Just as when you buy a car or a house you inform yourself and compare, you should do the same when investing in stocks in the U.S. stock exchanges, you have to search, compare and have the maximum information. For beginners, it is ideal to invest at the beginning in companies with the following characteristics:
- Stable earnings with little annual fluctuation.
- Positive cash generation
- Consistent returns on capital
- Dividend payments that grow steadily on an annual basis.
The above points are recommended for long-term stock investments. You can get a lot of information about all the stocks traded in the USA in specialized sites such as Investing, YahooFinance o Bloomberg. If you are going to invest in stocks these are 3 websites that you should visit regularly.
Type of orders to start investing
When you are going to start investing in stocks you may encounter many unfamiliar words, in the initial phase to start buying stocks the first thing you will find are the types of orders.
As you become a more advanced investor you will become familiar with many words, but initially you should focus on the buy orders called Marker order and Limit order.
Market order
A request to buy or sell a stock as quickly as possible at the best available price. If you place a market order to buy 5 shares of Apple, it means that you want to buy 5 shares as quickly as possible at the current market price.
The order will be executed instantly, as you will buy or sell the shares at the best price available at that time.
You should not be surprised if the price you actually paid is not exactly what you asked for a few seconds earlier, there may be small differences. Bid and ask prices fluctuate constantly throughout the day.
For that reason, the market order is most useful when buying stocks that do not experience large price changes, such as larger, stronger companies.
Limit order
Request to buy or sell a stock at a certain or more profitable price, that means that the order will be executed only when it can be done at or better than the price the client has set.
In the above example if we place a limit order to buy 5 shares of Apple at $160 it means that we will only buy them when it is possible to buy them at that price or lower. If Apple is currently trading at $165 the purchase will not occur until it drops to $160.
In the case of sell the order will be executed at the price we set or higher.
Limit orders are a good tool for investors buying shares of smaller companies, which tend to have wider spreads, depending on the investor's activity. They are also good for investing during periods of volatility or when stock price is more important than execution.
Español: ¿Cómo invertir en la bolsa de valores de Estados Unidos?