How to buy stocks

Before you jump in to buy one share of stock or multiple stocks, you need to have a goal you want to reach.

Are you investing for retirement? Do you want to buy stocks because you think you can make money fast? Or perhaps you just want to get your feet wet and just gain some experience.

Answering the thoughtful question, what your goal is, will determine what type of investor you will be, how much money you will need and how long you should hold on to the stocks you are planning on buying.

Answering this question will also determine if you are a short-term or long-term investor.

Short-term investors like to buy and sell frequently within the same day or within a couple of weeks. These traders are called day traders and swing traders. These traders try to make money fast by buying low and selling high or short selling. They are in their trading accounts every single day the stock market is open, looking for opportunities to make a profit.

Long-term investors take a different approach. They still keep an eye on how their stocks are performing. But they take the long-term approach of buying stocks to hold for 5, ten or many more years. If you invest for retirement you would take the long-term approach.

You should also ask yourself how much risk you are willing to take on if you buy stocks. The stock market can be very volatile and you could lose a ton of money if you are not careful.

If you are a young investor who has some money to play around with and don't mind the short-term up and down swings of the market, then you can take on a good deal of risk.

But if you are close to retirement and want to preserve and grow your money then you should be more cautious about investing and buying stocks.

It's also a good idea to talk to a financial advisor or financial planner.

In order to start investing you need an investment account. This account gives you access to buy and sell equities also called stocks. There are many types of accounts on the market, but the more prominent ones are the 401k, IRA, Roth IRA, traditional brokerage account, the 403b and the education savings account, also called ESA.

The 401k and 403b are available only through your employer if they decide to enroll in these accounts. Companies also offer a certain match percentage or dollar amount in order to motivate their employees to participate in the plans. There is a limit, however, to how much you can contribute to a 401k or 403b.

The IRA, which stands for individual retirement account, and the Roth IRA are both retirement accounts you can set up with an investment firm, bank, or credit union.

Three differences between the IRA and 401k are the limit amounts, company match, and selection of investment options. IRAs and Roth IRAs always have a lower limit compared to the 401k, IRAs also do not offer a company contribution match.

Where IRAs and Roth IRAs do stand out is in allowing you to invest in whatever you like. Investing through a 401k is always limited by what the company has chosen for their employees, which are target-date retirement funds, a limited selection of mutual funds and index funds and no individual stocks to select from, unless the company allows you to purchase some of its own stock.

Also, you don't have to choose between setting up a 401k or IRA, because you are allowed to have both.

401k and IRAs penalize you if you withdraw your money before you are 59 and a half. You get hit with the 10% penalty and you are more than likely also going to pay taxes.

This is where the traditional brokerage accounts step in. The brokerage account allows you to withdraw your money anytime, but you will however pay taxes on your capital gains and dividends, but you won't get hit with a 10% penalty.

With all the different types of accounts on the market it might be hard to choose one to get started, so let me tell you what I've done. First, I enrolled in the 401k and got my company match, I then opened a Roth IRA with a discount broker and then I opened a traditional brokerage account. Don't forget you are not limited by the amount of investment accounts you can have.

Some of the top brokerage firms are:

• Ally
• E-Trade
• TD Ameritrade

Opening an account is also, really easy. Just head over to the investment website and click on the "open Account" button or you can also call them and they will eagerly help you in opening your account.

In order to buy stocks, you need to know the ticker symbol of the company you want to buy stock in. The ticker symbol is the unique abbreviation of the company on the stock market, for example the Pepsi Company is found under the ticker symbol PEP, Amazon is AMZN and Walt Disney is DIS.

Once you know the ticker symbol you are ready to find out what the price of a share is and how many you want to buy. Head over to your brokerage account and login, navigate to your trading option and type in the amount of shares you want to buy.

In my example below, we are looking to buy 5 Coca-Cola stocks. Now you have to choose your order type. Let's go ahead and choose the market order, which means we'll buy the stock at whatever price it is on the market currently.

You then preview your order where you can see what you are buying, how many shares, what your commission is, meaning your trading fee and your order total.

Hit place order and if you're trading during the regular hours, which is Monday through Friday 9:30 a.m. Eastern Time, your order will execute immediately and your trading account will update with the stocks you just bought.

So, this is a fairly easy process. However, the important thing is to buy stocks at the right time by looking at both the technical and fundamental analysis of a company.

What are stocks?

A stock is a piece of a company. A stock represents ownership. The people who own these stocks are called shareholders.

Let's look at an example: If you and your family are going to eat a pie or pizza then everyone will get at least one piece or slice. Out of the eight slices you get only one and your Dad gets two.

You got one/eight or 12.5% of the pizza and your dad got 2/8 or 25%.

Companies work the same way, but instead of 8 shares of stock they could have shares of stock in the millions or even billions.

McDonalds has 797 million shares outstanding. Walmart has 2.9 billion and Facebook has 2.3 billion shares outstanding.

Shares outstanding is a term used to explain the total amount of a company shares on the stock market for shareholders to buy and sell amongst themselves. Shareholders can be people or different types of institutions.

Also, you are not limited by geography when investing, because you can buy stocks from companies around the world.

There are two types of stocks on the market, growth stocks and income stocks.

Companies that see their stock price rise up fast, like technology companies, are growth stocks, for example Facebook and Twitter. These are rapidly growing companies and any income they make is put back in the company for further growth and expansion.

Income stocks, my favorite, are stocks that periodically pay their shareholders a dividend. This is usually quarterly,but it could also be monthly, semi-annually or annually.

The companies who can afford to pay their shareholders income are large well-established companies. like Procter & Gamble or the Pepsi Company.

There are benefits to owning both growth and income stocks. Growth stocks have the potential to increase in value fast, but they are also more volatile and risky. Income stocks on the other hand provide a consistent stream of dividend income but the stock itself might not appreciate in value as fast as a growth stock.

For these two types of stocks there are also two different types of investors, growth investors and value investors.

Growth investors love it when they see their stock price increase in value, also called a capital gain. They are also more willing to take on a greater risk for an even greater reward.

Value investors like analyzing a company's metrics and numbers and are willing to wait until it's the right time to buy shares in a company. Value investors are good at discovering great companies who are consistent performers and are likely to stay consistent in the future based on the product or services they sell in the market they are in.

You might be thinking that to start buying stocks you need to have a ton of money or be a millionaire. That's not true at all, you can start by just buying one share in a company.

While I'm writing this, I saw that the Nike stock is being sold for $60, Coca-Cola for $46 and Twitter for $21. Now this is not an endorsement to buy these three stocks. It's just an example that you don't need to spend thousands to get going.Now with the boring definition complete, let's look at how people get rich with stocks.

The four main ways people can get rich are:

• capital gains
• dividends
• selling short
• options trading

The last two require a bit of skill and work and they are not as passive as the first two.

Capital gains are when your stocks gain in value. The beauty of this is that you do not perform any physical labor it's all passive.

Let's say you bought 10 shares of the $46 Coca-Cola stock on Tuesday so your stocks are worth $460. On Friday the stocks went up to $52.

Your stocks (capital) just increased (gain). Your investment is now worth $520. So, your capital increased by $60. Now if you owned 100 or even 1000 shares that $6 increase would look even better.

With dividends you get rich by constantly buying dividend paying stocks, reinvesting those dividends and you also enjoy the dividend increases from the companies themselves.

With dividends it's more of a Snowball Effect. In the beginning your income is low, but after time it exponentially increases allowing you to live off your dividend income without you ever having to sell your stocks.

Investing to get rich and wealthy should be your long-term goal.