|Steps to buy shares
Once you have selected a broker, you can start the process of buying shares on the stock market and thus investing your money. Doing so is very simple if you follow the steps below:
1. Open an account on the platform of your choice
Opening an account with an online broker is as easy as setting up a bank account: you'll need to fill out an account application form and provide identification to prove your identity. In this step you may also be asked to provide other information such as your SSN.
2. Research the companies you want to buy shares in
Once you've set up your account, it's time to start the stock selection process. A good place to start is by researching companies you already know from consumer experience. In addition, most online brokerage platforms have a wealth of information on the performance of the stocks that are bought and sold on them, such as historical price charts and expert opinions on future possibilities.
Remember that when you buy shares you are effectively buying part of the company that issued them. This means that the performance of the value of its shares over time will directly depend on the behavior of the company and the market in which it operates. For this reason, it is important that you understand how that company makes money and whether your market may be threatened or helped by external factors. For example, at the start of the COVID-19 pandemic, in 2020, airline shares fell in price, while those of some companies in the pharmaceutical industry grew by leaps and bounds.
3. Fund your account
Once you have decided which companies you want to invest your money in, you will need to load funds into your account in order to make the purchase of shares. Different brokers have different policies for transferring funds, but most have the option of withdrawing funds directly from a debit account.
4. Place a purchase order
Once your account has been loaded with your funds, you will need to place a buy order for your broker to buy the shares you want. Because the value of stocks is constantly fluctuating, brokers offer different types of buy orders that will allow you to apply different strategies and find the best price for your new stock.
Taxes to be paid
Investing in the stock market is an activity that can be very profitable and any profit obtained through this activity is subject to taxes and levies that we have to be aware of. If you decide to use these investment vehicles and earn money doing so, be sure to report them correctly on your next tax return. The two main types of taxes you will need to consider are:
Capital Gains Tax
Known as the capital gains tax, this tax is applied to the gains you have made from the sale of your shares. It is worth mentioning that if you present a loss when buying and selling shares, this must also be reported since it will decrease the tax base of your taxes during the year. The percentage you will have to pay in taxes depends on how long you have held the shares in your investment portfolio:
short-term gains. Gains obtained from the sale of assets that have been held for one year or less are considered short-term. Winnings are added to your regular income for the year (such as your salary) and are taxed at the same level as the rest of your takings.
Long-term earnings. If you hold an asset for more than one year, the gain you get from selling it will be considered long-term. In this case, this income is taxed at a preferential rate of 0%, 15% or 20% depending on your total level of income during the year.
As we mentioned before, when we buy shares of a company we are really buying a small part of it and, as co-owners of the business, it is possible that we are entitled to a part of the profits generated each year. This distribution of profits is known as dividend payment.
In general, the dividends we receive from our participation in companies are taxable income that must be reported as part of our annual earnings, but there are certain exceptions. Dividends can be considered qualified or non-qualified depending on the industry in which the company operates, how long we held the shares, and other factors. For this reason, we recommend that you seek advice from a certified public accountant in the event that your shares generate dividends.
Tips before buying shares
Buying stocks can be a great opportunity to grow your family wealth, but it also carries risks as even experts can take big losses. For this reason, we suggest that before making any purchase, pay attention to the following recommendations:
Only invest an amount of money that you can afford to lose. The stock market can be very volatile and it is impossible to accurately predict its movements. The price of its shares can fall precipitously either due to factors inherent to the company or due to external market factors. For this reason, we recommend that you only invest a small proportion of your savings and keep in mind that just as you can generate very high profits, you can lose your entire investment. There are many methods and tips to set a limit for your investments in the stock market, but one of the most common and easiest to calculate used by experts is to allocate 10% of your savings to this activity.
Do extensive research on the companies you want to invest in. This activity, commonly known as due diligence or due diligence. This process includes reviewing the accounting books of previous years of the company, analyzing the historical behavior of its share prices and doing research on its possible strengths and threats, both internal and external.
Make sure the broker you choose is properly regulated. The organization in charge of regulating and certifying brokers and financial advisers in the US is the Financial Industry Regulatory Authority (FINRA). This organization has made available to the public the BrokerCheck tool , which allows you to check the regulatory status of any broker in the country. All of the companies we recommend in this article are FINRA certified, but if you decide to use any other company, we recommend that you review your details with this tool.
I personal recomended TDameritrade