How to buy stocks (Investment funds)

How to Buy Stocks in 3 Simple Steps

One of the questions I get most in the email is about stock. To be honest, I do not know exactly why, but I believe that the stock market generates expectations of high gains in the minds of people and also an idea that it is a very risky market for a few.

The truth is that investing in the stock market is not that complicated ...

At the end of this article you will learn how to buy stocks in 3 simple steps and you will see that it is much simpler than you think.

What are Actions

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Before we know how to buy stocks we need to understand what stocks are.

When we buy a share we are buying a portion of a particular company, that is, we are becoming a partner in this business . As a consequence, we have several rights, for example, we have a stake in the company's profits.

It's as if we've bought a stake in a restaurant, a grocery store, or any other business. If the business appreciates, our participation will also appreciate. Just as if the business starts to distribute many profits, we will have a stake in those revenues.

Understood this, let's see how we can buy shares of the most diverse companies. I'll cover some ways to buy stocks on the stock exchange, since this way allows everyone to participate unrestricted.

The 4 Different Ways to Buy Stocks

Today I basically see 4 different ways to buy stocks . Among them we can mention: Investment funds, Investment clubs, ETFs and set up a stock portfolio. They all have advantages and disadvantages. So it is important to know these 4 ways to invest and select which are the most appropriate for our profile.

    "There is no better investment, since investment is a MEANS, not a FIM. For each profile and for each situation there is a more adequate investment. "

1) Investment funds

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When we invest in mutual funds, we are buying quotas from an investment portfolio set up by a professional manager. This manager buys and sells the assets as he thinks most interesting as long as what he does is in accordance with the policies of the investment fund. In short, it is the manager who commands, but he must obey some pre-established rules.

The funds are interesting mainly for those who have little money, since the transaction costs are diluted among the quotaholders. To learn more about investment funds click here to read this other article.

    Advantages: They are interesting for those who have little money (less than 10 thousand reais), since brokerage and custody costs are diluted among the participants.
    Disadvantages: You can not choose the assets themselves, which are chosen by the manager. This, depending on the point of view, can be considered an advantage. Some funds charge very expensive fees. Many funds fail to outperform the Bovespa index.

To know more about investment funds click here .

2) Investment clubs

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Investment clubs are small "condominiums" owned by individuals who seek to invest in the capital market. It's as if you were gathering your friends and family to invest, having the advantage of being able to dilute your costs with them. Similar to the funds they have quotas.

Remembering that the club must have between 3 and 50 participants, it must be composed of at least 67% in shares, subscription bonus, debentures convertible into shares issued by publicly-traded companies, subscription receipts, quotas of stock index funds organized market and certificates of deposit of shares.

Source: investor portal

    Advantages: They are interesting for those who have little money (less than 10 thousand reais), since brokerage and custody costs are diluted among the participants. Clubs have a more flexible management fee. Generally, a minimum amount that can be negotiated with the brokerage house is charged.
    Disadvantages: You can not choose the assets themselves, which are chosen by the manager (can be performed by one or more shareholders elected at the general meeting). It may be that club management is not 100% consistent with its principles.

3) ETFs

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Exchange Traded Funds (ETFs) are indexed funds and their shares are traded on the Exchange in the same manner as shares.

Simply put, when you buy an ETF you are buying a basket of stocks at once, which makes diversification much easier, since you only buy one asset rather than buying more than 60.

When you buy the ETF BOVA11 for example, you are buying a package of more than 60 stocks (the stocks that make up the BOVESPA index) with only one purchase order. This way you can save money mainly in brokerage and you can also diversify your investments in a simple and easy .

It is worth remembering that most of the funds can not have better returns than the BOVESPA index, which makes this investment very attractive, easy to buy and sell and the economy in fees charged to invest.

    Advantages: Low operating costs and high diversification. It is more profitable than most of the funds that aim to follow the BOVESPA index.
    Disadvantages: Not interesting for low amounts (below 10,000). You will have monthly custody cost that varies around 15 reais per month. If the value is too low, this can affect your profitability. You also can not choose the assets that make up the ETF. They follow composing rules according to the index they use for reference.

4) Assemble a Stock Portfolio

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Contrary to many people think, it is not easy to put together a profitable portfolio . There are several studies that show that people are not able to consistently have above-market returns.

So you should be careful if you select for yourself the assets that are part of your stock portfolio. This care should be doubled if you have little money, since the costs heavily influence the performance of your investments.

Remember that when you assemble your wallet, you will have brokerage costs on each purchase in addition to the monthly custody cost. If you have values ​​below 10 thousand reais, these costs can significantly affect your earnings.

    Advantages: You can choose the companies you are going to buy (this will not always be an advantage, since most people do not have the ability to have above-market returns).
    Disadvantages: High costs if you have little money. It may be that you have many costs to reinvest the dividends that are "dripping" into your account.

How to Buy Stocks in 3 Simple Steps

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I have separated this guide into 3 simple steps for you to buy an action. By following these 3 steps you will have no doubts when making your purchases.

1) Choosing a financial institution

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You can basically invest through banks and brokerages. They are necessary for you to broker your financial operations.

The banks you should already know. They are institutions that have as main focus to lend money . In general, they have higher costs when it comes to investments. Another important issue is that banks only offer products of their own, ie Banco do Brasil, for example, will only offer CDBs, Banco do Brasil LCIs and not other financial institutions.

Unlike banks, brokerages have no focus on lending money to people. They focus primarily on finding customers to invest in their products and third-party products . For this reason, they sell to customers both funds they own and third party products (CDBs, LCIs, etc.).

They do this because they can not issue such securities and also because they earn a commission for selling third-party products. Do not forget there is no free lunch 🙂

I particularly prefer brokerage firms primarily because of the cost / benefit ratio they provide. In addition, through the brokerage firms you can invest in the most diverse products of the most diverse banks.

2) Sending money to the broker

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The process of sending money is much simpler than you think. Just make a DOC or TED from your bank to the brokerage firm. It is important that the money goes out of your bank account, because this is how the brokerage knows who the money came from (it recognizes the referral by CPF).

To save on these costs, I recommend you create a digital account . This is a type of account that does not charge DOC or TED and can be made in several banks. Just search google to check if your bank has a digital account.

A lot of people ask me about the risk of brokers . The truth is, overall, they're pretty safe, especially if you're investing in big brokers. Remember that if the brokerage firm breaks you will only lose the money that is stuck in your account. Investments are guarded outside the brokerage house, which protects you against any breach of it.

3) How to make your purchase by homebroker

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For some years now it is possible to buy and sell assets through homebroker. For those who do not know, homebroker is a tool that your broker makes available that streamlines your process of buying and selling assets such as stocks, for example.

When you enter your broker's page, you are logged in. After that you will see that there is a link to the homebroker. You can rest assured that it's nothing complex or anything.

When entering the homebroker, you can follow quotes, see graphs of assets, etc. The functions that the homebroker possesses vary from broker to broker. However, the basic functions of buying and selling are present in all.

When we buy or sell a stock we need to know a few things:

    Assets : Every stock has a code on the stock exchange.
        Example: Ambev shares are represented by the ABEV3 code.
    Quantity : If we deal in the normal lot, multiples of 100 shares will be accepted.
        Example: 100, 200, 500, 1000, and so on.
    Price : In this field we will determine the price we are willing to pay for the stock (if we want to buy it).
        Example: 100 reais. That means we are willing to pay up to 100 reais per share.
    Validity : In this field we will post until the order is valid. We can select today or any other date. Basically two things can happen: either the order is executed or the order's validity expires. As long as neither of these occurs, the order will still be available in the order book.

3 Things You Need To Know Before Buying An Action

Before buying your stock you need to be very careful about some details that can significantly harm your results . That's why I've created a section in this article with 3 items that you need to be very careful about before you buy a stock.

1) Check the brokerage you are paying for

Long before you buy a stock, you need to choose a broker through which you will conduct your buying and selling operations. The cost of brokerage is a very important factor when you choose a broker.

Avoid using brokerages that charge a very high brokerage . Obviously you should use your common sense, since there is no free lunch. So always see the benefits that the brokerage house will bring to you according to the brokerage it is charging for the service provided.

Many times the cheap can be expensive, so analyze in detail the costs charged by the brokerage firms.

2) Check other operating costs

Focusing on brokerage is another common mistake people make. They forget that there are other costs for you to invest directly in stocks such as custody costs , for example.

Remember that there are other costs like fees, settlement fee and registration fee that varies according to each market traded. In the stock market for individuals, considering that you will not buy the stock and sell on the same day, you will have to pay 0.0325% on the volume traded.

To find out more information about these costs click here .

3) Do not quit investing directly in stocks right away

This is another very common mistake. People go out and invest directly in stocks right away, even though they have little money and do not know their profile .

Investing with little money in the stock market as an individual can be very dangerous since these costs can erode your income. Therefore, always calculate the costs that you will have at the time of investing. Remember also that there are alternatives such as investment funds and clubs that allow you to start your investments in low value stocks.

Also do not forget to review your profile. I say this because many people enter the stock market thinking only of the gains and do not realize that it is also necessary to go through periods of losses. The stock market fluctuates a lot, but several studies show that in the long run it is profitable.

Here in Brazil, we have a different situation from the US, since our extremely high interest rate makes fixed income still very advantageous. For this and other reasons, in analyzing the exchange rate performance against fixed income, we see that the profitability of fixed income in Brazil has been much more interesting in recent years.

This does not necessarily mean that this will continue to be the case, but if the interest rate remains high, the scenario is unlikely to change over the next few years.

We Learned It In This Article

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    When we buy a share we are buying a portion of a particular company, that is, we are becoming a partner in this business .
    There are basically 4 different ways to buy stocks: investment funds, investment clubs, ETFs and set up a stock portfolio.
    To buy stocks you must: choose a brokerage firm, send the money and buy the desired shares.
    Avoid using brokerages that charge a very high brokerage .
    Remember that there are other costs like fees, settlement fee and registration fee that varies according to each market traded.
    Many people enter the purse thinking only of the gains and do not realize that it is necessary to go through periods of loss as well .

Finishing

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