How I Bought My First Stock
In this blog post, I share how I went about picking and buying my first publicly traded stock, and what you should consider when buying your first stock too!
Update: Since this article was published, the share price of Shopify has increased from $317.06 at time of purchase to $727.77 as of June 5, 2020. Not too shabby!
Disclaimer: includes affiliate links to products and services I personally use or strongly believe in.
Like many people that have retirement accounts, I’ve been low-key investing since 2012. My first job offered a 401k, I signed up for a Target Date Fund, and left it at that — which is exactly what a Target Date Fund is supposed to do in a 401k.
Reminder: A target date fund is a pre-diversified collection of other funds, stocks and bonds, selected based on the age you want to retire. Most retirement accounts will offer this "set it and forget it” approach to investing, which is also a great option for any money maker, because it will automatically be rebalanced over time. This makes life easy.
But since 2012, I’ve learned a lot. I’ve gotten more educated about money, I paid off my debt, and built up my emergency fund so I’m ready to roll. But all this time, I never really made the decision of what to invest IN. I’m not talking about the type of account, a platform or fund. I’m talking about publicly traded, individual stocks.
So this month I decided to switch it up.
After a lot of research, I took $1,000 and invested in my first 3 shares from Shopify, Inc. (NYSE: SHOP). Check the screenshot!
Other companies I considered at the time included Mastercard Inc. (NYSE: MA), Match Group Inc. (NASDAQ: MTCH) and Berkshire Hathaway Class B (NYSE: BRK.B). I’ll spare you the details, but here are some of the major reasons I ended up with Shopify.
Five reasons I went with Shopify
NYSE: SHOP performance over the past year. I wanted in on that!
It was recommended twice in a short period by a well-known stock advising platform, the Motley Fool. This got me interested. For those of you that don’t know, Shopify is a fast-growing e-commerce company often compared to Amazon, but with a strong focus on small businesses and entrepreneurs.
Shopify has been investing heavily in itself to expand, increasing revenue by 45% over the past year. This reflected poorly in their quarterly earnings report a few weeks ago (operating expenses drastically increased), but sometimes that’s what it takes to grow a business.
Despite often being compared to Amazon, Shopify strives to make itself different. Instead of consolidating businesses and products like Amazon, Shopify allows its clients, business owners and entrepreneurs to establish their own brand AND provides marketing tools. As a small biz owner myself, I’m here for it. Also, who doesn’t wish they had invested in Amazon? So maybe this is my chance.
I find the company to be pretty clever. It recently struck a huge deal with the Ontario government to be the province’s sole distributor for businesses in the growing cannabis market, online and in stores. Now, cannabis isn’t my jam — but it could be a great business opportunity for Shopify.
Shopify’s stock performance has been killin it since 2016, more than doubling over the past year alone. For some, that’s too risky to get involved in. But me? I want in on that.
So yes, I did some research, and turns out that was the hardest part! Actually buying the stock was pretty easy… maybe even a little too easy. Keep in mind that you want your money in individual stocks to be a VERY small percentage of your overall investment portfolio! I recommend no more than 5% of your total assets. This will help protect you if company or stock fails to perform.
How to buy your first stock in 5 steps
Establish a brokerage account. I recommend Ally Invest or Betterment. Link your bank account so you can deposit funds from your bank into your investment account. Verification may take 2-3 days.
Make a deposit into your account. This will sit in a cash account until you’re ready to invest.
Research your stock options. Before purchasing my first stock, I used a stock advising platform (the Motley Fool) and read about half of Google to educate myself on the company and the stock. What is the company up to? How has the stock performed over time? What is the company's business model? Any recent investments? All of this info will help inform your decision.
Select which stock you want to buy. The shorthand for stocks (i.e. SHOP for Shopify, Inc.) is called a “stock ticker”. If you Google, “[INSERT COMPANY] stock ticker” it will come right up. This will tell you the price of the stock and its performance history.
Place an order to buy your stock shares. Maybe it’s 1 stock. Maybe it’s 1,000. This will all depend on the price of that stock, your preferences, and how much money you have in your investment account. Then, confirm the trade.
Congratulations!
You are now the owner of a publicly traded stock!
If you did your research, and you’re lucky, you’ll sit back and watch your stock grow. My dream is for you to one day sell it, and call me from a tropical island saying, “Kim, I DID IT!” with a nice little umbrella drink. That would totally make my day.
But make sure you don’t sell too soon! I don’t mean just in terms of the stock value itself, I also mean in terms of the taxes you would pay on it.
What’s the deal with taxes?
Unlike a tax-advantaged account, a standard brokerage account means you’re paying more taxes — you already pay taxes on the money you use to invest, AND you pay capital gains taxes when you sell. If you sell within one year, you’ll be subject to a hefty short-term capital gains tax, which will be taxed just like regular income. If you sell after one year, there’s still a long-term capital gains tax, which will be 0%, 15% or 20% depending on your tax bracket.
Investing is one money move.
Ready for more?
Get your free copy of the Money Moves Checklist to level up your finances in less than two minutes!
A few last recommendations
You STILL want to stay focused on your tax advantaged accounts. Keep in mind that any return on investment you may receive from a standard brokerage account, will be less than what you would have received from a tax advantage account (401k, IRA , etc.) when you compare the two, dollar for dollar. It all comes down to taxes, which are boring but important. This doesn’t mean you should never invest, but it’s important understand how they work.
So why opt for a standard brokerage account? Because maybe your tax advantaged accounts don’t offer a particular stock or fund. Or maybe you’ve already reached the max contribution limit for the year. You also face penalties with most tax advantaged accounts (except a Roth IRA) if you want to withdraw before age 59 1/2.
Do your research. While the stock market as a whole increases over time, individual stocks can tank REAL quick — so you want to research and do what you can to give yourself the best chance at making money.
Know how much risk you can handle. Nine days after I bought my stock, the company released its quarterly earnings report and some investors weren’t thrilled about it. Some investors might see this and want to sell — but I know the company has been spending a lot of that money to expand, so I’m going to wait and see what happens. My ability to sit and wait is part of having a high risk tolerance. If you have a low risk tolerance, meaning you’re quick to sell when you get some bad news, or the stock drops a little, you could lose out on growth over time. If that’s you, consider investing in a low-fee index fund, such as the Vanguard Total Stock Market Index Fund (VTSMX), which is less risky and pre-diversified, unlike an individual stock.
So now that you know all the things to look out for, what stock options are you considering? Or maybe you’re still focused on maxing out your target date fund — this is great news, too! I hope this article is helpful in thinking through your investment decisions, and fingers crossed we all grow rich in the years to come! :)
Disclaimer: Any product mentions made or recommendations provided by Beworth Finance LLC or its Founder are made solely in the author's opinion and do not constitute professional financial or legal advice. No user should make an investment decision without first conducting the requisite due diligence.
