How do you buy a share of stock?

John W. Schoen Senior Producer • Profile • E-mail

The stock market's steady gains lately have a lot of readers who are new to investing wondering how to get started. Maggie in Florida wants to know how to go about buying a few shares.  And Rob is wondering: Just who decides how much you pay for stock when you buy it?

Do I have to use a broker to start investing in the stock market? I'm an average person interested in buying some stock to have just another means of income for retirement. I don't have a vast amount of money to invest. I'm just beginning.
-- Maggie, Jacksonville, Fla.

There’s no rule that says you have to use a broker — just the way you’re free to buy or sell a house without listing it with an agent. But much like any market, the price you get — as a buyer or seller — is usually better if you’re looking at the same prices that every other buyer and seller is looking at.

You also have the benefit of seeing the minute-by-minute prices that other buyers and sellers are paying. The two primary American stock markets — the New York Stock Exchange and the NASDAQ — are basically gigantic auctions with millions of buyers and sellers trading billions of shares a day. So you’ll probably get a better price there than you will on Craigslist or eBay.

Some companies will sell you their stock directly and let you reinvest the dividends in new shares or buy more with cash. You’ll save on the broker’s commission, but you’ll have to deal with one company at a time. And redeeming shares (selling them back to the company) usually involves more paperwork than placing a trade with a broker.

To get started with a broker, you’ll have to open an account with a brokerage firm, which means signing an agreement with detailed terms governing how your transactions will be handled, among other things. Read this agreement carefully, line by line. If there’s something you don’t understand, call up and ask. Don’t sign until you understand why every clause is there. You’ll learn a lot about investing by understanding the agreement; some terms are written for your benefit, some are written to benefit the broker.

When it comes time to actually place the trade, however, you don’t necessarily have to deal with a human being. Many discount brokerages will let you trade online by yourself, where your orders are routed along with those placed by human brokers.

As a beginner, you’ll want to start slowly. Stocks don’t guarantee an income for retirement — in fact, they are a fairly risky way to get started. So you may want to start with a mutual fund or a stock index fund (which tracks the overall performance of an index like the S&P 500.)

You can always ask the broker for ideas about which stocks to buy, but remember that the broker makes money whether the stock goes up or down. Many of the so-called “experts” who recommend stocks on TV or in the newspaper may already own the stock they're so enthusiastic about; if they can convince more people to buy that stock, it could help the price go up — and help themsleves make money. The hardest part about any kind of financial advice is knowing whether the advice is being given for the benefit of the advisor or the client.

If you decide to pick your own stocks or mutual funds, research every one thoroughly – just as you would if you were buying a car or a flat screen TV. Advice from your sister-in-law is fine. But understand what you’re buying and why you’re buying it. And start thinking about when you’re going to sell as soon as you buy.

Is Oneshare.com a legitimate business for me to purchase stocks from?
-- V. M., Bloomington, Minn.

We haven’t dealt with the company, but have no reason to doubt they deliver what they say they will. But it’s an expensive way to buy stock.

We recently went to their site and priced a share of General Electric, which closed at about $38 a share on Friday, Jan. 12 . If you bought a share from Oneshare.com, you’d pay $38 for the stock, plus a transfer fee of $39. Then add $10 shipping and handling -- for $87.

If you bought the stock through a discount broker, you’d probably pay a commission of, say, $20 a trade. (Same for 1 share or 100, so if you bought a typical 100-share lot, the cost would be 20 cents to trade a single share.)  Cost per share: $38.20.

On the other hand, Oneshare.com is selling the idea of stock certificates as a wall decoration, suitable for framing. But you can just as easily do this through a broker: just set up an account, buy the stock and then ask to have them send you a physical certificate. You’ll need to pay a transfer fee (one brokerage we called charges $15) and pay shipping (say, $5 via US Mail.) That brings you to $38 + $.20 (commission) + $15 (transfer fee) + $5 (postage) = $58.20.

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