How to Buy and Hold Individual Stocks

What Happens When You Buy a Stock

When you buy a stock, you own a small piece of a company. That piece is called a share. If a company has issued one million shares and you own 100 of them, you own one ten-thousandth of that company. You do not run the company or make decisions about it — you straightforward own that fractional stake.

The price of a stock moves up and down based on what other people are willing to pay for it. If you buy 10 shares at $50 each and the price rises to $60, your stake is now worth $600 instead of $500. If the price falls to $40, your stake is worth $400. You make money when you sell for more than you paid. You lose money when you sell for less.

Some companies also pay dividends — small cash payments to shareholders, usually a few times per year. A dividend might be $0.50 per share, so if you own 100 shares, you receive $50. Not all stocks pay dividends, and dividend amounts change or stop without warning.

Key Takeaways

• You need a brokerage account to buy stocks, which you open online in about 15 minutes by providing your name, address, Social Security number, and bank details.
• Most brokerages charge no commission to buy or sell stocks, but you pay the difference between the bid price (what buyers offer) and the ask price (what sellers want), called the spread.
• A stock order can be placed at the current market price (market order) or at a price you specify (limit order), and the order executes during market hours, typically 9:30 a.m. to 4 p.m. Eastern time on weekdays.
• Individual stocks are riskier than funds because a single company can lose value or fail, so many people start by learning how funds work before picking individual stocks.

Opening a Brokerage Account

To buy stocks, you need a brokerage account — a holding place for your money and your shares, similar to a bank account but designed for investing. You open one online through a brokerage firm. Common brokerages include Fidelity, Charles Schwab, E*TRADE, TD Ameritrade, and Robinhood, though many others exist.

The process takes about 15 minutes. You provide your name, address, date of birth, Social Security number, employment status, and bank account details. The brokerage verifies your identity and then links your bank account so you can transfer money in and out. Most brokerages do not charge a monthly fee to hold an account.

Once your account is open and funded, you can place an order to buy stocks when ready. The money sits in your account until you use it, earning little to no interest — it is straightforward waiting for you to decide what to buy.

How to Place a Stock Order

After you log into your brokerage account, you search for a stock by its ticker symbol — a short code like AAPL for Apple or MSFT for Microsoft. The brokerage shows you the current price and a chart of how the price has moved over time.

You then choose between two types of orders. A market order buys the stock at whatever price it is trading for right now. If Apple is trading at $150, you place a market order for 10 shares, and you pay approximately $1,500 (plus a small spread). A limit order lets you name the price you are willing to pay. You might say "buy 10 shares of Apple if the price drops to $145," and the order sits waiting. If the price never reaches $145, the order never executes.

Market orders execute almost when ready during market hours (9:30 a.m. to 4 p.m. Eastern time, Monday through Friday). Limit orders can take hours, days, or never execute if the price does not reach your target. After you place an order, the brokerage sends you a confirmation showing the number of shares, the price per share, and the total cost.

Understanding Costs and Spreads

Most brokerages charge zero commission — no fee per trade. This is different from 10 or 20 years ago, when buying a stock cost $5 to $10 per transaction. Today, that cost is gone.

What you do pay is the spread, which is the difference between the bid price (what buyers are offering to pay) and the ask price (what sellers are asking for). If the bid is $150 and the ask is $150.05, the spread is $0.05 per share. On a 100-share order, you pay $5 more than the lowest bid price. Spreads are smallest for popular stocks like Apple or Microsoft and largest for small or rarely-traded stocks. You do not see the spread as a separate line item — it is built into the price you pay.

Some brokerages also charge fees for certain services: transferring money out, closing an account, or using a financial advisor. Read the fee schedule on the brokerage website before you open an account.

Selling Your Shares

To sell a stock, you log into your account, find the stock you own, and place a sell order. Just as with buying, you can use a market order (sell at the current price right now) or a limit order (sell only if the price reaches a certain level). The brokerage deducts the shares from your account and deposits the cash.

When you sell, you owe taxes on any profit you made. If you bought 10 shares at $100 each ($1,000 total) and sold them at $150 each ($1,500 total), you have a $500 gain. The tax you owe depends on how long you held the shares. If you held them for more than one year, the gain is taxed at the long-term capital gains rate, which is lower. If you held them for one year or less, it is taxed as ordinary income at your regular tax rate. You do not pay the tax when ready — you report it on your tax return the following year.

The brokerage sends you a tax form (Form 1099-B) in January showing all your sales from the previous year. You use this to fill out your tax return.

Why Individual Stocks Are Riskier Than Funds

When you buy a single stock, your money rides on one company. If that company has a bad year, loses a major customer, faces a lawsuit, or straightforward falls out of favor, the stock price can drop 20, 50, or even 90 percent. You could lose most or all of your money.

A fund — such as a mutual fund or exchange-traded fund (ETF) — holds dozens or hundreds of stocks at once. If one company in the fund drops 50 percent, it hurts, but the other holdings cushion the blow. This is called diversification. Many people new to investing start with funds to reduce the risk of betting everything on one company.

Individual stocks can also be harder to research. You need to understand the company's business, read its financial statements, and track news about its industry. Funds do this work for you — a fund manager or a set of rules decides which stocks to hold.

Common Mistakes to Avoid

One common mistake is buying a stock because you heard about it from a friend, a social media post, or a news story. These sources often come too late — by the time you hear about a stock, the price may have already risen a lot, and you are buying near the peak. Instead, spend time learning about companies before you invest in them.

Another mistake is selling in a panic when the price drops. Stock prices go up and down constantly. If you sell every time the price falls, you lock in losses and miss the recovery. Most financial advisors suggest holding stocks for at least five years, so short-term price swings matter less.

A third mistake is putting all your money into one or two stocks. Even experienced investors spread their money across many holdings to reduce risk. If you have $5,000 to invest, buying one $5,000 stock is riskier than buying five $1,000 stocks or buying a fund that holds hundreds of stocks.

Frequently Asked Questions

Do I need a lot of money to start buying stocks?

No. Most brokerages have no minimum account balance. You can open an account with $1 and buy fractional shares — meaning you can own part of a share if a full share costs more than you want to spend. Some brokerages let you buy $1 worth of a $200 stock, for example.

What is the difference between a stock and a bond?

A stock is ownership in a company. A bond is a loan you make to a company or government. When you buy a bond, the issuer promises to pay you interest and return your money on a set date. Bonds are generally less risky than stocks but also offer lower returns.

Can I buy stocks outside of market hours?

Most brokerages let you place orders after hours (4 p.m. to 8 p.m. Eastern) or before hours (4 a.m. to 9:30 a.m. Eastern), but these orders execute at the next market open, and prices can move overnight. For most people, trading during regular market hours is simpler and more predictable.

What happens if a company goes bankrupt?

If a company goes bankrupt, the stock usually becomes worthless. Shareholders are last in line to receive any money — creditors and bondholders get paid first. You can lose your entire investment in a single stock, which is why diversification matters.

How do I know which stocks to buy?

This requires research. Read the company's annual report, look at its earnings history, understand its competitors, and track industry news. Many people read books on stock picking or follow financial websites. Others hire a financial advisor. Starting with funds while you learn is a common approach.