Hey friends! This is Neil and thanks for tuning in to Neil$letter.
Last time, we talked about why Roth IRAs are pretty great. For today, let’s talk about how to actually enter a trade once you’ve got a brokerage account. If you haven’t yet, please subscribe for free now:
And before continuing, please review Neil$letter disclaimers and disclosures.
How do I actually invest?
I get this question fairly frequently from people who are newer to their personal finance journey. I think I was 25 or 26 when I entered my first stock trade. (For some interesting numbers on who owns stock, and when, give this Gallup poll a look.)
Don’t worry - it’s actually easy once you know what you need. Let’s have a look.
An article I linked to last time talked about 3 of the bigger brokerages in the United States: Fidelity, Schwab, and Vanguard. I have experience with the first two, so I’ll screenshot them here as an example.
Steps to completing a trade in Fidelity:
Have cash available to trade in your account - you can find this in the Balances tab (otherwise the brokerage will generally tell you that your account doesn’t have enough cash to cover the trade). You’ll generally need to connect your bank account and transfer in money before you can trade.
Hit “Trade” on the top left:
A dialogue box opens up with several prompts. The top dropdown menu is for type of trade / asset class - my experience is generally with Stocks/ETFs. The second dropdown is for which account (you can have multiple). The “symbol” box is asking for a stock symbol or ticker symbol, usually a three or four letter code that represents a individual company or a fund. (Here, we’ve used VTI, a ticker symbol for Vanguard Total Stock Market ETF, which is an index fund for the US stock market. We’ll go over index funds and ETFs in-depth in a future post.) It asks whether you want to buy or sell, if you want to denominate your order in terms of shares (ie, “1 share”) or dollars (ie, “$50 dollars worth). We’ve chosen shares, and are doing a fractional share amount, at .1 shares. Finally, the prompt for order type at the bottom gives us two options here, “market” or “limit.” Market orders execute at the next available market price (or generally immediately if the US stock market is open), while limit orders only get filled if the stock matches a price you specify. For example, we could buy VTI at its current market price of $203.66 per share with a market order, or we could say we’d like to buy .1 share if the price goes down to $200. In that case, the order would only fill if VTI traded at or below $200.
After you’ve entered in what you want to trade and how much, hit “Preview order”
A preview page will pop up showing a summary of your order, with another button at the bottom “Place order”
Once you place your order, it is considered submitted to the brokerage. There is an “Orders” page where you can see the status of your order. Once it is “Filled,” you have bought or sold.
Steps to completing a trade in Schwab:
Same #1 as above
Same #2 as above
Generally the same #3 as above. This time, we’ve specified a limit order for .1 shares of VTI at $200, and on this ticket, there is an option to specify whether or not to reinvest the dividends (which I generally use). Since limit orders usually don’t fill immediately, you can specify how long the order is good until with the “Timing” dropdown. Good till canceled means the order will stay open forever unless I manually cancel it.
Same #4 as above
Same #5 as above
Same #6 as above
Wrapping up
That’s it! Easy peasy. Once you’ve seen one trade window, you’ve generally seen them all. While it might take a bit to get used to all the navigation and options that a large, robust brokerage like Fidelity or Schwab will present to you, the core of the platform is generally in presenting your portfolio information to you, and allowing you to trade.
I tend to like Fidelity a bit more than Schwab for trading. The platform is a bit more robust and user friendly, and offers fractional share trading on a much wider variety of stocks than Schwab. One point for Schwab is that it has top tier customer service.
The hard parts of investing, in my opinion, have nothing to do with the mechanics of the trading, and everything to do with uncertainty, complexity, psychology, and bias. We’ll address those things in due time, but for now, I wanted to get some of the basic “nuts and bolts” of trading out of the way.
Lastly, please remember: just because you *can* trade, doesn’t necessarily mean you *should* trade. For me, I’ve found that patience is a virtue, and with trading, “less is (usually) more.” I also can’t tell you what to buy or how much of it to buy, but I can suggest that you buy quality, and when in doubt, keep the size of any single trade relatively small. If you do this, you will own a diversity of good things, and you will keep this size of any unfortunate trades relatively small.
If you’re intrigued about what I’m trading, when, and why, you can find my portfolio and trades on Savvy Trader here (you can subscribe for free using coupon code free2023). This showcases an advanced, complex strategy that may be overwhelming for newcomers. That said, for those who really want to dive in, it also can expose you to some interesting ideas for further research, and act as a compliment to this newsletter for your learning.
Thanks for reading! If you’ve enjoyed this post, it would mean a lot to me if you liked it, and forwarded this e-mail or hit the share button. -Neil
PS. Are you too pessimistic about your financial future? I would say: beware of self-fulfilling prophecies here, and dare to err on the optimistic side.
PPS. I have very much been enjoying this “new” version of The Clash’s classic Rock the Casbah, with Ranking Roger. His awesome toasting is like adding a whole new instrument.