3 min read
31 Mar

1. Make sure investing is right for you 

We know you’re eager to start buying stock, but we urge you not to skip this step. Before you get started trading on the stock exchange, you need to make sure that investing is the best choice for you and your business.
For individuals, investing is often a no-brainer. The stock market often gives better returns than simply sticking your money in a savings account, at least in the long term. And even if you’re not interested in actively managing your portfolio, retirement accounts like your 401(k) and Roth IRA mean you likely have some kind of money on the stock market.
But for businesses, the math isn’t so simple. For one, businesses usually have plenty of other ways they can effectively spend money. Instead of becoming an investor with business funds, you could use that money to buy more inventory, to upgrade your equipment, to hire more employees―you get the idea. The point is, you can spend your money in a way that affects your bottom line and the likelihood that your business will still be around in a few years.
Which brings us to the next point: the stock market usually works better as a long-term investment strategy. As you’ve probably noticed, the stock market has its ups and downs. Some years, you’ll probably lose money. But over time, those ups and down balance out to give an average return between 4% and 10%, depending on who you ask. The “over time” bit is key, though.

For individuals, that’s no problem. Most of us plan on being around for many years to come, so we can reap the sweet benefits of long-term returns. Businesses, though, tend to have shorter lifespans than people. In 10 years, you could have retired or sold your business, meaning your business never gets the long-term benefits of investment. And we probably don’t need to remind you of how many small-businesses fail in a 10-year period (too many). So you need to decide what will give your business a leg up during those 10 years: squirreling away money in the stock market or making regular investments in the business's strategy and operations. In the end, only you have the answer. You know your business and its needs far better than we ever could. So if you really think you want to become a business investor, we’re here to help. 

The remaining steps below will help guide you on that journey. But if you’re having second thoughts, then you might want to consider doing something else with your business’s money. For example, high-yield savings accounts for businesses offer some returns on your cash, but they’re less risky and more liquid than the stock market. With that word of caution out of the way, let’s talk about what happens next in the investing process.

2. Decide on an investment strategy

Once you’re sure you want to invest, you need to decide what that looks like for you and your business, because, as it turns out, investing covers a lot of territory.
For example, is there an individual stock (or several) you want to invest in? Or would you rather have a more diversified portfolio with an ETF (exchange-traded fund) or mutual fund? Do you think Bitcoin is the future and want to invest in cryptocurrency?

Even if you want to stick with stocks, you’ll need to decide on a specific investment strategy. Obviously, you’ll have to decide what companies you want shares in, but you’ll also have to decide what type of stock you want:

  • Preferred stock lets you get a dividend from the company (a share of the profits), but you don’t get any voting rights.
  • Common stock gives you voting rights in the company, but you’re less likely to receive any dividends.

In other words, you’ve got a lot to figure out if you want to be an investor. The answers to all these questions will depend on things like your risk tolerance, how much money you want to invest, and whether you’re trying to get short-term returns (riskier) or long-term returns (safer).For example, if you’re trying for short-term returns, you might want to stick to preferred stocks in the hopes that your company of choice does well. In that case, you can end up with a nice dividend and the ability to sell the stock for more than you paid for it. But if you’re more interested in long-term returns, you’ll probably want to get an ETF or mutual fund and hold onto it. 

3. Find the right brokerage for you 

After you’ve figured out a rough investment plan, it’s time to start looking for a broker. A broker lets you conduct your trading, analyze your performance, and much more, all through their own platforms.
Because this is the year 2020, we recommend using an online stock broker for your trading needs. (We’ve ranked our favorites in our guide to the best online stock brokers for businesses.)

4. Open and fund your brokerage account

When you’ve figured out which broker you want to go with, you’ll need to open a new account and add money to it.
In many cases, you can do this all online. Just go to the broker’s website and go through its signup process. (Make sure you have details for your business bank account handy so you can fund your brokerage account.)
In a few (frustrating) cases, you may need to open an account by printing off a physical form and mailing it in.
Note that some brokerages require you to make a minimum initial deposit when you open the account―sometimes requiring a few thousand dollars. Others don’t require you to put any money in until you want to start trading. (And some limit your ability to use advanced features until you’ve made a large enough deposit.) Make sure you’ve done your homework so you can be ready to fund your account appropriately.
With an active brokerage account, you’re ready to start putting your money to work on the stock market.

5. Make your initial investment

The process of actually buying stock (or an ETF or a mutual fund or anything else) will depend on who your brokerage account is with. But as a general rule, they make it as easy as possible.
You’ll have to log on to your account, choose the product you want to buy, and then confirm the transaction.
And voila! You’ve started your new life as an investor. With any luck, you’re on your way to making money on the market.
Of course, you’ll probably end up doing much more than buying one stock.

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