We’re going to go really basic today, but even experienced investors might find a pearl or two in this post.

In the past, I’ve been asked to write a post about how to buy a stock, step-by-step. For new investors, buying a stock can be intimidating, especially when you’re putting thousands of dollars into the market, which required hundreds of hours of hard work to save. That money, they fear, could vanish in an instant, like putting all of your money on black on a roulette wheel.

A similar question was asked by TotallyBroke on the White Coat Investor forums:

Just curious how people buy ETFs in a taxable account.  Do you use the “Limit” function, the “market” function, “marketable limit” function or some other?  I’m just learning about these and am curious what others use.

So here’s how you buy a stock, step-by-step, with screenshots from Fidelity, the brokerage that I use (the process is similar at Vanguard and Schwab).

Throughout the process, if you’re ever stuck, click the “Help Me Trade” button in the top left corner, and Fidelity will guide you through the process.

Step 1: Picking the stock to buy

We’ll assume that you’ve already opened a Fidelity taxable brokerage account and deposited cash in the account to invest.

In taxable accounts, I highly recommend investing in index exchange-traded funds, which are the stock version of index funds. In a taxable account, they are more tax-efficient than the mutual fund equivalent at Fidelity and Schwab. Fidelity offers over 70 different commission-free ETFs through iShares. If you’re following my simple guide to owning a three-fund or similar index fund portfolio at Fidelity, here are the ETF ticker symbols you will want to use, depending on whether you trade with Vanguard, Fidelity, or Schwab:

Asset Class Vanguard Fidelity Schwab
S&P 500 VOO IVV SCHX*
Total Stock Market VTI ITOT SCHB
U.S. Bonds BND AGG SCHZ
International Stocks VXUS IEFA SCHF
International Bonds BNDX IAGG IAGG**
Real Estate VNQ FREL SCHH

*Tracks the Dow Jones U.S. Large-Cap Total Stock Market Index, **Offered by iShares, trades would cost $4.95 with Schwab

Step 2: Enter order

To start the trade process, log in to your Fidelity account and click the Trade button in the top left corner. A trading screen should pop up like this:

When to enter order

Normal market trading hours are from 9:30 am to 4:00 pm. The markets are most volatile in the first hour and last hour of trading. I like to buy my ETFs when it is less volatile. You do need to trade during regular market hours — I would not recommend trading outside of market hours.

Transaction Type

Choose Stocks/ETFs.

Symbol

Enter the ticker symbol of the ETF you want to purchase. In this case, we’ll choose IVV (iShares S&P 500 ETF).

Action

You want to buy shares.

Quantity

Enter the number of shares you want to purchase. You can only purchase whole numbers of shares, so you should divide the amount of money you want to invest by the current stock price. There will be some remaining money left over which won’t be invested.

Order Type

You have two major options, market orders or limit orders.

  • Market vs. Limit: Especially for beginner investors, I strongly recommend the use of market orders. I’ve used all the major different types of orders, and I personally use market orders whenever I need to buy or sell an index ETF.
  • The bid-ask spread (the difference in price between what you can buy or sell a stock) is often a penny or two a share for the ETFs you will be trading. Market orders are executed instantly, and you don’t have to wait to see if your trade is executed. I value simplicity in personal finance, and this is one way to keep investing simple.

Time In Force

You can put “Day” for this option, but your trade will be executed almost instantly if you are using market orders.

Our order should look like this after we’ve completed it:

Step 3: Click Preview Order

You’ll see a preview of your order, showing the current price of the stock/ETF, how many shares you want to buy, and the estimated order value. If you’re purchasing one of Fidelity’s commission-free ETFs, you’ll see that the commission is $0. You can ignore the warning – it’s merely a disclosure from Fidelity that they are compensated to offer the shares commission-free. Also, you cannot sell your commission-free ETF shares within 30 days of purchase without incurring a short-term trading fee; this is meant to discourage people from trading in and out of these ETFs commission-free.

Step 4: Click Submit

Congratulations! You’ve executed your first trade. To see the order confirmation, you can go to the Activity / Confirmation tab.

Questions?

If you have any questions, feel free to call Fidelity Customer Service and have them walk you through the process. Make sure that you actually execute the trade and that they do not execute the trade for you over the phone. Orders placed over the phone may be subject to a large commission fee.

Don’t let online trading intimidate you. It’s really not that hard, and hopefully I’ve been able to guide you step-by-step through the process.

What do you think? Do you use ETFs or mutual funds when you invest in index funds? Do you use market or limit orders when you purchase ETFs? What time of day do you usually do your trades?

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