Q: When buying stocks, how many shares should you purchase from a company?
–D. Duzant , New York, NY
A: Building wealth through the stock market depends a great deal on your ability to accumulate large numbers of shares of a company so that you can maximize your returns when its stock price rises. Since we may not always be able to purchase shares of stocks in large numbers, we recommend investors accumulate shares by dollar-cost averaging. By consistently purchasing a small number of shares each month, you may be able to accumulate 100, 1,000, or more shares of your favorite stock over time.
Typically, brokers advise clients to buy stocks in blocks of 50 or 100 shares. This makes it easier to accumulate shares and keep track of your earnings. For example, if you own 100 shares of a stock, you earn $100 for every $1.00 the stock price rises. The benefits of purchasing shares in larger blocks also extend to commission fees. Many brokerages charge the same commission fee whether you purchase five shares or 500 shares, so it’s more cost-effective to buy in bulk.
But you don’t have to focus on buying stocks in large blocks. The important thing is to consistently purchase shares of good, solid companies no matter how many shares you can afford at each purchase. If you have a lot of shares of a lousy company, it does you no good. So be sure to invest in what you know — companies whose products and services you use and trust — because those companies are more likely to be around for the long haul.