Investing for Beginners: How Many Shares of Stock Should I Buy?

There are a couple factors to consider when trying to determine position size, or the number of shares of stock you'll buy.

0:24 - How to determine how many shares you can buy
1:17 - Can you buy one share of stock?
2:19 - Is it possible to buy less than one share of a stock?

One of the best places to start is figuring out how many shares you can buy. Meaning how many you can actually afford.

If you already have a dollar amount in mind that you want put towards a stock, determining how many shares you can buy is rather easy.

Look up the current price of one share by looking up the stock’s ticker. Divide the dollar amount you wish to invest by the current share price. If your broker allows you to buy fractional shares (only a few do) this is how many shares you can afford. If you can't buy fractional shares, round the result of the calculation down to the nearest whole number.

For example, let's say that I want to invest in Walmart (NYSE: WMT) and I have $1,000 in cash in my brokerage account. We'll assume that I cannot buy fractional shares.

A quick Google search shows me that as of taping, Walmart is trading for just under $120 per share. Dividing $1,000 by $120 gives a result of 8.33. Rounding down tells me that I can buy eight shares of the stock.

Now for some more nuance -- say you don’t have a lot of money on hand, can you buy one share of stock?

Absolutely!

And actually it has become far more practical to do so than it used to be. Now that most major brokers have done away with trading commissions, it is feasible for you to start investing with very little money.

If you use one of the few brokers that still charge commissions, the cost of trading should be taken into consideration when deciding if it's practical to buy a certain number of shares.

Astute viewers may have thought about the remainder from our Wal-Mart example and thought… can I buy a fraction of a share?

Some brokers have started to allow customers to buy fractional shares of stock.

It may seem silly to buy a quarter of a stock, but it’s a huge benefit for investors for a few reasons:

Namely, investors who don't have enough money to buy a full share of a stock can still invest if they can buy just a fraction of a share. For example, if you only have $500 to invest and want to buy Amazon stock, which as of taping is over $1700, you're out of luck unless your broker allows fractional shares. If you can buy fractional shares, you can use your $500 to buy about 0.29 shares of Amazon stock right away instead of having to save up.

There are a couple of other considerations to keep in mind when you’re deciding how many shares of a stock to buy, namely diversification.

Diversification is probably one of the most talked about entry level investing topics, and that’s because it’s incredibly important and can save newbies from catastrophe.

We generally advise folks to work to a portfolio with at least 10-15 stocks in it, the reason for that is you don’t want to have your success decided by one or two companies.

Now, how does that play into deciding how many shares to buy?

Say you have $1,000 to invest, it’s often better to buy several stocks in small amounts upfront -- say $250 worth of four different companies, and then buy more of each over time rather than simply buying $1,000 of one stock right away.

Doing things that way will give you some diversification in terms of what you own and it’ll set you up to diversify within each stock over time.

There’s a concept in investing called a “cost-basis” and it’s the average cost you paid for the thing you own.

Let’s look at a stock that’s currently near all-time highs: Apple.

If you bought your shares in late September of 2018, you’d be sitting on about 17% gains, not bad. But if you bought shares in January of 2019, you’d be up over 75%.

So you know I’m not just cherry picking one data point, buying Apple in early May of 2019 would have you up about 25%, but if you bought the stock later the same month, you’d be up about 50% now.

The point is that even wildly successful businesses experience setbacks along the way.

There's no one-size-fits-all answer to this question, but to sum it up, investors should consider:
- How much money you have available to invest
- Commissions you'll have to pay (if any)
The diversification of your portfolio, both in what you own and when you buy it.
If you keep these things in mind, you’ll be doing just fine.

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