Buying Individual Securities
The Financialist • Issue 106 • July 2010
BY CORY HILL CFP CIM
An investment in an individual stock, an individual bond, or preferred shares can be an appropriate addition to many clients’ portfolios. In this article, I will focus on the process of buying an individual stock.
Before one invests in an individual security, it should be determined whether owning one is appropriate. Using both subjective and objective technique, your advisor will help you determine if owning individual stocks is right for you. On their own, individual securities typically experience a higher level of volatility, or price fluctuations, than other investments, such as mutual funds or pooled investments. One must first be aware of the potential for periodic, pronounced fluctuations in the price and value of individual stocks before deciding to invest in them.
Next, assuming that an individual stock is appropriate, you –- with help from your advisor – need to determine which stock to buy. For this, your advisor will do his/her own research, and take advantage of professional research that we purchase from independent analysts. Rogers Group Financial, through a strategic relationship with National Bank, has access to award-winning research provided by their analysts on many Canadian companies, as well as research from Credit Suisse for foreign securities.
Once it is determined what to buy, your advisor and his/her staff will place an order on the particular market where the security trades. Unlike other types of investments, such as mutual funds, individual securities are traded intra-day, meaning that the price changes throughout the day as orders are “filled”. We can place orders “at market”, whereby our purchase is in a queue, while it waits to be filled. Once our order is filled, which for widely-held securities is only a matter of seconds, client accounts are allotted the shares we requested to buy at the market price at that very moment; hence, a market order.
We can also place a “limit order”. This is where we will stipulate the price we are willing to pay for a security when we enter an order. Our order is placed in a queue and is filled only if the security we want to purchase trades at the price we have requested. Many times, limit orders can close out the day without being filled, if, for example, the price we wanted to pay were lower than the trading range that day. In these situations, we will either reenter the order the next day and hope for the best or adjust our trade instructions after discussing the change with the client.
Most times, advisors are paid a commission on the purchase or sale of a stock. Alternatively, trades can be done in a fee-based account where, for an agreed upon annual account fee, stock trades are done without individual commissions.
There are many other factors that need to be considered if one is considering investing in individual securities. Feel free to contact your Rogers Group Financial advisor if you would like to learn more.