How Much Will It Cost to Buy Shares? A Clear Guide for Beginners

Have you been thinking about investing in stocks but aren’t sure exactly how much money you’ll need? You’re not alone! Understanding the true cost of buying shares is confusing for many first-time investors. Let’s break it down in simple terms so you can start investing with confidence.

The Real Cost of Buying Stocks: More Than Just the Share Price

When I first started investing, I thought the price of a stock was the only cost I needed to worry about. Boy, was I wrong! While the share price is definitely the main expense, there are other factors that might impact your total investment cost.

Two Main Components of Stock Purchases

The cost of buying shares typically includes

1. The actual share price – This is the market price of each share multiplied by the number of shares you want to buy
2. Broker commissions and fees – These are the charges that brokers may apply for executing your trade

Let’s look at each of these more closely.

Share Price: What Determines How Much Stocks Cost

The price of a stock is determined in one of two ways

For New Stock Issues (IPOs)

When a company first goes public (called an Initial Public Offering or IPO), the shares are sold directly by the company at a fixed price. For example, if a startup decides to go public, they might set their share price at $15. Most of these initial shares are purchased by large institutional investors and company insiders.

For Existing Stocks

After the IPO, shares trade on stock exchanges like the New York Stock Exchange or Nasdaq At this point, the price is determined by supply and demand – basically, what investors are willing to pay for the stock based on the company’s performance, future prospects, and overall market conditions

The share price can range from a few dollars to thousands of dollars per share, depending on the company. For example, as of writing this article, you might find:

• Some penny stocks trading for under $5 per share
• Many established companies trading between $20-$100 per share
• Premium stocks like Amazon or Google that might cost hundreds or even thousands per share

Broker Commissions: The Hidden Cost of Trading

Here’s where things have gotten a LOT better for individual investors in recent years!

The Commission Revolution

Just a few years ago, most brokers charged around $5-$10 per trade, which could seriously eat into your returns, especially for smaller investments. But good news – many major online brokers now offer zero-commission trades on stocks and ETFs! This price war has been amazing for us small investors.

However, commissions may still apply for other types of investments:

• Mutual funds (some brokers charge $0-$75 per transaction)
• Options contracts (typically $0.50-$1.50 per contract)
• Bonds (often $1 per bond with minimums)

Full-Service vs. Discount Brokers

If you choose to use a full-service broker who provides personalized investment advice, you’ll typically pay more:

• Full-service brokers charge about 1% to 2% of your total purchase, a flat fee, or sometimes a combination of both
• Discount/online brokers often charge zero commission for stock trades, making them much more affordable for beginners

An Example: Calculating Total Cost of a Share Purchase

Let’s say you want to buy 100 shares of a company trading at $20 per share:

Using an Online Broker (with zero commissions):

• Share cost: 100 shares × $20 = $2,000
• Commission: $0
• Total cost: $2,000

Using a Full-Service Broker (with a 2% commission, $50 minimum):

• Share cost: 100 shares × $20 = $2,000
• Commission: $2,000 × 2% = $40, but since that’s below the minimum, you pay $50
• Total cost: $2,050

As you can see, broker fees can add up, especially for smaller investments or frequent trading.

Additional Costs You Might Not Expect

Beyond the basic share price and commissions, there are a few other potential costs to be aware of:

Account Maintenance Fees

Some brokers charge annual account maintenance fees, typically ranging from $0-$75. Many waive these fees if you maintain a minimum balance or make a certain number of trades per year.

Foreign Transaction Fees

If you’re buying shares of companies listed on foreign exchanges, some brokers charge extra fees for these transactions, often 1-3% of the trade value.

Capital Gains Taxes

When you eventually sell your shares for a profit, you’ll need to pay capital gains tax. The rate depends on how long you held the shares:

• Short-term capital gains (shares held less than a year): Taxed at your ordinary income tax rate
• Long-term capital gains (shares held more than a year): Typically taxed at lower rates (0%, 15%, or 20% depending on your income)

How to Calculate Your Potential Stock Profit or Loss

Once you’ve purchased your shares, you’ll probably want to track how your investment is performing. Here’s a simple formula:

Profit/Loss = [(Sell Price × Number of Shares) – Selling Commission] – [(Purchase Price × Number of Shares) + Purchase Commission]

Or you can use NerdWallet’s Stock Calculator to do the math for you.

Return on Investment (ROI)

To calculate your percentage return:

ROI = (Profit or Loss ÷ Initial Investment) × 100

For example, if you invested $1,000 and made $1,200 when you sold, your ROI would be:
($200 ÷ $1,000) × 100 = 20%

Minimum Investment Requirements: How Much Do You Need to Start?

One question I get a lot is “What’s the minimum amount I need to start investing in stocks?” The answer depends on several factors:

Per-Share Minimums

Traditionally, you had to buy stocks in “round lots” of 100 shares, but nowadays most brokers allow you to purchase as little as one share. Some even offer fractional shares, letting you invest with as little as $1!

Broker Minimums

Different brokers have different account minimums:

• Many online brokers have $0 minimum account requirements
• Some premium or full-service brokers require $500-$2,500 minimums
• Specialized investment accounts might have higher minimums ($10,000+)

Practical Minimums

While you could technically start with just enough to buy a single share, I recommend having at least $500-$1,000 to begin investing in individual stocks. This gives you enough to:

• Buy shares in multiple companies for basic diversification
• Ensure that any fixed fees don’t eat up too much of your investment

5 Ways to Reduce Your Stock Buying Costs

Want to keep your costs down? Here are my top tips:

1. Choose a zero-commission broker – Platforms like Charles Schwab, Public, and Coinbase offer commission-free stock trading
2. Look for brokers with no account minimums or maintenance fees – Many online brokers have eliminated these fees
3. Consider fractional shares – If you can’t afford full shares of expensive stocks, some brokers let you buy fractions
4. Watch out for hidden fees – Read the fine print about inactivity fees, paper statement fees, or transfer fees
5. Buy and hold – Frequent trading racks up costs and taxes; a long-term strategy is usually more cost-effective

Examples of What It Costs to Buy Popular Stocks

Let’s look at some real-world examples of what it might cost to invest in some popular companies (prices are examples and will change):

With fractional shares, you could invest in any of these with as little as $1-$10 through many brokers.

Final Thoughts: Is Buying Shares Worth the Cost?

After looking at all these costs, you might wonder if buying individual stocks is worth it. Here’s my take:

• For beginners with limited funds: Consider starting with ETFs or index funds that give you instant diversification at a low cost
• For those with more to invest: Individual stocks can be worthwhile if you’re willing to do your research and hold long-term
• For everyone: Take advantage of zero-commission brokers and fractional shares to keep costs low

Remember, the best investment strategy isn’t about avoiding all costs—it’s about maximizing value while minimizing unnecessary expenses.

The Bottom Line

The cost to buy shares includes the share price multiplied by the number of shares you want, plus any broker commissions (though many brokers now offer zero-commission trading). Additional costs may include account maintenance fees, foreign transaction fees, and eventual capital gains taxes.

With today’s discount brokers and fractional share offerings, you can start investing with as little as $1-$100, making the stock market more accessible than ever before.

Have you started investing in stocks yet? What surprised you most about the costs involved? I’d love to hear your experiences in the comments below!