Tesla Inc. is a car company, but if you to want to buy Tesla stock, it helps to be comfortable with roller coasters.
That’s because wild up-and-down swings have become a hallmark of the stock’s performance. In just the last year, share prices have climbed as high as $379.57 and fallen as low as $250.56 — a wrenching 34% below that high mark. Call up Tesla’s stock chart and you’ll see that it’s been like this for the company’s shareholders for the past five years.
But past performance is no guarantee of what’s in store for the future, and many — including you, perhaps — believe in the long-term growth prospects of this electric-car pioneer and its mercurial CEO, Elon Musk.
If that’s the case, here’s how to buy Tesla stock.
1. View Tesla through an investor’s eyes
Maybe it’s the opportunity to buy Tesla stock during one of its price dips that piques your interest. Or your admiration for Musk. Or your wish to have exposure to the electric car industry in your portfolio.
Remember, when you buy a stock, you’re purchasing a small portion of an actual business.
Whatever brings you here, the next step of your investing journey is to pop open the hood and see what you’re really getting into. Remember, when you buy a stock, you’re purchasing a small portion of an actual business, not just hitching a ride on a cult of personality.
You’ll want to examine things like the company’s balance sheet and income statement, its competition and its management. Our guide on how to research stocks breaks down all you need to perform this initial check.
If you like what you see, the next part — the mechanics of buying shares — is pretty straightforward.
2. Choose the account to hold your Tesla stock
If you don’t already have a brokerage account, you’ll need one to facilitate the transaction. In general, you’ll want a brokerage account with low trading commissions, useful tools and an account minimum you can manage. See the best brokers for stock trading or browse some of the top picks from this year’s analysis below.
Worth noting: If you’re buying Tesla shares for retirement because you believe in the company’s long-term potential, a Roth IRA could be a good parking spot for the investment. That’s because qualified withdrawals from a Roth are tax-free, so you won’t be responsible for paying Uncle Sam for investment gains (like with a traditional IRA), which could be substantial with a potentially fast-growing company like Tesla.
If this is all new to you, here is what you’ll need to open a brokerage account.
3. Decide how much Tesla stock to buy
This is partially dictated by how much money you have to invest. But you should also think about how much of your portfolio you want to tie to Tesla’s business performance. This is the “don’t put all of your eggs in one basket” rule of investing.
To reduce your exposure to overall volatility in your portfolio, you want to own a range of assets across different industries, company sizes and geographic areas, for example. In this context, Tesla represents a growth company in the auto industry. (Read more about growth versus value stocks).
If you don’t have a diversified portfolio yet, the easiest way to get there is by investing in mutual funds rather than individual stocks. Funds essentially bundle stocks together to lessen the chances that you’ll lose your entire investment if a single company tanks. (Here’s how to invest in index funds, many of which, conveniently enough, contain Tesla stock.) Once you have that in place, you can consider adding shares of individual stocks to your portfolio.
What if you don’t have enough to buy an entire share of Tesla? You may be able to purchase a fractional share — essentially a piece of a share — from a specialty broker such as Motif.
4. Avoid dumping all of your money in at once
When a company’s share price is somewhat unpredictable, it can be hard to know when to pull the “buy” trigger. Dollar-cost averaging takes some of the fear and guesswork out of the decision.
Instead of buying all the shares you want in a single purchase, you spread out your trades and buy shares at regular intervals over time (days, months and even years). You can schedule these purchases based on price with a stop-loss or stop-limit order, as explained in more depth in how to buy stocks.
5. Place your order
Be sure to get the ticker symbol right — it’s TSLA. You’d be surprised at how many people mistype and end up buying shares in the wrong company.
Next, pick your order type. You’ll be asked to choose between a market order or a limit order, and when buying a stock on the move, there are pros and cons to each:
- A market order places the trade right away. It will be executed at the best possible price at the time of your trade. The potential downside is that with a fast-moving stock like Tesla, you could end up paying more (or less!) than what you were quoted by the time the order goes through. It could be a lot more if Musk happens to be tweeting up a storm the day you buy.
- A limit order allows you to set the price you’re willing to pay and only takes place if the stock reaches that price or lower. It’s a good way to provide some predictability in what you pay. A possible downside: Your order may not be fully executed, or even fulfilled at all, if Tesla’s price swings so wildly that enough shares don’t become available before the order expires.
6. Be a smart shareholder
Once you buy a stock, your job as a shareholder isn’t over. It’s on you to keep an eye on the company to determine if at any point the stock is no longer a good investment.
Here’s more on how to pick the right stock investments for any given point in your life.