You might love the way Snapchat’s filters beautify your world, but would buying Snapchat stock prettify your portfolio?
The value of the app’s parent company, Snap Inc., has been disappearing lately, much like the app’s photos do. The stock’s share price is currently hovering around $9, nearly than 70% off its high point of $27 in March 2017, when the company first started trading publicly.
And that brings us to a crucial question: If you want to buy Snapchat stock, how can you tell if it is a bargain waiting to be scooped up, or a failure on its way to decimating your savings?
You’re going to have to decide for yourself — and that means starting with some research. Read on for five steps for how to buy Snapchat stock. (Or, if you already know you want to buy, check out our best brokers for online stock trading.)
1. Check out the company
Whether you want to buy stock at the stratospheric level of a company like Apple or one that’s hitting the skids like Snapchat, it’s impossible to know what the future holds. Apple could, conceivably, crash and burn, and Snapchat could, conceivably, one day replace Facebook in FANG, the group of high-growth tech stocks (Facebook, Amazon, Netflix and Google). SANG, anyone?
Make sure you’re buying shares because of the company’s long-term prospects for growth, not because you love using the product.
The only way to get a handle on what’s likeliest to happen with any stock is to do some research. That includes assessing the company’s quantitative results — earnings, revenue and more — as well as the management team, competitive landscape and more. See our guide on how to research stocks.
You may remember that Snapchat’s redesign early in 2018 wasn’t exactly well-received (more than 1 million people signed an online petition calling for its reversal), but the company faces other headwinds, too, including competition from the likes of Instagram and others. But it’s also rolling out new features all the time.
In short, you need to make sure you’re buying Snapchat because of its long-term prospects for growth, not simply because you love using its product.
2. Put this investment in context
So you’ve done your research, and you’re ready to buy? Hold on a sec. There are three more questions to answer first about your situation.
- What’s your timeframe? You definitely don’t want to be putting money you might need soon — like in the next five years — into a volatile stock like Snap. That’s because one key to successful stock investing is making sure you don’t have to sell your shares at the worst possible time: when they’re worth less than when you bought them. If you’ll need this money in five years or less, consider holding off. (We’ve got some ideas for where to stash your short-term savings.) If you’re thinking more long-term, then proceed to the next question.
- Are your existing investments diversified? There’s nothing wrong with buying individual stocks as part of your investment strategy — emphasis on “part.” We recommend allocating no more than about 10% of your total portfolio to individual stocks. That way, the bulk of your money can be focused on a diversified portfolio — a variety of stock and bond index funds — to make sure a single company’s troubles don’t crash-and-burn your entire portfolio. We’re big fans of low-cost index mutual funds for diversification.
- Are you ready to lose this money? Do even a quick search on Snap, and you’ll see a fair number of smart people pointing to the challenges this company faces. Certainly, it could turn around and become a big winner. But it may not. If it doesn’t, that potentially means a loss for you. If Snap were to fold someday before you sold your shares, those shares would be worth zero.
3. Open a brokerage account
You love this stock even more than your own dog-filter selfie, and this is money you don’t need anytime soon and can afford to lose? Fair enough. The next thing on the agenda is opening a brokerage account, which is an investment account that will enable you to buy this stock.
Find an online broker with low trading commissions and a strong lineup of investment choices. You may be focused on Snap right now, but why not think a bit about your future self? Maybe you’ll be excited, as we are, about index mutual funds and be glad your broker offers a wide selection of no-transaction-fee mutual funds.
Opening an account is quick — it takes maybe 15 minutes or so. Here’s our full guide to opening a brokerage account.
If you’d like help finding the best broker for your needs, check out our best brokers for stock trading or check out some winners from that analysis below.
4. Buy your Snapchat stock
This part is easy:
- Search for the stock’s ticker symbol. This is the identifier for the company within the stock market. In this case, it’s SNAP.
- Specify how many shares of Snapchat you want to buy. Remember it’s OK to smart small and add to your position over time.
- Choose your order type. You’ll probably want either a “market” order or a “limit” order. A market order means you’re telling the brokerage to buy the stock as soon as possible, with the understanding that the final price might be slightly higher or lower than the price you see as you place the order. With a limit order, you’re telling the broker that you only want to buy the stock at a specific price. The caveat is that, if the stock isn’t available at that price, the order may be not be fulfilled.
Still have questions? See our guide on how to buy stocks.
5. Keep your ear to the ground
If you’re fortunate, you’ll someday sell your Snap shares for more than you bought them. But in the meantime, keep an eye on company news and the stock price to make sure the shares still deserve a place in your portfolio.
That doesn’t mean you should freak out and sell your shares if the price drops. Remember, this is money you’re not supposed to need in the next five years. So keep an eye on the long game, and pay the most attention to the factors that indicate whether the company will still be growing in the years and decades ahead.