Facebook headquarters sign
Courtesy of Facebook

As one of the world’s largest companies, Facebook has been hugely successful since it debuted on the stock market in 2012. The social networking company has become the main way many people stay in contact with friends, even though its core platform has experienced some problems with growth recently in the U.S. and Canada.

Still, the company has numerous avenues for expansion including its increasingly popular Instagram platform, as well as its messaging service WhatsApp.

Here’s how to buy shares of Facebook stock and what to consider before you buy.

1. Analyze Facebook and its financials

Analyzing a company’s competitive position and financials is probably the single hardest part of buying the stock, but it’s also the most important. The best place to begin is with the company’s Form 10-K, which is the annual report that all publicly traded companies must file with the SEC.

The 10-K can help you understand a lot about the company:

  • how it makes money and how much
  • its assets and liabilities
  • its profitability trend over time
  • the competitive landscape
  • the various risks faced by the business
  • the management team and how they’re incentivized

The annual report is a great first step at finding out about the company, but you’ll want to do more than this. You’ll want to study what other companies are doing to compete, for example. It’s important to have a broader perspective on the industry.

For example, while Facebook is focused heavily on its social networks, it competes for attention not just with social networks such as Twitter, Pinterest, LinkedIn and Snapchat, but other entertainment venues as well. For now, Facebook’s hold on social media has been difficult to break, with well-financed rival Google shutting down its Google Plus network early in 2019. But social media is so lucrative that Facebook may continue to attract lots of competition.

[READ: How Facebook and Instagram are making us making us spend more]

2. Does Facebook make sense in your portfolio?

Facebook is a well-established and growing company that generates tons of cash flow, so there’s almost no portfolio that it won’t fit into. However, the company has come under fire in recent years as consumers worry increasingly about privacy violations and its dominance, with some critics calling for the company to be split up. Such concerns may overshadow the stock for some time, and you’ll want to weigh these risks.

So you’ll want to consider the following questions:

  • Does a growth company fit your needs?
  • Will you be able to continue analyzing the business as it grows?
  • Given the stock’s volatility, will you be able to hold on if it drops or even buy more?
  • Facebook doesn’t pay a dividend – do you need that in a stock?

If you’re buying just a little bit of Facebook as a starter position or to get some skin in the game, these considerations might not matter as much as when you take a full position.

3. How much can you afford to invest?

How much you can afford to invest has less to do with Facebook than with your own personal financial situation. Stocks can be volatile. So to give your investment time to work out, you’ll likely want to be able to leave the money in the stock for at least three-to-five years. That means you should be able to live without the money for at least that length of time.

Committing to holding the stock for three-to-five years is important. You’d hate to have to sell the stock when it’s near a low only to watch it rebound much higher after you exited the position. By sticking to a long-term plan, you’ll be able to ride out the ups and downs of the stock.

If you’re investing in individual stocks, you’ll want to keep the percentage of any single position between three and five percent. This way you’re not heavily exposed to one investment breaking your portfolio. If the stock has more business risk, then you might choose an even lower percentage than this range.

In addition, rather than just committing a one-time sum of money to the stock, consider how you can add money to your position over time.

4. Open a brokerage account

While opening a brokerage account may sound like a difficult step, it’s actually quite easy, and you can have everything set up in 15 minutes or so.

You’ll want to select a broker that caters to your needs. Are you trading often or infrequently? Do you need a high level of service or research? Is cost the most important factor for you? If you’re buying a few stocks but investing mainly in funds, then a number of brokers specialize in offering commission-free trading for those funds.

Here is Bankrate’s list of best brokers for beginners. But you can also run through our handy broker comparison tool to see which broker might meet your specific needs best.

After you’ve opened your account, you’ll want to fund it with enough money to buy Facebook stock. But you can take care of this step completely online, and it’s simple.

[BROKER REVIEWS: Charles Schwab | Fidelity | Robinhood | Vanguard | More]

5. Buy Facebook stock

Once you’ve decided to buy Facebook stock and you’ve opened and funded your brokerage account, you can set up your order. Use the company’s ticker symbol – FB – when you input your order.

Most brokers have a “trade ticket” at the bottom of each page, so you can enter your order. On the broker’s order form, you’ll input the symbol and how many shares you can afford. Then you’ll enter the order type: market or limit. A market order will buy the stock at whatever the current price is, while the limit order will execute only if the stock reaches the price that you specify.

If you’re buying just a few shares – and Facebook has fluctuated recently between $150 and $200 – then stick with a market order. Even if you pay a little bit more now for a market order, it won’t affect the long-term performance much, if the stock continues to perform well.

Bottom line

Buying a stock can be exciting, but success won’t happen overnight. Investors should take a long-term perspective on their investments, and they should consider taking advantage of dollar-cost averaging, if they believe in the stock for the long haul.

With dollar-cost averaging, investors add a set amount of money to their position over time, and that really helps when a stock declines, allowing them to purchase more shares. High-flying stocks can dip from time-to-time, so the strategy can help you achieve a lower buy price and higher overall profits.

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Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.