The Dow Jones Industrial Average, sometimes referred to as the DJIA or simply as the Dow, is one of the most recognizable stock indices in the world. The Dow tracks the market price of the common stocks of 30 blue-chip U.S. industrial corporations. Investors who are interested in building a stock portfolio of blue chip stocks -- those with a long history of paying dividends in both good and bad economic times -- can use Dow Jones stocks as a starting point.
Research the companies represented on the DJIA to determine if they are a good fit for your investment objectives and temperament. Start by contacting each company's investor relations department and requesting a copy of the most recent annual report, or download one from the company's website. Get familiar with the kinds of products and services the company offers. Research its history for innovation and stability. Check out its stock price history, its earnings history and its dividend payout history. Ideally, you will find a long-term growth trend in its stock price, annual sales and annual earnings, as well as a history of stable dividend payouts.Step 2
Find out if there have been any recent changes in management or focus that might impact how the company operates. Companies with strong long-term growth trajectories typically have stable management teams that last for many years at a time.Step 3
Review independent stock and analyst reports on the company. You will likely have to pay for these, but they can provide valuable information on the company's performance that you won't be able to get by perusing its Securities & Exchange Commission documents, press releases, and news coverage. Analysts typically have inside knowledge of a company's growth plans, operating strategy and risks.Step 4
Select an investment broker to handle your transaction. If you already have a broker, and you are satisfied with your relationship, you can place an order for a Dow stock through that broker. There is no rule that says you can have only one broker, however. If you have done all the work researching the Dow Jones stock you want to buy, there is no reason to pay full commissions. Consider using a discount broker or an online firm for this kind of transaction. Discount and online brokers provide fewer services and advice than a full-service broker, but their commissions are significantly less as well.Step 5
Open a brokerage account, if you don't already have one. You'll need to sign a new account agreement and provide some personal information, such as your name, Social Security number and address. Your new broker might request a photo ID, such as a copy of your driver's license. Read the agreement completely to make sure you understand and agree with its terms. Determine whether you want a cash account or a margin account. A margin account lets you borrow money from your broker to pay for a portion of your stock purchase, using your stock as collateral. Margin accounts involve more risk than cash accounts, and are not usually appropriate for novice investors.Step 6
Place your order for the number of shares you want to buy. One option is to enter your order at-the-market, and it will execute at whatever price the stock is currently being offered for sale. You can also instruct your broker to place a limit order which includes the maximum price you are willing to pay for the stock. This type of order will not execute unless a seller is willing to meet your price.Step 7
Determine how you want your stock to be held. You typically have the option of taking possession of the stock certificate or having your broker hold your certificate. Having your broker hold your stock eliminates the need for safekeeping your certificates and makes it convenient when you get ready to sell your stock. But doing so can create some challenges if your broker goes out of business. Some companies no longer offer stock certificates. Instead, they register you as the owner of the shares on their books.
- The DJIA might be the most well-know Dow stock index, but it's not the only one. The Dow also offers the Dow Jones Transportation Average and the Dow Jones Utilities Average. When combined, these three indexes make up the Dow Jones Composite Average.
- All investments in stock involve risk. There are no guarantees and you could lose some or all of your investment.
Video of the Day
- GeschÃ¤ftsfrau image by Angelika Bentin from Fotolia.com