“Investing” is a scary word, especially if you are new to it. There is so much insider lingo that it can be confusing, but thankfully, there are so many online resources available that learning it all can be done in no time.
For most people, choosing a few companies and “investing” in them is a great place to start, even if it isn’t a lot of money to start out with.
Today, we are going to be taking a look at one of the most common companies that retail investors, otherwise known as individual investors, will put a bit of money in: Tesla. By the end, you’ll know exactly how you can invest in Tesla as a new investor, plus a few of your options.
What Does It Mean to “Invest” in Tesla?
Unfortunately, buying a new Tesla vehicle does not mean you are investing in the company, so using that argument this Christmas probably isn’t going to work. Sure, you may be, in a way, investing in the company by buying its products, but “investing” in a traditional sense usually means something more specific.
When most people colloquially talk about investing, they are generally referring to the act of acquiring a “share” in a company. In the United States (and most other countries), a company can raise money by offering small percentages of the company, commonly referred to as “shares” or “stock,” to people on a public market.
When a company officially opens itself up to the public to buy small percentages of the company, this is called an IPO, or Initial Public Offering. In the United States, the process of trading shares of a company is regulated, with all trading done on exchanges that are regulated by the Securities and Exchange Commission.
Tesla went public for trading in the United States in 2010, meaning that anyone interested in buying a percentage of the company is able to do so. For most people, “investing in Tesla” means buying some shares (stock) in the company through one of the exchanges offered in the United States.
After purchasing shares in a company, you now have a vested interest in the success of the company. If a company is doing well, those percentage shares are likely to increase in value. In that case, your investment would have brought a return. In the case that a company doesn’t do well, those shares are likely to decrease in value, meaning that the investment in the company has resulted in a loss.
How to Invest in Tesla
There are a few ways in which to invest in Tesla. We’re going to cover a few of them below.
Buying Shares Using a Brokerage Platform
The easiest way to invest in Tesla is to set up a brokerage account with a reputable institution, connect your financial information to deposit some money, and initiate a trade for however much Tesla stock you want to purchase.
In the United States, it’s pretty easy to invest in Tesla. Really, the only thing that most people need to do is set up an account with a stock broker that allows you to trade Tesla stock. Since Tesla is listed on the NASDAQ, the second-largest exchange in the world, almost all U.S.-based brokerage accounts will provide it.
A brokerage account is simply an online account that holds financial assets on behalf of an investor (you). Their main purpose is to provide a user with a platform to initiate financial transactions with the various exchanges, usually for a small fee.
Some of the most popular brokerage platforms include:
- Fidelity Investments
- TD Ameritrade
- Merrill Edge
Each of these platforms has its benefits and features, so make sure that you do some research into which platform is best for you.
If you are totally new to any and all trading, throwing a few dollars around in Robinhood may be worth it since they don’t have any fees and have a super user-friendly platform, plus they allow you to buy a “fractional share,” meaning you can buy a percentage of a share if it’s too expensive to get a whole one.
In Tesla’s case, the nearly $200 that it costs now could be broken up into smaller stock slices.
Buying ETFs, Index Funds, and Mutual Funds that Incorporate Tesla in Them
Although directly buying shares of Tesla is probably the most direct way to invest in the company, there are also some other options available on most of the same brokerage platforms, including ETFs, index funds, and mutual funds.
ETFs and mutual funds are essentially pools of money that are widely vested into a group of bundled assets. You don’t own the actual assets, but instead, own a share of a pool that owns the assets. This can reduce risk since the pools are made up of so many companies, although the success of a single company has less impact on your overall position. There are over 300 ETFs and over 650 mutual funds with Tesla “exposure” (some amount of Tesla ownership).
Index funds are somewhat similar to ETFs and mutual funds in that they are large groups of bundled assets, with the primary difference being that index funds are traded a bit differently and have some different rules associated with them. Regardless, they operate in much the same way.
ETFs, index funds, and mutual funds are an easy way to have some exposure to Tesla without taking on the total risk of the company. Not all brokerage platforms offer them, however, so make sure you do your research if this method of investing is attractive.
Trading Tesla Options
Trading Tesla options is a third way to “invest” in the company, although this option is definitely not for everyone. In fact, in some cases, it wouldn’t be an investment in Tesla, but an investment in the failure of Tesla. Because of this, we won’t be covering the totality of Tesla options, but it’s important to know that there are four ways to trade options:
- Buy (long) calls
- Sell (short) calls
- Buy (long) puts
- Sell (short) puts
Not all platforms allow for options trading, so make sure you are selecting a brokerage platform that allows for this if options trading is something you plan on doing. Also, options trading is a bit more complicated than simply investing in stock or asset bundles, and is an indirect way of making money through the success or failure of a company.
Investing in Tesla isn’t all that hard, but the easiest way to do so is through buying stock or asset bundles like ETFs and mutual funds that incorporate Tesla stock. Once you own Tesla shares, you are now invested in the company and have a stake in its future success or failures!
Here are a few things to remember:
- Investing in a company is usually a reference to having shares or exposure to a company via the stock market.
- Investing in a company is usually done through an online brokerage platform.
- Not all brokerage platforms offer the same things.
- Buying stock is the most direct way to invest in a company, but other methods include ETFs, mutual funds, index funds, and even options trading.
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The image featured at the top of this post is ©Kevin McGovern/Shutterstock.com.