Paypal (PYPL) is a large digital payment services company where consumers and merchants use their payment gateway to make payments.
The company was founded by Max Levchin, Peter Thiel, Luke Nosek and Elon Musk in 1998. Since then, Paypal is the largest digital payment company in the world with over 230 million active users worldwide.
eBay was the parent company up until 2015 when they spun off the stock trading on the Nasdaq under the tick: PYPL.
Why invest in Paypal?
Paypal is well positioned to benefit from the “Rise of Digital Payments” and I highlighted them in my top 5 digital payment stocks to buy article. With over 40% annual return since going public, I believe Paypal has a lot more growth ahead of them.
But investing isn’t as easy as snapping your fingers and buying a stock. We’ll show you how to buy Paypal stock and make money with your investment.
Step 1 – Do Research
Before you buy shares in Paypal, you should figure out how much the company is relatively worth and whether sales and earnings are doing well.
Yahoo! Finance is a great place to conduct research on any publicly traded stock. You want to research annual sales, earnings per share, and other key statistics before making a purchase.
Paypal has increased revenue from $13 billion in FY 2015 to $15 billion in FY 2018. Earnings have continued to grow (1.71 EPS) and the company is always focusing on customer needs and prioritizing long term shareholder value.
In the long term, all of these signs make Paypal stock a good long term investment.
Paypal Investor Relations contains all the information regarding Paypal you need to know before you invest.
Step 2 – Decide How Much Money to Invest
Paypal is trading around $115 (As of July 2019) so you’ll need a good chunk of money to buy at least 1 share. Some brokerages offer fractional shares so you can invest a little bit of money to buy more shares over time.
Before you invest, it’s a good idea to think about how much money you can afford to invest.
When you buy Paypal stock, you own a small portion of the entire company.
Remember that buying stocks is like buying a small part of a real life business. Thus, the best overall strategy is to treat stocks as a long term investment.
Portfolio Allocation and Risk Management
It’s a good idea to never investment more than 10 to 20% of your overall portfolio in one single company. This protects you against massive losses if the stock loses value.
Portion of Your Income
Investing at least 15% of your income is enough to get you started on the right track. As you pay down your debts and free up more money, you can increase the amount of money you invest.
Step 3 – Open a Brokerage Account
Buying Paypal shares is extremely easy if you open a stock brokerage account. There are two different types of brokerage accounts: discount online brokers and full service brokers.
The cheapest option is to open a discount brokerage account because they charge lower trade commissions, lower overall fees and make things easier for the average investor.
If you need more hands on services and investment insight, then try opening a full service brokerage account.
I’ve tried and reviewed many brokerage accounts over the years and here are my favorites:
- Ally Invest: Best online discount broker with $4.95 stock trades and zero minimums
- Fidelity: Best full-service broker with $4.95 stock trades and zero minimums
- Robinhood: Best Free stock trading broker with $0 trading commissions (Good for younger investors)
If you want to get started with a little bit of money, then you can purchase fractional shares using M1Finance and Stash.
Step 4 – Place Your Trade
Once your account is setup, it’s time to purchase some shares of Paypal. When you enter the ticker into your account, you will see two numbers: the bid and the ask.
It’s a gap between the highest and lowest price buyers and sellers are willing to pay. It’s a good strategy to buy on dips, meaning buying the stock near the lowest bid or the day’s lowest price.
When making your trade, you will be asked to enter the following:
- Number of Shares: Total number of shares you are buying
- Order Type: Market or Limit Order
- Execution Time: GTD (Good until Cancelled) or For today only
A market order is when your order will be filled immediately regardless of price. This is best for long term investors but is dangerous when a stock is soaring quickly in value. You can sometimes buy at the peak then watch the stock fall in price shortly after.
A limit order is when you set a maximum price you are willing to pay for a stock. This is a much better strategy and lets you prevent overpaying on a stock. If the stock doesn’t reach your limit, then the order never executes.
Submit your order and now your order will be filled by your broker. Be sure to refresh your account until the order status has changed to filled.
Once your order has been filled, you are officially a Paypal shareholder!
Step 5 – Determine Your Exit Strategy
Exit strategy is an important investing strategy to maximize your gains while protecting yourself from massive losses.
Once you own Paypal stock, you should decide when you will sell your shares.
If you are a long term investor, then you can buy and hold forever to keep collecting the dividend if your time horizon is 5+ years.
However, sometimes you buy the stock at its price peak and you end up losing a lot of money as the price continues to fall.
A good strategy is to sell off your stock if you have lost more than 20% on a trade. This will help minimize losses, plus you can always buy the stock back at a cheaper price.
If I buy a stock and it continues to drop in price, I normally exit the position to protect my overall account.
While his background is mostly related to trading stocks, he recently gained interest in real estate crowdfunding with Fundrise.