How To Invest In Stocks
Investing in stocks can be daunting, especially if you’re just starting out. With so many options, terms, and strategies, it’s easy to feel overwhelmed. However, investing in stocks is one of the best ways to build wealth over time. Whether you’re looking to create a passive income stream, save for retirement, or grow your wealth, this comprehensive guide will help you get started on your investment journey.
Lead Writer
Jeremiah Daniel
How to Invest in Stocks in 6 Steps
To invest in stocks, open an online brokerage account, add money to the account, and purchase stocks or stock-based funds from there. You can also invest in stocks through a robo-advisor or a financial advisor.
Ready to invest? Check out the best online brokers for stock trading.
1. Decide How You Want to Invest in the Stock Market
There are several ways to approach stock investing. Choose the option below that best matches how hands-on you’d like to be.
A. I’d like to choose stocks and stock funds on my own.
Keep reading. This article breaks down how to choose the right account for your needs and how to compare stock investments.
B. I’d like an expert to manage the process for me.
You may be a good candidate for a robo-advisor, a service that invests your money for you for a small fee. Virtually all major brokerage firms and many independent advisors offer these services.
C. I’d like to start investing in my workplace 401(k).
This is one of the most common ways for beginners to start investing. Many plans offer a match, which is basically free money. If your employer offers a 4% match and you make $100,000 a year, if you contribute $4,000 to your 401(k), so will your employer. That means you get $4,000 for free.
Choose an Investment Account
Once you know how you want to invest, you’re ready to shop for an investment account, also known as a brokerage account. There are several types of investment accounts, and it’s a good idea to figure out which account is right for you. For example, a Roth IRA comes with significant tax benefits while a standard brokerage account does not.
For those who would like a little help, opening an investment account through a robo-advisor is a sensible option. We break down both processes below.
Keep in mind, an investment account is just an account, it’s not an investment. You have to add money to it and then purchase investments from there to have your money grow in value.
The DIY Option: Opening an Investment Account
An online investment account likely offers your quickest and least expensive path to buying stocks, funds, and a variety of other investments. With a broker, you can open an individual retirement account, also known as an IRA, or you can open a taxable brokerage account if you’re already saving adequately for retirement in an employer 401(k) or other plan.
We have a guide to opening a brokerage account if you need a deep dive. You’ll want to evaluate brokers based on factors such as costs, investment selection, and investor research and tools.
The Passive Option: Opening a Robo-Advisor Account
A robo-advisor offers the benefits of stock investing but doesn’t require its owner to do the legwork required to pick individual investments. Robo-advisor services provide complete investment management: These companies will ask you about your investing goals during the onboarding process and then build you a portfolio designed to achieve those aims.
This may sound expensive, but the management fees here are generally a fraction of the cost of what a human investment manager would charge. Most robo-advisors charge about 0.25% of your account balance. And yes, you can also get an IRA at a robo-advisor if you wish.
If you choose to open an account at a robo-advisor, you probably don’t need to read further in this article—the rest is just for those DIY types.
Choosing the right investment account is key. For hands-on control, go with an online brokerage. Prefer guidance? Opt for a robo-advisor. Remember, funding the account and selecting smart investments are crucial to growing your wealth. Align your choices with your financial goals for the best results.
Learn the Difference Between Investing in Stocks and Funds
Going the DIY route? Don’t worry. Stock investing doesn’t have to be complicated. For most people, stock market investing means choosing among these two investment types:
Stock Mutual Funds or Exchange-Traded Funds (ETFs)
Mutual funds let you purchase small pieces of many different stocks in a single transaction. Index funds and ETFs are a kind of mutual fund that track an index; for example, an S&P 500 fund replicates that index by buying the stock of the companies in it.
When you invest in a fund, you also own small pieces of each of those companies. You can put several funds together to build a diversified portfolio. Note that stock mutual funds are also sometimes called equity mutual funds.
Individual Stocks
If you’re after a specific company, you can buy a single share or a few shares as a way to dip your toe into the stock-trading waters. Building a diversified portfolio out of many individual stocks is possible, but it takes a significant investment and research.
If you go this route, remember that individual stocks will have ups and downs. If you research a company and choose to invest in it, think about why you picked that company in the first place if jitters start to set in on a down day.
The upside of stock mutual funds is that they are inherently diversified, which reduces your risk. For the vast majority of investors—particularly those who are investing their retirement savings—a portfolio made up of mostly mutual funds is the clear choice.
But mutual funds are unlikely to rise in meteoric fashion as some individual stocks might. The upside of individual stocks is that a wise pick can pay off handsomely, but the odds that any individual stock will make you rich are exceedingly slim.
Set a Budget for Your Stock Market Investment
New investors often have two questions in this step of the process:
How much money do I need to start investing in stocks?
The amount of money you need to buy an individual stock depends on how expensive the shares are. Share prices can range from just a few dollars to a few thousand dollars. Some brokerages allow you to invest with fractional shares. Simply put, you can choose a dollar amount and invest that despite the fact that the share price might be greater than what you have (which means you can own a fraction of a stock).
If you want mutual funds and have a small budget, an exchange-traded fund (ETF) may be your best bet. Mutual funds often have minimums of $1,000 or more, but ETFs trade like a stock, which means you purchase them for a share price—in some cases, less than $100.
How much money should I invest in stocks?
If you’re investing through funds—have we mentioned this is the preference of most financial advisors?—you can allocate a fairly large portion of your portfolio toward stock funds, especially if you have a long time horizon. See our investment calculator: Investment Calculator
A 30-year-old investing for retirement might have 80% of their portfolio in stock funds; the rest would be in bond funds. Individual stocks are another story. A general rule of thumb is to keep these to a small portion of your investment portfolio.
Focus on Investing for the Long-Term
Stock market investments have proven to be one of the best ways to grow long-term wealth. Over several decades, the average stock market return is about 10% per year. However, remember that’s just an average across the entire market—some years will be up, some down, and individual stocks will vary in their returns.
For long-term investors, the stock market is a good investment no matter what’s happening day-to-day or year-to-year; it’s that long-term average they’re looking for.
The best thing to do after you start investing in stocks or mutual funds may be the hardest: Don’t look at them. Unless you’re trying to beat the odds and succeed at day trading, it’s good to avoid the habit of compulsively checking how your stocks are doing several times a day, every day.
Manage Your Stock Portfolio
While fretting over daily fluctuations won’t do much for your portfolio’s health—or your own—there will of course be times when you’ll need to check in on your stocks or other investments.
If you follow the steps above to buy mutual funds and individual stocks over time, you’ll want to revisit your portfolio a few times a year to make sure it’s still in line with your investment goals.
A few things to consider: If you’re approaching retirement, you may want to move some of your stock investments over to more conservative fixed-income investments. If your portfolio is too heavily weighted in one sector or industry, consider buying stocks or funds in a different sector to build more diversification.
Finally, pay attention to geographic diversification, too. Many experts recommend international stocks make up as much as 40% of the stocks in your portfolio. You can purchase international stock mutual funds to get this exposure.
Best Stocks for Beginners
The process of picking stocks can be overwhelming, especially for beginners. After all, there are thousands of stocks listed on the major U.S. exchanges.
Stock investing is filled with intricate strategies and approaches, yet some of the most successful investors have done little more than stick with stock market basics.
That generally means using funds for the bulk of your portfolio—Warren Buffett has famously said a low-cost S&P 500 ETF is the best investment most Americans can make—and choosing individual stocks only if you believe in the company’s potential for long-term growth.
The S&P 500 is an index consisting of about 500 of the largest publicly traded companies in the U.S. Over the last 50 years, its average annual return has been more or less the same as that of the market as a whole—about 10%.
For those looking at individual stocks, NVIDIA is a leading technology company known for its powerful GPUs used in gaming, AI, and data centers. See our thoughts on NVIDIA. Exploring AI Investment Opportunities Beyond Nvidia: Small-Cap Stocks to Watch
For beginners, the best stocks are often those of well-established companies with a proven track record of stability and growth. Look for blue-chip stocks and diversify your portfolio with ETFs and index funds to spread risk and increase your chances of long-term success. Start with companies you understand and believe in, and always research their financial health and market position.
The Bottom Line on Investing in Stocks
Learning how to invest in stocks can be daunting for beginners, but it’s really just a matter of figuring out which investment approach you want to use, what kind of account makes sense for you, and how much money you should put into stocks.
If you’re tempted to open a brokerage account but need more advice on choosing the right one, see our latest roundup of the best brokers for stock investors. It compares today’s top online brokerages across all the metrics that matter most to investors: fees, investment selection, minimum balances to open, and investor tools and resources.
Yes, stock investing can be safe for beginners when approached with proper research and a diversified strategy. It’s important to start with a clear investment plan, set realistic goals, and be aware of the risks involved. Consider starting with low-cost index funds or ETFs to spread your risk across many stocks.
Most reputable stock investing apps are safe to use. Look for apps from well-known brokerage firms that have strong security measures in place, such as encryption and two-factor authentication. Always check user reviews and the app’s security features before you start investing.
Absolutely. Many brokerages and investing apps allow you to start with small amounts of money. Some platforms offer fractional shares, which let you invest a specific dollar amount rather than having to buy a whole share. This makes it easier for beginners to get started with minimal capital.
Yes, investing small amounts regularly can add up over time thanks to the power of compound interest. Starting with small investments helps you build the habit of investing and can lead to significant growth as your portfolio compounds and you increase your contributions.
Stocks can be a great investment for beginners, especially if you focus on long-term growth and diversification. Investing in a mix of individual stocks and low-cost index funds or ETFs can provide a balanced approach that minimizes risk while offering potential for growth.
The best stock market investments often include a mix of diversified funds like index funds and ETFs, which spread risk across many companies. For those looking to invest in individual stocks, focus on well-established companies with strong track records and growth potential.
Choose your stock investments based on your financial goals, risk tolerance, and the amount of research you’re willing to do. Start with industries you understand and companies with solid fundamentals. Use resources like financial news, analysis tools, and stock research reports to make informed decisions.
Consider investing in stocks of well-established companies with a history of stability and growth. Diversifying across different sectors can also help reduce risk. Look for companies with strong financials, good management, and a competitive edge in their industry.
Stock trading can be complex and is generally not recommended for beginners due to its high risk and the need for in-depth market knowledge. Instead, focus on long-term investing strategies, which are safer and more suitable for building wealth over time.
Yes, many U.S. brokerage firms allow international investors to open accounts. However, it’s important to check the specific brokerage’s policies and any potential tax implications for your country. Ensure the brokerage provides the services and support you need as an international investor.
