How to Invest in Stocks

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Learn how to invest in stocks by selecting a brokerage account and researching investments.

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When you invest in stocks, you are purchasing a small portion of ownership in a publicly traded company. These small portions are referred to as the company's stock. By investing in the stock, you are hoping that the company will perform well and grow over time.

If the company performs well, the value of your shares may increase, and other investors may be willing to purchase them from you at a higher price, resulting in a profit for you if you choose to sell.

It is generally recommended to have a diverse investment portfolio and to maintain your investments, even during market fluctuations.

A great way for beginners to learn about investing in stocks is by opening an online investment account and using it to purchase shares of individual stocks or stock mutual funds. Many online brokerage accounts allow you to start investing with as little as the cost of one share. 

Additionally, some online brokers offer paper trading, which allows you to practice buying and selling stocks using a simulated stock market environment before investing real money.

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How to invest in stocks in six steps


There is no single method that works for everyone when it comes to investing in stocks, but this six-step process can help you get started. First, determine how involved you want to be in the process, open an account, decide between investing in individual stocks or stock funds, set a budget, focus on long-term goals, and manage your portfolio.

1. Decide how you want to invest in the stock market 

There are several options for investing in the stock market. Choose the one that best fits your style and level of involvement in selecting and managing investments.

A. "I want to choose stocks and stock funds on my own." If this is you, continue reading for information on how to choose the right account, compare stock investments, and more.

B. "I want an expert to manage the process for me." A robo-advisor may be a good choice for you. These services offer low-cost investment management, and are offered by many major brokerage firms and independent advisors. They invest your money based on your goals.

C. “I want to start investing in my employer’s 401(k).” This is a common and easy way for beginners to start investing. It involves making regular contributions, focusing on the long-term, and taking a hands-off approach. Most 401(k)s offer a limited selection of stock mutual funds, but not individual stocks.

2. Choose an investing account

When you have decided on your investment preferences, you can start looking for an investment account. For those who prefer to manage their investments on their own, a brokerage account is a good option. 

Alternatively, for those who want assistance, using a robo-advisor to open an account is a wise choice. Both methods are explained in more detail below. It's worth noting that both brokers and robo-advisors offer the ability to open an account with very little money.

For those who prefer the do-it-yourself approach, opening an online brokerage account is often the quickest and most cost-effective way to invest in stocks, funds and other types of investments. With a broker, you can set up an Individual Retirement Account (IRA) or open a taxable brokerage account if you're already saving for retirement through an employer-sponsored 401(k) or other plan.

If you want more detailed information on how to open a brokerage account, we have a guide that you can refer to. When choosing a broker, it's important to consider factors such as the costs associated with the account, the range of investment options available and the research and tools provided for investors.

The passive option: Opening a robo-advisor account 

A robo-advisor is a great option for those who want to invest in stocks without having to actively select individual investments. Robo-advisor services provide full investment management, which means they will ask you about your investment goals during the onboarding process and then create a portfolio tailored to achieve those goals. 

While this service may sound costly, the management fees are typically much lower than what a human investment manager would charge. Most robo-advisors charge around 0.25% of your account balance. Additionally, you can also open an IRA account with a robo-advisor if you choose to do so.

It's important to keep in mind that while robo-advisors are generally affordable, it's important to read the fine print and carefully select your provider. 

Some providers may require a certain percentage of your account to be held in cash, and the interest rate on this cash position is often very low, which can negatively impact your overall performance and may not align with your investment goals. 

These cash allocation requirements can be as high as 10%. If you decide to open a robo-advisor account, the rest of this article may not be relevant to you as it is primarily geared towards the DIY investor.

3. Learn the difference between investing in stocks and funds

If you prefer to manage your investments on your own, don't worry. Investing in stocks does not have to be complicated. For most people, stock market investing means selecting from these two types of investments:

Stock mutual funds or exchange-traded funds. When it comes to stock investing, one option is to invest in stock mutual funds or exchange-traded funds. Mutual funds allow you to purchase small portions of multiple different stocks in a single transaction. Index funds and ETFs are a type of mutual fund that track a specific index, such as the Standard & Poor’s 500. 

When you invest in a fund, you also own small shares of each of the companies included in that fund. By combining several funds, you can create a diversified portfolio. It's worth noting that stock mutual funds are also sometimes referred to as equity mutual funds.

Individual stocks. 

Another option for stock investing is to purchase individual stocks. If you are interested in a specific company, you can buy one or a few shares as a way to start investing in the stock market. While it is possible to create a diversified portfolio using many individual stocks, it requires a substantial investment and research. 

If you choose to invest in individual stocks, keep in mind that the value of these stocks may fluctuate and may experience ups and downs. It's important to remember why you chose a certain company to invest in, especially during times of market uncertainty or dips in stock value.

One benefit of investing in stock mutual funds is that they are diversified, which reduces risk. For most investors, particularly those investing for retirement, a portfolio primarily made up of mutual funds is a good choice. 

However, mutual funds may not experience the same level of rapid growth as some individual stocks. On the other hand, investing in individual stocks has the potential for higher returns, but the chances of any single stock making you rich are low.

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4. Set a budget for your stock market investment

As a new investor, you may have questions about how much money is needed to start investing in stocks. The amount of money required to buy individual stocks depends on the cost of the shares, which can vary widely. For those with a limited budget looking to invest in mutual funds, exchange-traded funds (ETFs) may be a better option. 

Mutual funds typically have a minimum investment of $1,000 or more, while ETFs can be purchased for a lower share price, sometimes even less than $100.

When it comes to investing in stocks, the amount of money you should invest depends on your goals and risk tolerance. If you're investing through mutual funds or exchange-traded funds, financial advisors typically recommend allocating a significant portion of your portfolio towards stock funds, especially if you have a long-term investment horizon. 

For example, a 30-year-old investing for retirement may have 80% of their portfolio in stock funds and the remaining 20% in bond funds. When it comes to investing in individual stocks, it's generally recommended to keep them to a small portion of your portfolio due to the added risk.

5. Focus on investing for the long-term

Investing in the stock market can be a great way to build long-term wealth, as historical returns have shown an average of about 10% per year over several decades. 

However, it's important to remember that these are just averages, and individual stocks and years can vary greatly in their returns. For those with a long-term investment horizon, the stock market can be a good investment regardless of short-term fluctuations. 

A good strategy for those who have started investing in stocks or mutual funds is to avoid the temptation to check on their investments frequently and instead focus on the long-term potential.

6. Manage your stock portfolio

While it may be tempting to constantly check the performance of your stocks or mutual funds, it is important to remember that daily fluctuations are not indicative of long-term growth and can cause unnecessary stress. 

However, it is still important to periodically review your portfolio to ensure it aligns with your investment goals and make any necessary adjustments.

When it comes to managing your stock investments, there are a few key factors to keep in mind. As you approach retirement, it may be a good idea to shift some of your investments from stocks to more conservative fixed-income options. 

Additionally, it's important to ensure your portfolio is diversified across different sectors and industries. One way to do this is by investing in stocks or funds from different sectors. 

Lastly, it's important to have a geographic diversification in your portfolio, Vanguard suggests allocating up to 40% of your stocks to international investments. This can be done by purchasing international stock mutual funds.

Best stocks for beginners

Choosing stocks can be daunting, particularly for those new to the process. With thousands of stocks listed on major U.S. exchanges, it can be difficult to know where to start. 

Despite the complex strategies and approaches involved in stock investing, some of the most successful investors have found success by simply sticking to the basics of the stock market.

One effective strategy is to primarily invest in funds, as Warren Buffett has advised, and only select individual stocks if you have confidence in their long-term growth potential. 

One example of a fund to consider is a low-cost ETF that tracks the S&P 500 index, which comprises around 500 of the largest publicly traded companies in the U.S. Historically, the S&P 500's average annual return has been similar to the overall market return, around 10%.

The bottom line on investing in stocks

Getting started with stock investing may seem overwhelming for beginners, but it's simply a matter of determining your investment strategy, selecting the appropriate account type, and deciding on an appropriate amount of money to invest.

For additional guidance on selecting a brokerage account, consider consulting a recent comparison of the top online brokers for stock investors. This analysis evaluates factors such as fees, investment options, minimum account balance requirements, and the availability of useful tools and resources for investors.


- Are stock investing apps safe?

Stock investing apps are generally safe to use. However, some newer apps have experienced reliability issues in recent years, such as temporary outages or restrictions on app functionality. 

While your funds are typically still safe, losing temporary access to your money can still be a concern. To avoid these issues, it is recommended to choose an investing app from a large and established brokerage, such as Fidelity, TD Ameritrade, or Charles Schwab, which are known to be among the best and largest brokerages in the country.

- Can I invest small amounts of money in stocks?

It is possible to invest small amounts of money in stocks. Many brokerages now have $0 account minimums, which means you can open an account without having to deposit a large amount of money. 

Additionally, some brokerages offer fractional trading, which allows you to invest low dollar amounts such as $5 or $10, rather than the full price of a share. However, investing small amounts can make it difficult to diversify your portfolio. 

One solution is to invest in stock index funds and ETFs, which often have low investment minimums and can provide diversification by holding many different stocks within a single fund. Some brokers like Fidelity and Charles Schwab even offer index funds with no minimum at all.

It's important to remember that investing is a long-term game and should not include money that may be needed in the short term, including emergency funds.

- Is it really worth it to invest small amounts?

Making regular investments, even small ones, over time can accumulate a significant amount of money. For example, if you invested $100 per month for 30 years and it grew at a conservative rate of 6% annually, you could have more than $100,000 at the end of 30 years. (You can use an investment calculator to see how compounding returns can work in investing.) The key to this strategy is creating a long-term investment plan and sticking to it, rather than attempting to buy and sell for short-term gain.

- Are stocks a good investment for beginners?

Investing in the stock market can be a good idea as long as you're comfortable keeping your money invested for at least five years. This is because market downturns that last longer than five years are relatively uncommon. 

To minimize risk, it is recommended to focus on diversified products, such as index funds and ETFs, instead of trading individual stocks. Building a diversified portfolio using individual stocks can be time-consuming and requires a lot of research and knowledge, whereas index funds and ETFs can provide diversification with less effort.

- What are the best stock market investments?

In our opinion, the best investments in the stock market are often low-cost mutual funds like index funds and ETFs. These types of funds allow you to purchase a significant portion of the stock market in one transaction. 

Index funds and ETFs track a benchmark, such as the S&P 500 or the Dow Jones Industrial Average, which means the performance of your fund will mirror the performance of the benchmark. For example, if you invest in an S&P 500 index fund and the S&P 500 goes up, your investment will also go up.

This means that you will not outperform the market but also the market will not outperform you. Investors who trade individual stocks instead of funds often fail to match the market's performance over the long term.

- How do I choose my stock investments?

The decision on what to invest in depends on two factors: the time frame for your financial goals and the level of risk you are willing to take.

Regarding the time frame, if you are investing for a long-term goal like retirement, it is recommended to invest primarily in stocks through mutual funds. This is because stocks have the potential to grow and beat inflation over time. 

As you get closer to your goal, it's advisable to gradually reduce your stock allocation and increase your bond allocation, which are generally considered safer investments.

In summary, the type of investments you choose should depend on your time horizon and risk tolerance. For long-term goals, such as retirement, investing in low-cost mutual funds like index funds and ETFs can be beneficial. 

However, for short-term goals, it may be better to consider safer options. Additionally, it's important to keep in mind your personal risk tolerance when making investment decisions as some individuals may prefer to invest more conservatively with a lower allocation to stocks.

- What stocks should I invest in?

A popular strategy is to invest in a variety of stocks through a stock mutual fund, index fund or ETF, such as an S&P 500 index fund that contains all the stocks in the S&P 500 index.

However, if you enjoy the excitement of choosing individual stocks, this method may not be satisfying. To still have that experience while being cautious, you can allocate 10% or less of your portfolio to individual stocks of your choice. For ideas on which stocks to invest in, check out our list of the best stocks based on current performance.

- Is stock trading for beginners?

For new investors, it is recommended to avoid the active buying and selling of individual stocks and instead focus on a long-term strategy using low-cost mutual funds, index funds, and ETFs. This approach, known as a buy-and-hold strategy, involves making a long-term investment plan and sticking to it, rather than trying to make short-term gains through stock trading. This method is considered to be less risky and more efficient for beginners.

- Can I open a brokerage account if I live outside the U.S.?

The availability for international investors will depend on the broker selected. According to NerdWallet's reviews, Firstrade, TD Ameritrade, Lightspeed, Interactive Brokers, eOption, TradeStation, ZacksTrade, Charles Schwab, and Webull all accept international investors, but have different limitations and requirements.

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