How to Invest in Stocks: A Beginner’s Guide

Investing in stocks is a way to grow your money slowly but steadily. You can watch it grow over many years by setting aside some money regularly to invest. It’s best to start as soon as possible because the longer you invest, the better. This guide walks you through the basics of how much money you need, which stocks to choose, and other important steps to get started in just ten simple steps. Whether you have a lot of money saved up or just $25 per week to invest, you can start your investment journey now.

Step 1: Set Clear Investment Goals

Start by thinking about what you want to accomplish with your money. You might have short-term goals like buying a house or going on a vacation or long-term goals like having a comfortable retirement or paying for your child’s education. Your goals will depend on where you are in life and what you want to achieve. Younger people often want to grow their money over time, while older people usually want to ensure their money is safe and can provide them with income when they stop working.

Being clear about your goals simplifies finding the best ways to achieve them. Here are some tips:

1. Make clear goals: Instead of saying vague things like “save for retirement” or “I want to be financially secure,” set specific targets like “save $500,000 in my retirement account by the time I’m 60.”
2. Decide when you want to reach your goals: Figure out how much time you have to achieve each goal you set. Some goals will have longer timelines, while others will be shorter. Generally, the more time you have, the less risk you’ll need to take, and your goals will be more achievable.
3. Evaluate your finances: Be honest about how much money you can put towards your investment goals. Consider your savings, how much you make regularly, and any other financial resources you can use. We’ll talk about this later.
4. Rank your goals: Many of us have multiple goals simultaneously, such as saving for a house down payment, covering expenses for a wedding next year, or getting ready for retirement. Decide which goals are most important and urgent, and balance them accordingly.
5. Review and adapt to changes in your life: Think of financial planning as an action, not just a thing, because goals can change, and managing your money is an ongoing task. Your life circumstances may shift—you might start or end a relationship, have children or not, or decide to work in a different part of the country. Life changes, so your financial goals will, too. Keep checking and updating your goals as needed.

The beginning of any journey is important when you set your goals and picture your future. With investments in stocks, a bit of luck, and a smart investment plan you’ll learn about here, you can start making your dreams a reality.

Step 2: Determine How Much You Can Afford To Invest

Figuring out how much money you can invest in stocks means looking at your finances honestly. Don’t stress if you have less than you hoped for. Just like you wouldn’t expect to run a marathon on your first training day, you’re just starting with investing. It’s a long journey, not a quick race. Here are some tips to help you assess how much you can realistically invest:

1. Examine your income sources: Consider how much money you earn. Check if your employer offers any investing options with tax benefits or if they match your contributions, which can boost your savings.
2. Build an emergency fund: A strong financial base is important before you start investing, but it doesn’t have to be perfect. Figure out how much you need for emergencies, usually enough to cover big expenses like a few months of rent or mortgage payments, along with your other bills.
3. Snuff out any high-interest debts: Financial experts advise paying off high-interest debts, like credit cards, before investing in stocks. The interest you pay on debts is usually higher than the expected returns from trading stocks. If you have student loans, consider how much interest you pay versus the returns you expect from investing. Decide if it’s better to pay off your loans first or invest your money.
4. Set a budget: After looking at your finances, determine how much money you can comfortably invest in stocks. Ensure this amount doesn’t affect the money you need for current or future expenses. Your budget will help you decide whether to start with a big sum or invest smaller amounts regularly, like monthly or yearly.

Investing in stocks has risks, so only invest money you’re okay with losing. Don’t jeopardize your financial security for the sake of investing. This is what sets investing apart from risky gambling.

Step 3: Appraise Your Tolerance for Risk

Knowing how much risk you can handle is key to investing. Consider how comfortable you are with the stock market’s ups and downs. Your risk tolerance depends on your age, what you want to achieve financially, and how much money you can lose.

Understanding your risk tolerance is vital for creating an investment plan that fits your financial goals and keeps you calm. It helps you choose the right stocks for your portfolio and decide what to do when the market changes. Don’t let others push you into being more daring or cautious than you’re comfortable with. Do you like stability, or are you okay with taking bigger risks for potentially higher rewards? This self-evaluation is important for starting your investment journey on the right track.

Stocks vary in risk level. Large-cap stocks are safer because they’re from big, established companies. Small-cap stocks offer more growth potential but are riskier. Growth stocks aim for quick gains with higher risks, while value stocks focus on steady, long-term growth with lower risks.

Step 4: Determine Your Investing Style

Everyone has a unique relationship with money, which affects how they handle investing. Some like to be actively involved, constantly checking their investment spreadsheets. Others prefer a hands-off approach, trusting their investments to grow without much intervention. Some people don’t have the time to be active traders and stay updated with investing news and platforms. It’s important to know that your investing style might change over time, but you have to start somewhere, even if you’re not sure of your choice yet.

Here are basic steps to figure out your investing style:

You can manage your stock trades if you understand stocks well and feel comfortable navigating the market with little help. You can open an account with reputable online brokers to access investment options like stocks, bonds, ETFs, index funds, and mutual funds. This way, you have full control over your investments, even though some options may include funds managed by professionals who must take care of your money.

1. DYI investing: If you understand stocks well and feel confident trading them with minimal help, managing your stock trades is an option. You can open an account with reputable online brokers to access investment options like stocks, bonds, ETFs, index funds, and mutual funds. This gives you complete control over your investments, even though some options may include funds managed by professionals who must care for your money.

2. Working with a financial advisor or broker: If you like personalized help, an experienced broker or financial advisor can be very valuable. They give advice based on your life and goals, help you pick the best stocks, monitor your portfolio, and work with you to make any needed changes.

Step 5. Choose an Investment Account

Now that you’ve determined your goals, risk tolerance, and how involved you want to be in investing, it’s time to choose a type of account. Each account has its features, advantages, and disadvantages.

Here are the most popular options:

Retirement accounts

1. Your employer’s retirement plan: If your employer has a retirement plan, it’s a convenient way to invest in stocks, including possibly those of your company. These plans are named after sections of the U.S. tax code. The most common ones are 401(k)’s (for private employers), but you might also have a 403(b) (for nonprofits, public schools, and some churches), a 457 (for state and local public employees), or a similar plan. You automatically contribute money from each paycheck to your account, and many employers match your contributions, boosting your investment. Your contributions are tax-deductible, and the money in your account grows without being taxed until you withdraw it.

2. Individual retirement account (IRA): You can begin investing in stocks by opening an IRA, even if you already have a workplace retirement plan. IRAs offer tax benefits, and you can pick between a traditional IRA (where contributions are tax-deductible) or a Roth IRA (where withdrawals in retirement are tax-free).

Taxable brokerage accounts

You can open a regular taxable brokerage account if you want flexibility or have already contributed the maximum to your IRA. These accounts offer investment options like individual stocks, stock mutual funds, ETFs, and stock options. Unlike retirement accounts, they don’t have tax benefits, but they are more flexible and don’t have contribution limits. You can choose different taxable brokerage accounts that suit your investment style.

1. Individual brokerage accounts: These are individual accounts one person opens. The account holder controls the investments and is responsible for any taxes. The simplest type is a cash account, where you buy securities using the money in your account. More experienced investors can also have a margin account at a brokerage. They borrow money from the brokerage to buy more stock based on the value of their account.

2. Joint brokerage accounts are shared by two or more people, often spouses or partners, and can be cash or margin accounts. They can be set up as joint tenants with rights of survivorship: if one person on the account passes away, ownership automatically goes to the survivor(s).

3. Managed accounts: These are managed by professionals, and a portfolio manager makes decisions based on your needs, goals, and investment style.

Accounts for specialized goals

There are tax benefits to using different types of accounts when investing in stocks for specific purposes, like education or health expenses for yourself or your child. Considering these options is a good idea, as they offer special tax incentives.

1. Dividend reinvestment plan accounts: Some brokers provide accounts that automatically reinvest your stock dividends to buy more shares, typically without charging commissions for the extra shares.
2. Education Savings Accounts: These accounts provide tax benefits when the funds are used for eligible educational expenses.
3. Health savings account: Contributions can be deducted from taxes, and withdrawals for eligible medical expenses are not taxed.
4. Trust and custody accounts: A trustee oversees trust accounts for the benefit of someone else based on the trust agreement terms. In custody accounts, minors can own stocks and other assets, but a custodian takes care of the account until the minor becomes an adult.

Step 6: Learn the Costs of Investing

Commissions and fees

In addition to considering reputation and how well a brokerage fits with your investment strategy and goals, it’s crucial to look at broker fees when choosing a brokerage firm, which is the next step. Traditionally, brokerages charged fees for trade commissions, maintaining your account, and extra services like research or financial advice. But in recent years, brokerage fees have changed a lot. Here’s what to keep in mind as you do your research:

Trading commissions: Some brokers charge a fee, known as a commission, each time you buy or sell a stock. These fees can range from $2 to $10 per trade. While some brokers don’t charge commissions, they may have other fees. Depending on how much you trade, these fees can add up and impact your portfolio’s returns, reducing the money you have for investing.

Let’s look at an example: Imagine you use $1,000 to buy one share of stock in five different companies. With a $10 transaction fee for each trade, you’ll spend $50, which is 5% of your $1,000. If you decide to sell these stocks later, it will cost you another $50 in fees for the round trip (buying and selling), totaling $100 or 10% of your initial $1,000 deposit.

Maintenance fees: Certain brokerages may impose monthly or yearly fees to maintain your account. However, these fees might be waived if your account balance exceeds a specific threshold.

Service fees: You could face extra charges if your account has been inactive. Brokers might also ask for fees like help with trades, access to advanced research, and margin trading (which means borrowing money). Most of these fees and services are optional.

Subscription-based models: As more Generation Zers and Millennials start investing, financial advisors, planners, and brokers are adapting to clients who are familiar with paying monthly or yearly fees for app-based services. Instead of paying for each transaction or certain services, you pay a fixed monthly or yearly fee. Your subscription might include commission-free trades, access to research tools, and other premium support.

Account minimums

In recent years, fierce competition among brokerages has led to a significant change. Many online brokers have done away with account minimums, making it simpler for a broader range of investors to begin investing.

This means that even if you only have a few dollars to invest, you can still open a brokerage account and start trading stocks. While some brokerages used to ask for large deposits before accepting you as a client, this change from having very low or no minimum requirements has made investing much easier for new and nontraditional investors. However, it’s important to consider any minimum amount a brokerage might need, as it’s still your money. Transaction fees and account maintenance costs could make keeping a minimum balance in your account a better option in the long run.

Step 7: Pick Your Broker

Brokers come in two types: full-service or discount.

Full-service brokers

Full-service brokers provide a wide range of traditional brokerage services, including financial advice for college planning, retirement planning, estate planning, and other life events. They charge higher fees for this personalized advice, usually based on a percentage of the value of your transactions’ assets under management, along with a possible yearly membership fee. Minimum account sizes may begin at $25,000.

Discount brokers

Full-service brokers provide a wide range of traditional brokerage services, including financial advice for college planning, retirement planning, estate planning, and other life events. They charge higher fees for this personalized advice, usually based on a percentage of the value of your transactions’ assets under management, along with a possible yearly membership fee. Minimum account sizes may begin at $25,000.

Below, we get you started by comparing the best online brokers:

Compare the Best Online Brokers

Company	Category	Investopedia Rating	Account Minimum	Basic Fee
Fidelity Investments	Best Overall, Best for Low Costs, Best for ETFs	4.8	$0	$0 for stock/ETF trades, $0 plus $0.65/contract for options trade
TD Ameritrade	Best for Beginners and Best Mobile App	4.5	$0	$0 for stock/ETF trades, $0 plus $0.65/contract for options trade
Tastyworks	Best for Options	3.9	$0	$0 stock/ETF trades, $1.00 to open options trades, and $0 to close
Interactive Brokers	Best for Advanced Traders and Best for International Trading	4.2	$0	$0 for IBKR Lite, Maximum $0.005 per share for Pro platform or 1% of trade value

After an independent review process, we suggest the top products, and advertisers do not influence our picks. If you visit partners, we suggest we may receive compensation. Check our advertiser disclosure for more details.

Robo-Advisors

After an independent review process, we suggest the top products, and advertisers do not influence our picks. If you visit partners, we suggest we may receive compensation. Check our advertiser disclosure for more details.

An app or platform collects your financial details like goals, risk tolerance, income, and savings. Then, its robo-advisor uses special algorithms to create and handle your investment portfolio. Robo-advisors are affordable and affordable for regular investors, often with no minimum balance. They’re great for beginners and those with some experience. However, they may have fewer trading choices and not offer the personal approach needed for long-term investing.

Compare the Best Robo-Advisors
Company	Category	Investopedia Rating	Account Minimum	Fees
Wealthfront	Best Overall / Best Goal Planning	4.8	$500	0.25% for most accounts, no trading commission or fees for withdrawals, minimums, or transfers. 0.42%–0.46% for 529 plans
Betterment	Best Beginners / Best Cash Management	4.5	$0	0.25% (annual) for the digital plan, 0.40% (annual) for the premium plan
Interactive Advisors	Best SRI / Best Portfolio Construction	4.2	$100 to $50,000	0.08-1.5% per year, depending on the advisor and portfolio chosen
M1 Finance	Best Low Costs / Best Sophisticated Investors	4.2	$100 ($500 minimum for retirement accounts)	0%
Personal Capital	Best Portfolio Management	4.2	$100,000	0.89% to 0.49%
Merrill Guided Investing	Best Education	4.4	$1000	0.45% annually, of assets under management, assessed monthly. With advisor – 0.85% Discounts available for Bank of America Preferred Rewards participants
E*TRADE	Best Mobile	3.9	$500	0.30

Step 8: How To Fund Your Stock Account

Now that you’ve decided on the type of account to open, it’s time to fund it. Here’s what you need to do:

1. Choose a brokerage: To start, choose a brokerage firm, such as one of the big online firms, that matches your investment goals and is easy for you to use. Think about fees, the investments they offer, and the ease of their platform.
2. Pick your account type: Choose between opening a cash account, where you pay for investments upfront, or a margin account, which lets you borrow money to buy securities.
3. Open your account: After selecting a brokerage and account type, you must open your account. This means providing personal information such as your Social Security number, address, job details, and financial situation. It should only take about 15 minutes.
4. Link your bank accounts: The usual way to add money to your stock account is by connecting it to your bank account. You can do this online on the brokerage’s website. Just enter your bank account number and routing number. Some brokerages might do small test transactions to ensure everything is set up correctly.
5. Transfer or deposit your first funds: You can move money to your brokerage account you can move money to your brokerage account. This is often done through an electronic transfer, which takes a few days to complete. If you want to fund your account quickly, consider a wire transfer, which usually comes with extra fees. Some brokerages still accept physical checks. If you like, you can mail a check or take it to a physical location.
6. Set up periodic transfers: If you want to buy stocks regularly, consider setting up automatic transfers from your bank to your brokerage account.
7. Start investing: Once you’ve confirmed that the money is in your account (don’t worry, the brokerage won’t let you trade if it’s not), it’s time to start picking the stocks that align with your investment goals.

Step 9: Pick Your Stocks

Picking the right stocks can be challenging, especially for beginners. Look for stable stocks with a good history and potential for steady growth. Avoid starting with risky stocks, hoping for quick success. Long-term investing is about being patient and cautious, not rushing. Here are some reliable stocks to consider starting with:

• Blue chips are stocks from big, stable companies with good financial records. They’re often in the Dow Jones Industrial Average or the S&P 500. These companies are leaders in their industry and stay stable even when the market changes.

• Dividend stocks: Companies that pay dividends regularly can be a good option for beginners. Dividends give you a steady income, which you can use to buy more stock. Check out “How to Buy Dividend Stocks” to begin.

• Growth stocks: Investing in stocks with big growth potential comes with more risk. Beginners keen on growth stocks should focus on industries with long-term promise, like technology or healthcare.

• Defensive stocks: These are in industries that usually do well even when the economy is not doing great, like utilities, healthcare, and consumer goods. They can help protect you from big changes in the market when you’re just starting.

• ETFs: Exchange-traded funds (ETFs) are like stocks but follow many indexes or industries, letting you invest in a wide range of assets with lower costs. You can buy and sell shares in them all day at current prices. These funds often follow specific market indexes, like the S&P 500, which helps spread your investment risk. As you learn more, you can explore ETFs for industries you’re interested in, themes that match your goals, or indexes that focus on environmental, social, and governance stocks to align with your values.

It’s smart to start carefully, choosing stable stocks or funds with a proven history. This way, you’ll build confidence and see returns as you learn more about investing.

Step 10. Keep Learning About Investing In Stocks

Investing in stocks is a journey of constant learning— even the experts are always discovering new things. As the stock market changes, it’s important to keep learning and revisit your goals, how much money you have to invest, your investing style, and more. Here are some last tips for now:

1. Read widely and regularly: Check trustworthy financial news websites regularly to stay updated on the global economy, industry trends, and the companies you’ve invested in. Be cautious of websites and books promising quick profits or shortcuts, as they often benefit from selling their courses or apps. Instead, focus on books about investment strategies, stock market basics, and ways to diversify your investments, as they can provide valuable insights.
2. Use stock simulators: You can use these platforms to practice trading stocks without any real money at risk. They’re great for trying out investment ideas and testing strategies. Investopedia’s simulator, for example, is completely free to use.
3. Learn about diversification: Now that you’ve started, the next step is to spread your investments across different types of assets to lower risk and increase potential returns. When you’re ready, we’ll show you how to diversify your portfolio beyond stocks.

Like planning your finances, learning about stock investing is an ongoing process. The more you know, the better decisions you can make, and you’ll be ready to adjust to changes in the market.

FAQs

The Bottom Line

New investors can begin investing in stocks with a small amount of money. Start by understanding your investment goals, how much risk you’re comfortable with, and the costs involved. Research different brokers and their fees to find the right fit for you. Once you’ve chosen, you’ll be ready to benefit from the potential rewards of investing in stocks in the future.

Options trading is risky and may not be suitable for everyone. Some options and strategies are even riskier. Before trading options, make sure to read about their characteristics and risks. If you have any questions or need more information, feel free to ask.

The Options Regulatory Fee applies when you buy or sell options. This fee can change over time. You can find more details about it on Fidelity.com/commissions.

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