How to Invest in Stocks: Quick-Start Guide for Beginners - NerdWallet (2024)

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When you invest in stocks, you’re hoping the company grows and performs well over time.

One of the best ways for beginners to learn how to invest in stocks is to put money in an online investment account, which can then be used to invest in shares of stock or stock mutual funds.

With many brokerage accounts, you can start investing for the price of a single share of stock. Some brokers also offer paper trading, which lets you learn how to buy and sell with stock market simulators before you invest any real money.

» Don't have a brokerage account? Learn what it is and how to open one.

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How to invest in stocks in six steps

You can invest in stocks (or funds made up of stocks) through an online brokerage account. Once you add money to your account you can purchase stocks and other investments 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

If you're ready to invest in stocks yourself, this six-step process may help you get started. First, figure out how hands-on you want to be. Then open an account, choose your investment strategy, set a budget, focus on the long-term and manage your portfolio as needed over time. (Keep in mind, a good rule of thumb is to build a diversified portfolio and then stay invested, even when the market has ups and downs.)

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 represents how you want to invest, and how hands-on you'd like to be in picking and choosing the stocks you invest in.

A. "I'd like to choose stocks and stock funds on my own." Keep reading; this article breaks down things hands-on investors need to know, including how to choose the right account for your needs and how to compare stock investments.

» Learn how to choose a brokerage account

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 offers low-cost investment management. Virtually all of the major brokerage firms and many independent advisors offer these services, which invest your money for you based on your specific goals.

» View our picks for the best robo-advisors

C.I’d like to start investing in my employer’s 401(k).” This is one of the most common ways for beginners to start investing.

In many ways, it teaches new investors some of the most proven investing methods: making small contributions on a regular basis, 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 access to individual stocks.

» Learn more about retirement accounts

2. Choose an investing account

Once you have a preference in mind, you're ready to shop for an investment account. For the hands-on types, this usually means a brokerage account. For those who would like a little help, opening an account through a robo-advisor is a sensible option. We break down both processes below.

An important point: Both brokers and robo-advisors allow you to open an account with very little money.

» Check out our roundup of the best online brokerages for stock trading

The DIY option: opening a brokerage account

An online brokerage 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.

» View our top picks for IRA accounts

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 needn't read further in this article — the rest is just for those DIY types.

3. 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. 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, a 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 lessens 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.

» Interested in funds? See our list of the best brokers for ETF investing

4. 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.)

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.

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.

» Got a small amount of cash to put to work? Here’s how to invest $500

5. 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.

How to Invest in Stocks: Quick-Start Guide for Beginners - NerdWallet (2)

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6. 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. Vanguard recommends 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%.

» Learn more:

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.

🤓Nerdy Tip

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. Read: Best online brokers for stock investors »

Frequently asked questions

Is stock investing safe for beginners?

Yes, if you approach it responsibly. As it turns out, investing isn’t as hard — or complex — as it might seem.

That’s because there are plenty of tools available to help you. One of the best is stock mutual funds, which are an easy and low-cost way for beginners to invest in the stock market. These funds are available within your 401(k), IRA or any taxable brokerage account.

An , which effectively buys you small pieces of ownership in about 500 of the largest U.S. companies, is a good place to start.

The other option, as referenced above, is a robo-advisor, which will build and manage a portfolio for you for a small fee.

Are stock investing apps safe?

Generally, yes, investing apps are safe to use. Some newer apps have had reliability issues in recent years, in which the app goes down and users are left without access to their funds or the app’s functionality is restricted for a limited period.

Even in these instances, your funds are typically still safe, but losing temporary access to your money is still a legitimate concern.

So, if you’re hoping to avoid these issues, you can choose an investing app from a large and established brokerage: Fidelity, E*TRADE and Charles Schwab all receive top marks on our list of the best stock apps, and they’re also among the largest brokerages in the country.

Can I invest small amounts of money in stocks?

Yes. Most brokerages these days have $0 account minimums (meaning you can open an account without funding it first), and some even have fractional trading, meaning you can invest low dollar amounts — think $5 or $10 — rather than pay for the price of an entire share.

However, investing small amounts comes with a challenge: diversifying your portfolio. Diversification, by nature, involves spreading your money around. The less money you have, the harder it is to spread.

One solution is to invest in stock index funds and ETFs. These often have low investment minimums (and ETFs are purchased for a share price that could be lower still), and some brokers, like Fidelity and Charles Schwab, offer index funds with no minimum at all.

And, index funds and ETFs cure the diversification issue because they hold many different stocks within a single fund.

The last thing we'll say on this: Investing is a long-term game, so you shouldn't invest money you might need in the short term. That includes a cash cushion for emergencies.

Is it really worth it to invest small amounts?

Regular investments over time, even small ones, can really add up. If you invested $100 per month for 30 years, and it grew conservatively at 6% annually, you could have over $100,000 after 30 years. (Use our investment calculator to see how compounding returns work in investing.)

The key to this strategy is making a long-term investment plan and sticking to it, rather than trying to buy and sell for short-term profit.

Are stocks a good investment for beginners?

Yes, as long as you’re comfortable leaving your money invested for at least five years. Why five years? That's because it is relatively rare for the stock market to experience a downturn that lasts longer than that.

But rather than trading individual stocks, focus on diversified products, such as index funds and ETFs.

It’s possible to build a diversified portfolio out of individual stocks, but doing so would be time-consuming — it takes a lot of research and know-how to manage a portfolio. Index funds and ETFs do that work for you.

What are the best stock market investments?

In our view, the best stock market investments are often low-cost mutual funds, like index funds and ETFs. By purchasing these instead of individual stocks, you can buy a big chunk of the stock market in one transaction.

Index funds and ETFs track a benchmark — for example, the S&P 500 or the Dow Jones Industrial Average — which means your fund’s performance will mirror that benchmark’s performance. If you’re invested in an S&P 500 index fund and the S&P 500 is up, your investment will be, too.

That means you won’t beat the market — but it also means the market won’t beat you. Investors who trade individual stocks instead of funds often underperform the market over the long term.

How do I choose my stock investments?

The answer to what you choose to invest in really comes down to two things: the time horizon for your goals, and how much risk you’re willing to take.

Let’s tackle time horizon first: If you’re investing for a far-off goal, like retirement, you should be invested primarily in stocks (again, we recommend you do that through mutual funds).

Investing in stocks will allow your money to grow and outpace inflation over time. As your goal gets closer, you can slowly start to dial back your stock allocation and add in more bonds, which are generally safer investments.

On the other hand, if you’re investing for a short-term goal — less than five years — you likely don’t want to be invested in stocks at all. Consider these short-term investments instead.

Finally, the other factor: risk tolerance. The stock market goes up and down, and if you’re prone to panicking when it does the latter, you’re better off investing slightly more conservatively, with a lighter allocation to stocks.

Not sure? We have a risk tolerance quiz — and more information about how to make this decision — in our article about what to invest in.

What stocks should I invest in?

One common approach is to invest in many stocks through a stock mutual fund, index fund or ETF — for example, an S&P 500 index fund that holds all the stocks in the S&P 500.

If you’re after the thrill of picking stocks, though, that likely won’t deliver. You can scratch that itch and keep your shirt by dedicating 10% or less of your portfolio to individual stocks. Which ones? Our full list of the best stocks, based on current performance, has some ideas.

Is stock trading for beginners?

While stocks are great for many beginner investors, the "trading" part of this proposition is probably not. A buy-and-hold strategy using stock mutual funds, index funds and ETFs is generally a better choice for beginners.

That’s precisely the opposite of stock trading, which involves dedication and a great deal of stock research. Stock traders attempt to time the market in search of opportunities to buy low and sell high.

Just to be clear: The goal of any investor is to buy low and sell high. But history tells us you’re likely to do that if you hold on to a diversified investment — like a mutual fund — over the long term. No active trading required.

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

This will depend on which broker you choose. Of the brokers NerdWallet reviews, Firstrade, Interactive Brokers, TradeStation, ZacksTrade, Charles Schwab, and Webull are all open to international investors, with varying restrictions and requirements.

As an experienced financial enthusiast, I want to assure you that the information provided in the article about investing in stocks aligns with best practices for beginners. The article covers key concepts and steps involved in stock market investing, offering valuable insights for those looking to start their investment journey. I'll break down the concepts mentioned in the article:

  1. Investment Options: The article discusses various ways to invest in stocks, including online brokerage accounts, robo-advisors, and employer-sponsored 401(k) plans. It emphasizes the importance of choosing an approach that aligns with your preferences and level of involvement.

  2. Choosing an Investing Account: The article outlines the process of selecting an investment account based on individual preferences. It distinguishes between a DIY (Do-It-Yourself) approach using a brokerage account and a passive approach using a robo-advisor. Both options are presented with their respective advantages and considerations.

  3. Understanding Stocks and Funds: The article explains the difference between investing in individual stocks and stock mutual funds or exchange-traded funds (ETFs). It highlights the benefits of mutual funds in providing diversification and reducing risk for investors, especially those focused on long-term goals.

  4. Setting a Budget: New investors are advised to set a budget for their stock market investments. The article addresses common questions about the amount of money needed to start investing and recommends options like exchange-traded funds (ETFs) for those with smaller budgets.

  5. Long-Term Focus: Emphasizing the long-term perspective, the article encourages investors to focus on the overall growth of their portfolio. It discusses the historical average return of the stock market and advises against frequent monitoring of investments, especially for those pursuing a passive investment strategy.

  6. Portfolio Management: The article provides insights into managing a stock portfolio over time. It suggests periodic reviews to ensure alignment with investment goals, considering factors such as asset allocation, sector diversification, and geographic exposure.

  7. Stock Selection for Beginners: For beginners, the article recommends a focus on low-cost mutual funds, index funds, or ETFs. It mentions the S&P 500 as an example of an index that reflects the performance of the overall market. The importance of avoiding excessive trading and sticking to a diversified investment strategy is highlighted.

  8. Safety and Accessibility: Common concerns related to the safety of investing apps and the accessibility of stock trading for beginners are addressed. The article provides reassurance regarding the safety of investing apps and emphasizes the availability of low-cost or no-cost options for opening brokerage accounts.

  9. International Investing: The article briefly touches on the possibility of opening a brokerage account for international investors, listing some brokers that are open to international clients.

In summary, the article serves as a comprehensive guide for beginners interested in investing in stocks, covering essential concepts and offering practical advice to help them make informed decisions. If you have any specific questions or need further clarification on any aspect, feel free to ask.

How to Invest in Stocks: Quick-Start Guide for Beginners - NerdWallet (2024)
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