When you invest in stocks, you’re essentially betting on a company’s long-term growth and success. As the company performs well, the value of your investment increases, allowing you to earn profits. For beginners, a great way to start is by opening an online investment account and purchasing stocks through it.

Beginners don’t need to shell out large funds to start investing. Many brokerages allow you to open an investment account with no initial deposit, and you can start buying stocks with whatever amount you choose. Additionally, some brokers provide paper trading options, which let you practice buying and selling stocks with simulated money before committing any actual funds.

7 Steps to Start Investing in Stocks

To add stocks to your portfolio, begin by opening an online brokerage account, funding it with money, and then purchasing stocks or stock-based funds. Alternatively, you can invest through a robo-advisor or a financial advisor if you prefer assistance. If you’re ready to take control of your investments, this process can guide you in getting started.

1. Decide Whether to Invest Independently or With Assistance

There are different approaches to stock investing, and your level of involvement will determine the best option for you. Choose the approach that aligns with how hands-on you’d like to be:

I want to gain experience with investing before using real money.

We understand—investing can feel intimidating! If you want to practice before risking real money, you can open a paper trading account. This allows you to invest with virtual money, giving you the opportunity to build your skills and confidence without any financial risk. It’s a great way to get the hang of the market and test out strategies before you start trading with real capital.

I prefer to select stocks and stock funds independently.

Keep reading to learn more. This article will guide you through choosing the right account for your needs and how to select and manage your investments.

I’m not focused on picking investments and would appreciate some assistance.

If you’re looking for a hands-off approach, a robo-advisor might be a great option. These services automatically invest your money based on your risk profile, goals, and preferences, all for a relatively low fee. Most major brokerage firms, as well as many independent financial advisors, offer robo-advisor services. In the next section, we’ll dive deeper into how investing through a robo-advisor works.

I’d like to begin investing through my workplace 401(k).

This is a popular way for beginners to begin investing. For those with access to an employer-sponsored 401(k), it can be an excellent option, especially since many plans offer a matching contribution. Employer matches essentially provide free money: For instance, if your employer offers a 4% match and you earn $100,000 annually, contributing $4,000 to your 401(k) will prompt your employer to contribute an additional $4,000. In this case, you effectively get $4,000 for free.

2. Selecting the Right Broker or Robo-Advisor for You

Once you’ve decided how you want to invest, the next step is choosing a broker or robo-advisor.

Investing on your own

If you’re managing investments on your own, you’ll need to select a broker to open your account with. Some brokers are well-known for their long-standing reputation and 24/7 customer support, while others are recognized for their user-friendly platforms. When evaluating brokers, consider factors like costs, investment options, research tools, and customer service. Additionally, you might prefer to open a brokerage account with the same institution where you already have a bank account, so you can easily manage all your finances in one place.

Investing through a robo-advisor

If you’re investing through a robo-advisor, you’ll need to decide which one is right for you. Just like with brokers, each robo-advisor has its own advantages and disadvantages. Some offer very low fees, while others provide the opportunity to speak with a financial advisor for free. It’s worth comparing different robo-advisors to see which one offers the services that best meet your needs. On average, most robo-advisors charge around 0.25% of your account balance.

3. Choosing the Right Type of Investment Account

Whether you’re investing independently or using a robo-advisor, selecting the right type of investment account is essential. There are various account options, and it’s important to choose one that aligns with your financial goals. For instance, a Roth IRA offers valuable tax advantages, while a standard brokerage account does not provide the same tax benefits.

You will need to provide some personal information, such as your social security number, and the process of opening the account should take about 20 minutes. With some brokers and robo-advisors, linking your bank account might take a few days, so there could be a short wait before you’re able to begin investing. If you decide to open an account with a robo-advisor, you can skip the rest of this article—it’s geared towards those who prefer to handle their investments independently.

4. Understand the Difference Between Stocks and Mutual Funds

Opting for the DIY approach? No problem. Stock investing doesn’t have to be difficult. For most investors, it boils down to choosing between these two types of investments:

Individual stocks

If you’re interested in a particular company, you can start by purchasing a single share or a few shares to ease into stock trading. While it’s possible to build a diversified portfolio with individual stocks, it requires a substantial investment and thorough research.

If you choose this approach, keep in mind that individual stocks can fluctuate. On days when the market dips, remind yourself of the reasons you initially selected that company, especially if doubts begin to creep in.

Mutual Funds

Mutual funds allow you to buy small portions of many different stocks in one transaction. Index funds and ETFs are types of mutual funds that follow a specific index; for instance, an S&P 500 fund mirrors the index by purchasing stocks from the companies within it. By investing in a fund, you own small shares of each company in the fund. You can combine several funds to build a diversified portfolio. It’s worth noting that stock mutual funds are occasionally referred to as equity mutual funds.

The advantage of stock mutual funds is that they are naturally diversified, helping to lower your risk. For most investors, especially those saving for retirement, a portfolio primarily consisting of mutual funds is often the best option.

However, mutual funds are less likely to experience the rapid growth that some individual stocks may offer. The benefit of individual stocks is that a smart choice can yield substantial returns, but the chances of any single stock making you wealthy are very low.

5. Setting a Budget for Stock Market Investments

New investors typically have two key questions at this stage. What’s the minimum amount required to start investing in stocks? How much should I invest in stocks?

Minimum Amount Needed for Stocks

The amount of money required to purchase an individual stock depends on the share price, which can vary widely from just a few dollars to several thousand. Some brokerages offer fractional shares, allowing you to invest a specific dollar amount, even if the price of one full share exceeds your available funds. This way, you can own a fraction of a stock rather than needing to buy a whole share.

If you’re interested in mutual funds but have a limited budget, exchange-traded funds (ETFs) might be a better option. While mutual funds often require minimum investments of $1,000 or more, ETFs trade like stocks, allowing you to purchase them at their current share price — sometimes for less than $100.

How much should you put into stocks?

If you’re investing in funds (which most financial advisors recommend), you can allocate a significant portion of your portfolio to stock funds, particularly if you have a long-term investment horizon. For instance, a 30-year-old saving for retirement might place 80% of their portfolio in stock funds, with the remaining 20% in bond funds. When it comes to individual stocks, however, it’s generally wise to limit them to a smaller percentage of your overall portfolio.

6. Focus on Long-Term Investing

Investing in the stock market has consistently been one of the most effective ways to build long-term wealth. The stock market has historically delivered an average annual return of approximately 10%. However, it’s important to note that this figure represents the overall market average—some years may see gains, others losses, and individual stock performance can vary significantly.

For long-term investors, the key is focusing on this average growth rather than short-term fluctuations. Once you’ve begun investing in stocks or mutual funds, the most beneficial—and often most challenging—strategy is to avoid constantly monitoring your portfolio. Unless you’re actively engaged in day trading, resisting the urge to check stock performance multiple times a day can help you stay focused on your long-term financial goals.

7. How to Effectively Manage Your Stock Portfolio

Worrying about daily market fluctuations won’t improve your portfolio’s performance—or your peace of mind. However, there will be moments when checking in on your investments is necessary. By consistently investing in mutual funds and individual stocks over time, you can focus on revisiting your portfolio just a few times a year. This periodic review ensures your investments remain aligned with your financial goals and risk tolerance.

Here are a few key considerations:

• Approaching Retirement: As you near retirement, it might be wise to shift some of your stock investments into more conservative fixed-income assets to reduce risk and stabilize your portfolio.
• Sector Diversification: If your portfolio leans too heavily toward one sector or industry, consider rebalancing by investing in stocks or funds from different sectors. Diversification helps reduce risk by spreading your investments across various industries.
• Geographic Diversification: Don’t overlook the importance of international exposure. Vanguard suggests that international stocks should constitute up to 40% of your equity portfolio. Investing in international stock mutual funds is an excellent way to achieve this diversification and tap into global market opportunities.

Top Stock Picks for Beginners

Choosing stocks can feel daunting, particularly for beginners, given the sheer number of options on major U.S. exchanges. While stock investing offers a variety of complex strategies and methods, many of the most successful investors have achieved their goals by focusing on the fundamentals and adhering to the basics of stock market investing. Keeping it simple and disciplined often yields the best results over time.

For most investors, this usually means allocating the majority of their portfolio to funds. Warren Buffett has famously recommended a low-cost S&P 500 ETF as the ideal investment for most Americans. Individual stocks can still be part of your strategy, but they’re best reserved for companies you believe have strong potential for long-term growth.

The S&P 500, an index comprising approximately 500 of the largest publicly traded U.S. companies, has delivered an average annual return of around 10% over the past 50 years, aligning closely with the broader market’s performance.

Key Takeaways on Investing in Stocks

For beginners, learning to invest in stocks might seem intimidating, but it boils down to a few key decisions: determining the investment approach that suits you, selecting the right type of account, and deciding how much money to allocate to stocks. By breaking it into these manageable steps, you can set a solid foundation for your investing journey.