How to invest in stocks: A step-by-step guide for beginners

Investing in stocks is a great way to harness the power of growing companies to build wealth. But how exactly do you invest in stocks?

Last updated on January 27, 2023, and last reviewed by an expert on January 11, 2022.

Investing in stocks is a great way to build wealth by harnessing the power of growing companies. But getting started can feel daunting for many beginners looking to get into the stock market despite the potential long-term gains.

So how exactly do you invest in stocks? It’s actually quite simple and you have several ways to do it. One of the easiest ways is to open an online brokerage account and buy stocks or stock funds. If you’re not comfortable with that, you can work with a professional to manage your portfolio, often for a reasonable fee. Either way, you can invest in stocks online and begin with little money.

Here’s how to invest in stocks and the basics on how to get started in the stock market even if you don’t know that much about investing right now.

Suggested read: 6 best investments for beginners

Investing in stocks: 5 easy steps to get started

So you want to begin investing in stocks? Here’s a five-step checklist to help get you going:

  1. Choose how you want to invest
  2. Open an investment account
  3. Decide what to invest in
  4. Determine how much you can invest – then buy
  5. Track your portfolio

1. Choose how you want to invest

These days you have several options when it comes to investing, so you can really match your investing style to your knowledge and how much time and energy you want to spend investing. You can spend as much or as little time as you want on investing.

Here’s your first big decision point:

Your choice here will shape which kind of account you open in the next step.

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2. Open an investment account

So which kind of account do you want to open? Here are your options:

If you want a pro to manage your money

If you want to manage your own money

If you go with a robo-advisor or an online brokerage, you can have your account open in literally minutes and start investing. If you opt for a human advisor, you’ll need to interview some candidates to find which one will work best for your needs and keep you on track.

3. Decide what to invest in

The next major step is figuring out what you want to invest in. This step can be daunting for many beginners, but if you’ve opted for a robo-advisor or human advisor, it’s going to be easy.

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Using an advisor

If you’re using an advisor – either human or robo – you won’t need to decide what to invest in. That’s part of the value offered by these services. For example, when you open a robo-advisor, you’ll typically answer questions about your risk tolerance and when you need your money. Then the robo-advisor will create your portfolio and pick the funds to invest in. All you’ll need to do is add money to the account, and the robo-advisor will create your portfolio.

Using a brokerage

If you’re using a brokerage, you’ll have to select every investment and make trading decisions. You can invest in individual stocks or stock funds, among many other assets. The best brokers offer free research to help with this process and offer a ton of resources to aid beginners.

If you’re managing your own portfolio, you can also decide to invest actively or passively. The key difference between the two is that you determine how long you want to invest. Passive investors generally take a long-term perspective, while active investors often trade more frequently. Research shows that passive investors tend to do much better than active investors.

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So whether you’re using a robo-advisor or a brokerage, you have a few ways to invest.

4. Determine how much you can invest – then buy

The key to building wealth is to add money to your account over time and let the power of compounding work its magic. That means you need to budget money for investing regularly into your monthly or weekly plans. The good news is that it’s super simple to get started.

How much should you invest?

How much you invest depends entirely on your budget and time frame. While you may invest whatever you can comfortably afford, experts recommend that you leave your money invested for at least three years, and ideally five or more, so that you can ride out any bumps in the market.

Suggested read: What are mutual funds?

If you can’t commit to keeping your money invested for at least three years without touching it, consider building an emergency fund first. An emergency fund can keep you from having to get out of an investment early, allowing you to ride out any fluctuations in the value of your stocks.

How much do you need to start?

Most major online brokerages these days don’t have an account minimum (or the account minimums are extremely low), so you can get started with very little money. Many brokers allow you to buy fractional shares of stocks and ETFs. If you can’t buy a full share, you can still buy a portion of one, so you really can get started with virtually any amount.

It’s just as easy with robo-advisors, too. Few have an account minimum and all you’ll need to do is deposit the money — the robo-advisor handles everything else. Set up an auto-deposit to your robo-advisor account and you’ll only have to think about investing once a year (at tax time).

Once you’ve opened your account, deposit money and get started investing.

Suggested read: Active investing vs. passive investing: What’s the difference?

5. Track your portfolio

You’ve established a brokerage or advisor account, so now’s the time to watch your portfolio. That’s easy if you’re using a human advisor or robo-advisor. Your advisor will do all the heavy work, managing your portfolio for the long term and keeping you to the plan.

If you’re managing your own portfolio, you’ll have to make the trading decisions. Is it time to sell a stock or fund? Was your investment’s last quarter a signal to sell or buy more? If the market dips, are you buying more or selling? These are tough decisions for investors, both new and old. If you’re investing actively, you’ll need to stay on top of the news to make the best decisions.

More passive investors will have fewer decisions to make, however. With their long-term focus, they’re often buying on a fixed regular schedule and not worrying much about short-term moves.

Tips for beginning investors

Whether you’ve opened a brokerage account or an advisor-led account, your own behavior is one of the biggest factors in your success, probably as important as what stock or fund you buy.

Suggested read: 5 popular investment strategies for beginners

Here are three important tips for beginners:

As you begin investing, the financial world can seem daunting. There’s a lot to learn. The good news is that you can proceed at your own speed, develop your skills and knowledge and then proceed when you feel comfortable and ready.

Stock investing FAQs

Do you have to live in the U.S. to open a stock brokerage account?

No, non-U.S. investors are able to open brokerage accounts and invest in U.S. companies, but they might face a few additional hurdles in getting started. Investors residing outside the U.S. may need to show additional forms of identification to prove their identity when opening an account and there can be even more forms on top of that to ensure proper tax reporting. Be sure to check with the broker for guidance on investing when living outside the country.

How much money do I need to start investing?

Not much. Most online brokers have no minimum investment requirements and many offer fractional share investing for those starting with small amounts. You’ll want to make sure that the money you’re investing won’t be needed for regular expenses and can stay invested for at least three years. Building up some savings in an emergency fund is a good idea before getting started with investing.

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Do I have to pay taxes on the money I earn from stocks?

If you hold those stocks in a brokerage account, dividends and gains on stocks will likely be taxed. The rate you pay on capital gains will depend on how long you’ve held the investment and your income level. If you hold stocks in tax-advantaged accounts such as a Roth IRA, you won’t pay taxes on gains or dividends, making these vehicles ideal for retirement savings.

What are the best stocks for beginners to invest in?

If you’re just starting out, you may want to avoid investing in individual stocks. Instead, consider mutual funds and ETFs that hold baskets of stocks, which will help keep your portfolio diversified. With an S&P 500 ETF you’ll be able to purchase a basket of the largest companies in the U.S. at a very low cost. Funds like this will include popular stocks such as Apple, Amazon and even Tesla, but you’ll be more diversified than if you held these positions on their own.

The bottom line

The great thing about investing these days is that you have so many ways to do it on your own terms, even if you don’t know much at the start. You have the option to do it yourself or have an expert do it for you. You can invest in stocks or stock funds, trade actively or invest passively. Whichever way you choose, pick the investing style that works for you and build your wealth.

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