Learning how to invest in stocks can offer a solid pathway to wealth. With the right investments, you can grow your net worth, save up for retirement, and ensure your financial well-being for many years to come.

But investing in stocks isn’t a cut-and-dry strategy. It requires careful planning, thorough research, and an eye on the long-term, bigger picture to get it right.

Are you looking to try your hand at stock investments? This guide can help.

Step 1: Choose your method

There are several ways you can choose to invest in stocks. From hiring an investment management firm to using a robo-advisor, investing app, or DIYing the entire operation yourself, you have lots of options.

The right choice really depends on how much help you need, your expertise, and the amount of time and energy you have to devote to your investments.

Here are the options you can choose from:

Go to a traditional brokerage. Big names like Charles Schwab, Fidelity, Edward Jones, and TD Ameritrade offer investment management services, stock trading, and more. You can go the full-service route and have a trained advisor make your investments for you, or you can use the brokerage’s account platform to trade yourself. You can also set up automatic investing to keep your investments on track.
Try an online brokerage. Online brokerages like E*Trade, Merrill Edge, and TradeStation take the traditional-brokerage approach, only without the physical locations. You make all your trades online (and manage your account there), as interactions with advisors are done via chat, email, or over the phone. Most online brokerages also have healthy resource libraries so that you can research your investments before pulling the trigger.
Robo-advisors. Robo-advisors are a more recent option for investors, offering a tech-heavy approach to the stock market. These services use pre-programmed algorithms to make your investment choices for you, considering your level of risk and the funds you have to work with. Popular robo-advisors include options like Wealthfront, Betterment, M1 Finance, Ally Invest, and more.
Apps and auto-investment tools. There are also a number of investing apps that can help you enter the stock market both easily and conveniently. The features on these vary greatly, but many offer custom portfolio building, round-off investments (they round your purchases to the next dollar and invest the difference) and, in some cases, even hands-on professional management. Popular options here include Acorns, Round, and Robinhood.

The big differences come in how hands-on or hands-off the tools are and how much they cost you. A full-service, traditional brokerage will probably mean per-trade commissions and maybe an annual membership fee or management fee.

Online brokerages usually come with just per-trade fees (though there could be more depending on how much advising they do), while robo-advisors and auto-investing apps charge small monthly or annual fees or, in some cases, are even free of charge.

Step 2: Understand your benefits

Make sure you’re using your employer-provided benefits to their fullest before dipping your toes into the stock market. If your job comes with a 401(k), then you’re already somewhat invested in stocks (though you might not know which ones or have control over that). Since most employers offer matching investments up to a certain point, you should make sure you’re investing enough to max those contributions out before putting dollars elsewhere.

You should also talk to your HR about other investment benefits you might be due. In some cases, employers offer financial advising or have corporate discounts with certain brokerages or financial planning firms. These can help you kick off your investments on the right foot — and at low cost, too.

Step 3: Open your account (or accounts)

Once you’ve decided on which investment method to use, it’s time to open up your account. The process for this varies, but for traditional and online brokerages, you’ll probably need to talk to an advisor or fill out a questionnaire regarding your investment goals, preferred level of risk (more on that later), and the funds you have to work with. You’ll also need to provide info about how you’ll fund the initial deposit into your account.

Keep in mind that if you’re opting for a brokerage, it’s important to compare and contrast your options before diving in. Look at fees, trade commissions, subscription/membership costs, level of expertise, research resources, trading tools, and other details, and make sure you’re getting the best service for your money.

If you’re opting for a more hands-off option like an app or robo-advisor, you’ll probably just fill out a quick online form about yourself, your income, and your investing goals, and you’ll be done in a few minutes.

Step 4: Decide on your level of risk

You next have to decide on the amount of risk you can tolerate in your investing. If you’re far out from retirement (50 or lower), then you can typically afford to take on more risk than those closer to closing out their careers. This might mean investing in stocks of newer companies or just choosing stocks with spottier earning histories. Either way, the risk is higher, but it also comes with a chance of higher reward too.

Generally, if you’re nearing retirement, you’ll want to cap your risk and keep your money close to the vest. This typically means putting your cash into high-yield savings accounts or toward Certificates of Deposit or bonds. Due to its relative volatility, the stock market might not be your best choice if a near-term retirement is in your sights.

Step 5: Set your budget

What’s your investing budget? How much can you afford to put in up-front, and then how much can you invest on a regular basis? Because stock prices vary greatly from one to the next, the amount of cash you have to work with will determine what exactly you can invest in. Many brokerages also have minimum investment thresholds, so it might impact your investing method as well.

You should also determine if you want your gains and dividends reinvested for you — that is, put right back into your investments instead of your pocketbook. In most cases, this is your best option, as it compounds your interest and helps you grow wealth faster (with the right investments, of course).

Step 6: Do your research.

Stock market investments can take many forms. You can invest in specific stocks individually, or you can invest in index funds, mutual funds, or ETFs that include small shares of a number of stocks simultaneously.

To decide what investments are right for you, use your investing tools resources to your advantage. Many have built-in portfolio builders that let you pick and choose investments based on your risk level, funds, interests, and more. You can also do deep-dive research into specific stocks and funds to see historic returns, growth, losses, and more.

Generally, when you’re evaluating a stock or fund investment, you’ll want to look at:

The price and valuation of the stock
The industry the stock is in (and how stable / healthy / profitable it is)
Historical returns
Projected returns
The performance of the company or companies (also their debt, profit margins, and earnings growth)
Management (of the company or of the mutual fund)

You can also head to Morningstar.com to research specific stocks or funds you’re considering. Morningstar is one of the most highly regarded sources of financial market research out there.

Step 7: Make your trades.

Once you’ve done your research and determined what stocks and funds to put your initial cash to, it’s time to make those moves. With a brokerage, that might mean contacting your account manager to make trades on your behalf, or it could mean logging into some sort of online account platform to purchase the stocks yourself.

In the case of robo-advisors and many apps, you might not have to make any trades at all. These tools often do all the trading on your behalf (as well as choosing what stocks your cash goes to). This hands-off method is more convenient (especially if you’re not well-versed in the stock market), but it can also be risky — particularly if there’s no real-life person making the decisions.

Step 8: Create a schedule

Finally, get yourself on a schedule. How often will you check back in and reevaluate? How often will you invest more or make trades? If you’re going the DIY route, you’ll probably want to check in at least couple times a month. When you do, remember that stocks are a long-term investment. A little dip here and there isn’t cause for concern and usually doesn’t warrant selling off all your shares. Before investing in stocks, you should be prepared for the ups and downs and be willing to ride out the storm a little bit for bigger returns down the line.

If you’re going the full-service or robo-investing route, you can probably afford to check your portfolio a little less — especially if you have auto-investments turned on. Try to do it at least every couple months to make sure your earnings are on track.

Stock Investing FAQ

What exactly are stocks?

That’s a good question. Stocks, put simply, are a small piece of a larger company. When that company grows in value, so do your stocks. When it loses money, the stocks lose value instead.

Do I need a lot of money to get started?

A brokerage might have an account minimum, but not all investing options will. If you don’t have much to invest, consider an investing app like Robinhood or Acorns. Keep in mind, though: your returns will be limited if you’re only investing a few hundred dollars.

How can I learn more about stock investing?

There are loads of resources out there for investing. Here are just a few of the most popular:

You can also use any tools that come with your investing account or speak to a financial planner or advisor for more personalized help. Stock picks through a service are a viable option.

How much should I invest?

That depends on your income, financial situation, and level of risk you can tolerate. A good general rule is that you shouldn’t invest any cash you might need in the next five years. For that money, a high-interest savings account is best.

How many stocks should I buy?

Again, that depends on your unique situation, but there’s definitely value in diversity. For one, having interest in several stocks protects you in the event one investment takes a downturn. It also lets you leverage growth in different sectors and industries.

You might also consider other investments outside of the stock market, too — for example, things like real estate. Diversity both in your stock portfolio and your investments as a whole is critical.

What does it mean to diversify my stock portfolio?

It basically means you spread your investments out among different industries, sectors, and companies to protect yourself from risk.

Let’s look at an example. Let’s say 85% of your investable cash was in real estate-related businesses. In 2020, we could hypothetically experience another housing crash, and real estate values would take a nose-dive. Businesses in the industry would start laying off workers, downsizing, and shuttering completely. In your case, this would mean a significant loss of value in 85% of your portfolio.

With a more diverse portfolio, you would only have maybe 10 to 20% of your cash in any single industry. Then, if that housing crash did actually occur, your losses would be limited to only a small portion of your portfolio. The rest of your investments (ideally) would continue to grow and thrive.

The Bottom Line

Investing in stocks for the first time can seem daunting, but you don’t have to go it alone. There are several options that can make investing simple and affordable as well as endless resources exist to help you get the hang of it.

As with anything from which you seek long-term benefits, planning is essential. You can also speak to a professional financial advisor or planner to ensure you’re on the right track. For example, larger advisors can have really interesting and diverse strategies – you can read about some of these and their stock holdings on 13F Smart Money. Just remember, it is important to get a complete picture of your own goals and finances before deciding on how to invest your hard-earned cash.

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Aly Yale

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Aly J. Yale is a freelance writer and journalist from Houston, covering real estate, mortgage, and finance topics. Her work can be seen in Forbes, The Balance, The Mortgage Reports, MReport, DS News, and The Simple Dollar. She previously served in editorial and production capacities for news organizations such as The Dallas Morning News, NBC, Radio Disney, and PBS.

Learning How to Invest in Stocks to Meet Your Personal Goals