How To Invest In Stocks (2024)

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Learning how to invest begins with understanding how to buy stocks. Historically, the return on equity investments has outpaced many other assets, making them a powerful tool for those looking to grow their wealth. Our guide will help you understand how to kick-start your investing journey by learning how to buy stocks.

Different Ways to Invest in Stocks

There is more than one way to invest in stocks. You can opt for any one of the following approaches or use all three. How you buy stocks depends on your investment goals and how actively involved you’d like to be in managing your portfolio.

  • Buy individual stocks. If you enjoy research and reading about markets and companies, buying individual stocks could be a good way to start investing. Even if the share prices of some companies seem pretty high, you can look at buying fractional shares if you’re just starting out and have only a modest amount of money.
  • Invest in stock ETFs. Exchange-traded fundsbuy many individual stocks to track an underlying index. When you invest in an ETF, it’s like buying stocks from a very broad selection of companies that are in the same sector or comprise a stock index, like the S&P 500. ETF shares trade on exchanges like stocks, but they provide greater diversification than owning an individual stock.
  • Own stock mutual funds.Mutual fundsshare certain similarities with ETFs, but there are important differences. Actively managed mutual funds have managers that pick different stocks in an attempt to beat a benchmark index. When you buy shares of a stock mutual fund, your profits come from dividends, interest income and capital gains. Lower-cost index funds are mutual funds that work more like ETFs.

Keep in mind that there’s no right or wrong way to invest in stocks. Finding the best combination of individual stocks, ETFs and mutual funds might take some trial and error while you’re learning to invest and building your portfolio.

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Choose How to Invest in Stocks

There are a variety of accounts and platforms that you can use to buy stocks. You can buy stocks yourself via an online brokerage, or you can hire a financial advisor or a robo-advisor to buy them for you. The best method will be the one that aligns with how much effort and guidance you’d like to invest in the process of managing your investments.

  • Open a brokerage account.If you have a basic understanding of investing, you can open an online brokerage accountand buy stocks. A brokerage account puts you in the driver’s seat when it comes to choosing and purchasing stocks.
  • Hire a financial advisor.If you would prefer to have more advice and guidance for buying stocks and other financial goals, consider hiring a financial advisor.A financial advisor helps you specify your financial goals and then purchases and manages your investments for you, including buying stocks. Financial advisors charge fees, which can be a flat annual fee, a per-trade fee or a percentage of the assets they manage.
  • Choose a robo-advisor.Robo-advisors are a simple, very inexpensiveway to invest in stocks. Most robo-advisors invest your money in different portfolios of ETFs, and they buy the assets and manage the portfolio for you. They are generally less expensive than financial advisors, but you seldom have the benefit of a live human to answer questions and guide your choices.
  • Use a direct stock purchase plan.If you’d prefer to invest just a few stocks, many blue-chip companies offer plans that make it possible to purchase their stock directly. Many programs offer commission-free trades, but they may require other fees when you sell or transfer your shares.

Keep in mind that no matter the method you choose to invest in stocks, you’ll most likely pay fees at some point to buy or sell stocks, or for account management. Pay attention to fees and expense ratios on both mutual funds and ETFs.

Don’t be shy about asking for a fee schedule or chatting with a customer service representative at an online brokerage or robo-advisor to advise you on fees you might incur as a customer.

Accounts to Invest in Stocks

There are a variety of different account types that let you buy stocks. The options outlined above offer some or all of these different investment accounts, although some retirement accounts are only available via your employer.

  • Retirement accounts:The two most common types of retirement accounts are 401(k)sand individual retirement accounts (IRAs). The former are only available from an employer, while anyone can open an IRA at an online brokerage or a robo-advisor. These accounts often offer tax advantages that incentivize you to save for retirement, but they also come with annual contribution limits. Other retirement account types include 401(b)s, SEP-IRAs and solo 401(k)s.
  • Taxable investment accounts. The retirement accounts outlined above generally get some form of special tax treatment for your investments and have contribution limits. Proceeds from stock investments made in taxable investment accounts are treated as regular income, with no special tax treatment. Plus, there are no contribution limits.
  • Education savings accounts:If you’re saving money for qualified education purposes, education savings plans allow you to invest in stocks, generally through mutual funds and target-date portfolios. These accounts include 529 plansand Coverdell Education Savings Accounts.

Depending on how hands-on you’ve chosen to be with investing in stocks, you’ll either set up your investment accounts through a broker(online or through your financial advisor), through your bank (for Coverdell ESAs), or through your employer (for employer-sponsored plans).

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How to Fund Your Account

If you plan on buying stocks via a retirement account like an IRA, you might want to establish a monthly recurring deposit. For example, the 2020 contribution limit for an IRA is $6,000 for anyone below age 50, and $7,000 for anyone 50 or older. If your goal is to max out your contribution for the year, you might set a recurring deposit of $500 per month to meet that max limit.

If you’re buying stock through an employer-sponsored retirement plan like a 401(k), you’ll need to indicate what percentage of your pay or a flat dollar amount you want to be deducted from each paycheck.

For all other types of investment accounts, establish clear investing goals and then decide how much of your monthly budget you want to invest in stocks. You can choose to move funds into your account manually or set up recurring deposits to keep your stock investment goals on track.

Here are a few things to keep in mind as you set your investment budget and fund your account:

  • Mutual fund purchase minimums.Many stock mutual funds have minimum initial purchase amounts. Be sure to research different options—Morningstaris a great resource—to find ones with zero or low minimums to start investing in stocks as soon as possible.
  • Trading commissions.If your brokerage account charges a trading commission, you might want to consider building up your balance to purchase shares—especially individual stocks—until the commission only represents a small fraction of your dollars invested.
  • Mutual fund fees:When buying a stock mutual fund, be sure to review what the “load”is on the shares you’re purchasing. Some mutual funds have an upfront or back-end sales charge—the so-called load—that’s assessed when you buy or sell shares. While not all mutual funds have loads, knowing before you buy can help you avoid unexpected fees.

Start Investing in Stocks

Select the individual stocks, ETFs or mutual funds that align with your investment preferences and start investing.

If you’ve chosen to work with a robo-advisor, the system will invest your desired amount into a pre-planned portfolio that matches your goals. If you go with a financial advisor, they will buy stocks or funds for you after discussing with you.

Upon successful execution of your order, the securities will be in your account and you’ll begin enjoying the rewards of the stock market. And yes, your funds will reap dividends and experience losses as the economy changes, but for the long-term, you’ll be taking part in the sector of investments that have helped investors grow their wealth for over a century.

As you make your initial stock purchases, consider enrolling in a dividend reinvestment plan (DRIP). Reinvestment plans take the dividends you earn from individual stocks, mutual funds or ETFs, and automatically buys more shares of the funds or stocks you own. You may end up owning fractional shares, but that will keep more of your money working and less sitting in cash.

Set Up a Portfolio Review Schedule

Once you’ve started building up a portfolio of stocks, you’ll want to establish a schedule to check in on your investments and rebalance them if need be.

Rebalancing helps ensure your portfolio stays balanced with a mix of stocks that are appropriate for your risk tolerance and financial goals. Market swings can unbalance your asset mix, so regular check-ins can help you make incremental trades to keep your portfolio in order.

There’s no need to check in on your portfolio daily, so a monthly or quarterly schedule is a good cadence. As you review your portfolio, remember that the goal is to buy low and sell high. Investing in stocks is a long-term effort. You’ll experience inevitable swings as the economy goes through its usual cycles.

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How To Invest In Stocks (2024)

FAQs

How should a beginner invest in stocks? ›

How to start investing in stocks: 9 tips for beginners
  1. Buy the right investment.
  2. Avoid individual stocks if you're a beginner.
  3. Create a diversified portfolio.
  4. Be prepared for a downturn.
  5. Try a simulator before investing real money.
  6. Stay committed to your long-term portfolio.
  7. Start now.
  8. Avoid short-term trading.
Apr 16, 2024

How much should you invest in stocks first time? ›

“Ideally, you'll invest somewhere around 15%–25% of your post-tax income,” says Mark Henry, founder and CEO at Alloy Wealth Management. “If you need to start smaller and work your way up to that goal, that's fine. The important part is that you actually start.”

Is investing in stocks worth it? ›

The case for investing in stocks. Equities can add diversification and serve as a growth engine to help build value over time: Higher growth potential — Equities serve as a cornerstone for many portfolios because of their potential for growth.

Is $1000 enough for stocks? ›

While $1,000 may not seem like much, it's enough cash to start growing your money and securing your financial future, especially if investing becomes a habit. Don't let small amounts prevent you from earning larger ones down the road.

How much money do I need to invest to make $3,000 a month? ›

Imagine you wish to amass $3000 monthly from your investments, amounting to $36,000 annually. If you park your funds in a savings account offering a 2% annual interest rate, you'd need to inject roughly $1.8 million into the account.

What type of stock is best for beginners? ›

Consider stock index funds

In fact, buying an index fund such as one based on the Standard and Poor's 500 index (the S&P 500) ends up beating most investors – even the pros – over time. It's a great place for beginning investors to start their investing journey.

Is Apple a good stock to buy? ›

Currently, Apple carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

How many stocks should I buy first time? ›

A portfolio of 10 or more stocks, particularly those across various sectors or industries, is much less risky than a portfolio of only two stocks.

How much money do I need to invest to make $1000 a month? ›

A stock portfolio focused on dividends can generate $1,000 per month or more in perpetual passive income, Mircea Iosif wrote on Medium. “For example, at a 4% dividend yield, you would need a portfolio worth $300,000.

Is it worth buying one share of stock? ›

An advantage of purchasing only one share is that, for the most part, it's a low-cost way to gain exposure to the stock market. Additionally, buying a single share can provide an opportunity to get a feel for how Wall Street (and the overall stock market) works and the mechanics behind investing.

Is investing $1 in stocks worth it? ›

Investing $1 a day not only allows you to start taking advantage of compound interest. It also helps you to get comfortable with investing and develop the habit of putting your money to work for you. As you can see, that single dollar can make a huge difference in helping you to become more financially secure.

Do you actually get money from stocks? ›

The way you make money from stocks is by the selling them at a higher price than you bought them. For instance, if you bought a share of Apple stock at $200 and sold it when it reached $300, you would have made $100 (minus any taxes you'd have to pay on the money you made).

What are the disadvantages of stocks? ›

Disadvantages of investing in stocks Stocks have some distinct disadvantages of which individual investors should be aware: Stock prices are risky and volatile. Prices can be erratic, rising and declining quickly, often in relation to companies' policies, which individual investors do not influence.

How much money can you make from stocks in a month? ›

Well, there is no limit to how much you can make from stocks in a month. The money you can make by trading can run into thousands, lakhs, or even higher. A few key things that intraday profits depend on: How much capital are you putting in the markets daily?

What is the best stock to invest in for beginners? ›

Compare the best stocks for beginners
Company (Ticker)SectorMarket Cap
Broadcom (AVGO)Technology$652.42B
JPMorgan Chase (JPM)Financials$576.37B
UnitedHealth (UNH)Health care$467.71B
Comcast (CMCSA)Communication services$151.22B
2 more rows

Is $100 enough to start investing in stocks? ›

$100 can grow a lot over time, but only if you invest wisely. If you gamble on a stock, you could lose all your money. And that would be a terrible way to start investing. However, it's very rare to lose all your money investing.

How much stock should I buy as a beginner? ›

Most experts tell beginners that if you're going to invest in individual stocks, you should ultimately try to have at least 10 to 15 different stocks in your portfolio to properly diversify your holdings.

Is $500 enough to start investing in stocks? ›

You can start investing with relatively small amounts of money, even $500. It is hard to buy a lot of stocks with modest amounts of cash. With as little as $500 you can buy a well-diversified portfolio with this index-based ETF.

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