How to Invest in Stocks: 8 Tips for Beginners

Investing in the stock market is one of the most effective ways to build wealth over time — and you don’t need a lot of money to get started. The key is understanding a few foundational concepts, making a plan, and starting as early as possible.

One important distinction before diving in: investment accounts are separate from savings or emergency funds. Your savings should cover short-term needs and unexpected expenses. Investments are for long-term goals, like retirement.

Step 1: Figure Out Your Risk Tolerance and Goals

Before you buy a single share, you need to know what you’re investing for and how much risk you’re comfortable taking on.

• Define your goals. Are you investing for retirement, real estate, income, or long-term growth? Your goal determines your timeline — and your timeline determines how much risk makes sense.
• Understand risk tolerance. Risk tolerance is how much of a loss you’re willing to absorb in exchange for the potential of higher returns. The stock market is unpredictable, so the more time you have before you need the money, the more risk you can afford to take. Someone with 35 years until retirement can ride out market dips much more comfortably than someone who retires in five years.

Step 2: Decide What Kind of Investor You Want To Be

There are two broad approaches to investing:

• Hands-on investing. You build your own portfolio by choosing individual investments, either independently or with the help of a financial advisor. This gives you more control and potential for higher returns, but requires more time and research.
• Passive investing. Instead of picking stocks, you match the performance of a market index like the S&P 500 or Dow Jones Industrial Average. This approach tends to be less volatile and more stable over time, though with less upside potential. It’s also far less time-intensive.

Most beginners are better served starting with a passive approach and adding individual stocks as their knowledge grows.

Step 3: Choose Where To Open a Brokerage Account

There are three main types of brokerage accounts to consider:

• Full-service brokers. These firms — like Merrill, Morgan Stanley, and Goldman Sachs — offer personalized investment advice, stock recommendations, financial planning, and wealth management services. They’re a good fit for investors who want professional guidance, but come with higher fees and commissions.
• Discount brokers. Firms like Fidelity, Schwab, and Robinhood offer lower fees and commission-free trading, but without personalized investment advice. You execute your own trades through their online platforms. These are ideal for self-directed investors who want to keep costs low.
• Robo-advisors. A robo-advisor automates your investments entirely. You answer a series of questions about your goals, budget, and timeline, and the platform builds and manages a portfolio on your behalf. Fidelity and Schwab both offer robo-advisors, as do dedicated platforms like Betterment and Acorns.

Step 4: Open Your Brokerage Account

Opening a brokerage account is similar to opening a checking account. For full-service brokers, you can schedule an in-person appointment. For online brokers, the application takes just a few minutes on their website or app.

You’ll typically need to provide:

• Full name and contact information
• Social Security number
• Driver’s license or passport information
• Employment status
• Bank name and account number for funding

You’ll also answer questions about the type of account you want and how you plan to manage it.

Step 5: Start Early

The single most powerful thing you can do as a beginning investor is start as soon as possible. The earlier you invest, the more time your money has to compound — and compounding is what turns modest contributions into significant wealth.

Here’s a simple example: an investor who puts $300 per month into the market at age 20, earning a 7% annual return, will have approximately $1.14 million by age 65. If that same person waits until age 30 and earns a higher 9% return, they’d still end up with only around $882,000. Starting early — even with lower returns — often wins.

Step 6: Decide Whether To Invest in Stocks, Mutual Funds, or ETFs

You don’t have to pick individual stocks to invest in the market. Here’s a breakdown of your main options:

• Individual stocks. Buying shares of a specific company gives you the most control and the highest potential for growth — but also the most risk. Stock markets are volatile, and picking winners consistently is difficult. Never invest more than you can afford to lose.
• Mutual funds. A mutual fund pools money from many investors to create a diversified portfolio managed by professionals. There are several types including actively managed funds, index funds that track a benchmark like the S&P 500, and target-date funds that automatically become more conservative as your retirement date approaches. Minimum investments are typically $1,000 for index funds and $3,000 for actively managed funds. Unlike stocks, mutual fund trades execute at the end of the trading day.
• ETFs (exchange-traded funds). ETFs work like mutual funds in that they pool investor money into a diversified portfolio, but they trade throughout the day like individual stocks. You can buy full or fractional shares, and trades execute immediately when markets are open. ETFs tend to have lower fees than mutual funds and no minimum investment.

For most beginners, mutual funds and ETFs are the better starting point. They provide instant diversification with less research required than picking individual stocks.

Step 7: Manage and Diversify Your Portfolio

Building a portfolio is just the beginning — managing it over time is what leads to long-term success.

• Diversify across asset types. A mix of stocks, bonds, and other investments helps reduce risk. When one asset class underperforms, others may hold steady or grow.
• Review regularly. Meet with a financial advisor every six to twelve months to evaluate how your investments are performing relative to your goals.
• Rebalance when needed. Over time, some investments will grow faster than others, throwing off your target allocation. Rebalancing means selling in over-weighted areas and buying in under-weighted ones to stay on track.
• Adjust as you age. As retirement gets closer, gradually shifting to more conservative investments helps protect what you’ve built.

Step 8: Think Long Term

The most successful investors share one trait: patience. Here are four habits that support long-term investing success:

• Pay yourself first. Treat your monthly investment contribution like a bill — non-negotiable. Most advisors recommend setting aside money for investing before paying discretionary expenses, so you’re not investing whatever happens to be left over.
• Work with a financial advisor. A licensed advisor can help clarify your real goals, pressure-test your risk tolerance, and provide steady guidance during volatile markets when emotions can lead to poor decisions.
• Hold for the long term. Frequent trading racks up fees and capital gains taxes. As long as you’re invested in solid companies or funds, time in the market tends to outperform timing the market. As Warren Buffett has said, the ideal holding period is forever.
• Automate your investments. Setting up automatic contributions removes emotion from the process. It keeps you investing consistently — including during market downturns, which are often the best time to buy at lower prices.

This article is for informational purposes only and does not constitute financial advice.

Daria Uhlig contributed to the reporting for this article.