How to Get Into Stocks

It’s common for new investors to feel overwhelmed about investing in the stock market for the first time. There’s a lot to learn about investment accounts and trading platforms — to the point it’s difficult to know where to start investing.

If you’re thinking about investing in the start market, you’ve come to the right place. This quick primer provides an overview of the ins and outs of the stock market as well as some tips on how to build a diversified portfolio and set your future self up for financial success.

What is the Stock Market?

First things first: The stock market is a global collection of financial exchanges and markets where investors come together to buy and sell shares of publicly traded companies. In the U.S. alone, there are 13 major stock exchanges, including the New York Stock Exchange (NYSE) and Nasdaq.

When you buy a share of a publicly-traded company, you are buying a small piece of ownership of that corporation, so you’ll want to find great companies with bright futures, not some hot stock that’s being hyped on social media. 

Why Get into Stocks?

When you’re young and broke, investing in the stock market may seem like a pipe dream. But the biggest asset a young investor has is time. Even a few bucks a month will have the chance to snowball into significant sums a few decades down the line. 

As you get older and start to accumulate more money, investing becomes a necessity if you want to achieve financial independence. The more you can put your money to work for you, the sooner you’re living the life you want.

With that in mind, here are some of the top reasons investors choose to get into stocks.

High Returns

The stock market is one of the greatest wealth-building tools in the world for those who can use it successfully.

Some stocks are conservative, meaning they might produce more modest annual returns but are more stable in the long run. A blue chip stock — think a huge company like Walmart or Nike — won’t double your money overnight. But you can also be pretty sure it’s not going bankrupt in a hurry. The march of the share prices in companies like these has been steadily uphill. 

Other stocks are more volatile and capable of producing significant overnight growth, or losses. They have the promise of bigger gains in a shorter period, but they also come with bigger risk.

Overall, investing in the stock market is proven to lead to much higher returns than traditional checking or savings accounts, which is why so many people do it.

That said, there’s no magic formula for picking the best stocks, so here’s a disclaimer: Only invest an amount of money you are comfortable losing. While you can definitely make money in the stock market, you can also lose it, too, if you make the wrong moves, or try to time the market. This is why you may want to look into an investment advisor or a robo-advisor that can help make some of the harder decisions for you. 

Long-Term Tax Savings

Another reason people choose to invest in stocks is to leverage long-term tax savings. Certain types of investment vehicles like individual retirement accounts (IRAs) and 401ks can provide sheltered tax benefits allowing you to grow money for decades without having to pay taxes until you touch the money in retirement. 

On the flip side, you can also take advantage of a Roth IRA, which is funded with post-tax dollars. The advantage, here, is that you don’t have to pay taxes on withdrawals you make in retirement.


Investing in the stock market is a great allocation strategy for investors because it allows you to place money strategically in a number of stocks for different types of returns. By diversifying your investments, you can shield yourself from risk while still putting yourself in a position to drive financial growth and even potentially make a little money during a downturn.

How to Buy Stocks

Buying stocks requires signing up with an established brokerage firm like Charles Schwab, Fidelity, Vanguard, or TD Ameritrade. You can also opt to use new startup platforms, like Betterment, Robinhood, and Acorns. 

An online stock broker typically allows you to buy and sell stocks during trading hours, which fall between 9:30 a.m. and 4 p.m. Eastern time on weekdays, excluding holidays.

Selecting a Brokerage Firm

Shop Around for the Best Platform

Spend some time reviewing various platforms and pick a broker that aligns with your needs. Brokers tend to have varied digital offerings. For example, Robinhood offers a solid mobile app and is known as a great broker for beginners. On the other hand, Schwab has a very robust platform and is an excellent choice for investors of all levels. 

Poke around and find a platform that you are going to enjoy using and one that makes it easy to visualize data. Since you’re going to be using the platform regularly, the user experience is very important to consider when selecting a brokerage firm to work with.

Understand Costs and Fees

Before you move forward with a broker, make sure to also view how their costs and fees are applied. For example, some brokers require minimum balances for accounts — meaning some brokers require you to deposit $500 or more to set up an online service.

Brokers may also charge withdrawal fees or prevent you from withdrawing money if your balance drops under a certain threshold. And while many brokers have moved to a no-fee system, keep an eye out for companies that are still cutting a share out of each stock purchase you make. 

Determine the Level of Service You Need

Spend some time thinking about the level of service you need from your broker. Some investors are comfortable moving forward with a discount broker that provides barebones access to trading while others may want a full-service provider that offers tips and recommendations on what stocks to buy. 

Full-service brokers tend to charge more, which is not always great for early investors. Remember, every dollar that goes to fees or management costs is a dollar that’s not making money for you. In addition, brokers aren’t always right when it comes to making investment recommendations. So you could wind up paying more in the long run.

Picking Your Account

Once you are up and running with a brokerage firm, the next step is to pick the type of investment account that’s right for your specific needs. 

Individual or Joint Brokerage Account

One option is to set up an individual or joint brokerage account from an online broker depending on whether you’re investing solo or as a married couple. 

Use this type of account if you want to touch your money before retirement age. For example, you may want to fund an account to launch a business in 10 years or to save up for a house. A brokerage account enables you to grow your money in the stock market without penalizing you for accessing funds (i.e., unlike retirement accounts). However, you have to pay taxes on any capital gains and dividends that you make in this type of account.

Retirement Accounts

Online brokerages also provide access to retirement accounts such as IRAs and Roth IRAs. 

You can use retirement accounts for long-term tax protection. The tradeoff is that you won’t be able to access your money without a penalty until you reach retirement age.

As an added bonus, a retirement account like a Roth IRA can help shield money from colleges when applying for financial aid. So, if you need to plan for college savings, you may want to consider starting an account through a Roth IRA to maximize the amount your child can receive in federal funding. 

One nice aspect of working with a brokerage is that you don’t have to pick one type of account or another. Many investors choose to open brokerage accounts and retirement accounts on the same platform. 

You can even have multiple types of retirement accounts set up. However, if you create a Roth IRA and IRA, for example, you are bound by a single contribution limit for both accounts. The limit for annual contributions to all IRAs and Roth IRAs for 2021 is $6,000.

Funding Your Account

After you set up an account, the next step is to add funds. In most cases, all you have to do is link a checking or savings account from your bank to the brokerage platform. 

Keep in mind that you may have to wait two to three business days for your funds to transfer to the trading platform. 

To avoid this problem, some investors choose to keep cash on hand in their platform for quick access when it’s needed. Others choose to keep no excess money on hand to avoid rash decision-making.  

Generally speaking, it’s better to go slow and avoid taking unnecessary risks, even if it means bypassing what seems like a quick moneymaking opportunity. Remember that the best investors are in it for the long haul. 

Types of Stocks to Consider 

At this point, you have an online brokerage account and an investment strategy lined up. The next step is to figure out what types of stocks you want in your portfolio.

Individual Stocks 

One method of buying stocks involves purchasing direct shares of publicly traded corporations. For example, an investor may buy shares of Amazon, Microsoft, Apple, or Costco. 

Unlike in broader funds, which dilute the success and limit the downside of any given company, individual stocks can yield sharp returns because your profits are based directly on a company’s performance. However, buying individual stocks can also be risky due to the volatile nature of the stock market. You’ll want to work your way to 10 or more stocks as quickly as you can, preferably in a few different industries.

But make sure you do your due diligence at each step. Best practices suggest only investing in companies that you believe in, and whose business models you understand. 

For example, if you are into electric cars, you might have considered buying into Tesla a few years back. If you did, you’d be pretty happy with that decision right now. Alternatively, if online shopping is your thing, Amazon stock might be an attractive choice. If your house is filled with iProducts, you probably have a good understanding of Apple’s business and can imagine where the company is going in the future.

Index Funds

Another method of stock market investing is purchasing index funds, which are portfolios of securities that are based around specific market indexes like the Standard & Poor 500 (S&P 500) or the Dow Jones Industrial Average (the Dow). The S&P 500 is a ranking of the 500 largest U.S. publicly traded companies, while the Dow follows 30 large, publicly-owned blue-chip organizations across the Nasdaq and NYSE.

Index funds are usually less volatile than individual stocks and are known for producing consistent long-term gains with slower annual yields. Consider purchasing funds from Vanguard, which offers low management fees. These can be a great starting point for new investors because you instantly have diversification.

Mutual funds

Mutual funds are investment vehicles that are made up of a collection of securities, such as stocks, bonds, and other equities. Unlike index funds, mutual funds are usually actively managed, meaning they are manipulated by fund managers who add and remove specific stocks to try and improve the account’s performance.

As a result, mutual funds often carry higher expense ratios than index funds. And keep in mind that oversight by managers isn’t a guarantee of better returns. In fact, more than half of mutual funds underperform their benchmark once you take fees into consideration.

Exchange-traded Funds (ETFs)

ETFs offer similar advantages as index funds and mutual funds because they are composed of a collection of stocks, bonds, and other securities. So, when you invest in an ETF, your money is usually spread out across a wide variety of investments. There is a wide range of ETFs available nowadays, so you can probably find one that matches your particular interests. If you think there’s a huge future in companies that make and use robots, for example, you can find an ETF focused just on stocks in that industry.

ETFs typically track a certain index and can be easily bought and sold throughout the day — just like common stocks. ETFs are usually lower cost and more tax-friendly than mutual funds. 

How to Pick Stocks

Picking stocks is one of the hardest jobs for any investor. Even the best get it wrong sometimes, so don’t be dismayed if you find it difficult. 

One reason many less experienced investors get into trouble picking stocks is that they rely primarily on what they find online from other investors. The problem with this strategy is that people can be manipulative. For example, an experienced investor running a blog may have a hidden motive to get you to pick a certain type of security or fund.

They may be looking to capitalize on investors who do not know what they are doing. In what’s called a pump-and-dump scheme, an individual or organization might hype a penny stock, get people to buy in and boost the price, then they sell their shares while the naive investors lose their money.

Best practices call for learning how to value stocks, so you aren’t blindly taking advice from people who don’t necessarily have your best interests in mind. You should always know what a company does, how it makes money, and where you think it’s heading before you put your money at risk.

TIP: I’ve put together a comprehensive list of the best stocks for beginners for you to check out.

Below are some terms you will hear as you start to look for stocks and funds for your portfolio. Even if you begin as a more qualitative investor, it’ll help you to understand these concepts so you can examine a stock from many angles.

Price to Earnings Ratio (P/E)

The P/E ratio is a fast way to determine if a stock is overvalued or undervalued. It refers to the stock price of a company divided by its earnings per share. Generally speaking, when a company has a lower P/E ratio, it’s more attractive to investors. 

Price to Book Ratio (P/B)

P/B ratio is used to compare a company’s market capitalization with its book value. It’s calculated by dividing the stock price per share by its book per value share (BVPS).

Dividend Yield

A company’s dividend yield indicates how much of the company’s share is paid out in dividends annually to investors. For example, if a company has a share price of $100 with a dividend yield of 5%, the organization pays a per-share dividend of $20 annually, which is usually made in quarterly payments. 

Expense ratio 

An expense ratio is a measurement of how much of a fund’s assets are used to pay for operating and administrative expenses. This is important when picking mutual funds, index funds, and ETFs. Look for companies with low expense ratios that indicate the majority of the fund is going toward growing your investment. 

Tips for Stock Trading

One of the great parts about investing is you don’t have to reinvent the wheel. You can rely on time-tested strategies from other investors. 

To this end, let’s take a look at some best practices you should keep in mind when trading stocks.

Focus on Diversity

Young investors should avoid going all-in on any one particular type of investment. Consider building a portfolio around individual stocks, mutual funds, ETFs, and index funds. You may even want to explore riskier investments like cryptocurrency if you can stomach the possibility of huge price swings. 

By diversifying your portfolio, you can manage market volatility and maximize different types of investments. For example, you may want to allocate a portion of your portfolio into stocks and a smaller portion into more stable investments like index funds. 

Harvest Your Losses

As you continue to invest and make money, you may want to explore strategies for reducing taxable income. For example, some investors like to use a strategy called tax-loss harvesting, which involves selling securities at a loss and writing them off on their taxes. 

Keep in mind that the IRS enforces a certain restriction called the wash rule, which prohibits investors from claiming a loss on a sale and repurchasing an identical stock. 

With so many moving parts, it can be difficult to navigate the world of investing on your own. Consider working with a financial advisor to help you prepare your taxes and maximize certain advantages. Tax advisors help you save money and avoid running into trouble with the IRS and paying more than you need to.

Buy What You Love 

If you’re staring blankly at your brokerage account and scratching your head about what stocks to invest in, consider investing in brands you love.

In other words, look for stable and popular brands that offer great products and services that keep you coming back time and again. If you love a company and they are affordable, stable, and pay a good dividend, they are probably worth a look. 

Don’t Forget to Save

There is no getting around it: The stock market is highly volatile. Over the course of your lifetime, it is going to rise and fall countless times. 

As such, it’s a good idea to put some money into high-yield savings accounts (HYSA) and other safer financial products, like certificates of deposit (CDs). This can protect your money. In the event an investment goes belly-up, you won’t be left scrounging for money. Wise investors keep a portion of their money in safekeeping so that they can use it whenever it’s needed.

Use the Stock Market for Real Estate

Investors are sometimes surprised to learn you can use the stock market to invest in real estate. In fact, this can be a much easier way to buy and sell real estate than working with a real estate agent and buying a property outright. It’s less risky and far more affordable. And as an added bonus, you won’t have to manage property or deal with tenants.

This can be accomplished by purchasing real estate investment trusts (REITs) through online brokers like Schwab and Fidelity. 

Frequently Asked Questions

Do you have to buy individual stocks?

You don’t have to buy individual stocks. Many investors choose to purchase index funds, mutual funds, and ETFs, which are collections of securities and debt instruments like bonds

Buying collections of securities can lower risk and diversify your portfolio. And you can access stocks from companies that you wouldn’t be able to otherwise afford. 

Consider buying a healthy mix of individual stocks and baskets of securities to diversify your portfolio.

What is a retirement plan?

A retirement plan is a tax-friendly investment vehicle that investors use to grow their funds over the course of several decades. Retirement plans like IRAs and 401ks prevent you from having to pay taxes on capital gains and dividends until you access the money at retirement age.

What is a financial advisor?

A financial advisor is someone who works closely with a customer to help form an investing strategy. A financial advisor helps you determine your risk tolerance so you can figure out which stocks are right for your portfolio. 

Financial advisors can be great for investors of all types, from people who are just starting out to experienced traders who have been in the market for decades. Whether you need advice on building a core portfolio or you want to tweak your portfolio to maximize retirement savings, a financial advisor can help.

Do some funds have minimum investments?

Certain types of investment funds like index funds and mutual funds may come with a minimum deposit requirement. Some can be significant, requiring $10,000 or more. Others can be smaller, hovering between $500 and $1,000. 

How do fractional shares work?

A fractional share is a portion of equity stock. If you don’t have $3,000 or so for a full share of Amazon, you can use fractional shares to invest small amounts of money to get on board and enjoy the benefits if the stock price goes up. The nice part about buying fractional shares is that, over time, you can work your way up to a full share. 

The Bottom Line

Entering into the stock market is one of the biggest decisions of your personal finance journey. Don’t take it lightly. 

The good news is you don’t have to be a professional Wall Street trader to make money with stocks. You can go slow and build a portfolio over time with the extra money you have sitting around. As you now know, there are plenty of ways to invest a few dollars at a time and work your way up to a stronger portfolio down the road. 

New investors should focus on learning as much as possible about the market. Before you start buying and selling stocks, educate yourself, and form your investing strategy. Learn how to read stock charts and identify value stocks and funds. If you take it slow and think closely about the investments you make, you’ll minimize mistakes and set yourself up for success.

When it boils down to it, the hardest part of the stock market is simply getting started, and having the patience to ride out market downturns. Just remember that slow and steady wins the race, and you won’t become a millionaire overnight. Be patient and determined, and you’ll make the right decisions. Good luck!

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