How to invest in stocks

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Investing in stocks is a great way to build wealth by harnessing the power of growing companies. Still, it can feel daunting for beginners to take the leap to invest in stocks despite the potential long-term gains.

But how exactly do you invest in stocks? It’s actually 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 have a pro invest money for you, 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 how to get started even if you don’t know that much about investing right now.

5 steps to invest in stocks

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

  1. Choose how you want to invest
  2. Open your 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:

  • Do you want to have a professional advisor invest your money? This “do-it-for-me” option is a great choice for those who want to spend just a few minutes a year worrying about investing. It’s also a good choice for those with limited knowledge of investing.
  • Do you want to manage your own money? This “do-it-yourself” option is a great pick for those with greater knowledge or those who can devote spare time to making investing decisions. If you want to select your own stocks or funds, you’ll need a brokerage account.

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

2. Open your account

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

If you want a pro to manage your money 

  • A human financial advisor can help you design a stock portfolio and can help with other wealth-planning moves such as planning for college expenses. A human advisor might typically charge around 1 percent of your assets annually, with a high investment minimum. One big advantage: a good human advisor can help you stick to your financial plan. Here are six tips for finding the best advisor – and what you need to watch out for.
  • A robo-advisor can design a stock portfolio that matches your time horizon and risk tolerance. They’re typically cheaper than a human advisor, often a quarter of the price or less. Plus, many offer planning services that can help you maximize your wealth. Bankrate’s review of the top robo-advisors can help you select the right robo-advisor for your needs.

Bankrate also offers in-depth reviews of the major robo-advisors so you can find the advisor who meets your requirements most closely.

If you want to manage your own money

  • An online broker allows you to buy stock and many other kinds of investments, including bonds, exchange-traded funds (ETFs), mutual funds and more. The best brokers offer no-fee commissions on stocks as well as a ton of education and research at no additional cost, so you can power up your game quickly. Bankrate’s review of the best brokers for beginners can help you select the right one for your needs.

Bankrate also provides in-depth reviews of the major online brokers so you can find a broker that meets your exact needs.

If you go with a robo-advisor or an online brokerage, you can have your account open in literally minutes and can start planning what to invest in. 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.

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 invest it in 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 things. 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 trade more frequently. Research shows that passive investors tend to do much better than active investors.

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 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.

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 price of your stocks.

How much do you need to start?

Most major online brokerages these days don’t have an account minimum, so you can get started with no money. But you’ll still need money to buy your investments. Still, you don’t need much. Many brokers allow you to buy fractional shares of stock 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 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.

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.

Here are three important tips for beginners:

  • While Hollywood portrays investors as active traders, you can succeed – even beat most investors – by using a passive buy-and-hold approach. One strategy: Regularly buy an S&P 500 index fund containing America’s largest companies and hold on.
  • It can be valuable to track your portfolio, but be careful when the market dips. You’ll be tempted to sell your stocks and stray from your long-term plan, hurting your long-term gains in order to feel safe today. Think long term.
  • To keep from spooking yourself, it can be useful to look at your portfolio only at specific times (say, the first of the month) or only at tax time.

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.

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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Written by
James Royal
Senior investing and wealth management reporter
Bankrate senior reporter James F. Royal, Ph.D., covers investing and wealth management. His work has been cited by CNBC, the Washington Post, The New York Times and more.
Edited by
Senior wealth editor