How to Invest in Stocks: A Simple & Clear 7-Step Guide

Henry Mann
October 11, 2021

Chances are you’re already investing. You just don’t realise it. 

If you have a savings account with a bank, you might earn 0.01-3% interest per year.

The bank invests your savings and gives you a small percentage of the profits. 

Important: If you invested for yourself, you could make more money.

1. How does investing work?

Investing involves spending money with the expectation of achieving a profit.

Buy a house for $200,000 → Sell for $220,000 → $20,000 profit

This is how any investment should work, whether it’s real estate, index ETFs, bonds or mutual funds.

You want to get more money out than you put in.

How To Invest In Stocks: A Simple, Thorough & Clear Guide This investing guide is genuinely for beginners. How to make money: best investments ideas & tips.

2. Why should you invest?

Investing is a way to grow your wealth.

It lays the foundation for a comfortable life (things like buying a home, sending your kids to college, travelling, starting a business) and retirement.

When you invest, you buy a piece of a company, and your return is linked to their performance.

If your money is in the bank alone, it’s just sitting there losing value (due to inflation). Investing allows you to pursue a greater return over the long run.

Whilst it’s a more bumpy ride, the stock market has always delivered greater returns even after the worst recessions. Go Deeper →

How To Invest In Stocks: A Simple, Thorough & Clear Guide This investing guide is genuinely for beginners. How to make money: best investments ideas & tips.

3. Decide what to invest in

Investing is personal. Different investment categories will suit different investors.

"I don’t have strong opinions on what you invest in, as long as it makes money. I don’t have much time to research. I prefer lower-risk investments."

  • ETFs & Index Funds: Think of exchange-traded funds (ETFs) as a basket of multiple stocks or other securities to let you invest in the broader market or a sector, industry, or even region. ETFs allow you to invest in a group of companies all at once. Go Deeper →
  • Mutual Funds: Mutual funds are run by a fund manager (professional investor). Multiple investors' money is pooled together and invested collectively. Go Deeper →
  • Bonds: When companies or governments need capital (money), they can issue bonds. It's essentially an IOU (I owe you) between a company or government and you, the investor. Go Deeper →

"I want to control/choose what I invest in. I have time to research companies I’m interested in. I would rather have the potential big returns, even though there may be more risk."

  • Stocks: A stock is a unit of ownership in a company. If you own a stock, that makes you a shareholder. If you choose the right stocks you can have the potential for large returns.
How To Invest In Stocks: A Simple, Thorough & Clear Guide This investing guide is genuinely for beginners. How to make money: best investments ideas & tips.

4. Understanding stocks

What are stocks?


  • A share is a piece of the company that you can buy for a set price.
  • Stock is the collective name for many shares of one company.

Need to know: To buy a company’s stock, the company must be public. Remember, not all large companies are public; for example, you can’t buy stock in IKEA, Aldi, Huawei or ByteDance (TikTok). The price of a company’s stock can go up or down. The price is determined by how much someone is willing to pay for a share — usually depending on how well the company performs. If the company is doing well, the price of the stock typically goes up. The total value of the company is called market capitalization, or market cap for short. To get geeky: it’s the total number of outstanding shares x the current market price of one share.

What is the stock market?

The stock market is the collective name for the place where you can buy and sell stocks, ETFs, index funds and corporate bonds.

The stock market is highly regulated, and made up of many different stock exchanges.

What is a stock exchange?

A stock exchange is where stocks are traded between investors and corporations. Exchanges can operate through a trading floor in a physical location or electronically.

There are currently 13 registered exchanges in the U.S.

The largest exchanges in the world include:

  • The New York Stock Exchange (NYSE)
  • The Nasdaq
  • The Shanghai Stock Exchange

Some stock exchanges focus on specific types of stock. For example, the TSX Venture Exchange (TSX-V) focuses on small-cap stocks. This includes early-stage companies and venture capital.

A company can choose to list its stock on multiple exchanges. However, you can only sell shares on the same exchange that you bought them.

How is share price determined

Before a company can IPO, the company needs to be valued to assess the price per share. This valuation takes into account the company’s earnings, assets and future projections. Go Deeper →

Why do companies go public?

A company must go public before releasing shares. When this happens it's called an Initial Public Offering (IPO). Once a company has gone public, the share price will continue to increase or decrease. This is in correlation with the company’s performance and the state of the market as a whole. Go Deeper →

Companies may choose to IPO for various reasons:

To raise capital

  • The main reason a company releases an IPO is to obtain capital (money) in exchange for equity (ownership of shares) in a company, plain and simple.

To create an exit for early investors

  • An IPO represents the first opportunity for existing early investors (like venture capitalists, employees, management, friends & family) to sell their shares.

To gain exposure

  • From media frenzies to Twitter trends, IPOs generate headlines.

How many shares can a company have?

There are few rules about how many shares a company can release, or have on the stock market at one time. The minimum is one and there is no formal maximum.

Large companies like Apple can have billions of shares issued at once. When the number of shares increases, the individual value of a single share decreases. This is called dilution and can be very dangerous if done irresponsibly.

What does it mean to own a stock?

When you own a stock, you don’t actually own anything you can touch. Instead, you own a intangible percentage of a company. When buying a stock, you become a shareholder in that company. Go Deeper →

As a shareholder you can’t make direct changes within the company and you don’t own any assets.

However, you can vote on major issues and may receive dividends.

How can you profit from investing in stocks?

There are two ways you can make money from investing in stocks:

  1. Earning dividends.
  2. Selling your shares at a higher price than you paid for them.
How To Invest In Stocks: A Simple, Thorough & Clear Guide This investing guide is genuinely for beginners. How to make money: best investments ideas & tips.

Common fears of investing in stocks

The biggest fear of investing is losing money. Recessions, volatility and the complexity of industry jargon also put people off. Go Deeper →

But if you invest in the right companies, the benefits certainly outweigh the negatives.

Benefits of investing in stocks

Tried and tested

Stock markets have been around for 400 years, making them well-regarded and regulated. Plus they've been tried and tested thousands of times over.

Liquidity of the stock market

A liquid market is liquid is clear and free flowing. Meaning that there's almost always someone willing to buy or sell a share at any given point.

In a liquid market, you don’t have to worry about being stuck with something you want to sell, with no one wanting to buy it.


Certain stocks pay dividends. A dividend is an amount of money, usually drawn from profits, that the company has decided to share with its shareholders.

While the percentages are usually small, these payments can quickly add up.

Pro tip

  • With most brokerages, you can set dividends to reinvest. So you buy more shares instead of taking out the cash. If the company is thriving, reinvesting dividends will benefit you more than taking the cash out.

Many sectors to choose from

Stock market sectors are groups of stocks/companies that are in similar industries. There are 11 main sectors:

  • Real Estate (Building projects or investment trusts, REITs)
  • Industrials (Transport, aerospace, defence, construction)
  • Energy (Oil, natural gas, coal, ethanols)
  • Utilities (Electrical power, water, renewable energy)
  • Healthcare (Pharmaceuticals, healthcare equipment and services)
  • Materials (Chemicals, construction materials, mining stocks)
  • Consumer discretionary (Automobiles, luxury goods, retail, hotels and restaurants
  • Financials (Banks, insurance, brokerage houses, mortgages)
  • Consumer Staples (Food, beverages, tobacco, supermarkets)
  • Information Technology (Computer programmes, phones, TVs)
  • Communication Services (Telecommunications, media, entertainment)

Pro tip:

  • Choosing a stock requires a lot of research and due diligence. Make this process more enjoyable by choosing a sector you already know well. For example, if you work with computers, pay attention to tech stocks.
"An investment in knowledge pays the best interest." — Benjamin Franklin

Investing vs trading stocks

While both involve stocks, they are quite different.

Stock trading

  • The more risky approach. Traders hold stocks for a much shorter time. The aim is to buy low, sell high. While some traders will win big, 80% of day traders will lose money (eToro.)

Stock investing

  • The steadier, more tried & tested alternative. Traders may be forced to sell their stocks at a loss. But a long-term investor could choose to ride out the volatility. Avoiding short-term losses.
How To Invest In Stocks: A Simple, Thorough & Clear Guide This investing guide is genuinely for beginners. How to make money: best investments ideas & tips.

Different types of stocks

Stocks can be sorted into three categories: value, income and growth. Go Deeper →

Value stocks appear to be priced lower than they should. Think of it as spotting a bargain.

Income stocks reliably pay dividends.

Growth stocks are stocks with a potential for long-term growth.

5. Know what stocks to invest in

The hard way: due diligence

Due diligence is a time-consuming and a complicated process for beginner investors. But it's important to understand a company before you invest in it.

You wouldn’t buy a house without checking its foundation.  Investing in stocks is the same.

“Behind every stock is a company. Find out what it’s doing.” — Peter Lynch

How to evaluate a stock

Consider fundamentals as a checklist. If the company matches these basic criteria, then it's worth investigating further. Stock analysis can become so in-depth that institutional investors and hedge funds will pay tens of thousands of dollars for reports researched by professional analysts. Go Deeper →

Long-term stability

  • Will the company still be relevant in 50 years?

Potential for future growth

  • Relevancy aside, does the company have the potential to grow and increase in share price?

Strong & experienced management

  • Does the company have a strong management team with relevant industry experience?

Best in class

  • Is this company the absolute best in their sector?

Healthy financials

  • Looking at a company's financials is essential. Plus, all the information is publicly available.
How To Invest In Stocks: A Simple, Thorough & Clear Guide This investing guide is genuinely for beginners. How to make money: best investments ideas & tips.

Types of investors

There are 2 types of investors: Institutional investors (banks, hedge funds, mutual funds, pension funds, insurance companies) and retail investors (individuals). Investing has become more accessible, but there's still a large information gap. Making it hard for retail to perform as well as institutional investors. Crux Investor is making things even simpler, finally giving retail investors access to the information used by institutional investors. Go Deeper →

Institutional investors manage other people's money, trade more frequently & at higher volumes, have access to exclusive research and are considered more sophisticated.

Retail investors invest their own money, trade less frequently & at lower volumes, only have access to publicly available information and are considered less sophisticated.

How To Invest In Stocks: A Simple, Thorough & Clear Guide This investing guide is genuinely for beginners. How to make money: best investments ideas & tips.

The simple way: Crux Investor

You know you should invest, but what do you invest in? Crux Investor makes it quick and easy to know the best stocks to invest in.

Know what stocks to invest in

  • Accomplished analysts handpick one outstanding stock each month.

Clear monthly recommendation

  • The monthly Memo is remarkably clear & easy-to-follow. Yet it blows away reports 20X longer. Deep thinking, simple reading.

By world-class analysts

  • A team with tremendous industry knowledge and front-line experience. Former Directors, VPs & C-suite execs of the company and its competitors advise each Memo.

News, insights & opportunities

  • Crux Investor includes original shows with new content added every day. Stay up to date, learn something new, dive into CEO interviews, and more.

Keep it simple, smart

  • Crux Investor is built around the proven laws of smart investing: Invest often in quality stocks & hold them for a long time. Do so, and you’ll perform 2.5% better (on average) than trying to time the market.

No brokerage = no pressure

  • Crux Investor is information-only and funded by subscriptions. That means we don’t need to encourage you to trade on fads or whims to earn commissions. We’re here to help you make confident investing decisions wherever you buy your shares.

Regardless of how you decide to choose your stocks — DIY or following the experts — you are now at the stage of actually investing.

6. How to invest in stocks

Before investing for real, some investors choose to start with stock market simulators. You can practise investing for free with virtual money. 100% of the practise, 0% of the risk. Go Deeper →

How to open a brokerage account

A brokerage account is how you access the stock market and make investments. Opening a brokerage account has never been easier. Today, most brokerages are online and can be installed as an app on your phone. Go Deeper →

1. Choose your brokerage

There are loads of brokerages to choose from, which can feel overwhelming. A good rule of thumb is to search ‘most popular online brokerages’ followed by the country you live in. You must use a brokerage from your own country.

2. Sign up online and create your investment account

While this process varies between platforms, it's usually pretty simple. You will need to provide a photo of your Passport or other suitable ID. And, depending on your country, a proof of residence. For UK investors, this could be your National Insurance number.

3. Fund your account

Most platforms will require you to deposit funds before you can place any orders. You can do this by bank transfer.

4. Make an investment in a stock

This is usually platform specific, and will most likely be explained.

Is my money safe in a brokerage account?

Yes. It’s highly unlikely that your brokerage will go bankrupt. If it does, there are multiple levels of insurance to protect you. Go Deeper →

How much should you invest in stocks

With most brokerage accounts, there is no minimum investment. You could invest $10 in a stock, or $1,000.

So, how much should you invest?

This will depend on two things:

  • How much disposable income you have to invest
  • The amount you're willing to risk.

Don't invest money in stocks you're worried about losing. Like every other investment, investing in stocks carries some risk.

Pro tip:

  • Decide on your time horizon before you decide how much to invest. This is essentially how long you plan to hold an asset before selling it. A time horizon could be for many things. Retirement, schooling fees or that holiday you've always dreamed of.

A clear end goal helps determine how much you should be investing and which type of stocks you should focus on. If your goal is many years in the future, you can sit back and let the markets do the work. If your deadline is sooner, maybe you should focus on higher risk, higher reward assets.

How To Invest In Stocks: A Simple, Thorough & Clear Guide This investing guide is genuinely for beginners. How to make money: best investments ideas & tips.

Best time to invest

There is no ‘right time’ to buy stocks. But, the lower the price of a stock when you bought it, the higher return you can earn when you come to sell.

Some investors spend hours trying to determine the perfect time to invest in a stock, to get it at the right price. This is known as ‘timing the market’. It's a time-consuming process which doesn’t even ensure you’ll buy a stock at the ‘best’ price. Instead, it is better to invest your allocation over a set period of time. This is called dollar-cost averaging. Go Deeper →

Ways investors try to time the market:

  • Studying charts and patterns of a stock, to try to estimate when it will next go up or down, based on when it last did.
  • Looking out for press releases that could cause a stock to fluctuate.
  • Understanding the cycle of a stock relative to the calendar year. Some industries perform better in the first quarter of the year and worse toward the end.
"Market timing is impossible to perfect." — Mark Rieppe

7. Monitoring your stocks

It’s a good idea to keep an eye on the stock and ensure that the company is heading in a direction that you believe in. Look out for significant press releases and interviews with management. Go Deeper →

"Know what you own, and know why you own it." — Peter Lynch

When to sell stocks

Apart from dividends, selling a stock is the main way investors make money. The longer you hold a stock, the greater the return (assuming the returns are positive.) This is called compound interest. If you enter an investment knowing you'll hold it for 20 years, it reduces the chance of panic selling after a couple of months. Investing should be a marathon, not a sprint.

In this case, you don’t need to worry about selling your stock until you're happy with the return. Before this point, you should only sell your shares if the fundamentals change. Go Deeper →

"My favorite time frame is forever." — Warren Buffett

How to make money in stocks

Unless the company goes bankrupt, the only way to lose money is by selling at a loss. If you wait until the price goes back up, you won’t lose money.

"Courage taught me no matter how bad a crisis gets ... any sound investment will eventually pay off." — Carlos Slim Helu

Investors lose money when they panic-sell when the stock price has taken a downturn. They've let emotion take over.

If you believe in the company’s fundamentals and its future, then the share price should go back up.

Remember, the potential for loss is capped at 100%. The worst you can lose is the money you invested. However, the potential for gain is infinite.

Imagine you buy a jumper, rip it, and have to give it away for free. That’s the worst-case scenario. But unlike all the other things we buy (phones, food, holidays), there is the chance here that you can make more money.

“Rule No.1: Never lose money. Rule No.2: Never forget rule No.1” — Warren Buffett

Key takeaways

  • Invest in companies you believe in and understand
  • Hold your investments for a long time
  • Don’t let emotion take over
  • Only sell at a profit