How To Invest In Stocks: A Simple, Thorough & Clear Guide

Investing is the best way to build wealth. Period.

A single, one-time investment of $1,000 could grow into:

  • $10,834 after 25 years
  • $72,890 after 45 years
  • $490,370 after 65 years

These calculations assume 10% returns, which is the long-term average return of the stock market.

And that’s just a one-time investment. Imagine how much you could have after years of consistent monthly investments!

If you’re not investing, you’re missing out on investment profits. Worse, your money is actually losing buying power, because inflation eats away at how valuable your dollars are.

But investing can be confusing. This guide will help beginners learn how to invest in stocks — and why they should.

How to invest in stocks: At a glance

How to invest in stocks: inflated dollar balloon

An investor with no previous experience can get started with stock investing in just a few minutes.

At its simplest, investing can look like this:

  • Open a brokerage account or download an investing app (it’s free)
  • Transfer in some money (you could start with just a few dollars)
  • Buy stock in quality companies, or buy an index fund (hundreds of stocks all at once)
  • Set it aside and let your money grow passively
  • Keep contributing on a regular basis to grow your wealth

But to be an effective investor, it pays to do your homework.

Investors may wish to buy individual stocks to improve returns. Or they may wish to explore mutual funds, ETFs, or more safe assets like bonds.

In any case, effective investors will seek to understand what they’re investing in, why they’re investing, and how they can improve their odds of success.

This beginner’s guide to investing in stocks breaks down everything you need to know in great detail.

Don’t have time to read 4,000 words about the stock market?

Here’s the tl;dr.

  1. Understand how investing works

Simple answer? Buy low, sell high.

  1. Understand why you should invest

Take advantage of compound interest to grow your wealth.

  1. Determine your investing style

Understand your risk tolerance, goals, and involvement level.

  1. Learn the basics of stocks

Don’t buy investments that you don’t understand.

  1. Know what stocks to invest in

Choose wisely for the best chance at high returns.

  1. Understand how to buy stocks

Open an account and make your first stock investments.

  1. Monitor your investments

Know when to buy, when to sell, and when to hold on.

1. Understand how investing works

How to invest in stocks for beginners: a simple & easy 7-step guide: cartoon illustrated 100 dollar bill

Investing involves buying assets with the expectation of those assets being worth more in the future.

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 can get started with a small amount of money, you just want to get more money out than you put in.

2. Understand why you should invest

How to invest in stocks for beginners: a simple & easy 7-step guide: desert island illustration

Investing is a way to grow your wealth. Go Deeper →

It lays the foundation for a comfortable life (things like buying a home, sending your kids to college, traveling, 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.

While it’s a more bumpy ride, the stock market has always delivered greater returns than most other investments. And it’s delivered far higher returns than cash or money sitting in a bank account.

In fact, the long-term average return for the US stock market is around 10% per year. Some experts believe a safer estimate moving forward is 7% per year. (Schwab predicts 10-year returns of 6.6% for the US market, while Blackrock expects 6.7% returns.)

The magic of compound interest

When you invest money, you benefit from compounding interest.

Compounding means that you earn money on your original investment — and on the profits you’ve already made from your investments.

If you invest $100 at 10% interest, you’ll earn:

  • $10 in interest in the first year (10% of $100)
  • $11 in interest in the second year (10% of $110)
  • $12.10 in interest in the third year (10% of $121)

And so on. With each passing year, you earn more and more returns — even though you haven’t put in any additional money.

Compounding interest has a snowballing effect, which means returns can increase faster and faster as time goes on. Over the very long term, the results can be insane.

  • Invest just $100 (one time) for a newborn baby, and it could be worth $49,037 when the child turns 65
  • Invest just $50 per month during a 45-year career, and you could have $434,987

*These results assume 10% average returns, which is the long-term average return of the US stock market*

Use this compound interest calculator to learn how much you could earn.

“Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn't, pays it.” - Albert Einstein

3. Determine your investing style

How to invest in stocks for beginners: a simple & easy 7-step guide: decide what to invest in chart checklist

Investing is personal. Investment goals vary and 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."

If this sounds like you, here are some of the best investment options:

  • 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."

  • Individual 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.

Understand diversification

“Don’t put all your eggs in one basket”. We’ve all heard it, but what does it mean?

This phrase is all about diversification, which can also be thought of as spreading out your bets.

If you invest $10,000 in a single stock, and that company goes bankrupt, you could lose the entire $10,000.

But if you invest that $10,000 in 20 different companies equally ($500 each), and one goes bankrupt, the most you could lose is $500.

You’ve diversified your investments, thereby reducing your risk.

Diversifying your portfolio can look like:

  • Buying several different individual stocks
  • Buying stock market index funds (baskets of hundreds of stocks)
  • Buying different asset classes (stocks, bonds, real estate, cryptocurrency)

Investing doesn’t need to be an all-or-none thing. You could buy some index funds, some mutual funds, some bonds, and some individual stocks.

Diversification is a vital part of long-term investing, and can help smooth out the bumps of market volatility.

4. Learn the basics of stocks

How to invest in stocks for beginners: a simple & easy 7-step guide: dollar with a learning hat

Before you invest in something, you should understand it. Here’s the basic knowledge you should have about stocks and the stock market.

What are stocks?

  • Stocks represent fractional ownership of a company. If you buy Apple stock, you own a very small percentage of Apple.
  • 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.

You can access the stock market through a stock broker or investment app.

How to invest in stocks for beginners: a simple & easy 7-step guide: stock graph illustration

What is a stock exchange?

A stock exchange is where individual stocks are traded between investors and corporations. Exchanges can operate through a trading floor in a physical location (like Wall Street) 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 →

After the IPO, the price of a stock is determined by the market. Buyers and sellers place bids for the stock, and the stock market as a whole decides how much a company is worth.

How to invest in stocks for beginners: a simple & easy 7-step guide

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 or Amazon can have billions of shares issued at once. As 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.

How to invest in stocks for beginners: a simple & easy 7-step guide: illustrated cake

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.

If the value of the company increases, so will the value of the shares you own. Plus, you may earn dividends along the way (dividends are profits that are distributed to shareholders).

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.

How can you profit from investing in stocks?

There are two ways you can make money from stock market investing:

  1. Earning dividends. Not all companies pay dividends, however.
  2. Selling your shares at a higher price than you paid for them. If companies perform well and increase their profits, their share price should rise in tandem.
How to invest in stocks for beginners: a simple & easy 7-step guide: spider common fears illustrations

Common fears of stock market investing

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

The stock market has been tried and tested over the last 400 years. Stocks are “liquid”, which means they are easy to buy and sell, and there are many different companies and asset classes to invest in.

Certain stocks can also offer tax benefits or the potential to earn dividends. Go Deeper →

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 for beginners: a simple & easy 7-step guide: rocket

Different types of stocks

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

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.

Investors may also consider international stocks, which are simply stocks of companies located outside of the United States.

5. Know what stocks to invest in

If you want to invest passively in the stock market, the simplest method is to buy index funds.

Index funds mimic the performance of the overall stock market (or at least come close). If you want a set-it-and-forget-it approach, index funds are where it’s at.

If you want to invest in specific companies, there are two main ways to go about it.

The hard way: due diligence

Due diligence is 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. Building an investment portfolio 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.

Long-term stability

  • Will the company still be relevant in 50 years?

Potential for future growth

  • Does the company have the potential to grow and increase in value? Remember, if the company is worth more, that company’s shares will also be worth more.

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 for beginners: a simple & easy 7-step guide: illustrated balance scales

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. This makes it difficult for retail investors 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 for beginners: a simple & easy 7-step guide: money machine

The simple way: Crux Investor

You know you should invest, but what do you invest in? New investors often assume they need a fancy financial advisor who gives complicated investment advice, but this is no longer the case.

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. Understand how to buy stocks

How to invest in stocks for beginners: a simple & easy 7-step guide: iPhone illustration

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

Choose an account type

To start investing, you need an account with a stock broker or investment app.
There are several different types of investment accounts to choose from.

Note: These account styles are available to American readers. For other countries, the account types differ.

Standard brokerage account

The “vanilla” account. Gives you access to the world of investing, but doesn’t have any special tax benefits. This is the most versatile and flexible account.

The accounts below are designed specifically for retirement savings.

Roth IRA

An account designed to save for retirement. You don’t have to pay taxes on your profits, as long as you use the funds in retirement.

Traditional IRA

Another retirement account. You earn an upfront tax break when you make contributions, but you’ll have to pay taxes in retirement.

401(k)

Another retirement account, that’s often provided by employers. It offers upfront tax breaks — check with your work HR department to see if you already have a 401(k).

Solo 401(k) or SEP IRA

Retirement plans specifically for self-employed individuals. These offer upfront tax perks for freelancers and business owners.

How to open an online 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 online brokers to choose from, which can feel overwhelming.

When deciding which brokerage to use, look at these criteria: low fees, investment options, account minimums, fractional shares and ease of use. Some online brokerages also offer a sign-up bonus like a free share. Go Deeper ->

Some of the most popular online stockbrokers and investment apps include: Charles Schwab, Robinhood and Fidelity Investments. Betterment is a popular robo-advisor and Webull is a popular active trading platform.

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 US investors, you’ll need your social security number (SSN) or other tax ID number. 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.

How to invest in stocks for beginners: a simple & easy 7-step guide: illustrated padlock

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 →

However, keep in mind that you can lose money in the stock market. All investing comes with risk.

How much should I 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? Go Deeper →

This will depend on two things:

  • How much disposable income you have to invest
  • The amount you're willing to risk: your 'risk tolerance'

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 financial 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 for beginners: a simple & easy 7-step guide: illustrated alarm clockk

Best time to invest

There is no ‘right time’ to buy stocks. But, the lower the valuation of a company when you bought it, the higher potential returns 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.

These are some 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. Monitor your stocks

How to invest in stocks for beginners: a simple & easy 7-step guide: illustrated binoculars

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.

"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 have a strong investment strategy and 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.

"My favorite time frame is forever." — Warren Buffett
How to invest in stocks for beginners: a simple & easy 7-step guide: stack of coins illustration

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 you should have faith that 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.

In other words, if you invest $100, the most you can lose is $100.

But theoretically, that $100 could grow into $1,000, $10,000, or even more.

$100 invested in Tesla stock in November 2011 would have grown to a whopping $204,000 by November 2021 (10 years later). Not bad at all.

“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

FAQs

Why should I 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, traveling, starting a business) and saving for retirement. Go Deeper →

What should I invest in?

Investing is personal. Investment goals vary and different investment categories will suit different investors. Possible investment options for beginners include: stocks, bonds, mutual funds and index funds & ETFs.

How much money do I need to start investing?

You can start investing with any amount of money. Choose an investment app with no account minimums. If possible, invest regularly to build your portfolio over time. Go Deeper →

Will I lose money if I invest?

Investing comes with risk. It is important to understand risk before investing, and to have a long-term investment plan.

Where can I learn more about investing?

Investing is an important part of personal finance, but it’s often overlooked. To learn more consider exploring a stock market course, or reading an investment book, or listening to an investment podcast. You could also consider using an investing simulator. Members of Crux Investor also have access to a large library of educational content.  

What stocks should I invest in?

Crux Investor is an investment education and stock recommendation service that provides market-beating stock recommendations. Each month, Crux members gain access to a simple one-page memo, outlining a single top recommended stock from an experienced Crux Investor analyst. Recommendations are made by experts and industry veterans that have first-hand knowledge of the relevant industry. Sign up for a 14-day free trial now.

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