How to Invest in Stocks

Investing in stocks can be an effective strategy for growing your wealth over time. When you buy a stock, you are essentially supporting the company’s growth and performance. If that happens, you generate returns on your investment.

1. Decide if you want to invest on your own or with help

Before you begin investing in stocks, it’s important to determine how involved you want to be in managing your investments. This decision will significantly shape your investment strategy and the tools you might need. Here are the two main approaches to consider:

Investing on your own

If you prefer to have full control over your investment decisions, managing your portfolio independently will be the right choice for you:

• You can select individual stocks, funds, or other investments that match your financial goals and risk tolerance.

• By handling your investments, you’ll gain valuable experience and insights into the market, which will empower you to make informed decisions in the future.

• Platforms like FBS provide a range of trading tools, educational materials, and market analysis to support your decision-making process.

Seeking assistance

If you would prefer not to navigate the investment landscape alone, there are several options for obtaining help:

• Robo-advisors handle your investments by taking into account your risk tolerance and financial objectives.

• Collaborating with a financial advisor provides personalized guidance and helps you develop a tailored investment strategy.

• The FBS app features an AI Assistant—an automated tool designed to simplify trading by delivering fast, comprehensive technical analysis of chart patterns. The AI Assistant evaluates price trends and patterns and provides clear insights and strategies, helping traders make well-informed decisions. FBS also offers 24-hour help in many languages.

As intimidating as it may seem, it’s worth managing your investments on your own — this approach allows you to develop your own skills and understanding of the market, affording you maximum control over your financial destiny.

2. Choose a broker or robo-advisor

The next step in learning how to invest in stocks is to choose the right platform for managing your investments. You can either go with a traditional brokerage or a robo-advisor, depending on how hands-on you want to be.

Using a robo-advisor

Even though robo-advisors offer a convenient way to invest without having to make decisions on your own, they might not be the best option for everyone.

When you set up a robo-advisor account, you’ll respond to questions about how much risk you can handle and how long you plan to invest. Based on your answers, the robo-advisor will create a portfolio and select funds for you. This hands-off approach limits your ability to customize your investments and can often lead to less engagement in your financial growth.

Using a brokerage

Choosing a traditional brokerage gives you full control over your investment decisions. You’ll be responsible for selecting individual stocks or stock funds, which typically offer a diverse range of stocks. The best brokerages provide a wealth of research tools and resources to help beginners understand the buying process and make informed choices.

If you manage your own portfolio, you also have the flexibility to decide between active and passive investing. Passive investors usually take a long-term approach and focus on a buy-and-hold strategy. Active investors tend to trade more frequently and seek to capitalize on shorter market movements.

3. Pick a type of investment account

Whether you’re investing independently or through a robo-advisor, opening the right investment account is an essential step. That said, you don’t need to feel overwhelmed by a myriad of choices. For instance, at FBS, you can quickly register for a standard account type, which provides the key features necessary for most investors. This way, you can begin your investment journey without unnecessary complexity.

Once you’ve chosen your account, go through the registration process by following a few simple steps. Start by visiting the FBS website and clicking on the Open Account button. Next, fill in your personal information, including your email address and full name, and select the account type, base currency, and leverage that fit your investment goals. Create a strong password to secure your account and agree to the terms and conditions.

Once you’ve completed these steps, you’ll need to verify your email and phone number, and upload valid identification.

4. Learn the difference between investing in stocks and funds

For many individuals, understanding how to buy stocks means choosing between two primary options:

Individual stocks

If you have a specific company in mind, investing in individual stocks can be a rewarding option. You can start by purchasing a single share or a few shares, as you become more familiar with the stock market. Focus on building a diversified portfolio using individual stocks (adding other asset classes along the way), but doing so requires careful research and a more significant investment.

Remember that individual stocks can be volatile. On days when the market dips and you begin to feel uncertain, take a moment to reflect on why you initially chose to invest in that particular company. This activity also requires patience and a long-term perspective, even when faced with short-term fluctuations.

Stock mutual funds or exchange-traded funds

Mutual funds offer a way to invest in a variety of stocks through a single transaction. By purchasing a mutual fund, you gain exposure to a collection of different companies, which helps diversify your investment and reduce risk. For example, when you invest in an S&P 500 fund, you’re effectively buying shares of all the companies in that index.

5. Set a budget for your stock market investment

Naturally, new investors want to know how much money they need to start investing in individual stocks. The amount depends on the price of the shares, which ranges from a few dollars to several thousand. Fortunately, many brokerages now allow you to purchase fractional shares, meaning you can invest a specific dollar amount even if the full share price is higher.

At the start of your journey, it’s wise to begin with a small amount. Investing in one or two stocks with a modest budget will help you learn the basics of the market without taking on too much risk. As you become more knowledgeable and comfortable, you can gradually increase your investments.

It’s also important to establish a certain budget for your investments and stick to it. A good rule of thumb is to allocate no more than 10% of your total investment portfolio to individual stocks, especially when you’re just starting. As for the broader budget in your overall financial situation, consider your income, expenses, savings goals, and any outstanding debts.

6. Focus on investing for the long term

Investing in the stock market has consistently been one of the most effective ways to build wealth over time. On average, the stock market has returned about 10% per year. However, it’s important to note that this is just an average. Some years will see gains while others will experience losses, and individual stocks vary widely in their performance.

When you’re learning how to purchase stocks as a long-term investor, you can’t be overly stressed about the daily fluctuations. It’s the long-term growth that truly matters.

One of the biggest challenges for new investors is resisting the urge to check their investments constantly. Unless you’re actively day trading, it’s generally best to avoid monitoring your stocks multiple times a day. Instead, focus on your long-term goals and allow your investments to grow without getting caught up in short-term changes.

7. Manage your stock portfolio

Even though it’s not beneficial to fixate on daily market fluctuations — both for the health of your portfolio and your own well-being — there will be times when you need to check in on your investments. If you've taken the time to build a portfolio of individual stocks and perhaps other instruments as well, it’s wise to revisit your plan several times a year to make sure it still fits your financial goals.

As you evaluate your portfolio, consider a few important factors:

• If you’re close to retirement, consider moving some of your stock investments into safer fixed-income choices.

• If your portfolio is heavily concentrated in one sector, it might be wise to add stocks or funds from different industries to improve diversification.

• Identify any investments that are consistently underperforming and consider whether they should be replaced or re-evaluated.

• Consider making regular contributions to your investment accounts, whether through a systematic investment plan or automatic transfers.

If your life circumstances change — such as starting a new job, having a family, or shifting financial priorities — make adjustments to your portfolio as needed.

Best stocks for beginners

Those just starting out should prioritize stability, a solid performance history, and the potential for steady growth. It’s best to avoid the temptation of chasing high-risk stocks in hopes of a quick payoff.

Here are some types of stocks that are generally considered wise choices for beginners:

• Blue-chip stocks — These shares come from large, well-established companies known for their financial stability and consistent performance. Companies that are part of the S&P 500 or the Dow Jones Industrial Average — Apple, Microsoft, and Johnson & Johnson — fit this category. They are leaders in their industries and provide a sense of security during market fluctuations.

• Dividend stocks — Investing in companies that regularly pay dividends can be a smart move for newcomers. Dividends provide a reliable income stream, which can be reinvested to buy more shares.

• Growth stocks — Even though growth stocks offer the potential for significant returns, they also carry higher risks. Beginners interested in this area should focus on sectors with promising long-term potential, such as technology.

• Defensive stocks — These stocks come from industries that usually do well even when the economy is struggling, like utilities, healthcare, and consumer products. They can help protect your portfolio from market ups and downs.

Top stocks for beginner investors: examples

Here’s a list of top-quality stocks ideal for beginner investors:

How to diversify your investments

Here are three effective diversification strategies:

• Diversify within asset classes — Start by investing in a mix of assets within a single class. Instead of focusing solely on one stock, gain exposure to a range of stocks across different industries. You can also look for sectors that complement each other to stabilize your investments.

• Explore international markets — If your home market is struggling, learn how to invest in international markets. Just keep in mind that investing in foreign markets comes with its own rules and regulations, so be sure to research thoroughly.

• Cross-asset diversification — Lastly, try to spread your investments across different types of assets. This means including not just stocks but also alternatives like indices, currencies, and commodities. These alternative investments behave differently from traditional assets and provide a buffer against market volatility.

Key considerations for a diversified portfolio

When incorporating alternative investments, remember that each type has unique characteristics that can complement your traditional holdings. Here’s what to keep in mind:

• Time horizon and liquidity — Your time horizon is how long you plan to hold an investment. Traditional investments like stocks are generally liquid, which allows you to cash out when you need to. However, alternative investments often come with longer time horizons and may be harder to sell quickly. For example, commodities take time to appreciate in value.

• Industry and market variety — To strengthen your diversification, invest across various industries and markets. In currencies, for example, consider adding options like the euro, yen, or Swiss franc to balance against dollar fluctuations.

• Risks and potential threats — The goal of diversification is to spread risk. Generally, investments with longer time horizons are less risky, as they have more time to recover from downturns. A mix of short-term and long-term assets can give you both stability and flexibility.

Common mistakes to avoid when investing in stocks

Some things in investing only come with time, but if you’re just starting out, learning from common mistakes can serve as an “anti-roadmap” to keep you on track. Here are some things to steer clear of:

Investing without understanding

All experts warn against putting money into companies you don’t fully understand. If you’re unsure, start with indices that spread risk. But if you’re drawn to individual stocks, make sure you truly know what each company does and how it makes money.

Getting attached to a company

It’s easy to root for a company you invest in, especially when it’s doing well. But remember that your goal is to grow your money, not fall in love with a brand. If the company’s fundamentals shift in a concerning direction, be prepared to reconsider your investment.

Expecting quick wins

You shouldn’t pursue purchasing stocks as some get-rich-quick scheme. Rather than expecting fast returns and ending up with disappointment and risky decisions, set realistic expectations and trust the process of steady, long-term growth.

Investing too often

Constant buying and selling may seem active and productive, but frequent trades come with costs. Transaction fees, taxes, and missed long-term gains can all eat into returns. Stick with quality investments and let time do its work.

Trying to time the market

Even the experts find timing the market incredibly hard. Research shows that most of a portfolio’s success comes from good asset allocation, not from trying to catch every high and low.

Holding onto losses

Waiting for a stock to break even before selling is a common trap. If a company’s fundamentals have changed or it no longer fits your goals, move on and free up your money for better opportunities.

Letting emotions lead

Emotions like fear and greed are quick to surface in investing, but if you let them lead your actions, you are sure to make poor decisions. Markets will always have ups and downs, but staying calm and focused on your long-term plan generally pays off.

FAQ

How much money do I need to start investing in stocks?

As a beginner, you can start investing in stocks with $100 to $500, which is enough to diversify your investments and try out different strategies. However, you can also begin with just $5-$10. Even though this amount is small, it allows you to start building your portfolio and learning how to invest in stocks.

What is the difference between a stock and a mutual fund?

A stock represents ownership in a single company, and a mutual fund pools money from many investors to buy a diversified portfolio of various assets. Investing in stocks is riskier but potentially more profitable, as your investment depends on the performance of one company. Mutual funds spread risk across multiple investments.

Is it better to invest through a broker or a robo-advisor?

Investing through a broker gives you access to a wider range of investment options and more control over your portfolio, but it typically comes with higher fees. Robo-advisors offer automated investment management at a lower cost, but they lack flexibility and personal involvement.

A broker is the better choice for those who prefer a hands-on approach and want to actually learn how to invest in stocks.

How do I choose the right stocks as a beginner?

Start by researching companies in industries you understand or are interested in, and focus on those with strong fundamentals like solid earnings and good management. Analyze financial statements for consistent growth and healthy financials.

Consider market trends that impact specific industries, e.g. the global semiconductor market experiencing growth and increasing demand in sectors like consumer electronics, automotive, and data centers. Stocks in these areas could be promising investments.

What are the tax implications of stock market investing?

The tax implications vary widely by country. Key factors to consider when you’re researching how to buy stocks are capital gains tax (with different rates for short-term versus long-term holdings), tax-advantaged accounts, transaction fees, and reporting requirements. Dividends you receive may also be taxed, depending on their classification.

How often should I check and manage my stock portfolio?

You should check and manage your stock portfolio regularly, but the frequency depends on your investment strategy. Long-term investors review their portfolios quarterly or semi-annually, whereas active traders might check weekly or daily.