7/8/23, 7:31 PM
How to Invest in Stocks: A Beginner's Guide
TRADE
Shop US Stores US Sales Tax-Free. Save With New
Low-Cost Inflation Breaker Shipping.
MyUS
Advertisement
Low Rates & Free US Address
Open
INVESTING
How to Invest in Stocks: A Beginner’s
Guide
By CHAD LANGAGER Updated May 24, 2023
Reviewed by JULIUS MANSA
Fact checked by YARILET PEREZ
Investing is a time-tested way of putting your money to work for you, as you
work to earn more of it. Legendary investor Warren Buffett defined investing as
“forgoing consumption now in order to have the ability to consume more at a
later date.” [1]
By investing your money regularly, you may be able to increase it many times
over with time. That's why it's important to begin investing as early as possible
and as soon as you have some money saved for that purpose. Furthermore, the
stock market is a good place to start.
Whether you have $1,000 set aside or can manage only an extra $25 a week, you
can get started. Bear in mind that there's a lot that you can and should learn
about investing in stocks to achieve financial success. However, right now, read
on for the steps to begin the process.
KEY TAKEAWAYS
Investing is the act of committing money or capital to an endeavor with
the expectation of obtaining additional income or profit.
Unlike consuming, investing puts money to work so it can grow over
time.
However, investing also comes with the risk of losses.
The stock market is a common way for investors, no matter their
experience, to invest for a lifetime.
Beginning investors can get help from expert advisors, leave their
portfolio selection and management to robo-advisors, or take a DIY
approach to investing in stocks,
01:31 / 01:31
Click Play to Learn How to Start Investing in Stocks
Investopedia Essentials
SPONSORED
Try the Investopedia Stock Simulator
New to investing? Learn how to trade in real time on our virtual stock
simulator. Our platform helps teach you the right strategies for building and
maintaining wealth.
LEARN MORE
Steps to Get Started
1. Define Your Tolerance for Risk
What's your tolerance for risk (the chance that you may lose money while
investing)? Stocks are categorized in various ways, such as large capitalization
stocks, small cap stocks, aggressive growth stocks, and value stocks. They all
https://www.investopedia.com/articles/basics/06/invest1000.asp
1/7
7/8/23, 7:31 PM
How to Invest in Stocks: A Beginner's Guide
have different levels of risk. Once you determine your risk tolerance, you can set
TRADE
your investment sights on the stocks that complement it.
2. Decide on Your Investment Goals
You should also determine your investment goals. When opening a brokerage
account, an online broker such as Charles Schwab or Fidelity will ask you
about your investment goals (and the aforementioned level of risk that you’re
willing to take).
If you're just beginning your career, an investment goal could be to increase
the amount of money in your account. If you're older, you may want to
generate income as well as grow and protect your wealth.
Your investment goals might include buying a house, funding your
retirement, or saving for tuition. Goals can change over time. Just make sure
that you define and review them periodically so that you can keep your
focus on achieving them.
3. Determine Your Investing Style
Some investors want to take an active hand in managing their investments,
while others prefer to set it and forget it. Your preference may change, but
decide on an approach to get started.
If you're confident about your investing knowledge and capability, you could
manage your investing and portfolio on your own. Traditional online
brokers, like the two mentioned above, allow you to invest in stocks, bonds,
exchange-traded funds (ETFs), index funds, and mutual funds.
An experienced broker or financial advisor can help you make your
investment decisions, monitor your portfolio, and make changes to it. This is
a good option for beginners who understand the importance of investing but
may want an expert to help them do it.
A robo-advisor is an automated, hands-off option that typically costs less
than working with a broker or financial advisor. Once a robo-advisor
program has your goals, risk tolerance level, and other details, it
automatically invests for you.
4. Choose Your Investment Account
Retirement plan at work: You can invest in various stock and bond mutual
funds and target-date funds through a retirement plan at work, such as a
401(k), if your employer offers one. It may also offer the option of investing
in the employer's company stock.
Once you enroll in a plan, contributions are made automatically at a level you
set. Employers may make matching contributions on your behalf. Your
contributions are tax deductible and your account balance grows tax deferred.
This is a great way to maximize your investing dollars with little effort. It can
also instill in investors the discipline of regular investing.
An IRA or taxable account at a brokerage: You can also start investing in stocks
by opening an individual retirement account (even in addition to having a
workplace plan). Or, you can go with a regular, taxable brokerage account.
Normally, you'll have lots of options for investing in stocks. These could include
individual stocks, stock mutual funds and exchange traded funds (ETFs), stock
options.
A robo-advisor account: As referenced above, this type of account takes your
investment goals and creates a stock portfolio for you.
5. Learn to Diversify and Reduce Risk
Diversification is an important investment concept to understand. In a nutshell,
by investing in a range of assets, or diversifying, you reduce the risk that one
investment’s performance can severely hurt the return of your overall
investment portfolio. You could think of it as financial jargon for not putting all
of your eggs in one basket.
It can be difficult to diversify when investing in individual stocks if your budget
is limited. For example, with just $1,000, you may only be able to invest in one
or two companies. This results in greater risk.
This is where mutual funds and ETFs can help. Both types of funds tend to own
a large number of stocks and other investments. This makes them a more
diversified option than a single stock.
Minimums to Open an Account
Many financial institutions have minimum deposit requirements. In other
words, they won’t accept your account application unless you deposit a certain
amount of money.
It pays to shop around, and not just to find out minimum deposits. Check out
our broker reviews (see below). Some firms don't require minimum deposits.
Others may reduce costs, such as trading fees and account management fees if
https://www.investopedia.com/articles/basics/06/invest1000.asp
2/7
7/8/23, 7:31 PM
How to Invest in Stocks: A Beginner's Guide
you have a balance above a certain threshold. Still others may offer a certain
TRADE
number of commission-free trades for opening an account.
The Costs to Invest in Stocks
Commissions and Fees
As economists like to say, there's no free lunch. All brokers have to make money
from their customers in one way or another.
In most cases, your broker will charge a commission every time that you trade
stocks, whether you buy or sell. Trading fees range from $2 per trade to as high
as $10. Some brokers charge no trade commissions at all, but they make up for
it with other fees.
Depending on how often you trade, these fees can add up, affect your
portfolio's return, and deplete the amount of money you have to invest.
Here's an example:
Imagine that you decide to buy one share of stock in each of five companies
with your $1,000. Assuming a transaction fee of $10, you will incur $50 in
trading costs which is equivalent to five percent of your $1,000.
Should you sell these stocks, the round trip (the act of buying and then selling)
would cost you a total of $100, or 10 percent of your initial deposit amount of
$1,000. These costs alone can eat into your account balance before your
investments even have a chance to earn a positive return.
Mutual Fund Loads
Mutual funds are professionally managed pools of investor funds that focus
their investments in different markets.
They have various fees that you should be aware of. One of these is the
management expense ratio (MER). The MER is the fee paid by shareholders of a
mutual fund (or ETF) and goes toward the expenses of running a fund.
It’s based on the total of a fund's assets under management. The MER can range
from 0.05 percent to 2 percent annually. Bear in mind that, the higher the MER,
the more it impacts the fund's overall return.
You may also see sales charges called loads. These include front-end loads and
back-end loads. Be sure you understand whether a fund carries a sales load
prior to buying it. Check out your broker's list of no-load funds and notransaction-fee funds to avoid these charges.
For the beginning investor, mutual fund fees may be more palatable compared
to the commissions charged when you buy individual stocks. Plus, you can
invest less to get started with a fund than you’d probably pay to invest in
individual stocks.
By the way, investing small amounts consistently over time in a mutual fund
can give you the benefits of dollar cost averaging (DCA) by reducing the impact
of volatility.
Online Brokers
Brokers are either full-service or discount.
Full-Service Brokers
Full-service brokers, as the name implies, offer a full range of traditional
brokerage services, including financial advice for college planning, retirement
planning, estate planning, and for other life events and opportunities. This
custom-tailored advice justifies the higher fees that they typically charge,
compared to other brokers. These can include a percentage of your
transactions, a percentage of your assets under management, and sometimes,
a yearly membership fee. Minimum account sizes can start at $25,000.
Discount Brokers
Discount brokers used to be the exception but are now the norm. They offer you
tools to select your investments and place your orders. Some also offer a set-itand-forget-it robo-advisory service (more below). Many provide educational
materials on their sites and mobile apps, which can be helpful for beginning
investors.
Some brokers have no (or very low) minimum deposit restrictions. However,
they may have other requirements and fees. Be sure to check on both of these
as you look for a brokerage account that meets your stock investing needs.
We recommend the best products through an independent review process, and
advertisers do not influence our picks. We may receive compensation if you visit
partners we recommend. Read our advertiser disclosure for more info.
https://www.investopedia.com/articles/basics/06/invest1000.asp
3/7
7/8/23, 7:31 PM
How to Invest in Stocks: A Beginner's Guide
Compare the Best Online Brokers
TRADE
Company
Category
Investopedia
Rating
Account
Minimum
Basic Fee
Fidelity
Investments
Best Overall,
Best for Low
Costs, Best for
ETFs
4.8
$0
$0 for stock/ETF
trades, $0 plus
$0.65/contract for
options trade
TD
Ameritrade
Best for
Beginners and
Best Mobile App
4.5
$0
$0 for stock/ETF
trades, $0 plus
$0.65/contract for
options trade
Tastyworks
Best for
Options
3.9
$0
$0 stock/ETF
trades, $1.00 to
open options
trades and $0 to
close
Interactive
Brokers
Best for
Advanced
Traders and
Best for
International
Trading
4.2
$0
$0 for IBKR Lite,
Maximum $0.005
per share for Pro
platform or 1% of
trade value
Robo-Advisors
After the 2008 financial crisis, a new breed of investment advisor was born: the
robo-advisor. Jon Stein and Eli Broverman of Betterment are often credited as
the first in the space. [2] [3] Their mission was to use technology to lower costs
for investors and streamline investment advice.
Since Betterment launched, other robo-first companies have been founded.
Established online brokers such as Charles Schwab have added robo-like
advisory services. According to a report by Charles Schwab, 58% of Americans
say they will use some sort of robo-advice by 2025. [4]
If you want an algorithm to make investment decisions for you, including for
tax-loss harvesting and rebalancing, a robo-advisor may be for you. What's
more, the success of index investing has shown that if your goal is long-term
wealth building, a robo-advisor may fit your style.
Compare the Best Robo Advisors
Company
Category
Investopedia
Rating
Account
Minimum
Fees
Wealthfront
Best Overall /
Best Goal
Planning
4.8
$500
0.25% for most
accounts, no
trading
commission or fees
for withdrawals,
minimums, or
transfers. 0.42%–
0.46% for 529 plans
Betterment
Best Beginners
/ Best Cash
Management
4.5
$0
0.25% (annual) for
digital plan, 0.40%
(annual) for the
premium plan
Interactive
Advisors
Best SRI / Best
Portfolio
Construction
4.2
$100 to
$50,000
0.08-1.5% per year,
depending on
advisor and
portfolio chosen
M1 Finance
Best Low Costs
/ Best
Sophisticated
Investors
4.2
$100 ($500
minimum
for
retirement
accounts)
0%
Personal
Capital
Best Portfolio
Management
4.2
$100,000
0.89% to 0.49%
Merrill
Guided
Investing
Best
Education
4.4
$1000
0.45% annually, of
assets under
management,
assessed monthly.
With advisor 0.85% Discounts
available for Bank
of America
Preferred Rewards
participants
E*TRADE
Best Mobile
3.9
$500
0.30%
Tip: If you plan to trade frequently, check out our list of brokers for
cost-conscious traders.
Stock Market Simulators
https://www.investopedia.com/articles/basics/06/invest1000.asp
4/7
7/8/23, 7:31 PM
How to Invest in Stocks: A Beginner's Guide
People new to investing who wish to gain experience investing without risking
TRADE
their money in the process may find that a stock market simulator is a valuable
tool. There are a wide variety of trading simulators available, including those
with and without fees. Investopedia's simulator is entirely free to use.
Stock market simulators offer users imaginary, virtual money to invest in a
portfolio of stocks, options, ETFs, or other securities. These simulators typically
track price movements of investments and, depending on the simulator, other
notable considerations such as trading fees or dividend payouts.
Investors make virtual trades as if they were investing with real money. Through
this process, simulator users have the opportunity to learn about investing—
and to experience the consequences of their virtual investment decisions—
without putting their own money on the line. Some simulators even allow users
to compete against other participants, providing an additional incentive to
invest thoughtfully.
Practice trading with virtual money
Find out what a hypothetical investment would be worth today.
SELECT A STOCK
TSLA
TESLA INC
AAPL
APPLE INC
NKE
NIKE INC
AMZN
AMAZON…
WMT
WALMAR…
SELECT INVESTMENT AMOUNT
$
1000
SELECT A PURCHASE DATE
5 years ago
CALCULATE
What Is the Difference Between a Full-Service and a Discount
Broker?
Full-service brokers provide a broad array of financial services, including
financial advice for retirement, healthcare, education, and more. They can also
offer a host of investment products and educational resources. They have
traditionally catered to high-net-worth individuals and often require significant
investments. Discount brokers have much lower thresholds for access, but tend
to offer a more streamlined set of services. Discount brokers allow users to
place individual trades. They also offer educational tools.
What Are the Risks of Investing?
Investing is a commitment of resources now toward a future financial goal.
There are many levels of risk, with certain asset classes and investment
products inherently much riskier than others. All investing comes with some
degree of risk. It is always possible that the value of your investment will not
increase over time. For this reason, a key consideration for investors is how to
manage their risk in order to achieve their financial goals, whether these goals
are short- or long-term.
How Do Commissions and Fees Work?
Most brokers charge customers a commission for every trade. These fees can go
up to about $10 per trade. Due to commission costs, investors generally find it
prudent to limit the total number of trades that they make to avoid spending
extra money on fees. Certain other types of investments, such as exchangetraded funds, carry fees in order to cover the costs of fund management.
The Bottom Line
If you're just starting out as an investor, it's possible to invest in stocks with a
relatively small amount of money. You'll have to do your homework to
determine your investment goals, your risk tolerance, and the costs associated
with investing in stocks and mutual funds. You should also investigate various
brokers to clarify the particular requirements of each and which may best fit
your needs.
Once you do, you’ll be well positioned to take advantage of the substantial
potential that stocks have to reward you financially throughout the years.
Options trading entails significant risk and is not appropriate for all investors.
Certain complex options strategies carry additional risk. Before trading options,
please read Characteristics and Risks of Standardized Options. Supporting
documentation for any claims, if applicable, will be furnished upon request.
There is an Options Regulatory Fee that applies to both option buy and sell
transactions. The fee is subject to change. See Fidelity.com/commissions for
details.
Compete Risk Free with $100,000 in Virtual Cash
https://www.investopedia.com/articles/basics/06/invest1000.asp
5/7
7/8/23, 7:31 PM
How to Invest in Stocks: A Beginner's Guide
Put your trading skills to the test with our FREE Stock Simulator. Compete with
TRADE
thousands of Investopedia traders and trade your way to the top! Submit trades
in a virtual environment before you start risking your own money. Practice
trading strategies so that when you're ready to enter the real market, you've
had the practice you need. Try our Stock Simulator today >>
ARTICLE SOURCES
Compare Accounts
Advertiser Disclosure
Interactive Brokers
Forex.com
XTB
Earn Interest of up to USD
4.58% on your instantly
available cash balances
FOREX.com is for all types
of traders seeking
exposure to a wide array of
products and asset classes
but is a good fit for the…
XTB is a solid choice for
traders that want to
minimize their costs,
whether it be the inherent
cost of placing a trade or…
LEARN MORE
LEARN MORE
LEARN MORE
PART OF
How to Invest with Confidence
CURRENTLY READING
UP NEXT
How to Invest in Stocks:
A Beginner’s Guide
What Owning a Stock
Actually Means
The Basics of Trading a
Stock: Know Your Orders
How to Reduce Risk
With Optimal Position
Size
7 of 42
8 of 42
9 of 42
10 of 42
Related Articles
FINANCIAL LITERACY
How to Invest on a Shoestring Budget
Woman using
smartphone to
trade fractional
shares at a coffee
INVESTING
How to Buy Fractional Shares
INVESTING
How to Automate Your Investing
Senior couple
using laptop at
home to open up
an IRA
INVESTING
How to Open an IRA
PORTFOLIO MANAGEMENT
How To Adjust and Renew Your Portfolio
Financial
investment, stock
market and
exchange,
INVESTING BASICS
How to Invest in ESG
Partner Links
Learn to trade stocks by investing $100,000
virtual dollars...
Listen to the Investopedia Express podcast on
Spotify
Sign up for our daily newsletters
Get daily insights on what's moving the markets
and why it matters..
https://www.investopedia.com/articles/basics/06/invest1000.asp
6/7
7/8/23, 7:31 PM
How to Invest in Stocks: A Beginner's Guide
TRADE
Related Terms
Self-Directed Brokerage Accounts: Everything You Need to
Know
A self-directed account is a type of brokerage account that offers an investor full control
over their investment decisions. more
What Is a Brokerage Account? Definition, How to Choose,
and Types
A brokerage account allows an investor to deposit funds with a licensed brokerage firm
and then buy, hold, and sell a wide variety of investment securities. more
Revoked Individual Retirement Account (IRA)
A revoked IRA is a retirement savings account that is canceled by the account holder
seven days or less after it was established. more
Robo-Advisor
A robo-advisor is a type of automated financial advisor that provides algorithm-driven
wealth management services with little to no human intervention. Here’s how it works.
more
What Does an Investor Do? What Are the Different Types?
Any person who commits capital with the expectation of financial returns is an investor.
Common investment vehicles include stocks, bonds, commodities, and mutual funds.
more
What Is a Brokerage Firm? How It Makes Money, and Types
A brokerage firm acts as an intermediary who makes matches between buyers and sellers
of stocks, bonds, and other financial assets. more
TRUSTe
About Us
Terms of Service
Dictionary
Editorial Policy
Advertise
News
Privacy Policy
Contact Us
Careers
Investopedia is part of the Dotdash Meredith publishing family.
Please review our updated Terms of Service.
https://www.investopedia.com/articles/basics/06/invest1000.asp
7/7