If you're saving for a long-term goal or just want to build wealth over time, investing in stocks can be a great way to do so. Knowing which investments to choose, what your budget and timeline are, and how to manage your portfolio are key fundamentals.
But before we dive in: How do you know if it's the right time to start investing? Ask yourself these questions as a quick check.
Will you leave money alone for a while? You should only invest money in the stock market that you won't need for at least five years. This should give your portfolio time to recover from any downturns. Do you have a goal that's closer? See our article on where to put short-term savings.
Do you have a solid financial foundation? Things like paying off high-interest debt, starting an emergency fund, and putting enough money in your 401(k) to get any employer match take precedence over investing in stocks.
If you said "yes" to both of these, keep reading to learn the basics of investing in stocks. This article covers DIY investing, where you manage your own portfolio, but you can also invest in stocks through a financial advisor or a robo-advisor. (We'll talk more about robo-advisors later.)
Step 1: Decide on an investment account
To invest in stocks, you'll need to open an investment account first. Two popular types are taxable brokerage accounts and individual retirement accounts (IRAs).
No matter which investment account you choose, keep in mind that it's just an account — it's not an investment. You have to add money to your account and purchase securities to actually start investing. Here's more on how each type of account works.
Taxable brokerage accounts
These are for long-term goals outside of retirement. After you open and fund an account, you can begin to purchase stocks and stock-based securities like funds. You can withdraw your earnings at any time, and there are no contribution limits. The downside is that there are no tax benefits. Anything you sell for a profit becomes a capital gain, which means you may owe some money when you file your taxes.
Most brokers no longer charge for simply trading stocks, and they typically don't charge annual fees or inactivity fees these days, either. So what makes one broker stand out from another? For beginners, factors like how easy it is to use their platform, what kind of educational tools they offer, and whether or not they offer fractional shares matter a lot. (Fractional shares often let you invest in a stock or fund for as little as $1, making investing more accessible.)
Of the brokers featured in our roundup for beginners, we give the following brokers the highest star ratings.
IRAs
Individual retirement accounts are designed for retirement savers, and they come in two forms: traditional or Roth. Both have tax benefits — the main difference is when your money gets taxed. No matter which type you choose, take note of the annual contribution limits and withdrawal rules. (Read our comparison of traditional and Roth IRAs.)
As with a taxable brokerage account, platform features are the most important thing to look at when choosing a broker to host your IRA. You'll want to pick a broker with strong retirement planning tools, educational resources, customer support and more. The following make our list of the best brokers for IRAs.
Watch: Investing editor Bella Avila explains how to invest in stocks after opening your account
The presenter held no positions in the aforementioned investments at the time of publication.
Step 2: Choose individual stocks or a stock fund
Investing in the stock market doesn't have to be complicated. For most people, it means choosing between these two investment types:
Individual stocks
If you’re after a specific company, you can buy a single share or a few shares as a way to dip your toe into the water. Building a diversified portfolio from many individual stocks is possible, but it requires significant investment and research.
This research entails getting comfortable with stock screeners and learning about the financials, leadership, and competition of the company you're interested in.
If you go this route, remember that individual stocks will have ups and downs. If you research a company and choose to invest in it, think about why you picked that company in the first place if jitters start to set in on a down day.
Funds (mutual funds, index funds and ETFs)
Buying individual stocks is not the only way to invest in stocks. Mutual funds let you purchase small pieces of many different stocks in a single transaction. And there isn't just one kind of mutual fund.
Target-date mutual funds are a popular choice in retirement portfolios; they automatically adjust their investments over time and become lower-risk as you approach retirement. (See some of the most popular low-cost target-date funds.)
Index funds are perhaps one of the most popular types of mutual funds. As the name suggests, it tracks an existing stock index. For example, an S&P 500 fund replicates that index by buying the stock of the companies in it. (See our lists of the best index funds for beginners.)
Exchange-traded funds (ETFs) are similar to index funds, but they trade during the day at fluctuating prices like stocks, whereas index funds can only be bought at a set price after market close. (See our lists of the best ETFs for beginners.)
What makes sense for most investors?
When you invest in a fund, you also own small pieces of each of those companies. You can put several funds together to build a diversified portfolio, which reduces risk. For the vast majority of investors — particularly those investing their retirement savings — a portfolio composed mostly of mutual funds is the clear choice.
But mutual funds are unlikely to rise in meteoric fashion as some individual stocks might. The upside of individual stocks is that a wise pick can pay off handsomely, but the odds that any individual stock will make you rich are exceedingly slim.
However, it doesn't have to be all or nothing
If you decide you want a good portion of your portfolio to be invested in mutual funds, that doesn't mean you have to avoid individual stocks altogether. If you want to test your luck at being an early investor in the next Google, a good compromise could be dedicating a small portion of your portfolio — say, 5% — to individual stock investing.
Step 3: Set a budget
New investors will want to think about two things in this step of the process:
How much money do I need to start investing in stocks?
The amount of money you need to buy a single stock depends on the share price. Share prices can range from just a few dollars to a few thousand dollars — but as we mentioned earlier, most brokers let you buy fractional shares.
If you want mutual funds and have a small budget, investing in ETFs may be your best bet. While some major brokers are doing away with mutual fund minimums, you may still come across ones with minimums in the thousands. ETFs, on the other hand, trade like stocks, so you purchase them for a share price.
How much money should I invest in stocks?
If you’re investing through funds, you can allocate a fairly large portion of your portfolio toward stock funds, especially if you have a long time horizon. For example, a 30-year-old investing for retirement might have 80% of their portfolio in stock funds, with the rest in bond funds (and perhaps a small portion in individual stocks).
Step 4: Focus on investing for the long term
Stock market investments have proven to be one of the best ways to grow long-term wealth. Over several decades, the average stock market return has been about 10% per year. However, that’s just an average across the entire market. Some years will be up, some will be down, and individual stocks will vary in their returns.
For long-term investors, what’s happening day-to-day or even year-to-year doesn't matter so much — they’re looking for that long-term average.
The best thing to do after you start investing in stocks or mutual funds may be the hardest: Don’t look at them very often. Unless you’re trying to beat the odds and succeed at day trading, it’s good to avoid the habit of checking how your stocks are doing every day.
Step 5: Manage your stock portfolio
While fretting over daily fluctuations won’t do much for your portfolio’s health — or your own — there will, of course, be times when you’ll need to check in on your investments.
If you follow the steps above to buy funds and individual stocks over time, you’ll want to revisit your portfolio a few times a year to make sure it’s still in line with your investment goals and rebalance it if needed.
If you’re approaching retirement, you may want to move some of your stock investments over to more conservative fixed-income investments. If your portfolio is heavily weighted in one sector or industry, consider buying stocks or funds in another sector to diversify.
Pay attention to geographic diversification, too. Vanguard recommends that international stocks make up about 40% of the stocks in your portfolio. You can purchase international stock mutual funds to get this exposure.
What if DIY investing feels like too much work?
You may be a good candidate for a robo-advisor, a service that invests your money for you for a small fee. Many of the major brokerage firms and some independent companies offer these services.
Similar to shopping for a broker, there are pros and cons to each. Some robo-advisors have very low fees, while others let you talk with a financial advisor if you need extra support or more personalized guidance. It's a good idea to compare robo-advisors to see which ones offer the services you need. Most robo-advisors charge about 0.25% of your account balance.
Which stocks are the best investments for beginners?
How many stocks should I invest in?
Is now a good time to invest in stocks?
Are investing apps safe?
Article sources
- 1.Vanguard. International Investments: Stocks, Bonds, & ETFs. Accessed Mar 24, 2026.
