How To Invest In The Stock Market For Beginners

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If you are a beginner trying to figure out how to invest in the stock market, you have a dizzying array of options from which to choose – which we will simplify here.

Stock market beginners are often told to invest in what they know.

You might be told “if you tweet regularly, buy Twitter.” Or if you are a car buff to “buy Autozone.

This “invest in what you know” stock market advice is quite smart because if you are a happy customer of a brand, the likelihood is lots of others will be too. And as Warren Buffett famously once said “it’s very rare for a company with millions of happy customers to go out of business.

But finding a company with a good brand and happy customers isn’t sufficient to plop down your money and start investing. Some other steps are needed to invest in the stock market successfully.

How To Invest In The Stock Market For Beginners: Step 1

The first step in learning how to invest in the stock market for beginners is to choose whether you are a self-directed investor, who wants to manage your own portfolio, or prefer the support of a financial advisor to manage your portfolio on your behalf.

When investing in the stock market, the first step is to figure out whether you want to be a self-directed investor selecting your own stocks or want a financial advisor to invest money on your behalf.


Self-directed investors choose which investments to make on their own. Generally, this requires more time commitment to read about companies showing up on your investment radar.

But the payoff can be alluring. When you choose which investments to make, you have a chance to beat the market.

The downside as a self-directed investor is that you take on more risk when you choose to invest in a few stocks as opposed to a highly diversified portfolio of stocks that track the general market.

Another approach preferred by hands-off investors is to select financial advisors, who invest money on behalf of clients.


If you choose a financial advisor to help you invest in the stock market, you will first be asked suitability questions, such as:

  • What is your age?
  • What is your investing time horizon?
  • What is your risk tolerance?
  • What are your expenses?

Once your financial advisor understands your financial goals and needs, your money will be invested according to a certain reward to risk profile.

Traditional financial advisors can be a good option for individuals or families with complex financial circumstances. They generally charge handsome fees, so other choices should be evaluated before signing on the dotted line with a financial advisor.

For beginners, a better option may be to choose among the many leading robo advisors, who offer a low-cost, hands-off approach to long-term investing.

Robo advisors generally have much lower management fees than human advisors, and have grown in popularity because of an extensive range of additional services offered, including:

>> Related: How To Invest Money Wisely

Step 2: Select A Broker

If you choose a self-managed investment approach, the next step is to select a broker that caters to your needs, whether that means focusing on stock investing or index funds, low costs or full-service, and autonomous order placement or broker-assisted customer support.

If you chose a self-directed investment management approach, the next step is to select a broker.

Brokers have different specialties. Full-service brokers allow you to trade autonomously but also provide help if you need assistance placing trade orders.

They generally have more tools, research and education too. Typically, they offer a range of securities in which you can invest, including stocks, bonds, mutual funds, options, futures and forex.

Discount brokers generally have lower transaction costs but have fewer support services too. Many offer great online tutorials to get you up to speed even if you are just starting out, so as a beginner you don’t necessarily need all the bells and whistles of a full-service broker.

Some brokers cater well to stock and options traders but don’t offer mutual funds. While still others support low-fee index funds and don’t advocate frequent trading.

Here are some options for you to consider depending on your investment objectives and preferences.


The competition among brokers is so fierce that some even offer free stock trading. For example, Robinhood is a mobile app that lets you trade stocks online without paying a dime in commissions costs.

If you wish to trade on-the-go, Robinhood is a good option, but it doesn’t have the depth of resources of bigger firms as you might expect given the low costs.

For the hands-off investor looking for a robo advisor charging no management fees, Schwab Intelligent Portfolios has a very popular automated investment management offering.

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  • Management Fee: 0.0%
  • Account Minimum: $5,000

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Full-service brokers not only offer more resources than discount online brokers but they generally have extensive lists of no-transaction-fee mutual funds and commission-free ETFs.

They have the best of both worlds: it is low on costs and has an extensive range of services, including:

  • Supporting a wide range of securities
    • Stocks
    • Bonds
    • Options
    • Mutual funds
    • ETFs
    • Futures
    • Forex
  • Extensive research
  • Mobile trading platform designed for beginners
  • Real-time data
  • 24/7 customer support

>> Check out a full list of the best online stock brokers for new traders


The founder of index fund investing was Jack Bogle, who founded Vanguard. Bogle realized how hard it is to beat the market picking stocks as part of a concentrated portfolio, and created low-cost index funds to allow casual investors to build diversified portfolios without being charged an arm and a leg.

Vanguard advocates so strongly for the benefits of index funds that track underlying benchmarks, such as the S&P 500, it structures its commissions to penalize frequent traders (most brokers offer volume discounts).

The goal at Vanguard is to encourage clients to become buy-and-hold investors, so they don’t churn their accounts with high transaction costs.

Vanguard also provides hands-off investors, who prefer an automated investment approach, a robo advisor solution called Vanguard Personal Advisory Services.

The minimum hurdle to get started is high but, unlike many robo advisor rivals, Vanguard also makes live advisors available as part of its core service.

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A testament to Vanguard is its fund fees are so low that many top robo advisors use Vanguard funds for their client portfolios.

>> Discover The Best Robo Advisors For Fees


Beginners learning how to invest in the stock market generally start with stocks and index funds. But if you think as time goes by that you might want to learn how to hedge your portfolio during stock market crashes, then selecting an options trading platform at the outset might be your best bet.

Good options platforms usually cater to a broad range of securities over and above stocks. For example, TastyWorks lets investors purchase stocks and options – though they don’t facilitate mutual funds – because the founding team believes the fees charged by actively managed mutual funds hurt clients over the long term.

>> Discover Mutual Funds Expense Ratio Costs

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  • Account Balance Minimum: $0
  • Commissions: $0 flat rate for stocks

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>> Get Started With Options Trading For Dummies

Step 3: How Much Should You Invest In The Stock Market?

After your day-to-day living expenses, one-time costs and a rainy day fund have been calculated, a portion of excess savings can be used to invest in the stock market.

To calculate how much you should invest in the stock market, a good rule of thumb is to first set aside the amount you need monthly for day-to-day expenses, provision for unexpected costs, such as healthcare, and look ahead to one-time annual costs, including presents, and wedding gifts.

It’s nice to build up a rainy day fund for unforeseen circumstances too. Generally, it’s best not to invest every penny of your excess savings.

Personal Capital has an excellent mobile app that lets you link your bank accounts and investment accounts to automatically track budgeting, spending, and net worth.

With a good handle on your monthly and one-time costs, you can take a portion of your savings and invest in the stock market.

You may wish to select from the brokers or platforms above or consider among the many pioneering companies who make investing easy and low cost. For example, a company that lets you bundle securities together to invest thematically, such as in clean energy, at low cost is Stash.

➤ Free Guide: 5 Ways To Automate Your Retirement

Step 4: What Should You Invest In?

With your budget calculated, and your brokerage account open you can get started investing. But what you should invest in: stocks, ETFs, index funds, or mutual funds?

If you are not sure where to begin, a steady investment over the long term in index funds or ETFs is generally the best choice for beginners.

ETFs and index funds generally track benchmarks, such as the S&P 500, and many commission-free, low cost funds are available to choose.

When you invest in individual stocks, the risks you take on go up in a hurry compared to those assumed by an investor with exposure to the broad market.

Perhaps the biggest takeaway for stock investors is to avoid putting all your eggs in one basket.

History is full of regretful investors who worked at big-name companies that went bankrupt and lost everything because they had their entire wealth tied up in those companies.

If there were only one golden rule, it would be to diversify your investments.

Even if the allure of beating the market is too great to avoid, it is a good idea to diversify across many stocks in a portfolio as opposed to making big bets on just a few companies.

If you choose to invest in individual stocks, the key to success will be gathering and processing information.

Schedule time to read news items, quarterly SEC filings, and Wall Street analyst reports.

Ideally, you will also want to learn about competitors, management and the marketplace, its size and whether it’s growing or declining in order to get a good handle on the future prospects for the company.

Step 5: Invest In Yourself

Beyond the research you do on stocks, ETFs, index funds or mutual funds, invest in yourself too.

The stock market has a habit of gyrating just enough to shake the weaker hands who have less conviction in their positions.

Get to know your own risk tolerance and learn about investor psychology, so you don’t get shaken out of positions because of fear – or invest in positions too aggressively because of greed.

A good primer on the rational quotient needed to become a successful investor is shared in the famous book, Reminiscences Of A Stock Operator, which is full of interesting and insightful stories about legendary investor, Jesse Livermore.

Among the most rational and successful of all investors is Warren Buffett, and Alice Shroeder’s book about him, called The Snowball: Warren Buffett And The Business Of Life, is full of valuable insights for any self-directed investor.

What tips have you learned to become a better investor? Share your investing experiences in the comments below.

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