Ashley Jackson

The stock market might seem complex and intimidating, but it is actually straightforward to get set up and start buying your first stock. However, while it is easy to enter the market, making the most of your money in the stock market requires serious diligence if you plan to do it on your own.

It is important to understand the basic process of opening an investment account, deciding your budget, exploring the options available, making your first orders, and managing your positions.

Why invest in stocks 

Stocks are the first thing that comes to mind when talking about investing. Investing in the stock market is not as complicated as you might think, but before you go all out buying shares from different companies, you should understand the basic rules of investing in the stock market. 

When investors buy stocks, they purchase a share of ownership in a public company, hoping that it will grow or perform well over time. The good performance of a company means that your shares become more valuable, and other investors will buy them at a higher price. 

Before you invest in the stock market, here are some things to do:

  •  Decide on how you want to invest. Based on your investor profile, you may choose to select the stocks and funds on your own or delegate the process to an expert. 
  •  Set up an investment account. The investment account you need depends on whether you will manage the stocks yourself or work with an expert. If you will manage the stocks yourself, open a brokerage account of your choice. 
  • Learn the difference between investment types. You should be familiar with different types of investments such as mutual funds, individual stocks, or ETFs. 
  • Set a budget for your stock market investment. You can start investing in stocks with any amount, depending on the investment type you choose. Individual stocks and ETFs are ideal when you are working with a smaller budget. The amount you should invest in the stock depends highly on your circumstances and risk tolerance. For example, a more conservative approach is better than risking it all and possibly jeopardizing your financial stability if you are approaching retirement. Another rule is that you must never invest your emergency funds or the money you need in the short term. 
  • Focus on long-term investments. The stock market is profitable for investors who stick for the long term. 

Educate yourself on assets and strategies

Just a little bit of preparation can go a long way regarding investing in the stock market. Educating yourself on the different types of products in the stock market and the different approaches to investing will give you a massive advantage.

First, if you haven’t already, you should learn what the stock market is and how it works. Next, you should learn about all the different asset types on the stock market, including common stock, dividend stock, preferred stock, and the many different types of fund products.

Once you have a good layout of what’s available on that stock market, it’s a good practice to begin researching the most common investment strategies. This includes value investing, growth investing, momentum investing, dividend investing, dollar-cost averaging, and lump-sum investing.

This may seem like a lot, but really taking the time to learn the ins and outs of the stock market will give you a serious advantage when it comes to growing your money. You can find the assets and strategies that work best for you and really maximize the potential of your money.

» Interested in stock investing tips? View our list of essential investing tips

Make a list of good investments

A good approach to discovering valuable companies is a data-driven approach. There are many online resources that create lists of stocks based on certain metrics. The metrics you choose will depend on your asset types and investment strategies.

Here are some examples:

  • Top performing equity funds
  • Fastest growing biotech companies
  • Most consistent large cap stocks
  • Highest dividend paying energy funds

Punching criteria like this into your search engine will give you several lists of the stocks or funds that meet your criteria. Load several of these lists and cross-reference them to find companies with the potential you are looking for.

Next, begin researching the fundamentals of these companies. An important financial metric is Return on Equity (ROE), which measures a company’s profitability. If the ROE is high and consistent, it’s a sign of a healthy company worth investing in. For funds, review the fund’s performance over time and how consistently profitable it is each quarter and year.

For many investors, beating the market is a daunting task. You can budget some of your investment towards picking individual stocks, but you can also invest in an index fund to track the gains of the best stocks in the market. You can also invest in high-performing asset pools like ETFs and CEFs that are already beating the market.

Stocks to invest in as a beginner

Investing in the stock market for beginners can seem overwhelming. Which stocks do you choose? How much money should you invest? How do you diversify your portfolio?  While there is no right or wrong answer to these questions, certain guidelines can help you choose an investment that works for you. 

The first step in picking the ideal stock investment is to determine your investment goals. Investors buy stocks to generate retirement income, preserve their wealth, or for capital appreciation. These goals will inform the strategy you use and the type of stock you choose. 

An income-oriented investor is keen on companies that pay good dividends regularly. These tend to be well-established companies. Investors who want to preserve their wealth are typically conservative and go for stable stocks that do well in good and bad times. Finally, investors looking for capital appreciations are more likely to take bigger risks with companies in

their early development that have a promising future. These investors typically gain big or lose big depending on the direction the company takes.

Identify companies in which you would like to invest. You can find these companies by:

  • Searching exchange-traded funds for the industry you would like to invest in
  • Using a screener to filter stocks based on different investment metrics such as the dividend yield and market cap. 
  • Reading stock analysis articles in the industry that you intend to invest in. 

During your research, especially when reading investment news and opinions, it’s best to consider both sides of the argument and leave your biases at the door. This way, you can evaluate the stocks with a level head and make sound investment decisions. 

Read corporate presentations from the companies you choose to learn how they make money. Gauge their position in the market and their outlook based on your research. Once you have completed your research, you will better understand the market and can choose stocks that meet your investment goals. 

That said, some stocks are generally not ideal for beginners. These include:

  • IPOs 
  • Companies you do not understand
  • Penny stocks 
  • Rapidly growing companies (especially those that have yet to start profiting). You can explore growth investing as you gain more experience in the market, but until then, focus on building a base for your portfolio. 

Decide on your retail broker

It’s important to first understand the stock market, asset classes, investing strategies and to use this understanding to build a list of investments. Retail brokers each come with their own benefits, features, and market assets. If you already have your investments planned out, then it is easier to choose a retail broker.

Before searching for your ideal retail broker, you must understand that not all retail brokers are legitimate. Many will offer attractive deals on margin, unrealistically projected trading systems, or similar deals that may seem too good to be true. Disreputable retail stock brokers have been around for a very long time, and they are often referred to as “bucket shops.”

» How do you find a broker? Compare the best brokers for stock trading

Send your first order

There are two main ways to make your first order. The first is a market order which will execute immediately at the current stock price. The second is a limit order which will execute only when the stock reaches a predetermined price. The first is good if you want to invest immediately, and a price limit will allow you to invest more strategically to ensure a future movement.

Select your first chosen asset in your retail broker’s investment interface. Enter the fixed percentage of your portfolio as the equivalent amount of shares in your chosen asset. Once you’ve entered everything and selected buy, you will likely get a final confirmation window with the final terms of your order.

If everything looks good, then confirm the order and send it. Once the order fills, your account balance will change to reflect the purchase, and the investment interface will start tracking your shares and their profit and loss (PNL).

Alternatives to the stock market

Based on your risk tolerance and personal preferences, the stock market might not be the best investment for you. But that doesn’t mean you do not have other investment options. Here are other investments for beginners:

Mutual funds and exchange-traded funds  

If you are not comfortable buying individual stocks or bonds, mutual funds and exchange-traded funds allow you to invest in different assets in a single transaction.

Mutual funds are investment vehicles that collect money from different investors to invest in securities such as stocks and other money market instruments. Professional money managers manage mutual funds and allocate assets to generate gains or income for the mutual fund investors.  

As a beginner, investing in a mutual fund gives you access to a diversified and professionally managed portfolio at a lower price than you get from investing in individual stocks. 

On the other hand, exchange-traded funds are securities that track an industry, sector, commodity, or index and can be sold or bought on a stock exchange similar to a stock. Some of the ETFs available to investors include bond, stock, Industry, commodity, currency, and inverse ETFs. The SPDRS&P 500 ETF is one of the well-known ETFs in America; the ETF tracks the S&P 500 index.

ETFs have an associated price, making it easier to trade them. They can contain different investments, including bonds, stocks, commodities, or a combination of these. They trade like regular stocks, meaning their prices fluctuate throughout the trading day. 

Index funds 

An index fund tracks a market index. They are an easy and effective wealth-building strategy for long-term investors. They are also ideal for beginners as they do not require you to be a stock market expert to invest in them. 

Index funds invest in dozens to hundreds of securities, making them diversified and low-risk investments for beginners. They are also available for different investments, including stock index funds and bond index funds. Index funds are also cheaper and more tax-efficient than actively managed funds (eg. mutual funds).


Employer-sponsored 401(k) plans are the easiest way to begin investing, and they do not have a minimum investment. Experts, however, recommend contributing 10-15% of your salary to your 401(k) plan and increasing this percentage over time. Financial advisors recommend funding a 401(k) plan to get you started on planning for your financial security in retirement. 

A 401(k) plan allows you to invest in one or more funds, including index funds, foreign funds, bonds, and real estate funds. This plan comes with the advantage of earning a compound interest and deferring taxes; therefore, it is tex-efficient and profitable in the long term. 

Even if you are unemployed, you can explore other retirement accounts, such as a traditional IRA or a Roth IRA account. 


Robo-advisors are a great and low-cost way for beginners to get started on their investment journey. These automated investing services build and manage your investment portfolio using computer algorithms and advanced software. 

You can access services such as tax optimization, portfolio rebalancing, and financial planning. These services come at a lower cost than what a human investment manager would charge you. 

You can determine whether a robo-investor is the best choice for you by evaluating:

  • The type of account you have: a robo advisor can handle both taxable and retirement accounts.
  • The minimum investment requirements
  • The portfolio recommendation 
  • The investment selection 

Diversification and risk Management

Whether investing in an individual stock or a retirement plan, you need to diversify your investment portfolio to reduce risks and maximize returns. Keeping your portfolio diversified means investing in different financial vehicles, industries, and sectors. It also means identifying investments that react differently to the same event.

Monitor your portfolio

What comes next is the careful monitoring of your portfolio and your potential PNL. If your stocks do well, then you will begin to see a profit. If your stocks perform poorly, then you will begin to see a loss.

A good rule of thumb is to cut your losses early and let your profits run. It’s difficult to pull the trigger on a loss because the actual loss of money in your account is not real until you sell. However, disciplined risk management is crucial.

It is better to take a small loss and continue making profits in the market than to take a huge hit and face a very steep or hard recovery. Same with making profits, do not get excited and take your profits early if the general trend continues. Let your profits grow until it is clear that the price has run its course.

Stick to your chosen investment strategy. If you are a value investor, keep tracking fundamentals and use that to manage your portfolio. If you are a growth investor, then monitor ROE and other growth metrics to ensure your portfolio is growing quickly.

In every case, stick to your strategy and don’t let emotions influence your investing decisions. That is the most important challenge for any investor. If you are well-informed and disciplined as an investor, then you will be able to make good profits with your hard-earned money.

Related post