How to buy stocks: 5 step guide for beginners

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From understanding what stocks are and why they’re valuable, to selecting the right brokerage, and making your first investment, we’ve got you covered. Our goal is to empower you with the knowledge and confidence to make your first stock purchase and ultimately make informed decisions in the stock market. 

We believe that everyone should be able to achieve financial freedom, regardless of where you started from and how much you started with. At Invezz we have been buying and selling stocks for many years and we’ve put together this guide as a comprehensive reference point to pass our knowledge and experience onto the next generation. 

This guide is designed as a step-by-step instruction manual that explains how to buy a stock. You can use each section to give you an overview of what you need to do, or dive into the specifics to get actionable advice on how to approach every step of the process.

Whether you’re saving for retirement, a major purchase, or just want to grow your wealth, let’s dive into the world of stock investing and turn those aspirations into achievable goals.

Step 1. Decide how you want to invest in stocks

The first decision you have to make is how to invest in stocks, and this choice influences how much money you need to start, where you should make your purchases, and what you should invest in.

Signing up to an online stock broker and buying stocks in individual companies, like Apple, Tesla, or Microsoft, is one option. However, it’s also possible to purchase stocks in lots of different companies at the same time by using an ETF, a robo-advisor, or through a 401k or IRA account.

Here’s a quick rundown of the available options:

• Buy individual stocks. This means to actively pick which stocks to buy yourself. This requires some time commitment and an understanding of how to analyse stock prices, either through the lens of a company’s long term business prospects, or by predicting price movements through charts. The potential for quicker and higher returns makes it appealing, though you have to be willing to take a few risks, as there’s a chance of losing money quickly as well.
• Buy shares in ETFs. An alternative is to buy ready-made stock portfolios, called ETFs (exchange-traded funds).These require less time, and your expertise need only be a general sense of which industries or stock markets you’re interested in. For beginners, investing in ETFs can be a good place to start, while they’re also ideal for anyone who is looking for a ‘set and forget’ style investment.
• Sign up to a robo-advisor. Robo-advisors are automated platforms that create a diversified investment portfolio for you based on your risk tolerance and investment goals. These require the least effort to maintain and the smallest amount of money to start with. You can deposit a lump sum, set it to invest a set amount regularly, or use these to round-up your everyday purchases and buy stocks with those savings.
• Invest through your 401k. A 401(k) is a retirement savings and investment plan that’s provided by your employer. A portion of your paycheck goes into the 401(k) every month, and you decide what to invest in, whether that’s stocks, bonds, or mutual funds. Two major benefits of a 401(k) are that the money goes into your account pre-tax and employers match a percentage of your monthly contributions, so it can be a way to invest more money than you’d otherwise be able to. The downside is you can’t access the money until you’re 60.
• Invest through an IRA. An IRA (individual retirement account) is similar to the 401(k), in that you deposit money into it, choose whether to invest in stocks or other assets, and can’t touch it until you’re 60. The difference is that you don’t get the employer contributions, while the annual limits on how much you can deposit are lower. However, it’s available to any taxpayer and you can set one up online with any financial services provider.

How much money do I need to start buying stocks?

You can start investing with just a few dollars. Many stock trading platforms have a minimum starting deposit as low as $10 when you sign up. As a beginner, it’s a good idea to start small, so that you don’t risk too much in the early days when you’re more likely to make mistakes.

Here are the best ways to buy stock with a small amount of money:

• Buy fractional shares: Some trading platforms allow you to buy part of a share, instead of a whole one. So if one Tesla stock normally costs $200, you can buy a quarter of a share for $50. Not all brokerages offer this, so if you want to go down this route you need to choose which platform to sign up with carefully.
• Buy ETFs: ETFs are traded on stock exchanges, much like individual stocks, and they typically contain a diversified mix of assets. When you buy a share of an ETF, you’re essentially buying a small piece of everything in that basket. It’s generally a lot cheaper than buying each stock individually, provides instant diversification, and you can often buy fractional shares in ETFs as well.
• Round-up investment apps: Nowadays, there are lots of apps available that link to your bank account and automatically round-up your day-to-day spending. They then use that extra money to invest for you. This can be an excellent way of buying shares for young people, or college students, or anyone who doesn’t have a pot of money ready to buy shares with.

However, if you plan on picking your own stocks then you may want to start with at least $100. That’s because you want to be able to buy stock in a few different companies. If you only own one stock then the value of your investments are completely reliant on the performance of that company.

The practice of ‘diversification’, buying multiple stocks, ideally in different industries, sectors, or countries), reduces the risk of this by spreading your money around across companies whose value may rise and fall independently of each other. You can use ETFs to achieve this, but if you want to do it yourself, you need a little more money to start with.

Step 2. Choose the right brokerage platform

To buy stocks online, you need to create an account with a stock broker (or trading platform, and the terms are often used interchangeably). A stock broker is an individual or firm that acts as an intermediary between investors and the stock market. When you want to buy or sell stocks, a stock broker facilitates these transactions on your behalf.

There are a large number of these trading platforms available online. If you want to buy stocks or ETFs, then there are a lot of options, ranging from traditional brands like Charles Schwab and Fidelity, which tend to cost a bit more and lock you into a subscription, to newer, less expensive, and more user-friendly options like eToro and Plus500, which tend to be the best trading platforms for beginners.

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Then there are automated or round-up investment apps. Some online banks offer this feature alongside a checking account, but in terms of a dedicated round-up investment service, your best investing app is a company like Acorns.

When selecting a broker, it’s important to consider factors like the fees, regulation, investment options, ease of use of their platform, and customer support. Here’s a quick comparison of top brokers to help you understand what’s available.

Every beginner should start with a demo account. Both eToro and Plus500 offer excellent demo or virtual accounts, which allow you to buy stocks with ‘fake’ money before diving in for real. Using a demo account, you can get a feel for the process of buying and selling stocks without risking your money.”

James Knight, Editor of Education

What do I need to set up a brokerage account?

You need to provide basic personal information, including your name, address, social security number (or equivalent for non-U.S. residents), and date of birth. This is for identity verification and tax purposes.

You may be required to submit a copy of a government-issued ID, like a driver’s license or passport, to comply with the SEC’s (Securities and Exchanges Commission’s) anti-money laundering regulations. 

Some services, particularly the best investment platforms that use an automated algorithm to invest for you, may ask about your investment experience, risk tolerance, and goals. You don’t have to answer these questions, but it helps the service tailor its algorithms to suit you.

How do I pay for my stocks?

Typically, by connecting your credit card or bank account to your brokerage account and then making a deposit. This is fairly straightforward, just like making any online purchase.

It’s possible to make this deposit using other payment methods too, though the available options vary depending on which brokerage firm you sign up with. If you want to buy stocks with PayPal, Cash App, or another payment method, it’s important to check you can before signing up.

Can I buy stocks without a broker?

Buying stocks without a broker is possible, but it’s less common and can be more complex than using a brokerage account. Almost all investors are better off using a broker or trading platform to buy stocks.

Some companies offer Direct Stock Purchase Plans (DSPPs), allowing you to buy stocks directly from them without a broker. These plans often have minimum investment requirements and may offer the stock at a slight discount. Often this is done through a transfer agent, who manages the process on the company’s behalf.

When you build in the time and experience necessary, though, as well as the simple fact of managing your investments, it’s less expensive and more convenient to use a regular stock broker where you can control them all through a centralized platform.

Step 3. Pick which stocks to invest in

Depending on how you choose to invest, the decision on what to buy may have been made for you already. If you’re buying stocks through an ETF, a robo-advisor, or a retirement fund like a 401(k), then your control is limited to choosing particular sectors or stock markets.

However, if you plan on picking your own stocks, then you need to spend some time choosing which companies are worth your hard-earned money.

Start by identifying your investment goals (like saving for retirement, a home, or building wealth) and understanding how much risk you’re comfortable taking. Typically, large, well-known companies that have been around a long time (think Coca-Cola, Johnson & Johnson, or Microsoft) are low risk, while newer, unproven businesses are higher risk. 

Younger investors might be more comfortable with higher-risk (and potentially higher-return) investments, often known as ‘growth’ stocks, due to their longer time horizon, while those closer to retirement may prefer safer, more stable investments, which are often referred to as ‘blue chip’ stocks.

Look for an online broker that offers ‘copy trading’, like eToro. Copy trading allows you to mimic the trades of experienced and successful traders automatically. This can be a great learning tool that allows you to learn from their research and strategies while reducing the risk of picking your own stocks.”

Prash Raval, Financial Writer

Whichever route you choose to go down, you need to take some time to look into different industries and companies in order to find good value stocks that you want to buy. There are a few ways to find and research which stocks to buy:

• Company financial statements: Review the company’s balance sheet, income statement, and cash flow statement. These documents provide insight into the company’s financial health. All public companies in the US must file their financial statements with the SEC and this information is available online for free. Use the SEC’s EDGAR database to find them.
• Earnings reports: Pay attention to quarterly and annual earnings reports. These can give you a sense of the company’s profitability and future prospects. It’s useful to read earnings reports from competitors and compare them to identify differences. Most companies have a section of their website dedicated to investor materials. For example, Apple’s latest financial reports are available on the Apple investor relations page.
• Market news and analysis: Stay updated with market trends and how they might affect the industries and stocks you are interested in. News sites like Bloomberg, CNBC, the Wall Street Journal, and Invezz provide the latest breaking news and analysis affecting the financial markets. Many online brokers offer their own analysis about certain stocks.
• Use online tools and resources: Many online brokerages provide research tools and resources for their clients. Websites like MarketBeats, StockTwits, and TipRanks provide an easy way to keep up with developing trends and analyst recommendations. TradingView is a great tool for viewing charts and doing your own price analysis.

Once you’ve found that information, you need to understand what you’re looking at. There can be a lot of acronyms and investor lingo, but the concepts are quite straightforward. Here are a few of the key terms you need to know about and what they mean.

• Market capitalization: The total market value of a company’s outstanding shares. It helps you understand the size of the company. A larger company with a higher market cap is less likely to experience big swings in its stock price.
• EPS (earnings per share): The portion of a company’s profit allocated to each outstanding share of common stock, indicating the company’s profitability and how much money it makes for every share of its stock. A higher EPS suggests the company is more valuable.
• P/E ratio (Price-to-Earnings ratio): A valuation measure that compares the current share price to its earnings per share. Essentially, it compares how much you would have to pay for the stock relative to how much money the company makes. A high P/E ratio suggests the share price could be expensive. It’s useful for comparing the relative value of companies. 
• Dividend yield: A financial ratio that shows how much a company pays out in dividends each year relative to its stock price. Higher dividend yields are generally better, although it can be unsustainable for a company to keep paying high yields every year.
• Beta: Measures a stock’s volatility compared to the overall market. A higher beta indicates higher risk and potential for higher returns.

What are the best stocks to buy for beginners?

As a beginner, it’s best to focus on big, well-known companies to start with. The likes of Amazon, Apple, Tesla, and Microsoft are some of the best stocks to buy for beginners.

You should also think about diversification. That is, buying a few different stocks so that you aren’t too reliant on a single company. The best form of diversification is to find different types of stocks, in different industries, and at different stages of their lifecycle.

Another option is geographical diversification. While many of the biggest companies in the world are based in the US, and list their stocks on the New York Stock Exchange (NYSE) or NASDAQ Stock Exchange, you can invest in stocks from other countries as well.

Some trading platforms allow you to buy stocks from the UK, from European or Asian stock markets, such as Germany or China, or emerging markets in Africa and South America. This is a way of taking advantage of growth in other parts of the world and protecting yourself in case US stock markets all start to fall in value simultaneously.

Step 4. Place your order to purchase stocks

To buy stocks, you typically use a stock order form, either on a brokerage’s website or their trading app. Here is a quick guide on how to buy stocks now:

1. Log into your account. Look for an option like “Trade,” “Buy Stocks,” or a similar term, and select it to open the stock order form.
2. Enter the name or ticker symbol of the company whose stock you want to buy in the search field. The ticker symbol is a unique series of letters representing a publicly-traded company on a stock exchange. Once you select a stock, you’ll see its current price and possibly some basic information like recent performance.
3. Select the type of order you want to place. Common types include:
   1. Market order: Buys the stock at the current market price.
   2. Limit order: You set a specific price at which you want to buy the stock. The order executes only if the stock’s price reaches or falls below that level.
   3. Stop order (or stop-loss order): Sets a price below the current market price, and the order turns into a market order once that price is reached.
   4. Stop-limit order: Similar to a stop order, but when the stop price is reached, it becomes a limit order instead of a market order.
4. Specify how many shares you want to buy. The minimum order is one share on many platforms, but you may be able to buy fractional shares if the brokerage offers them.
5. Decide how long the order should remain active. Options usually include “Good for Day” (expires at the end of the trading day) or “Good till Canceled” (remains active until you cancel it or it’s filled).
6. Double-check all the details of your order. Remember to check the ticker symbol, order type, number of shares, and total cost.
7. Submit the order. Once you’re sure everything is correct, it’s time to hit submit.

Your order will be added to a queue where it is executed according to your specifications. For market orders, the purchase is usually immediate or very quick, while limit and stop orders take longer, depending on the stock price movements.

You receive a confirmation from your brokerage once your order is executed, detailing the final number of shares purchased and the price. You can now see your stocks in the ‘Portfolio’ section of your account.

Step 5. Monitor and track your portfolio

Monitoring your investment portfolio after purchasing stocks is an important aspect of successful investing. After all, you want to sell your shares at some point. How often you should check in depends on your investment strategy, goals, and the nature of those investments.

If you’re actively trading stocks, you likely need to monitor your portfolio more frequently, possibly daily or even several times a day, to stay on top of market movements and make timely decisions about when to buy and sell stocks.

If your approach is long-term investing, such as for retirement or other long-term goals, frequent monitoring isn’t as necessary. Checking your portfolio on a quarterly or even bi-annual basis can be sufficient, unless there’s a period of high market volatility, such as a crash or major economic event, that justifies more immediate action.

There are still a few things to look out for and note in your calendar, even if they don’t always require any action.

• Financial reports. Quarterly earnings reports can change the way you think about a company, by revealing financial information that you didn’t know before. It’s a good idea to know when any company you own stocks in releases these reports.
• Dividend payment dates. If you own dividend stocks, then you receive a payout (usually four times a year) based on the number of shares you own in that company. You can reinvest dividends, or simply keep the money as income from your stock investments.
• Stock splits. Occasionally, a company partakes in a ‘stock split’, when it divides each of its current outstanding shares into multiple shares. Although the number of shares outstanding increases, the total value of the shares remains the same. Apple, Google, and Tesla have all split their stock in recent years, and it’s often an attempt to encourage more investors to buy stock by making it more affordable.

When should I sell my stocks?

There are a lot of factors that influence this decision, but you should think about selling if circumstances that prompted you to buy them have changed or they have met your initial objectives.

If your research or changes in market conditions suggest that your stocks are significantly overvalued, selling them to realize a profit before a potential decrease in value could be wise. Similarly, if there’s a fundamental change in the company’s (or your own) financial health, it might be right to sell.

You’re much better off setting goals in advance so that you have a clear head when it comes to selling stocks. Too much emotion in the thick of a bull or a bear market can cloud your decision making. Think about selling in stages, so you might sell 20% of your investment at one price, then another 20% at a second price, and so on.

Harsh Vardhan, Editor of News

Do I have to pay taxes on the money I earn from stocks?

Yes, generally, you have to pay taxes on money earned from stocks, including both capital gains and dividends. The specific tax implications vary depending on your country of residence, the type of investment, how long you’ve held the investment, and your overall income. 

When you sell a stock for more than you paid for it, the profit is known as a capital gain. Capital gains are typically subject to capital gains tax. 

In many countries, including the United States, long-term capital gains (on investments held for more than a year) are taxed at a lower rate than short-term capital gains (on investments held for less than a year). More information on capital gains tax is available from the IRS.

Dividends are also often subject to income tax, and the rate varies depending on how long you held the stock for. If you held the stock for longer than 60 days, that is a ‘qualified dividend’ and is taxed at a lower rate than non-qualified dividends that you held for a shorter time.

Investments in certain tax-advantaged accounts, like a 401(k) or an Individual Retirement Account (IRA) in the U.S., may have different tax rules. Taxes may be deferred until you withdraw money from the account, or, in the case of Roth IRAs, contributions are taxed, but withdrawals (including capital gains) are tax-free under certain conditions. Again, more information is available from the IRS.

Bottom line

Embarking on your journey to buy stocks is an exciting step towards financial empowerment and independence. By now, you should have a clearer understanding of the process involved in stock trading – from setting up a brokerage account, understanding different types of stock orders, to making informed decisions about what stocks to buy.

While stock investing can be rewarding, it’s important to be mindful of the risks involved and ensure that your investment decisions align with your risk tolerance and long-term financial objectives. Diversification, patience, and a disciplined approach are crucial in navigating the stock market.

As you take these first steps into the world of investing, keep in mind that every investor’s journey is unique. Stay informed, be patient with the process, and don’t hesitate to seek advice from financial professionals when needed. With time and experience, you’ll gain the confidence and skills necessary to make savvy investment choices and grow your portfolio.

Why trust Invezz?

All Invezz guides and reviews are created based on extensive research by a panel of stock market experts. Between them, our panel has been covering the stock market in a professional capacity while also investing in stocks personally for many years.

The Invezz expert panel includes Harsh Vardhan, Editor of News, Dan Ashmore, FCA, Head of Research, Katya Stead, Journalist, and Prash Raval, Financial Writer. All the advice above is independently verified by Richard Stutely, Economist and Fact Checker.

Learn more about our review process and how we test to meet the panel and find out what goes into all of our guidance and recommendations.

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