1. Get your basics in place first
Most financial educators suggest having an emergency fund and paying down high-interest debt before investing, because stocks can fall sharply and you don't want to be forced to sell at a bad time. Money you'll need within the next few years usually doesn't belong in the stock market.
2. Open a brokerage account
To buy stocks you need an account with a broker. In the U.S. the main choices are a regular taxable brokerage account and tax-advantaged retirement accounts such as an IRA or a workplace 401(k). Large brokers let you open an account online in a few minutes. Check that the broker is a member of SIPC, which protects customers if a broker fails (it doesn't protect against market losses).
3. Index funds or individual stocks?
An index fund or ETF holds hundreds of companies at once, such as all the stocks in the S&P 500. It spreads your risk and has low fees, which is why it's the usual starting point for beginners.
Buying individual stocks lets you own specific companies you've researched, but your result depends on far fewer businesses. Many investors keep most of their money in broad funds and a smaller portion in individual stocks they follow closely.
4. Placing your first order
- A market order buys right away at the current price.
- A limit order buys only at your chosen price or better, so you control what you pay.
- Many brokers offer fractional shares, so you can buy $20 of a stock that costs $500 a share.
5. Research before you buy
Before buying a company's stock, it helps to understand what the business does, whether it makes a profit, how its valuation compares (see our P/E guide), and what the people running it are doing with their own shares. Insider buying is one public clue; it's free to check on SEC filings and on every InsiderPrint stock page.
Common beginner mistakes
- Putting too much money into a single stock.
- Buying because a stock is trending on social media.
- Selling in a panic after a drop.
- Trading too often, which adds taxes and mistakes.
- Investing money you'll need soon.