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How to invest in stocks: A simple guide

Key takeaways

  • Stocks let investors own a tiny slice of a public company.
  • Investors can pick stocks themselves, get automated help from a robo advisor, or work with a financial professional.
  • Diversification—spreading your money across different types of stocks and other investments—may help investors weather market ups and downs.
  • To find the right stocks for you, consider your investment goals, risk tolerance, time horizon, and tax situation.

If you’ve never invested, the stock market could feel like a mysterious organization open only to a select few. But even beginners can quickly get up to speed on how to invest in stocks. For starters, the goal of stock investing is to buy shares—or pieces—of a company and eventually sell them at a higher price than you paid, when the company’s value rises. How do you do that? Follow this guide for how to invest in stocks for beginners.

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1. Pick how you’d like to invest.

There’s no getting around the fact that some due diligence is necessary before you start buying shares of a public company. The amount of research required for responsible investing depends on whether you plan to DIY, use a robo advisor, or work with a financial advisor. Here’s what you can expect from each of these options.

Do It Yourself (DIY)

If you enjoy managing your finances on your own, picking your own stocks may work for you. Going it alone means you don’t have to pay for advice, but it also means you don’t have a pro to guide you. As a new investor, you need to set aside time for researching which stocks are the best fit for your investment goals.

DIY investors should keep diversification in mind. That’s the practice of spreading your money around to help manage your exposure to any one type of investment. (You’ll want to diversify within your stock portfolio, and make sure you own other types of investments.) In other words, it’s avoiding putting all your investments in one basket to help balance out that basket in case that basket—or part of the market—drops because, hopefully, your other investments will be up. Making sure you’re well-diversified adds to the amount of work you need to do solo, since you need to investigate many stock types before buying.

Robo advisor

Investors who’d like a little help in choosing stocks may opt for a robo advisor. These automated programs ask investors about their goals, time horizon, risk tolerance, and other factors. Then, the technology creates a portfolio based on those goals and preferences.

Robo advisors can help inexperienced investors design an appropriate portfolio without exhaustive research on the investor’s part. Since these programs are automated, they’re generally less expensive than working closely with one human advisor—even though there are still humans involved, who offer digital investment advice and account management services.

Similarly, you could try direct indexing, which seeks to approximate the returns of an index (more on that later) or focus on a theme, such as helping the environment, and can also be automated—you wouldn't need to buy each of the many stocks in the index yourself.

Financial advisor

New investors who want someone to design their investment portfolio for them may consider working with a professional advisor. Working with a pro could help minimize the stock research and buying work required, as well as the ongoing work of keeping the portfolio balanced across diverse investments. Unlike with a robo advisor, you have a relationship with a specific person who you can call to ask questions or discuss your personal circumstances, which could then be taken into consideration when building an investing strategy. However, it’s still investors’ responsibility to know and understand what they’re investing in, the risk involved, and how it could affect their financial goals.

Working directly with an advisor is generally the most expensive way to invest in stocks. The specific cost and how an advisor is paid—such as based on a percentage of the assets they manage for you, or on a project or hourly basis—varies.

2. Decide which type of investment account best suits your goals.

When you invest in stocks, you generally have to buy shares using money you’ve transferred to an investment account held at a brokerage firm of your choosing. (Here’s help for selecting a brokerage firm.)

Which account you pick depends on what you’re investing for—because different accounts have different benefits. Here are some account options for investing in stocks, based on your potential goals.

Saving for retirement

There are multiple tax-advantaged retirement accounts that could help you either reduce your current taxable income or your tax burden in retirement. These include:

  • Employer-sponsored retirement plans, such as 401(k), 403(b), and 457(b) plans, which allow for tax-deductible employee contributions of up to $23,000 for 2024 for younger investors, and up to $30,500 for investors age 50 or older. Withdrawals are taxed at your regular income tax rate in retirement—except in the case of accounts that allow post-tax contributions, like Roth 401(k)s. Generally, your employer has to offer one of these plans for you to participate, though there is the solo 401(k) for the self-employed. Note that many employer-sponsored plans only allow participants to invest in mutual funds rather than individual stocks. It all depends on what the employer chooses.
  • Individual Retirement Accounts (IRAs) generally allow for post-tax contributions of up to $7,000 for 2024, rising to $8,000 for investors age 50 and up. Eligible people who earn below certain income limits may contribute to a Roth IRA. Roth IRA qualified withdrawals are federal tax-free.1 Traditional IRA withdrawals are taxed at your ordinary rate in retirement, and there are no income limits to contribute to that account.2 With either IRA, you may invest directly in stocks but also in baskets of stocks, such as mutual funds or ETFs.

Saving for a child

  • 529s are state-sponsored plans designed specifically for education savings. Contributions are not federally tax-deductible, but withdrawals are federal income tax-free as long as they are used for qualified education expenses. Some states may offer tax incentives for contributions by state residents. There are no universal annual 529 plan contribution limits, but states set different aggregate limits for their plans. 529s allow for investments in a variety of portfolios, depending upon an individual's goals, risk tolerance, and time horizon.
  • UGMA/UTMA custodial accounts allow parents to contribute unlimited post-tax dollars in their child’s name. A portion (up to $1,250 in 2024) of any earnings from a custodial account may be exempt from federal income tax, and a portion (up to $1,250 in 2024) of any earnings in excess of the exempt amount may be taxed at the child's tax rate, which is generally lower than the parent's tax rate. The money is an irrevocable gift to the child to use however they want when they reach the age mandated by the state, at which time the parent/custodian must transfer control to the child.
  • Roth IRAs for kids are for minors with earned income. You can contribute up to their earned income or the contribution limit of $7,000 for 2024—whichever is lower. Qualified withdrawals are federal tax–free.1
  • Youth accounts could allow teens to invest while letting parents see what trades they’re making, but a parent must have an established account for the teen to open.

Saving for health expenses

  • Health Savings Accounts (HSAs) may be available to people with high-deductible health plans. Some employers that offer HSAs let you invest pre-tax dollars3 in an HSA and use the money tax-free for qualified health care expenses. (If you have your own HSA, it's tax-deductible.) The contribution limit for 2024 is $4,150 for self-only coverage and $8,300 for a family. Those 55 and older can contribute an extra $1,000.

Saving for something else (or you’ve maxed out your tax-advantaged accounts)

  • Taxable brokerage accounts might not offer such clear tax advantages as the accounts above, but they have more flexibility and fewer restrictions. There’s no limit to how much you can put in one of these accounts.

3. Figure out what stocks you want to invest in.

Finding the right stocks for your investment portfolio starts with understanding 4 key factors:

  1. Your investment goals
  2. Your risk tolerance
  3. Your time horizon
  4. Your tax situation

If you’re getting help from an advisor—whether robo or live pro—they suggest stocks, or funds (which are baskets of stocks) that are a good fit for all 4 of these factors. If you’re DIYing, you could consider using a mutual fund evaluator tool or an ETF portfolio builder—or narrowing your search by focusing on sectors, industries, or companies you’re already familiar with. For example, an automotive engineer may choose to invest in stocks from the automotive industry, as they’re likely to have a deeper understanding of how those companies operate. Other options for beginners could be to look into mutual funds or ETFs that track certain market indexes, such as the S&P 500®.4 That way, you could invest in a tiny piece of many well-known companies at once. Or you could try investing in a target-date fund; a single, ready-made portfolio for a future savings goal, like retirement, that gradually adjusts its mix of investments as that goal date approaches.

4. Determine how much money you want to invest in stocks.

Figuring out how much to invest starts with what you’re saving for and in what kind of account. For instance, if you’re investing through a workplace retirement plan and your employer offers a matching contribution, it’s wise to invest at least the minimum to capture your employer’s entire matching contribution—it’s like free money. You can increase your investment from there based on your budget, goals, tax situation, and contribution limits.

If you’re investing with another goal in mind, say, your child’s college tuition, it’s helpful to decide how much money you want to wind up with. (Not sure? Check out our guide on how much to save for college.) Then work backwards to figure out how much to invest. You could use average rates of return for investments to get an idea of what it would take—and how long— to potentially hit that amount. Just keep in mind that past performance does not guarantee future results.

In addition to picking which stocks you want to invest in, you also need to determine the percentage of your portfolio that you want invested in stocks as opposed to other types of investments, as well as cash. Stocks tend to be more volatile than bonds, for example, which is why a diversified portfolio generally includes both.

5. Purchase your stocks.

If you’re buying stocks yourself—rather than having your robo advisor or financial advisor do it—understand the basic types of trading orders you might place.

  • Market order: Instructs brokerage to buy or sell securities for your account at the next available price. It remains in effect only for the day, and usually results in the prompt purchase or sale of all the shares of stock or options contracts in question, as long as the security is actively traded and market conditions permit.
  • Stop order: Generally used to protect a profit or to prevent further loss if the price of a security moves against you. They can also be used to establish a position in a security if it reaches a certain price threshold or to close a short position.

    The specialists on the various exchanges and market makers have the right to refuse stop orders under certain market conditions. Not all securities or trading sessions (pre- and post-market) are eligible for stop orders.

  • Limit order: When you place a limit order to buy, the stock is eligible to be purchased at or below your limit price, but never above it.

    You may place limit orders either for the day on which they are entered (a day order), or for a period that ends when it is executed or when you cancel (an open order or good ’til canceled (GTC) order).

    Orders at each price level are filled in a sequence that is determined by the rules of the various market centers; therefore, there can be no assurance that all orders at a particular price limit (including yours) will be filled when that price is reached. Such orders are also subject to the existence of a market for that security. Thus, the fact that your price limit was reached does not guarantee an execution.

Knowing the types of orders is just the beginning. Using technical analysis, such as charts and other tools, can further help you determine when to buy and sell.

6. Check in on your stocks.

Regularly rebalancing your portfolio helps your investments stay on track to meet your goals. Big swings in the market can result in the balance of your investments being out of whack. Even if a professional financial advisor is managing your portfolio for you, it’s still important to look at your investments at least once a year to make sure they’re progressing how you want them to. Annual check-ins also give you a chance to plan for any taxes you’d need to manage on the eventual sale of your stocks.

Take the first step toward investing

To get started, open a brokerage account.

More to explore

1. For a distribution to be considered qualified, the 5-year aging requirement has to be satisfied, and you must be age 59½ or older or meet one of several exemptions (disability, qualified first-time home purchase, or death among them). 2. A distribution from a Traditional IRA is penalty-free provided certain conditions or circumstances are applicable: age 59 1/2; qualified first-time homebuyer (up to $10,000); birth or adoption expense (up to $5,000 per child); emergency expense (up to $1000 per calendar year); qualified higher education expenses; death, terminal illness or disablility; health insurance premiums (if you are unemployed); some unreimbursed medical expenses; domestic abuse (up to $10,000); substantially equal period payments; Qualfied Federally Declared Disaster Distributions or tax levy. 3. With respect to federal taxation only. Contributions, investment earnings, and distributions may or may not be subject to state taxation. Please consult with your tax advisor regarding your specific situation. 4. The S&P 500® Index is a market capitalization–weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent US equity performance.

Investing involves risk, including risk of loss.

Diversification and asset allocation do not ensure a profit or guarantee against loss.

Fidelity advisors are licensed with Fidelity Personal and Workplace Advisors LLC (FPWA), a registered investment adviser, and registered with Fidelity Brokerage Services LLC (FBS), a registered broker-dealer. Whether a Fidelity advisor provides advisory services through FPWA for a fee or brokerage services through FBS will depend on the products and services you choose.

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