How to Start Investing In the Stock Market: A Beginner's Guide

Learning how to start investing in the stock market can be utterly overwhelming. But like most complicated endeavors, figuring out how to start can be made simple by breaking it down into digestible parts and knocking them out one by one.

So now, let's do that. We'll cover the basics on how to start investing in the stock market.

Reading a short guide like this isn't likely to turn you into the next Warren Buffett. But getting started right can save you a lot of costly mistakes and, importantly, help break some of the mental barriers that lead to investing procrastination.

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Step 1: Open a brokerage account

The first step of how to start investing in the stock market is easy enough. Before you buy your first stock, you have to have an account to hold it. The good news is that it's never been easier to open an account, and you can generally do it on your phone.

These days, most of the major online brokers offer low or even no minimum deposits to get started and will often offer commission-free trading for stocks, exchange-traded funds (ETFs) and many other common investment products.

For absolute ease of use, many beginner investors like Robinhood because its mobile interface makes it exceptionally easy to use. But depending on your needs, Robinhood might not make sense for you.

"Robinhood is popular for a reason," says Robertson Wealth Management Chief Operations Officer Sonia Joao. "But it's also really limited. You can't buy bonds or mutual funds, and there's not much in the way of customer support."

More established players like Charles Schwab (which is in the process of merging with TD Ameritrade), Fidelity and Vanguard offer commission-free stock and ETF trading, but also give you access to a broad assortment of mutual funds, bonds and other products.

Ultimately, it comes down to your tastes. Download a handful of brokerage apps on your phone or browse their websites. You can start with whichever seems the most intuitive, understanding that you can always change brokers in the future.

Step 2: Place your first trade

Once you've opened and funded your account, it's off to the races. But before you get fancy in trying to pick the next hot growth stock or trade the next meme, consider buying one of the best ETFs, like a simple S&P 500 index ETF. This is a good way for those learning how to invest in the stock market to get their feet wet without taking excessive risk, as it's a combination of stocks rather than a bet on just one company.

The S&P 500 is made up of 503 of the biggest and best known stocks in America weighted by their respective sizes. Blue chip stocks Apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN), Nvidia (NVDA) and Alphabet (GOOGL) make up the top five holdings.

The iShares Core S&P 500 ETF (IVV) is a good option for beginners here. With an expense ratio of just 0.03%, it's essentially free to own. And because the S&P 500 has relatively low turnover, you're not going to get stuck with a large tax bill for buying and holding it.

Now that you're ready to take the plunge, it's time to get into the nitty gritty of making the purchase. You have the order ticket open… what do you do?

There are a few gaps to fill in, but they are mostly intuitive. For the "symbol" or "ticker," use the trading symbol. In the case of the iShares Core S&P 500 ETF, the trading symbol is "IVV."

The quantity of shares is totally up to you and your budget. A single share of IVV currently trades for about $453. So, if you're learning how to invest in the stock market and starting with a modest budget, you might want to limit yourself to a single share.

"Order type" is where it gets mildly complicated, but it doesn't necessarily have to be. If you specify a "market order," that simply means that you're fine taking whatever the current prevailing price happens to be.

For the vast majority of trades – and for essentially any trade a beginning investor would make – a market order is fine. But once you get more experienced, you may want to try placing a “limit order.”

A limit order comes with conditions. You will only buy or sell a stock at a certain specified price or better. If the stock you are eying is trading at $10 but you don't want to pay any more than $9.95, you can place a limit order at $9.95 that will only get filled if the price dips to that level.

Step 3: Figure out your buying style… and have fun!

Peter Lynch, the legendary manager of the Fidelity Magellan fund throughout the 1980s, famously recommended that investors look for stock market opportunities in companies they know. 

For those learning how to start investing in the stock market, it's not quite as simple as "I like Big Macs, so I think I'll buy McDonald's (MCD) stock," but if you have familiarity with a product or a company, it can be a good place to start.  For example, if you notice all the local teenagers wearing the same shoes, the shoe company might be worth a look.

It will take you time to understand and develop your own style, and reading some of the best books on investing can help. You may not know for years whether you are a "value investor" or a "momentum trader," or any number of other labels we investors give ourselves. 

But you can learn while you invest by keeping your position sizes small and by keeping a journal. Take notes on why you bought a stock and then review them every few weeks. You'll get better at it as you go.

Step 4: Keep your position sizes reasonable 

Investing is fun and challenging, and buying individual stocks can be a really satisfying (and profitable) hobby. But when you dive into the stock market as a beginner, you should invest the bulk of your holdings in diversified funds and ETFs. That is where your "real money" should be, at least for the first few years. As you get more experienced, you can increase the size of your individual stock holdings.

But let's be clear, it's not a good idea to put your entire life savings in a small handful of stocks. Yes, Warren Buffett does it. But he's also been doing this for about 75 years!

Start with a diversified fund - or, better, several diversified funds - and then slowly add individual stock picks to the mix as you go. And you might find that, even after decades of investing, keeping the bulk in diversified funds gives you the best return with the least heartburn.

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