How to Invest in Stocks: A Simple Guide

Investing in the stock market is less complicated than it sounds.

In fact, if you were to adopt Warren Buffett’s winning strategy of buying and holding S&P 500 index funds — a method he’s recommended to people “for a long, long time” — it would take you about five minutes to set up.

That’s because the simplest approach — a passive investing strategy — is also the most effective at generating sustainable returns with minimal risk.

To maximize the effectiveness of a simple strategy, you’ll have a few decisions to make. Ask yourself the following questions:

• What are my investing goals?
• Why am I choosing to invest in the stock market now? Which account type(s) do I need?
• Should I download a DIY app like Robinhood, or hire a professional AI or human advisor?
• How much should I invest in the stock market?
• What are stocks, bonds and funds, and which should I choose?
• Finally, once I make my initial investments, what does it mean to “manage my portfolio?”

By the end of this piece you’ll have the answers to all of these and more as we explore how to invest in stocks!

1. Determine Your Goals, Risk Tolerance and Time Horizon

Investing Goals and Motivations

First up are your goals for investing: Why are you investing? What’s inspiring you to open a brokerage account?

Risk Tolerance
Would you prefer $2,500 in cash or a 50/50 chance at winning $10,000?

Time Horizon
Your investing time horizon determines when you plan to cash out your investments.

2. Determine Which Investment Account Type(s) You Need

Brokerage accounts

Brokerage accounts are your standard, everyday, stock trading accounts.

Retirement accounts

Retirement accounts operate the same as a brokerage account but have a different tax classification with the IRS.

3. Open Your Investment Account

DIY Investing Apps

If you’d like to invest your own money and effectively be your own portfolio manager, you’ll probably be happiest with a self-directed investing app like Robinhood or Webull.

Robo Advisors

A robo advisor is essentially an AI portfolio manager that picks your investments for you.

Human Financial Advisors

Despite the emergence of cheaper and faster robo advisors, there’s absolutely still value in having a human financial advisor on your side.

4. Decide How Much to Invest in Stocks

5. Choose Your Stocks or Funds

Stocks

Stocks come in units of “shares” and represent partial equity in a company.

Bonds

Bonds are a loan from you to a corporation or the government.

Funds

Funds are baskets of other assets (stocks, bonds, etc.) tied together by a common theme.

6. Relax, Hold and Manage Your Portfolio

When Should You Rebalance Your Portfolio?

The Bottom Line
Investing in stocks sounds more complicated than it is. In reality, once you’ve made a few key decisions, downloaded an app or two, and bought and held the right shares, you’ve greatly accelerated your path to financial independence.