How to Start Investing in the Stock Market?

Stock investing involves buying company shares. By investing in the company's stock, you hope it grows and performs well. If so, other investors may be willing to buy your shares for more than you paid. If you sell them, you'll make money.

Stock investing takes time. Diversify your investments and stay invested through market ups and downs. Beginners can learn how to invest in stocks by opening an online investment account and investing in stocks or mutual funds.

Many brokerage accounts let you invest with a single share. Some brokers offer paper trading, which lets you practice buying and selling with simulators before investing real money.

How to invest in stocks in three steps

1. How to Invest

You can match your investing style to your knowledge and how much time and energy you want to spend. Investing can take as much time as desired.

• Employ a financial advisor: This "do-it-for-me" option is great for those who want to spend little time investing. It's also a good choice for beginners.
• A Robo-advisor is another "do-it-for-me" solution that uses an automated program to manage your money like a human advisor but at a lower cost. You can quickly set up an investment plan, and the Robo-advisor does the rest.
• This "do-it-yourself" option is great for those with more investing knowledge or time. You'll need a brokerage account to choose your own stocks or funds.

Your choice here will determine the next step.

2. Open an Investment Account

If you need professional money management,

• A financial advisor can help you plan your stock portfolio and college expenses. Human advisors charge 1 percent of assets annually with a high minimum. A good human advisor can keep you on track financially.
• A Robo-advisor can match your time horizon and risk tolerance. They cost a quarter or less than a human advisor.

3. Managing your own finances

Online brokers let you buy stocks, bonds, ETFs, mutual funds, options, and more. The best brokers offer no-fee stock commissions and free education and research, so you can improve quickly. Bankrate reviews the major online brokers so you can find one that meets your needs.

With a Robo-advisor or online brokerage, you can start investing in minutes. If you choose a human advisor, you'll need to interview candidates to find the right one for you.

Compare stock and fund investing.

Do-it-yourself? Relax. Stock investing isn't hard. Most investors choose between two investment types:

Mutual funds or ETFs.

Mutual funds let you buy many stocks in one transaction. Index funds and ETFs are mutual funds that track an index; a Standard & Poor's 500 fund replicates the index by buying its companies' stock. You own small pieces of each company when you invest in a fund. Diversify your portfolio by combining funds. Stock funds are also called equity funds.

Stocks or Shares.

If you want to invest in a specific company, you can buy one or a few shares. Diversifying a portfolio with individual stocks takes time and research. Individual stocks will have ups and downs. If you research a company and invest in it, remember why you chose it when jitters set in.

Inherently diversified stock mutual funds reduce risk. For most investors, especially those investing in retirement savings, a mutual fund-heavy portfolio is the best option.

Mutual funds won't soar like some stocks, though. Individual stocks can pay off handsomely, but the odds of one making you rich are slim.

Start investing in the stock market according to your budget.

Adding money over time and letting compounding work is the key to building wealth. You must budget for investing in your monthly or weekly plans. Start-up is easy.

Budget and timeframe determine how much you invest. Experts recommend leaving your money invested for at least three years, and ideally five or more, to ride out market bumps.

If you can't keep your money invested for three years, start an emergency fund. An emergency fund can prevent you from selling early, allowing you to ride out stock price fluctuations.

What's the starting budget?

Most major online brokerages don't have account minimums (or they're very low), so you can start with little money. Many brokers allow fractional stock and ETF purchases. You can start with almost any amount if you can't buy a full share.

Robo-advisors are just as easy. Few Robo-advisors have account minimums, and you only need to deposit money. Set up auto-deposits to your Robo-advisor account and invest once a year (at tax time).

Beginner stocks to invest in

As a new investor, keep things simple and expand as your skills improve. S&P 500 index funds allow investors to easily buy shares in hundreds of America's top companies. This fund lets you buy a small stake in some of the world's best companies.

An S&P 500 fund provides diversification and reduces stock risk. It's a good choice for beginners to advanced investors who don't want to think about investments.

If you want to invest outside of index funds, consider "large-cap" stocks, the biggest and most stable companies. Look for companies with a long track record of growing sales and profit, no debt, and reasonable valuations (as measured by the price-earnings ratio or another valuation yardstick) to avoid overvalued stocks.

Long-term investing

Stocks are a good way to build long-term wealth. Over decades, stock market returns average 10% per year. Remember that's a market average — some years will be up, some down, and individual stocks' returns will vary. Long-term investors look for the long-term average when deciding whether to invest in the stock market.

After investing in stocks or mutual funds, don't look at them too often unless you're day trading, avoid checking your stocks several times a day, every day.

Beginners may find it hard to figure out how to invest in stocks, but all you really need to do is figure out which investment strategy you want to use, what type of account makes sense for you, and how much money you should put in into stocks. You don't need to know everything on your first day!