Investing in stocks has become increasingly more accessible, with beginners able to open an account with little money through a brokerage's website or mobile app.
Owning a stock represents an ownership stake in a company as a common shareholder. Common stocks allow shareholders to vote on company issues, with most companies granting one vote per share. Some companies also offer stockholders dividend payouts, giving investors a stream of income on top of the market value of the stock. These payouts typically change based on the company's profitability.
Stocks are considered risk assets that can provide growth and income to an investment portfolio. This means it's an asset class that carries a high degree of price volatility. With stocks, beginner investors must consider the degree of risk that they can take. Typically, the more risk in an investment, the greater the potential reward. But investors need to be willing to take the risk of losing money in case high returns don't come. History shows that stocks have been a reliable asset class for strong annual average returns over time.
Where to Start Investing in Stocks:
The first step is for you to open a brokerage account. You need this account to access investments in the stock market.
The next step is to fund your brokerage account by transferring money from your bank account to fill trades of stocks you want to buy. The amount of money you choose to invest depends on your risk tolerance, goals and how much money you're comfortable potentially losing.
Have an Investing Strategy, Especially During Market Volatility:
It is normal for the stock market to experience bouts of volatility. During those periods, stocks, even ones considered relatively safe, experience price fluctuations. This can happen when there is uncertainty in the markets and tends to be short-lived.
Daniel Beckerman, president of Beckerman Institutional in Oakhurst, New Jersey, says, "Over the long run, we have seen a 10% or greater downturn in the stock market more frequently than once every two years (on average)." You should prepare to be invested during these rough periods, Beckerman says, if you expect to do well throughout your investment time horizon.
Volatility can certainly be concerning, especially if you are a beginner who hasn't experienced it before. That said, you should put your money in companies that can generate consistently growing revenues and profits over a long period. That way, you have confidence in the company despite the stock's price swings.
The biggest asset young investors have is time, says Sameer Sawaqed, host of "The More We Know," a podcast for Generation Z investors. "Gen Z investors can increase their risk exposure because even if we go through a downturn, we still have 40-plus years on our side for the market to recover before retirement. As a result, we can handle more risk," he says.
When investors have conviction in a company and its stock price falls, they may see this as an opportunity to buy more of the stock at a better price.
Invest on Your Own or With a Financial Advisor?
Investing in stocks can be done in many ways, but before you start investing, it's important to determine what type of investor you are. Decide whether you want to take a do-it-yourself approach or work with a professional financial advisor who can advise you through your wealth management.
To take the do-it-yourself approach and manage your own investments, you can open an online brokerage account. If you're unsure about where to start, consider opening an account with a robo advisor, which will do some of the heavy lifting at a lower cost.
Once you open an online brokerage account, you're asked questions to determine an investment strategy that will assist in your investment decisions. These questions involve knowing your specific financial goals – such as retirement or a big purchase – and your risk tolerance, which is the degree of market variability you can withstand in your investments.
Stephen Mathai-Davis, co-founder and CEO of Q.ai, an artificial intelligence robo investing platform, says investors should have a core goal before they start investing. This goal will drive investors' decision-making processes.
"If you are looking to retire early, you are going to skew your investing to high-growth stocks because those are the investment vehicles that generate the highest return," he says.
The categories that are favored with this strategy are technology and consumer tech stocks, Mathai-Davis says.
Stocks for Beginner Investors
Thinking you can consistently beat the market can be a fool's errand, but investing in high-quality stocks such as blue chips and dividend-yielding companies is often a good strategy for beginners.
One reason investors opt for blue chips is their track record of stability and because they tend to produce dividends. Famous blue-chip companies include Microsoft, Coca-Cola Co. (KO) and Procter & Gamble Co. (PG). Coca-Cola, for example, generates a dividend yield of 2.8% – meaning an investor would earn 2.8% of their investment level in dividends over the next year at the current dividend rate – and the stock is less volatile, as its share price has hovered between $48 and $61 during the past 52 weeks. Dividends can generate much-needed income for investors.
Long-term investors who take advantage of a buy-and-hold strategy by going long on stocks can reap the benefits of long-term growth in market value. For example, if you bought shares of AT&T Inc. (T) at its initial public offering price of $1.25 in 1984, your investment would be worth far more than what you put in, as the stock now trades at about $25 per share and has been paying dividends for decades.