I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.
See all posts Frank GogolHow to Invest in Stocks in the U.S.
Updated on April 9, 2024
Written by
Written by
Reviewed by
Rohit Mittal
Reviewed by
Rohit Mittal
Rohit Mittal is the co-founder and CEO of Stilt. Rohit has extensive experience in credit risk analytics and data science. He spent years building credit risk and fraud models for top U.S. banks. In his current role, he defines the overall business strategy, leads debt and capital fundraising efforts, leads product development, and leads other customer-related aspects for the company. Stilt is backed by Y Combinator and has raised a total of $275M in debt and equity funding to date.
See all posts Rohit MittalEveryone wants to grow their wealth. You’ve probably heard investing and purchasing stocks is one of the most effective and popular ways to do this.
If you’re wondering how to invest in stocks or “how do I manage my stocks?” you can read on. We’ll take you through the basics of stocks, how they work, and how to invest in stocks. It’s actually much simpler than you think!
What Are Stocks?
When you buy a company’s stock, you are basically purchasing an ownership share in that company. A stock has a value, and over time (if the company does well), its value will increase. Like any other asset, you can then sell your stock and make a profit. There are also stocks that pay dividends. You can read in more detail about stocks here. Or if you want to understand dividends better, take a look here.
Benefits of Investing in Stocks
There is a reason investing in stocks is one of the most popular choices to grow wealth. Let’s take a look at the benefits of investing in stocks.
Takes Advantage of the Growth in the Economy
When the economy grows, corporate profits also grow. Economic growth creates jobs for people. When people get jobs, their income grows, which means they spend money on the goods and services of the company you’ve invested in. This drives up the revenue of the company and increases the value of your stock and investment.
Helps Keep Ahead of Inflation
The average annualized inflation rate is 2.9%. Historically, the average return on stocks is 10%. If you invest your money in stocks, the value of your investment will increase faster than inflation causes the value of your money to decrease.
Easy to Buy
Once you’ve set up your investment account, you can buy stock in minutes. The stock market makes it really easy, accessible, and quick to buy shares in companies. You can also purchase stocks through a broker or financial planner – or even online. There are also brokers such as Robinhood who let you buy and sell stocks without paying commission.
Makes Money Two Ways
In the world of investing, there are two ways to go about it. The first is to buy low and sell high, so you focus on investing in fast-growing companies that grow in value. The other is to focus on generating a regular stream of cash. In this case, you purchase stocks of companies that pay dividends. These companies will still grow at a moderate rate, but the focus is on the steady stream of dividend income. With stocks, you can do both.
Easy to Sell
You can sell your stocks at any time. The term for this is “liquid.” You can turn your shares into cash quickly at a low transaction cost. This is an excellent benefit if you suddenly find yourself in a position where you need money but don’t have enough savings. If you are forced to sell suddenly, there is a risk you make a loss if the price of your stock is volatile. But you will be able to revert it to cash should you need to.
How to Invest in Stocks
Below are basic tips to help you understand how to invest in stocks and to get you started.
Decide How You Want to Invest
When investing in stocks, you can choose stock and stock funds for yourself, or you can have someone manage the process for you. Choose the route that you feel most comfortable with and take action from there. When you know your preference, you can shop for the investment account that will work best for you.
Apply for an Investing Account
To invest in stocks, you will need an investment account. If you want to choose stocks and stock funds for yourself, you will have to open a brokerage account. If you need a little more help, it would be best to opt for a robo-advisor account.
Understand the Difference Between Stocks and Mutual Funds
Generally, investing in the stock market means you have to choose between investing in individual stocks or in stock mutual funds. With mutual funds, you purchase small pieces of many different stocks in one transaction. You then own little parts in each of the companies. If you are only interested in investing in a specific company, you can buy a single or a few shares for that company. Keep in mind, it is much more challenging to build a diversified investment portfolio by only investing in individual stocks. You can read more here about the importance of a diversified portfolio.
Set an Investing Budget
How much money you have to set aside to build a proper investment portfolio will depend on the type of investment you want to make. Suppose you only have a small amount that you can invest at the moment. In that case, it is probably easier to start with mutual funds as you don’t have to buy a whole share in an expensive company, for example. Individual share prices can range from just a few dollars to a couple of thousand dollars.
Invest for the Long-Term
Unless you are planning to focus on (and succeed) in day trading, your investment’s success will mostly lie in the time of your investment, allowing for growth. It can be hard to now compulsively check your stocks every day. But it will probably be a good discipline to only check it every so often if your strategy is to leave it to grow in the long term.
Manage Your Portfolio
Even though your strategy may be to leave your investments to grow in the long term, you will, from time to time, have to check your stocks to make sure it is still in line with your goals. You can read more here if you are wondering “how do I manage my stocks?“.
Investing FAQ
The above information and tips may not have answered all your questions about how to invest in stocks. Here are answers to some of the most frequently asked questions.
Do I Need a Lot of Money to Start Investing?
In principle, you don’t need a lot of money to invest. Some investments require a minimum amount to invest, and it may be hard to diversify your portfolio if you’re working with limited funds. But this can be overcome by investing in mutual funds, for example.
Are Stocks Good Investments for Beginners?
Yes, stocks are definitely a good investment for beginners. Especially if you are comfortable to leave your money invested for at least 5 years.
Which Stocks are Best?
The answer to this question will depend on who you ask and what their investment strategy is. However, for beginners, most people believe investing in low-cost mutual funds is the best start. You can buy a big part of the stock market in one transaction, and you don’t need a lot of money or knowledge to start.
Where Should I Invest My Money?
As with the answer above, the answer will depend on who you ask. But if you are a beginner, consider investing in a mutual fund.
Conclusion
Hopefully, you now understand a bit better how to invest in stocks. There are unlimited resources out there if you are curious and want to delve a little deeper. Investing in stocks is definitely a significant step towards growing your wealth and building a healthier financial future.
Frank Gogol
I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.