How to invest in stocks

May 2019
Top 2 brokers to invest in stocks
Robinhood
DEGIRO

So you’ve saved up some money and decided you want to grow your savings by investing in stocks, but don’t know where to start? Buying stocks and investing your money on the market can seem a very daunting and confusing task for beginners. But don’t worry, we’re here to help you out and put you on the right track to becoming an experienced investor.

Maybe you're here because you've been reading stories about how people have become rich by making smart investments in stocks. Like this article on how a couple built a fortune with well-timed decisions and hard work. Or the story of the retired Indian gentleman who started investing in mutual funds when he was 77, followed a clear startegy and left a fortune for his heirs. "If they can do it, so can I!" you may say to yourself, and you would be absolutely right! Even if you're a beginner, there is no reason to feel intimidated by stocks or investing. It is a skill, but like anything else, it can be learned.

Below, we’ve put together a simple step-by-step guide to investing your money in stocks. We’ll walk you through the process, explaining along the way the various factors you have to consider and choices you have to make before you start investing, while also helping you out with tips on what methods might be best for you.

Overall, we can say that it is definitely worth it to learn how to invest in stocks, as with a clear strategy and the right tools to help you, the benefits can significantly outweigh the effort it takes to learn and familiarize yourself with the process. Whether you want to increase your savings for retirement or just want to grow your wealth on the shorter term, stocks have historically proven to be one of the best investments. And once you know how it works and you gain more experience and confidence, it will all seem much less confusing as well.

Let’s start then with a quick outline of the 5-step guide to investing in stocks!


The 5-step guide to how to invest in stocks

Here is first a brief guide for beginners, followed by a more detailed breakdown of the steps to help walk you through how to invest in stocks. You can jump straight to the detailed guides by clicking on the steps.

Step 1: Make an investment plan

Before you jump into investing in stocks, you need to make a few basic decisions. You need to decide what your goals are with stock investments, how much time you can or want to spend on managing your investments, and how much risk you are willing to put up with. The answers to these questions will determine whether stock investments are for you at all, and if so, which kinds of products best fit your strategy. Once you know all this, you can move on to choosing a broker.

Step 2: Choose an online broker

Once you know what you want and how you want to achieve it, you need to find the right provider that will help you with the actual investment process. You’re in the right place, as we have several tools and recommendations to assist you in this process.

Step 3: Open and fund your account

If you found the right online broker for you, you need to open an account and transfer some money to it in order to be able to start investing and buying stocks.

Step 4: Buy the stocks

With your choices made and your strategy clear, all you have to do now is carry out the actual transaction, i.e. buy the stock(s) you have set your sights on, or other investment products (ETFs, mutual funds) that fit your needs.

Step 5: Review your portfolio and plan regularly

Even the best-laid plans may need to be modified in view of market developments or extreme events, so it is important to review your holdings regularly. You should make any adjustments to your investment plan and your actions that may be necessary.


After that short introduction, now let’s look at each of these steps in more detail.


Step 1: Make an investment plan

The first step before you make stock investments should be making a plan, which involves several basic questions you should think about.

The three main factors you need to consider before investing in stocks are:

  • Goals: What is your objective, why do you want to invest in stocks?

  • Time: How much time do you plan to spend on this activity?

  • Risk: Are you OK with high risks or do you prefer to worry less?  

Once you know the answers to these questions, this will put you on the right path to investing in stocks. It will help define which kinds of products are the best fit for you based on your goals, time commitment and risk profile, or whether stocks are for you at all.

   

Why do you want to invest in stocks?

Defining your goal will help you understand what kind of financial service you are looking for.

You can have several goals while investing in stocks, such as:

  • saving up for retirement
  • buying a house
  • putting your money to work
  • making some quick gains
  • just for fun
  • learning

If you want to learn, you should look for an online broker that has great educational tools. If you want to save up for retirement, you should concentrate on security and low fees, for example.

 

What form of stock investment to choose?

The main thing you have to consider here is how involved and active you want to be in the investment process. That will decide the type of product that is right for you.

If you don't want to spend at least half a day each week managing your stock portfolio, you shouldn't even consider investing in individual stocks. In this case, go instead for a collective investment form, like an ETF or mutual fund. If the time you want to spend on this is very limited, then we recommend a robo-advisor.

Let’s look at the main types of stock investments that are available.

- individual stocks: The most straightforward way of investing in stocks is buying shares in a company directly. This will make you an owner (shareholder) in the company, and you will also be eligible to receive dividends. However, this is also the form that requires the most time and involvement - in order to find the right target company, you have to do a lot of research, which means spending more time learning. Holding individual stocks usually doesn't have a cost, but you are charged a fee when you buy and sell them.

- stock ETFs (exchange-traded funds): These are funds that consist of more than one stock and are therefore less risky than an individual stock. These funds are traded on a stock exchange and usually copy the performance of big stock indexes, like the S&P 500. ETFs are popular because they are low-cost, easy to access, there is a wide assortment of choices, and their liquidity is high. If you are interested in learning more, check out our section about buying ETFs online.

- mutual funds: These are funds similar to ETFs, but are not traded on stock exchanges. While it is a cheaper option compared to stocks, it is more expensive than ETFs trading, and in fact it is possible that the costs may eat up all of the fund's annual gains.

Example: If the annual cost of a mutual fund is 3%, and the fund's performance is 2%, you will actually have less money on your account at the end of the year because of the costs. Furthermore, the risks, as well as the rewards, are usually lower compared to stocks, and you will not be a direct owner in any company.

- robo-advisors: A robo-advisor is an online platform that puts together an automated, personally tailored investment portfolio, based on information you provide about your risk appetite. The cost is usually in the same range as ETFs. The biggest robo-advisors in the US are Wealthfront, Betterment and Vanguard. In the UK and Europe, Nutmeg and Scalable Capital are the leading ones.

- derivatives: There are also many other types of products that are derived from stocks, such as options, futures, or CFDs. However, these are much more complicated instruments and thus riskier as well, which is why we don’t recommend them for beginners. Learn more about derivates, such as CFDs.

 

Are stocks for you?

Last, let’s look at whether stocks are the right investment for you, or if you should focus on other types of products. 

Regarding risk, a good rule of thumb to follow is this: If you lost 20% in a week, how badly would that affect you? If that is too much and you don’t think you would be able to handle it, then stay away from stocks and invest instead in some less risky assets, such as short-term U.S. government bonds, for example. If, however, you would be OK with this kind of short-term loss in the hope of long-term gains, then go ahead, stocks are right for you.

If at this stage you still believe that stocks are for you, then let’s move on to finding the right online broker.

 

Step 2: Choose an online broker

If you’ve decided on what type of product you want to buy to invest in stocks, you need to open an account at a brokerage firm. But which one? Today there is a wide array of choices available for all kinds of brokers, be they traditional brick-and-mortar companies with offices, or online broker firms. Each brokerage has its own strengths and weaknesses, different fee structures, product offering, trading platform, research and learning tools, and so on, so the choice can be a difficult one. You can learn more about the different types of brokers at our dedicated page on stockbrokers and other types of brokerages.

Thankfully, Brokerchooser is here to help you: we started our service just for this purpose, so based on your preferences, we can recommend the right broker for you. We cover only safe brokers regulated by financial authorities, so you don’t have to worry about running into scammers. To get a free, personally-tailored recommendation by answering a few questions, just click on the button below, or scroll down to see our more general recommendations for the best brokers for beginners.

Free broker recommendation

Tip: Use national tax-free accounts

In your country of residence, you may have the option to open special investment accounts that offer favorable tax conditions. For example, in the US, there are the 401(k) accounts and IRAs, while in the UK, this is the ISA, the Individual Saving Account, which is exempt from income tax and capital gains tax on the investment returns.

 

Step 3: Open and fund your account

Once you’ve selected the right broker for you, you need to open an account. This account will handle all your money, as well as all of your investments, such as stocks, funds, bonds, etc. The account opening can usually be done online and may take anywhere from a day to several days. You will also need to fill out various identification forms, so have your documents ready.

After opening your account, in order to start investing in stocks, you will need to deposit money to the account, which is also referred to as funding your account. Depending on the broker, this can be done via bank transfer, credit card, or even electronic wallets like Paypal or Apple Pay. Some brokers also set a minimum amount that you have to deposit to start trading, so keep this in mind when making the transfer.

To learn more about broker deposits and compare brokers, follow the link below:

Compare broker deposits

 

Step 4: Buy the stocks

With your investment strategy ready, and your account opened and funded, all you need to do now is buy the stock that you have selected. Trading platforms usually have a search function to help you with this process. Taking into account how much money you have and the price of the product, enter how many shares you want to purchase and press ‘Buy.’ Congratulations! You have now made your first investment and are the proud owner of a stock.

When placing an order, you can choose from different order types. A market order buys immediately at the current market price, while a limit order allows you to specify the exact price at which you want to buy the shares.

 

Step 5: Review your portfolio and plan regularly

After the initial purchase is done, you can start building or changing your portfolio by buying new products or selling them in order to reap the profits (or cut losses). This is called portfolio management, and is usually a necessary part of investing. Although it is possible to buy just once, lie back and hope that you made the right choice and you will be a millionaire years later when you retire, it is not the general experience. For short-term buyers, position management could mean setting up the stop-loss price of where to cut losses, and the target price of where you want to sell the shares with a profit. 

A good investor keeps an eye on market movements, how economies are doing, which sectors are booming and which are struggling, and adjusts his or her strategy and makes investment decisions accordingly.

Even if you are a long-term investor, you should review your assets a couple of times a year at least. If you are satisfied, then you can leave things as they are, but if you want to make changes you should. If you are unsure, don’t be afraid to ask for advice, either from an advisor at your online broker, or by doing some research yourself, watching online videos, or educating yourself via investment courses.

 

Now that you have passed our investing in stocks 101 course and mastered the 5-step guide, take a moment to look at the top 5 brokers we have selected for you.


Top 5 brokers for investing in stocks

If you're a beginner just starting to explore how to invest in stocks online, we recommend that you choose one of the following five brokers. We tested all five, and we have live accounts with all of them. 

When recommending an online broker, we take into account the broker’s fees, trading platform, accessible markets to trade, and how easy it is to open an account. Safety is also very important, but since we recommend only safe brokers, you don't have to worry about this. In our recommendation below, we considered the broker's geographical coverage as well, so you will find some brokers that are more US-focused, some that are more active in Europe, as well as ones that are all-around global players.

First and foremost, here is a table comparing some key characteristics of each of the brokers:

How to invest in stocks - The best brokers
  Robinhood DEGIRO eToro Saxo Bank Charles Schwab
Broker intro US zero-fee discount broker Dutch discount broker Global social trading broker Danish investment bank US discount broker
Award Best for beginners Best discount broker Best social trading Best trading platform Best research
Overall score 4.1 4.7 4.5 4.7 4.6
Fees score 4 stars 5 stars 4 stars 3 stars 4 stars
Markets and products score 1 stars 3 stars 3 stars 4 stars 3 stars
Account opening score 5 stars 5 stars 5 stars 3 stars 5 stars
Web platform score 5 stars 4 stars 4 stars 5 stars 4 stars

Due to local market regulations or the coverage offered by brokers, not all services of all online brokers are available in every country. For online brokers that are definitely available in your country, check out our broker finder. If fees are at the top of your agenda, you will also enjoy digging into Brokerchooser's ultimate fee comparison table.

Now, let's look more into the details of the 5 best brokers where you as a beginner can invest in stocks:

 

Robinhood

60

  Robinhood
Broker background Robinhood is a US zero-fee or discount broker established in 2013. If you don't know what discount broker means, read this overview about the best discount brokers in 2018. Robinhood is considered safe because it is supervised by FINRA, the US regulator and provides a maximum of $500,000 investor protection including a $250,000 limit for cash.
Fees score 4 stars
Fees - one liner US stock trading is free at Robinhood. There are no inactivity fee and withdrawal fees. On the flip side, Robinhood has really high commission for non-US stocks.
Recommended for Beginners and buy and hold investors focusing on the US stock market
  Visit broker

How to invest in stocks - Robinhood web trading platform

 

DEGIRO

15

  DEGIRO
Broker background DEGIRO is a trending Dutch online discount broker. It is privately owned and was established in 2013 by former employees of another brokerage company. DEGIRO is considered safe as it is regulated by top-tier financial regulators, the Dutch AFM and DNB. It is registered with the Chamber of Commerce and Industry in Amsterdam under number 34342820.
Fees score 5 stars
Fees - one liner DEGIRO has low trading and non-trading fees. In most asset classes, it is the best in the market. There is one free ETF trading per month, a great offer for buy-and-hold investors.
Recommended for Price-sensitive buy and hold investors and traders looking for only execution
  Visit broker

How to invest in stocks - Degiro web trading platform

 

eToro 

14

  eToro
Broker background eToro is a well-known fintech startup, an Israeli social trading broker established in 2007. eToro serves UK clients by an FCA regulated entity and Australians by an Australian entity. All other customers are served by a Cypriot entity. eToro is not listed on any exchange, does not disclose its annual report on its site and does not have a bank parent. It is also one of the 5 best trading platforms for Europeans. eToro is considered safe because it's UK arm is regulated by a top tier regulator and it is a well-known fintech startup. eToro is a multi-asset platform which offers primarily CFDs, but you can also invest in stocks and crypto assets. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 66% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Fees score 4 stars
Fees - one liner eToro offers free stock trading in Europe and has low fees for non-EU clients. On the negative side, the non-trading fees and financing rates are high.
Recommended for Beginner traders and those interested in social trading (copying other traders’ trades)
  Visit broker
66% of retail CFD accounts lose money

How to invest in stocks - eToro web trading platform

 

Saxo

6

 

  Saxo Bank
Broker background Saxo Bank is a Danish investment bank providing online trading and investments. It is a leading European retail brokerage innovator. Saxo is privately owned, established in 1992, and headquartered in Copenhagen. Saxo is considered safe as it is regulated worldwide by more than 10 financial regulators, including top-tier regulators, like the UK FCA.
Fees score 3 stars
Fees - one liner Saxo Bank has average trading and non-trading fees.
Recommended for Investors and traders looking for a great trading platform and solid research
  Visit broker

How to invest in stocks - Saxo web trading platform

 

Charles Schwab

88

  Charles Schwab
Broker background Charles Schwab was founded in 1971 and it is one of the biggest US-based discount brokers. It is regulated by top-tier regulators, like the US SEC or the UK FCA. Charles Schwab is considered safe because it has a long track record, is listed on a stock exchange, has a banking background, and is regulated by top-tier regulators.
Fees score 4 stars
Fees - one liner Charles Schwab has low trading and non-trading fees. It even charges no commission for some ETFs, bonds, and mutual funds. On the negative side, the fees for mutual funds and the financing rates are high.
Recommended for Investors and traders looking for solid research, low fees, and great customer service
  Visit broker

How to invest in stocks - Charles Schwab web trading platform

 

We hope you were able to find the best broker to fit your needs. In the following sections, we have collected some basic information about brokers and stocks, as well as a few tips on investing in stocks, what to look for, and what to look out for. 


The pros and cons of investing in stocks

Stocks are historically considered to be one of the best investments a person can make, on a long enough time horizon and with the right approach and strategy. (If you want to dig into the data on this, check out the book Triumph of the Optimists, which has tons of tables and graphs on long-term investments.) However, they are not for everyone, and they may not be the best fit for your personal needs. While solid choices or a good run of luck can make investors millionaires even in a couple of years, many people have also lost all their money on the stock market due to foolish mistakes or bad fortune. Before you invest in stocks, here are some pros and cons to consider:

PROS:

  • High long-term returns: over the long term, stocks have proven to generate the highest historical returns in comparison with other asset classes.

  • Dividend income: regular, reliable income from dividends after stocks you own.

  • Easy to diversify: you can buy as many different stocks as you want, in different countries or industries, spreading risk.

  • Plenty of choices: there are thousands of different companies you can invest in all over the world, in all sectors, and in all sizes.

  • Low entry bar: you don’t need a lot of money to start investing, you can start with as little as $100.

  • High liquidity: most stocks traded on the major exchanges are highly liquid, meaning you can sell easily at any time if you need cash.

  • Can do it yourself: if you put in some time and learning, you can be your own advisor, without any outside help.

  • Sit alongside the big stars: if you own stock in let's say Amazon, Tesla, or Berkshire Hathaway, you will have the same rights as other owners, including mega-stars such as Jeff Bezos, Elon Musk or Warren Buffett.

  • No running costs: once you buy a stock, there is no other cost to keeping it for as long as you wish, unlike some other investment forms.

  • Stocks are forever: if you buy a stock once, then years, decades, sometimes even more than a hundred years later - provided the company still exists and didn't go bankrupt - the stock will still have value.

  • Participate in annual meetings: as a shareholder, you have the right to go to the company's annual meetings, vote on proposals, and voice your opinions.

CONS:

  • Short-term volatility: while stocks tend to perform well on the long term, there may be huge swings in prices within short periods.

  • Hot picks can be hit or miss: your picks may turn out to be duds and lose all their value, just as they might skyrocket.

  • Requires time to learn: in order to make good, informed choices, you need to put in time to learn, research and analyze stocks.

  • You could lose all your money quickly: making bad decisions and following a poor strategy, or just some bad luck, may result in you losing all or most of your funds very quickly. This may be caused by a company filing for bankruptcy, the publication of poor financial results, a failed product, or the discovery of outright fraud. For some cautionary tales, check out the stories of companies like Theranos, Carpetright, Vascular BiogenicsLehman Brothers, or Enron.


What are online brokers and how do they work?

An online broker is a financial company that helps you buy and sell stocks and other assets, generally through a trading platform. In exchange for their services, brokers charge a fee, also called a commission. The size of this may differ greatly from broker to broker. There may be a fixed flat fee after each transaction, or a percentage of the value of the transaction, or a mixture of both.

Compare broker fees

If you want to invest in stocks, going through an online broker is the simplest and most cost-efficient way. Of course, it is also possible to walk into your local bank branch and buy stocks there, but this is usually slower and costs more. Today, there are many very good, safe online brokers that offer services at attractive prices, so we recommend that you choose one of them. Use our broker selector tool to find the right one for you!

Find a broker

Tip: Open a demo account

Many online brokers offer demo accounts, where you can try out how buying and selling stocks works, without risking any of your actual money. These accounts and trading platforms look the same as the live ones, but no actual transactions are carried out on the open market - the deals are only virtual. It's a useful tool for getting to learn the details of stock trading in demonstration mode, before jumping into the market with your hard-earned savings. 


What are stocks?

Stocks are shares of ownership in a company. When a company’s owners decide to issue shares, they are in essence dividing the firm’s capital into many shares of equal size. Anyone who owns a share owns a piece of the company, even if it is just a very small percentage. In addition to providing a sense of direct ownership to its bearer, stocks allow their owners (also called stockholders) to benefit from the company’s good performance - as the value of the company rises, so does the value of individual shares. On the downside, this also means that if the company’s performance worsens, shareholders suffer as well.  

To take a specific example on how shares work, let’s look at Tesla: the company has 173 million shares outstanding. When you buy 100 Tesla shares, you become one of the owners of Tesla. Your ownership percentage will be very tiny, 0.000058% (100/173 million), but still, you will be an owner with all the rights that come with this ownership:

The right to receive dividends - when the company allocates dividends, you will receive a part of this. Sticking with the example of Tesla, let’s say that in 2020 Tesla will pay $100 million in dividends - then you will receive $58 (0.000058%*100 million).

Voting rights - if you are a shareholder, you have the right to attend the company's annual general meeting. At the meeting, you have the right to speak up, ask questions and make comments on the firm’s performance and strategy. And most importantly, you can vote on the topics that will fundamentally influence the future of the company. These topics can vary from the election of the board of directors to the amount of the dividends allocated.


General risks and how to manage them

Investing in stocks carries with it many risks that you should aim to manage as much as you can (read more about market risk and other types of risks). Here are some of the most common types of risks and our advice on how to manage them.

Avoid the scams

Risk: Unfortunately, there are many scam online “brokers” are out there trying to steal your money. When you see ads for binary options trading or automated investment algorithms that generate outstanding returns, start to get very suspicious. In these cases, the best thing to do is to ignore these ads.

How to manage it: When investing in stocks online, go with our selection of safe, verified brokers. We have an active account with the brokers we selected and we test them regularly.

Diversify your portfolio

Risk: If you put all of your savings in just one or two stocks, and the company you selected goes bust, you could lose all your invested money.

How to manage it: Diversify your investment portfolio. This practically means buying many different stocks and not putting all your eggs in one basket. The ideal number of stocks in a portfolio ranges somewhere between 20 to 30. Alternately, you can also invest in ETFs or mutual funds, which are a natural, simple form of diversification.

Avoid crappy stocks

Risk: when buying individual stocks, there is always a risk of selecting the wrong ones. This could mean anything from a company that inflates its potential, actually defaults, or just buying an overpriced stock.

How to manage it:

Learn: This is the tricky part, since you need some knowledge and experience to learn which stocks to invest in. The best is to start learning by reading books on investment and taking online courses. There are tons of great books out there, but you can start with Intelligent Investor by Benjamin Graham. This is also the book on investment most recommended by Warren Buffet.

Gather information: While you are learning, start collecting as much information about your target companies as possible. Read about them, understand their business profiles, start going through their income statements, gain some knowledge about their management or even attend their annual meetings. These will help you get a better understanding of the company and the specific industry.

Compare multiples: When it comes to pricing, use industry multiples as a benchmark for your target stock. P/E is a basic multiple, but each sector has its own favorite.

 

How to invest in stocks - where to get ideas for investments


Investment protection

Since you are trading with your savings, it is very important to pay attention to safety. The online brokers we selected have some of the best protection schemes, the level of which depends on the regulatory body of the broker (learn more about investor protection).

How to invest in stocks - safety of brokers
  Robinhood DEGIRO eToro Saxo Bank Charles Schwab
Country of regulation USA Netherlands, UK UK, Cyprus, Australia Denmark, UK, France, Switzerland, Singapore, UAE, Japan, South Africa, Australia USA, UK, Hong Kong, Singapore
Investor protection amount $500,000 (securities up to $500,000, cash up to $250,000) €20,000 £85,000 for UK residents, €20,000 for residents of non-UK countries €100,000 for cash deposits and €20,000 for securities for most European countries $500,000 (securities up to $500,000, cash up to $250,000)

You can compare the protection amounts for all of our reviewed brokers by clicking on the link below.

Compare protection amounts


Bottom line

In summary, stocks are very good investments, especially on the long term. It is definitely worth learning more about the process before diving into it, however, for which we have assembled a short list of easy-to-follow steps.

Follow these simple steps to learn more about how to invest in stocks:

  1. Make an investment plan
  2. Choose an online broker
  3. Open & fund your account
  4. Buy the stocks
  5. Review your portfolio and plan

If you follow these guidelines, you will find the process much easier and realize that it is not so scary at all. Start right now, just take the first step and try it out yourself. Welcome to the world of investing!

If you are unsure about which brokers to choose, here are our top recommendations as a reminder:

How to invest in stocks - The best brokers
  Robinhood DEGIRO eToro Saxo Bank Charles Schwab
Award Best for beginners Best discount broker Best social trading Best trading platform Best research
Fees score 4 stars 5 stars 4 stars 3 stars 4 stars
Web platform score 5 stars 4 stars 4 stars 5 stars 4 stars
Account opening score 5 stars 5 stars 5 stars 3 stars 5 stars
Deposit and withdrawal score 3 stars 3 stars 4 stars 5 stars 2 stars
  Visit broker Visit broker Visit broker
66% of retail CFD accounts lose money
Visit broker Visit broker

 

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