Whether you’re listening to the news or scrolling TikTok, it seems like everyone is talking about how to invest in stocks. But, for many, investing feels confusing, high-risk or unattainable.
But understanding the stock market is simpler than you think, and getting started investing doesn’t always require a lot of cash. In this stock market for beginners guide, we’ll explain what stocks are, how they work and how you can start investing in them today.
What are stocks?
Imagine a corporation is a pie. A single slice of the pie would be a stock, or a share, of the pie.
Stocks are equities that allow people to invest in just a portion of a company. When someone owns a stock, they proportionally own a part of the company.
Stocks are bought and sold on a stock exchange, like the New York Stock Exchange (NYSE). The government regulates the buying and selling of stocks on an exchange.
How do stocks work?
Why are companies willing to sell a slice of their pie?
Oftentimes, companies sell shares to raise funds to operate their business. When a person buys a stock, they’re buying into the company. For example, if a company were to issue 100 stocks and a person buys 10, they’d be entitled to 10% of the company’s assets.
When someone owns a stock, they can:
Vote in shareholder meetings
Receive dividends (if the company distributes dividends)
Sell their stocks
How do I make money with stocks?
There are two primary ways that investors “make money” with stocks.
The first is buying a stock that distributes dividends. Typically, older, more established companies are the ones that distribute dividends, but it’s not a hard-and-fast rule. Dividends are often paid out on a quarterly basis, and the amount of money an investor gets with each distribution will vary based on the company’s profit. Dividends can either be cashed out or reinvested into more company stock.
Another way to make money with stocks is to sell an asset at a profit. That’s where the “buy low, sell high” mantra of the market comes in. If a stockholder sells their stock for more than they purchased it for, they’ll make money. But keep in mind these gains are taxed, and there’s no profit until the stock is sold.
How do I start investing in stocks?
Stocks are bought and sold on an exchange, but what does that really mean?
With personal finance apps, it means you have the power to invest in stocks in the palm of your hand. Just jumping in on your own can feel intimidating. Luckily, there are ways to get help on your investment journey.
Financial advisors
Working with a financial advisor could be a good fit if you’re looking for a hands-on approach to investing with a human touch. Firms like Vanguard, Zoe and Empower all offer investment advisors, each with its own minimum investment requirements and benefits.
Financial advisors typically have years of experience under their belts and can offer personalized advice on the market tailored to your goals and needs. Since they’ll manage your assets for you, there’s no need to get caught up in the buying and selling on a platform.
However, if you’re starting to invest in stocks with little money, working with a financial advisor may be a challenge. Not only do they charge more fees than other investment vehicles, many financial advisors also have minimum investments, meaning you could need several thousand dollars or more to get started.
Robo-advisor
If you’re looking for a more hands-off approach to investing, consider a robo-advisor.
Robo-advisors are automated services in which users indicate their risk tolerance, finances and goals, then the software goes to work. Robo-advisors will invest your cash for you, automatically balancing portfolios to help meet financial goals. For example, Betterment, Acorns and Wealthfront all offer simple-to-use robo-advisor tools.
While robo-advisors lack the human touch that comes with a financial advisor, they typically have lower fees and low or no minimum investments. If you’re investing with little money as a beginner, the set-it-and-forget-it nature of robo-advisors may be a good fit.
DIY
Interested in getting into the nitty gritty of stocks and want to avoid some fees? While there’s a bit of a learning curve, you can use an investment app to purchase individual stocks on your own.
Investing on your own means no investment minimums, and you’ll avoid the fees associated with financial advisors. However, what you make up for in lack of fees, you may lose out on in knowledge. There is a lot to learn in the world of investing, and as a beginner, it’s probably unrealistic to assume you’ll make a profit. But, it could be a good learning experience to buy a stock or two on its own to track. Robinhood, E*TRADE and WeBull offer user-friendly apps where you can try your hand at investing all on your own.
Keep in mind that with any investment opportunity, if any offer sounds too good to be true, it probably is. There are many scams to be aware of that take your investment and leave you with nothing. Conduct due diligence before investing with an app, expert or even on your own.
Bottom line
Stocks are a way to own a small slice of a company or corporation, but purchasing stocks alone doesn’t guarantee profit. Understanding an investment strategy can be easier with help from a financial advisor, either a person or a robo-advisor. You can also purchase stocks on your own.
No matter which route you choose, make sure to research each option to find the right fit for you.
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