You need a brokerage account, money to invest, and a decision about what stocks to buy
Buying stocks means opening an account with a brokerage firm, depositing money, and placing an order to purchase shares of a company. The brokerage holds your account, executes your trades, and keeps records for taxes. You can open an account online in minutes, but the actual decision about which stocks to buy — or whether to buy individual stocks at all — takes more thought.
As a homeowner, you may have reasons to invest differently than someone without property. You have a large asset already, you may have less cash available after a mortgage payment, and you might be thinking about how stocks fit alongside your home equity. This guide covers how the mechanics work, not whether stocks are right for your situation.
Key Takeaways
- A brokerage account is where you buy and sell stocks; you open one online, fund it with your own money, and the brokerage executes your orders.
- You can buy individual company stocks or funds that hold many stocks, and funds typically carry less risk because losses are spread across many companies.
- Stocks you hold for more than one year before selling may receive favorable tax treatment, which matters when you file your return.
- Money you invest in stocks is not may provide and can go down; most financial advisors suggest not investing money you will need within five years.
Opening a brokerage account
A brokerage account is simply a container for your investments, held by a licensed firm. The firm's job is to execute your buy and sell orders, keep your money safe, and send you tax documents at year-end. You do not need permission or a minimum amount to start; most brokerages accept accounts with no minimum deposit, though some charge monthly fees if your balance stays below a certain level.
To open an account, you visit a brokerage website, provide your name, address, Social Security number, and employment information, and link a bank account for deposits. The process takes 10 to 20 minutes. Common brokerages include Fidelity, Vanguard, Charles Schwab, E-Trade, and Robinhood, though many others exist. Each charges different fees and offers different tools; comparing them before you open an account saves frustration later. Once your account is open and funded, you can place an order to buy stocks immediately.
Individual stocks versus funds
You can buy shares of a single company — Apple, Microsoft, a local bank — or you can buy a fund, which is a collection of many stocks bundled together. When you buy a fund, your money is spread across dozens or hundreds of companies, so if one company's stock drops sharply, it affects only a small part of your investment.
Individual stocks require you to research the company, understand its finances, and decide when to buy and sell. This takes time and carries higher risk if you pick wrong. Funds require less research because a professional manager or a set of rules decides which stocks go in the fund. You pay a small fee for this, usually between 0.03% and 1% of your investment per year, depending on the fund. For most people new to investing, funds are simpler and safer.
A mutual fund is actively managed by a person who picks stocks. An index fund tracks a list of stocks automatically — for example, an S&P 500 index fund holds the same 500 large companies as the S&P 500 index, in the same proportions. Index funds usually charge lower fees because no one is actively picking stocks.
How much money you need to start
Most brokerages let you open an account with any amount, including $100 or $500. Some funds have minimum investments of $1,000 or $2,500, but many have no minimum. You can start small and add money over time. The real question is not how much you need to start, but how much you can afford to invest without needing it back soon.
Money in stocks can go down in value, especially over short periods. If you invest $5,000 and the market drops 20%, your account is worth $4,000. If you need that money in six months, you may have to sell at a loss. Most financial advisors suggest investing only money you will not need for at least five years, and preferably longer. As a homeowner with a mortgage, you may have limited cash after your monthly payment; invest only what you can afford to leave alone.
Taxes on stock sales and dividends
When you sell a stock for more than you paid for it, you owe tax on the profit. The tax rate depends on how long you held the stock. If you held it for one year or less, the profit is taxed as short-term capital gains, at your regular income tax rate. If you held it for more than one year, it is taxed as long-term capital gains, at a lower rate (0%, 15%, or 20%, depending on your income).
Some stocks also pay dividends — small cash payments to shareholders, usually a few times per year. Dividends are taxed as income in the year you receive them, even if you do not sell the stock. When you file your tax return, your brokerage sends you a form listing all your sales and dividends; you report these on your return. Keeping records of what you paid for each stock and when you bought it makes tax time easier.
Risk and how much stocks can move
Stock prices change constantly based on company news, economic conditions, and investor sentiment. A single stock can drop 50% in a year or gain 100%; this is normal. A fund holding many stocks typically moves less dramatically because gains and losses balance out. An index fund tracking the whole market might move 10% to 20% in a year, up or down.
You cannot predict which way the market will move tomorrow or next month. Historically, over long periods (10+ years), stock markets have trended upward, but there is no may provide. If you invest money you might need soon, you risk having to sell when prices are down. This is why time horizon matters: money you will not touch for 10 years can ride out short-term drops, but money you need in two years should probably not be in stocks.
Getting started with your first purchase
Once your account is open and funded, buying your first stock or fund takes a few clicks. You search for the company or fund by name or ticker symbol (a short code like AAPL for Apple), enter the number of shares you want, and place the order. During market hours (9:30 a.m. to 4 p.m. Eastern time on weekdays), the order executes within seconds at the current price. Outside market hours, your order waits until the market opens.
If you are unsure where to start, many people begin with a low-cost index fund tracking the S&P 500 or the total U.S. stock market. This gives you broad exposure to many companies without having to pick individual stocks. You can add to this over time or branch into other funds or individual stocks as you learn more. Starting small and learning as you go is a reasonable approach.
Frequently Asked Questions
Do I need a lot of money to start investing in stocks?
No. Most brokerages accept accounts with no minimum deposit, and you can buy a single share of a stock or fund with any amount of money. You can start with $100 and add more later. The main limit is how much you can afford to invest without needing it back soon.
What is the difference between a stock and a mutual fund?
A stock is a share of ownership in one company. A mutual fund is a collection of many stocks managed together. Funds spread your risk across many companies, so one company's poor performance affects only a small part of your investment. Most beginners find funds simpler and safer.
Can I lose all my money investing in stocks?
You can lose a large portion of your investment if stock prices fall sharply, but losing everything is rare unless you invest in a single company that goes bankrupt. Funds reduce this risk because your money is spread across many companies. This is why time horizon matters: if you do not need the money for many years, you can ride out temporary drops.
How do I know which stocks or funds to buy?
Research the company's finances, read analyst reports, and compare funds by their fees and holdings. Many beginners start with a low-cost index fund tracking the S&P 500 or total market, which requires less research. If you are unsure, speaking with a financial advisor can help you decide what fits your situation.
When do I have to pay taxes on stocks I own?
You pay tax when you sell a stock for a profit, and the rate depends on how long you held it. You also pay tax on dividends in the year you receive them, even if you do not sell. Your brokerage sends you a tax form at year-end listing all your sales and dividends.