You need a brokerage account, money to invest, and a choice between individual stocks or funds

Investing in stocks means buying a share of ownership in a company. When you buy one share of Apple, you own a tiny piece of Apple. The price of that share goes up and down based on what people think the company is worth. You make money if you sell it for more than you paid, or if the company pays you a dividend (a cash payment to shareholders). You lose money if you sell it for less than you paid.

To buy stocks, you need a brokerage account — a financial account that lets you place buy and sell orders. You open this account with a brokerage firm (a company licensed to trade stocks), fund it with your own money, and then use that money to buy stocks. The brokerage holds your stocks in that account and keeps a record of what you own.

Most people do not pick individual stocks. Instead, they buy index funds or exchange-traded funds (ETFs) — baskets of many stocks bundled together. A fund that tracks the S&P 500 holds pieces of 500 large U.S. companies. When you buy one share of that fund, you own a tiny piece of all 500 companies at once. This spreads your risk: if one company fails, your money is not all in that one place.

Key Takeaways

  • You open a brokerage account with a firm like Fidelity, Vanguard, or Charles Schwab, deposit money, and use that account to buy and sell stocks or funds.
  • Most beginning investors buy index funds or ETFs rather than individual stocks, because funds spread your money across many companies and reduce the risk that one bad pick will hurt you badly.
  • You can start with as little as $1 to $100 depending on the brokerage and the fund, though most people invest larger amounts over time.
  • Stocks and funds are held in different account types — taxable accounts, IRAs, and 401(k)s — and each type has different tax rules and contribution limits.
  • The price you pay for a stock or fund changes throughout the trading day, and you can place an order to buy or sell at any time the market is open.

Opening a brokerage account and choosing where to trade

A brokerage account is simply a financial account held at a brokerage firm. The firm acts as the middleman between you and the stock market. You send them money, they hold it, and when you tell them to buy a stock, they execute that trade and hold the stock in your name.

Common brokerages include Fidelity, Vanguard, Charles Schwab, E-Trade, and Robinhood. Each one charges different fees, offers different tools, and has different minimum account balances. Some charge per trade; others charge nothing per trade but make money other ways. Some require you to keep a minimum balance (often $0 to $2,500); others do not. Before you open an account, compare the fee structure and minimum balance of at least two or three brokerages.

Opening an account takes 10 to 20 minutes online. You provide your name, address, Social Security number, employment information, and bank details. The brokerage verifies your identity and opens the account. You then link a bank account and transfer money into the brokerage account. That money sits in the account until you use it to buy stocks or funds.

How much money you need to start

You can start with almost any amount. Some brokerages and funds have no minimum; others require $1, $10, $100, or $1,000 to open an account or buy a specific fund. Many index funds have minimums of $1 to $3,000 for the first purchase, though some brokerages let you buy fractional shares (a piece of one share) for as little as $1.

The real question is not how much you need to start, but how much you can afford to invest without needing that money for bills, emergencies, or near-term goals. Money in the stock market can lose value in the short term. If you invest $5,000 and the market drops 20 percent, your account is worth $4,000. If you need that money in three months, you may have to sell at a loss. Most financial advisors suggest investing only money you will not need for at least five to ten years.

Individual stocks versus funds: which route to take

Buying individual stocks means picking specific companies and buying shares of them. You research Apple, decide you think it will grow, buy 10 shares, and hope the price goes up. This requires time, research skill, and willingness to accept that you might pick wrong. Most individual investors underperform the overall market because picking winners is hard.

Buying a fund means buying one investment that holds many stocks. An S&P 500 index fund holds 500 stocks. A total U.S. stock market fund holds thousands. You buy one share of the fund and own a piece of all those companies. The fund's price moves based on the average performance of all the stocks inside it. This approach requires less research and spreads your risk across many companies instead of betting on a few.

For most people starting out, a fund is the simpler and lower-risk choice. You can always buy individual stocks later if you want to. Many investors do both: they put most of their money in funds and use a small portion to experiment with individual stock picks.

Account types: taxable accounts, IRAs, and 401(k)s

Where you hold your stocks matters because different account types have different tax rules. A taxable brokerage account is the simplest: you deposit money, buy stocks or funds, and when you sell for a profit, you owe capital gains tax on that profit. There are no contribution limits and no restrictions on when you can withdraw money.

An IRA (Individual Retirement Account) is a tax-advantaged account for retirement savings. You can contribute up to $7,000 per year (as of 2024; this amount changes yearly). Money grows tax-free, and you do not pay tax on gains until you withdraw money in retirement. You cannot withdraw without penalty before age 59½. A Roth IRA lets you contribute after-tax money, and withdrawals in retirement are tax-free. A Traditional IRA lets you deduct contributions from your taxes now, but you pay tax on withdrawals later.

A 401(k) is a retirement account offered by your employer. You contribute money from your paycheck before taxes are taken out, and your employer may match a portion of your contribution (assistance programs). The money grows tax-free until retirement. You cannot withdraw without penalty before age 59½. A 401(k) is usually the best place to start investing because of the employer match.

How to place a buy order and what happens next

Once your account is funded, you log into your brokerage and search for the stock or fund you want to buy. You enter the ticker symbol (a short code: AAPL for Apple, VOO for Vanguard S&P 500 ETF). You specify how many shares you want and what price you are willing to pay, or you place a market order to buy at the current price right now.

A market order buys immediately at the current market price. If you place a market order for Apple at 10 a.m. and Apple is trading at $150, you will pay $150 per share (plus any brokerage fees). The order executes in seconds to minutes during market hours (9:30 a.m. to 4 p.m. Eastern Time, Monday through Friday).

A limit order lets you set a maximum price you are willing to pay. You say "buy Apple if it drops to $145" and the order sits until the price hits $145, then executes automatically. If the price never hits $145, the order never executes. Limit orders are useful if you want to wait for a better price, but they can also mean you miss out if the price never drops.

Once your order executes, the shares appear in your account. You now own them. You can hold them forever, sell them tomorrow, or sell them in 30 years. The brokerage sends you a confirmation email and updates your account balance.

Understanding price changes and when the market is open

Stock prices change constantly during market hours. The price you see on your phone right now is the price of the last trade that happened — not necessarily the price you will get if you place an order in the next second. Prices move based on supply and demand: if more people want to buy Apple than sell it, the price goes up. If more people want to sell than buy, it goes down.

The U.S. stock market is open Monday through Friday, 9:30 a.m. to 4 p.m. Eastern Time. You can place orders during these hours and they execute during market hours. You can also place orders before or after market hours (called pre-market and after-hours trading), but prices are less stable and spreads (the difference between buy and sell prices) are wider, so most people avoid this.

Markets are closed on weekends and federal holidays. If you place an order on Saturday, it will not execute until Monday morning. If you place a market order after 4 p.m. on Friday, it will execute Monday morning at the opening price, which may be very different from Friday's closing price.

Fees, taxes, and costs to watch for

Different brokerages charge different fees. Some charge per trade (often $5 to $10 per buy or sell order). Others charge nothing per trade but charge annual account fees or require minimum balances. Some charge fees to transfer money in or out. Before you open an account, read the fee schedule.

Funds also charge internal fees called expense ratios. An index fund might charge 0.03 percent per year, meaning if you invest $10,000, you pay $3 per year in fees. An actively managed fund might charge 1 percent, meaning you pay $100 per year. Over decades, this difference compounds: a 0.03 percent fund will grow much larger than a 1 percent fund, all else equal. Look for funds with low expense ratios.

When you sell a stock or fund for a profit, you owe capital gains tax. Short-term gains (held less than one year) are taxed as ordinary income at your regular tax rate. Long-term gains (held more than one year) are taxed at a lower rate (0, 15, or 20 percent depending on your income). This is why holding investments longer is often better: you pay less tax. Money in a 401(k) or IRA grows without triggering taxes until you withdraw.

Frequently Asked Questions

Can I lose more money than I invested?

If you buy stocks or funds directly, no — the worst case is that the price drops to zero and you lose your entire investment. You cannot owe money to the brokerage. However, if you use margin (borrowing money from the brokerage to buy more stocks), you can lose more than you invested because you owe the borrowed money back.

What is the difference between a stock and a fund?

A stock is ownership in one company. A fund is a basket of many stocks (or bonds, or other investments) bundled together. When you buy a fund, you own a tiny piece of every stock inside it. Funds reduce risk because your money is spread across many companies instead of concentrated in one.

Do I have to pick stocks myself, or can someone else manage my money?

You can do it yourself, or you can pay someone to do it. A financial advisor or robo-advisor (an automated service) can manage your account for you. Robo-advisors typically charge 0.25 to 0.50 percent per year. Human advisors charge 0.50 to 2 percent per year or a flat fee. For most people starting out, managing your own account with index funds is simpler and cheaper.

How often should I check my account?

You can check as often as you want, but most experts suggest checking once a month or once a quarter. Checking daily can tempt you to trade too often, which costs money in fees and taxes. Long-term investing works best when you buy and hold for years, not when you trade constantly.

What if the market crashes after I invest?

If you invest $5,000 and the market drops 30 percent, your account is worth $3,500. If you do not sell, you still own the same shares. Historically, markets have always recovered and reached new highs. If you need the money in the next few years, a crash is bad timing. If you do not need it for 10 years, a crash is actually an opportunity to buy more at lower prices.