How to Invest in Stocks for the First Time

If you are here, you want to get started investing in stocks. Perfect! Showing people how to get started in investing is my favorite thing to do. After all, that’s why I started Let’s Start Investing.

After you read this post you will know three things. First, you will know how to invest in stocks for the first time. Second, you will be able to apply this knowledge for investing for years to come. Lastly, you will know how to share this information with others and help them invest as well.

There are really only 5 steps to becoming a stock owner.

how to invest in stocks for the first time

If you want to know how to invest in stocks for the first time, you will need to acquire money, choose and join a brokerage, and simply analyze, select and order the stock of your choice!

Step 1: You Need Money to Start Investing

Money For InvestingI know this may sound like I’m being sarcastic but the reality is a lot of people don’t realize that they not only need money but that they need money to start investing. Those are two very different things! Let me show you the difference.

Let’s take a look at Lando and Han. Lando and Han work for the same company. Lando has been working at the company for 6 years and Han has been there for 4 years.

Both are very interested in investing and have been talking about it quite a bit. Which one of them is in a better position to start investing and which one of them should start investing?

NameIncomeBills (Mortgage, Utilities, Childcare, etc.)Debt (Credit Cards)Debt (Car Payment)Remaining
Lando$4,000/month-$2600-$800-$400-$150
Han3,600/month-$2100-$300-$250-$950

You will notice that although Lando makes more money, he also spends more money. In fact, Lando has a lot more debt when you count the credit cards and car payments together.

Han on the other hand also has debt but has been more cautious with credit cards and has a lower car payment. Although Han makes less money, after bills, he has the most money left over for investing.

So who is in a better position to start investing? Han!

Which one of them should start investing?

Now that’s a different question.

Debt has an interest rate and with that interest comes guaranteed losses to you each year. The average credit card interest rate is currently 16.91%. The stock market grows on average about 8% annually not counting on inflation (6% with inflation.)

That means a $1000 credit card for the average person costs them $169 per year in interest and $1000 investment would only earn them $60. Your money would be put to better use paying off the credit card and investing after it’s been wiped out.

I would say, Han should pay off his credit card debt and then go ahead and get started investing. Lando, on the other hand, has some more work to do.

Once you’ve paid off all of your high-interest debt and you are ready to start investing, you are going to need to join a brokerage.

Step 2: Choose a Brokerage

Choose a brokerageA brokerage is an establishment that allows you to buy and sell various assets depending on the type of brokerage it is. Most brokerages offer the ability to buy and sell stocks.

Some brokerages are designed for more advanced traders and investors and allow the purchase and sale of other investment assets such as Options, Futures, and Forex.

Choosing a brokerage can seem like a daunting experience. Don’t let it be! It really can be simplified and I’ll try to do just that below.

The first brokerage I joined was Scottrade which was later bought by TDAmeritrade. I chose it because it offered low commission fees.

Next, I chose a brokerage called Robinhood because it offered 0% commission fees. I still left all of my investments in TDAmeritrade that were already there since I didn’t want to pay to transfer what I had in that account over.

I realized I missed some of the features that TDAmeritrade offered such as the ability to see charts and dive deeper into stocks that I was researching. Robinhood is very basic.

I found another brokerage, Webull that offers no commission fees also and offered a lot of the features that I liked from TDAmeritrade. I have money in each of those brokerages currently and use each one to do different types of investing.

If I were going to start all over, the things I would focus on for choosing a brokerage are:

  1. Low or No commission fees – Nowadays almost every brokerage has removed commission fees. In fact, TDAmeritrade removed their commission fees as well.
  2. Easy to use interface
  3. Mobile Compatibility – If a brokerage doesn’t have a mobile app, it’s really behind the times
  4. Access to stock charts, news feeds, and analysis tools.
  5. Members of SPIC which ensures that your money is protected by insurance in the event that your brokerage goes bankrupt or faces some sort of other financial duress.
  6. Registered member of FINRA which protects the investor from market fraud and ensures that the brokerage is following federal guidelines and rules.
  7. Easy deposit and withdrawal process.

It seems like a lot to remember, but really it boils down to choosing a brokerage that has the features you want and keeps your money safe.

Stock Brokerages to Consider

There are lots of other brokerages to consider and you can search for them on your own if you choose, but here are three that I use and why:

BrokerageCommission Free?Ease of UseMobile App QualityAccess to Charts, News and AnalysisMembers of SIPC and FINRA?Easy Deposit and Withdrawal
TD AmeritradeYesGreatGreatExcellentYesYes
RobinhoodYesExcellentGoodGoodYesYes
WebullYesGreatExcellentExcellentYesYes

TD Ameritrade

TD Ameritrade

This is one of the older brokerages out there and I’ve had the majority of my investments in this brokerage for years. It has a mobile app that’s pretty easy to use and to be honest I almost do all of my investing through my phone these days.

It offers outstanding fundamental analysis tools and does have charting which is important to me for finding when I will enter and exit a trade.

I feel like the app is a little dated but I am familiar with it since I’ve used it so much.

Robinhood

Robinhood To be honest, I joined Robinhood because it offered $0 commissions when TDAmertrade didn’t. I started trading Options as well and found that Options and Stock Trades cost quite a bit if there are fees.

Since I started doing some short term trading, I decided to start using Robinhood more.

Also, I joined because they offer free stock when you join. I believe I got a free share of Sirius XM (SIRI) when I signed up about a year and a half ago.

My biggest complaint though is that they don’t offer nearly enough in the way of charts and analysis tools and so I’d be forced to review stocks I wanted to purchase with TDAmeritrade and then go use my Robinhood app.

It wasn’t the worst thing, but it was slower and less efficient.

Read My Full Robinhood Review

Webull

Webull

I joined Webull a year ago because they offered $0 commission fees as well but had way more charting and analysis tools. Also, they had a much better desktop app as well which was almost non-existent with Robinhood.

They offered 2 free stocks to join. I got one stock (valued between $2.50 to $200) for signing up and another (valued between $8-$1000) for depositing $100. The stocks I got were Swestn Energy ($4.65) and Snapchat ($14.84)

I found that out of the 3 brokerages, Webull is my favorite brokerage to recommend for people starting out, because it offers great analysis tools and charting capability but also has a very simple app to use.

Here are the main reasons I recommend Webull for starting out:

  • Easy to signup – You can signup and deposit money within literal minutes
  • The app for phone or desktop is well made – Finding stocks is easy
  • Expert tools for analysis and researching
  • Easy to track – Watch your investments change in value daily on one screen
  • Always adding more features
  • You get two free stocks just for signing up and depositing as little as $100.

Read My Full Webull Review

Once you have chosen a brokerage, it’s time to get to the fun stuff and choose stock!

Technically speaking, if you joined Robinhood or Webull, you will already be on your way to owning stock because they give you free stock for signing up.

For the sake of argument though, let’s ignore those freebies and move on to choosing stock for yourself!

lets buy some stock

Step 3: Choose Stock to Invest In

Choose a stockSince I use Webull a lot, I’m going to show you the process with Webull but don’t worry, almost every other brokerage is very similar to finding, choosing, and ordering stock.

Getting started, choosing stock can be intimidating. It is quite simple though. You just want to choose companies that you believe will grow in value over time you own their stock.

So, how do you find stocks to invest in? Here are a few ways!

What Companies Do You Rely On and Can’t Live Without?

One of the best ways to find stocks is to look at the goods and services that you use daily and can’t imagine being without.

For example, if the first thing you do every night is turn on the TV and go to Netflix, there’s a stock! It’s NFLX.

Another example could be when you go to the mall and walk into a store. If you think to yourself, this store is awesome and I keep seeing more and more people wearing their awesome products, there is a good chance that the store is traded on the stock exchange.

My wife told me about a new store at the mall that she said was getting more and more popular. I looked into it and bought stock. That store was Lululemon (LULU) and my $600 investment grew more than 250%!

How about the type of phone you have or the type of car you drive? Apple and Samsung both have stock. Toyota, Ford, and Tesla also have stock. Heck, you can even buy Ferrari stock!

What Companies Have Stood the Test of Time?

Look at companies that have been around for decades and still have a stronghold on their industry.

Hershey, Coca-Cola, Union Pacific, Johnson & Johnson are all big companies that have been around and continue to be powerhouses in their industries.

Browse Stocks in Your Brokerage

If you have a mental block in coming up with stocks to research, check out what your brokerage has in terms of searchability. For example, using Webull I can go to the Markets Section and search from over 5000 stocks.

If I sort by the Hot Industries and look under Entertainment, I’ll find a list of stocks that are in the entertainment sector.

searching for stocks

I decided to check out Roku for this example because it benefits from all streaming apps and doesn’t care if Netflix beats Disney or what type of television you own. No matter what you want to watch, Roku helps you watch it.

If I believe the stock will continue to rise, this may be a stock to invest in.

Want a More Sophisticated Approach to Choosing Stocks?

So let’s say you identify a stock that you are interested in but want to determine if it’s a good stock to invest in. You can analyze stock based on two different types of analysis: fundamental and technical analysis.

What’s the difference?

Well, quite simply, fundamental analysis focuses on reading income statements, balance sheets, and cash flow statements and determining the value of a company’s stock. This allows you to determine if it is fair or undervalued. If you believe it’s undervalued, it is a good stock to buy.

Technical analysis focuses on reading charts and using technical indicators to determine if a stock is at an appealing price so you can try to time your entry and buy the stock at a discount.

Usually, someone that buys stock using Fundamental Analysis is considered an Investor and someone who buys stocks based on Technical Analysis is considered a Trader.

Read my article on Trading vs Investing for more information on the differences between technical and fundamental analysis.

Can Someone Else Just Pick the Stocks For Me?

I get it, you’re a busy person!

Maybe you don’t want to choose your own stocks because you don’t have time to do all the research. Some people just don’t like researching stocks but still want to be an investor.

Luckily, there are ways you can have the stocks picked for you. Then all you need to do is purchase the amount that fits your investing plan.

There are even services that invest for you using Robo-Investors. These services use AI to choose stocks based on the Risk Tolerance you select in your portfolio.

Let’s start by having a person choose stock picks for you.

Motley Fool Stock Advisor

motley fool stock advisorLet’s start by having a person choose stock picks for you. I use a service known as the Motley Fool Stock Advisor. Motley Fool is run by two brothers named David and Tom Gardner.

I pay a yearly fee and receive vetted and researched stock picks every two weeks. Each brother releases two stock picks a month.

I have found a lot of great success with this service. For example, a couple picks I received from them and acted on are Shopify (SHOP) which is up 123%, Wix.com (WIX) which is up 24%, Disney (DIS) which is up 33%, and Apple (APPL) which is up 140%.

Not all of their picks are winners but from my experience I’ve had way more winning picks than losing ones and the ones that do lose, don’t lose by much. You can read our entire review of Motley Fool here.

Read My Motley Fool Review

How Do Robo-Investors Work?

For some people, it’s just easier and less stressful to put money into an account and just let it grow. Mutual Funds do just this but can charge pretty high fees that eat into profits and gains.

Robo-Investors are programs that use artificial intelligence to manage money for you. Also, Robo-Investors take the emotion out of trading and managing money which can be very advantageous. Two services that I use are Acorns and Betterment.

Investing with Acorns

Acorns PerformanceAcorns’ claim to fame is that when you make purchases using your debit or credit card, Acorns rounds up purchases to the next dollar and invests the change.

If you buy something for $2.40, Acorns takes 60 cents and places it into your Acorns account where it will grow in value depending on your risk tolerance.

Risk Tolerance ranges from Very Conservative to Very Aggressive.

It’s nice because you can just spend like normal and Acorns does the saving and investing for you.

It charges $1 a month which is a very painless price for the service being provided.

I use the account to save for projects or large purchases which is why you will see the two drawdowns. The first project was a home improvement project and the second withdrawal for a family trick. Even with those two withdrawals, I still managed to make over 5%.

Investing with Betterment

Betterment PerformanceAnother Robo-Investor that I like is Betterment. I opened this account to try it out and review it for you guys and gals and ended up liking it.

Now, I use this account to save up for my daughters so that someday I’ll have a nice sum to gift them. I put between $25 to $50 per paycheck on autopilot and let it grow a diversified fund for me.

Although the image doesn’t show, it’s averaging about a 7.6% annualized return.

I like this because it is separate from all of my other investments so I don’t even need to pay attention to it. It just continues to grow without me paying any attention to it.

I am a fan of these Robo-Investors but still prefer to search for, research, and buy my stocks when it comes to building my own wealth. If you are interested in this approach, check out my article which compares Acorns and Betterment.

Step 4: Place Order for the Stock

place order for the stockNow we are finally getting to the fun part which is buying the stock! You probably felt like this day would never come, yet here we are!

Now that you’ve decided on a stock to purchase, it’s just a matter of pressing a few buttons and you’re off! Before you execute your purchase though, I want you to think about the following two things.

  1. How much money do you want to allocate to this stock?
  2. At what price do you want to enter your trade?

How Much Should You Allocate to a Specific Stock?

I would recommend that if you are new to buying stocks, that you purchase shares of stock that make up no more than 5% of your overall portfolio.

I recommend this low amount because it helps protect you against having your entire investment fund dependant on only one company.

For example, if you are investing $500, I’d recommend not buying more than $25 worth of a single stock. This sounds a little crazy because a lot of stocks cost more than $25 per share but hear me out.

If you have all of your money invested in one stock and that stock has a really bad year, you will suffer heavy losses. If your portfolio consists of 20 different stocks, then one stock affects a small percentage of your portfolio.

What Price Do You Enter a Trade?

You want to enter a trade at the lowest price possible so that you have more to gain from the rising value of the stock. This is not always easy to find. People that trade stocks using technical analysis, look for signals in charts to determine when to enter a trade.

Another way to seek the best entry price is to use a process known as dollar-cost averaging. With dollar-cost averaging, you determine how much you want to invest and divide that amount by three. Then you split up the purchase in three different days to ensure you get an average price that is fair for the time you are buying.

This is great since it gets you to make your initial entry and reduces stalling while you wait for the perfect price. It also helps ensure that your emotions are out of the way because it’s more mechanical and you are only investing a little at a time, and it reduces your overall risk.

How to Order Stock for the First Time

Now that you know how much stock you want to buy and how much you can afford, it’s just a matter of placing the order. I’m going to assume by now you have a brokerage and have funded it with money to invest. If not, go back to Step 2 above.

Watch this video on how to place an order using Webull and then I’ll write a little bit about it afterward so you can visualize what I’m talking about.

You can choose any brokerage but since I use Webull a lot, I’m using their platform as an example:

Now that you know how much stock you want to buy and how much you can afford, it’s just a matter of placing the order. I’m going to assume by now you have a brokerage and have funded it with money to invest. If not, go back to Step 2 above.

Once you select stock on the site or app, you will be taken to an Order Screen. Here, you select how many shares you want to buy and the type of order you want to place. The stock market is open from 9:30 am till 4:00 pm EST on almost all business days.

There are extra hours before and after the stock market opens and closes that you may be able to buy stock but that depends on your brokerage and I’d only recommend that for advanced traders.

Two common order types are Market Orders and Limit Orders.

When you buy stock using a Market Order, you are accepting whatever price that stock is at the exact moment of your transaction. This means your order will be filled at the very next price that is available. Sometimes this results in you paying a slightly higher price than is necessary. I always recommend you use a Limit Order.

A Limit Order means you set the price and it will only be filled if your price is met or lower. This ensures you pay what you expect to pay and don’t get forced to pay a slightly inflated rate.

Step 5: You Are a Stock Owner!

you're a stock ownerCongratulations! You made it to the end of this guide. If you followed the actionable advice above, you are a stock owner. I hope this guide made your first stock purchase easier!

Before you run off with your new-found knowledge of the stock market, I challenge you to always learn more.

Here are a few articles you can reference to learn even more about investing with stocks:

When Is the Best Time to Start Investing?

Learn How to Read the Stock Charts

4 Tips to the Best Investment Portfolio

Once again, thanks for reading this guide! I wish you all the luck and hope you find being a stock owner as exciting as I do!

Let’s Start Investing!

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