5 min

How to Invest in Stocks

Mar 2, 2023
in a nutshell
  • Your goal — and when you want to achieve it — will help define the types of investment accounts that make sense for you.
  • The stock market can fluctuate a great deal, so it’s important to develop an investment strategy that matches your risk tolerance.
  • Instead of investing in individual stocks, consider diversifying your portfolio by investing in a variety of companies and industries.
Image of Ready to begin your investing journey? Here’s a step-by-step guide on how to invest in stocks to help get you started.
in a nutshell
  • Your goal — and when you want to achieve it — will help define the types of investment accounts that make sense for you.
  • The stock market can fluctuate a great deal, so it’s important to develop an investment strategy that matches your risk tolerance.
  • Instead of investing in individual stocks, consider diversifying your portfolio by investing in a variety of companies and industries.

You created a budget. You started saving a portion of every paycheck. You signed up for your employer’s retirement plan. You’re off to a great start! As you establish a strong financial foundation, the next step is investing your money with the goal to build long-term wealth

Investing in the stock market can be critical for your success.  And the earlier you start, the better off you'll be later on. While investing in stocks may seem intimidating, it's surprisingly simple; you can learn how to invest in stocks by following these seven simple steps.

Step 1: Choose how to invest 

When you invest your money, you can choose how the account is managed. Investment management involves buying and selling stocks and other securities. Here are three common approaches:


If you feel confident in your investing abilities, you can handle your investments independently. You'll pick what investments to buy, sell and trade. 

Managed account

A professionally-managed investment account is handled by an individual financial advisor or team of investment advisors. Their goal is to match a financial plan to your individual investment objective, often looking to outpace major market indices such as the S&P 500. They often charge higher fees than other options, but this is not always the case. 


A robo-advisor can be a smart compromise to the do-it-yourself or managed account approaches. Many robo-advisors use complex algorithms to create portfolios of stocks and other securities based on your financial goals and risk tolerance. There is no human intervention, but they can create well-diversified portfolios and usually have much lower fees than managed accounts. 

Step 2: Set your investing goals

Next, think about what you want to accomplish by investing. Your goal — and when you want to achieve it — will help define the types of investment accounts that make sense for you. Common investing goals include:


Retirement is one of the most common investment goals. Investing your money for your retirement helps you work towards a comfortable retirement and enjoy your golden years. Investment accounts for retirement include 401(k) plans, 403(b) plans, and individual retirement accounts (IRAs)


Educational expenses are another common goal for investors. If you have children, want to help pay for a relative’s college education, or are interested in saving for yourself, you can invest money in a 529 education savings plan.  

Buying a home

For those who dream of becoming homeowners, you can consider opening a taxable brokerage account to invest and potentially grow your money. 

Long-term wealth

When you don't have a particular goal in mind but want to put your money to work, investing it in a taxable brokerage account can be a smart idea. 

Once you’ve selected a goal and opened a brokerage account, you can choose an account type. 

Step 3: Identify your risk tolerance 

All investing comes with some risk, so you must assess your risk tolerance before buying stocks. The stock market can fluctuate a great deal from year to year or even day to day, so it’s important to develop an investment strategy that matches your risk tolerance. 

In general, you can take on more risk if you have a longer time horizon to meet your goals. For example, if you are saving for retirement and have 20 or 30 years until your goal retirement age, you may invest more aggressively since you have time for your portfolio to recover if there are market dips. By contrast, if your goal is only a few years away, you may invest more conservatively to reduce your exposure to market fluctuations. 

The University of Missouri has a free risk tolerance assessment tool you can use to get an idea of how much risk you can take on. The tool was created by two university financial planning professors, Dr. Ruth Lytton at Virginia Tech and Dr. John Grable at the University of Georgia.

Step 4: Select your investment type

While you can buy individual stocks, creating a diversified stock portfolio can be difficult and time-consuming. If you are looking for other options, consider these alternatives: 

Mutual funds

Mutual funds pool money from investors to invest in groups of stocks and other securities. Many mutual funds offer exposure to a broad range of securities, which can help you diversify your portfolio. 

Exchange-traded funds (ETFs)

Like mutual funds, ETFs allow you to buy a basket of stocks and other securities at once, which can help you diversify your portfolio. ETFs are traded on an exchange, like individual stocks, and do not typically carry investment minimums like many mutual funds.  

Index funds

Index funds can be ETFs or mutual funds. The funds can contain hundreds of stocks, and they aim to replicate the performance of major market indices, such as S&P 500, Nasdaq 100 or the Dow Jones Industrial Average

Target-date funds

If you have access to a retirement account, such as an employer-sponsored 401(k) or an individual retirement account (IRA), you can likely invest in target-date funds. A target date fund is a type of mutual fund or exchange-traded fund (ETF) that invests in riskier securities while you’re young and becomes increasingly conservative as you near your target retirement age. 

Step 5: Pick an investment strategy 

Now that you know the type of investment account you need and what you want to invest in, you can decide how to invest your money. There are several strategies to choose from, including: 

Dollar-cost averaging

With dollar-cost averaging, you invest a regular amount in your account at a set schedule, such as $25 every Friday. This strategy helps to smooth out the ups and downs of the market and can help lower your average cost per share over time. Some investors select this approach because it can enable you to take advantage of lower prices in the long run. 

Lump sum investing

In contrast to dollar-cost averaging, lump sum investing is when you invest a larger chunk of money all at once. For example, if you receive a $1,000 bonus from work, you may decide to put all of it in the stock market at one time. 

Index investing

If you opt for index investing, you invest in funds that track the major indices. It’s a passive investment strategy, so it’s commonly used by hands-off and long-term investors. 

Socially and environmentally responsible investing

Environmental, social, and governance (ESG) investing allows investors to invest in companies that generally meet standards related to renewable energy, animal welfare, data security, and anti-corruption. 

Step 6: Determine how much you want to invest

When deciding how much money to invest, consider the following factors:  


Create a budget to find out how much money you have after covering your bills and other expenses. Many experts recommend putting 20% of your income, per the 50/30/20 rule, towards your future. 


Before you start investing in stocks, consider reviewing your total financial situation and financial security. That means having an emergency fund that could cover your expenses if you became ill or lost your job that is separate from the money you’d invest. 

Current debt

If you have a substantial amount of debt, such as outstanding credit card balances or student loans, consider their interest rates. If you have high-interest debt, you may be better off making extra payments towards your balances than investing. If you’re torn between goals, you can always split your money in two ways; for example, if you have $100 left over each month, you could put $50 toward your debt and $50 towards investing. This will vary depending on your personal situation, the interest rates on your debt, and your potential earnings from investing.  

Employer match

Many employers will match your retirement contributions, called a 401(k) match, up to a percentage of your pay. For example, your employer may match every dollar you contribute to retirement, up to 5% of your salary.  If your employer will match your retirement contributions, consider contributing enough to qualify for the full match. Otherwise, you could lose out on money you’re entitled to receive as an employee. 

Step 7: Stick with it

As a new investor, it can be tempting to check your investment portfolio daily. And if you see your account balance dip, it’s easy to panic and take money out. But market dips are common, and historically, the market recovers. Leaving your money invested in a diversified portfolio for the long-term gives it the ability to grow over time. 

According to Morningstar, a leading financial services and investment research firm, long-term stock returns average 8% to 10%. 

5 tips for investing beginners 

Now that you have an online brokerage account and know the basics of how to invest in stocks, you can start investing your money. As a beginner investor, keep these tips in mind: 

1. Small amounts can add up

You don’t need to be a millionaire to benefit from investing. Small investments — even just investing your spare change — can produce serious long-term results. 

2. Diversify your portfolio

Instead of investing in individual stocks, consider a diversified portfolio and invest in a variety of companies and industries. If you don’t want to manage your own portfolio, you can use a robo-advisor and invest in ETFs and mutual funds instead. 

3. Be consistent

Make investing a habit. Set up recurring contributions that are automatically deducted every pay period. That way, you won't miss the money you invest; over time, your money can grow. 

4. Don’t panic

The market will inevitably go down. Market fluctuations are common, and the declines can sometimes be steep. But if you have a diversified portfolio and a long-term investment horizon, don’t panic; the market has always recovered from those declines, so stick to your investing strategy. 

5. Start now

Investing early on is key. But if you feel like you got a late start, that’s okay. The important thing is to start as soon as you can. The more time you have the money in the market, the more it can potentially compound and help your money grow. Even if you can only invest a few dollars right now, your future self will thank you for starting work towards your goals.

Try our compound interest calculator to see for yourself!

With Acorns Invest, you can open an account and begin investing with as little as $5. 

This material has been presented for informational and educational purposes only. The views expressed in the articles above are generalized and may not be appropriate for all investors. The information contained in this article should not be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product. There is no guarantee that past performance will recur or result in a positive outcome. Carefully consider your financial situation, including investment objective, time horizon, risk tolerance, and fees prior to making any investment decisions. No level of diversification or asset allocation can ensure profits or guarantee against losses. Article contributors are not affiliated with Acorns Advisers, LLC. and do not provide investment advice to Acorns’ clients. Acorns is not engaged in rendering tax, legal or accounting advice. Please consult a qualified professional for this type of service.

Kat Tretina

Kat Tretina is a freelance writer and certified financial and student loan counselor. 

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