Demystifying Finance: How to Invest in Stocks Successfully

12 min read. Updated November 24, 2023.

The stock market can seem daunting to beginner investors; I was quite lost when I first looked at stock market investing and opened my online brokerage account. But I am glad I started stock investing, without needing the help of a financial advisor.

The reality is that it's not that hard to get started in stock trading, and you don't need any special training or expertise in financial statements to begin investing in stocks. Nowadays you can even make use of a robo-advisor account, a service offered by some of the best brokers.

All you need is some basic information on how the stock market works, an investing strategy tailored to your financial goals, some money invested, and patience. Let's explore how to invest in stocks.

The most important point is that stock investing is not gambling. It's about putting your money into a diversified portfolio you believe will provide you with wealth over time.

Control All Finances Blog has been selected by FeedSpot panelists as one of the Top 100 Investment Blogs on the web. 

If you're thinking about investing but aren't sure where to begin, these tips will help get you started on this journey.

The banner ads and some links in this blog post are affiliate links. If you click on a link and join, I may receive a referral commission at no extra cost to you. All opinions remain my own and each company featured is individually selected.

Stock market investing - my investing goals

There are many articles on how to invest in the best stocks, and there is more than one investment strategy to fit various profiles. You may have heard of stock traders, penny stocks investors, Robo advisor or stock market simulators, and short-sellers.

I am one of the long-term investors, with a buy-and-hold strategy. This fits my investment objectives of building retirement savings. Define the aim of your stock investments first.

I follow 3 simple rules:

• building a diversified investment portfolio over time (20 years+)

• Investing regularly

• Ignoring short-term market movements by staying invested no matter what

Conservative investor? Read Understanding Risk-Free Assets: A Beginner's Guide.

What is the stock market?

It is an important part of our economy, and while it may not be visible to most people, it affects every single person in the country. One way or another, some of your money is already invested in the stock market!

It is an exchange where people invest and sell shares of companies. You can think of purchasing a share as buying a small piece of ownership of any company that you think will do well. The more shares you buy, the larger the percentage of ownership you have in that company (individual stocks).

As such, if their success continues over time, as the company keeps doing well financially, their stock price will continue going up, and so will your shares.

Download our eBook “The Ultimate Cheat Sheet on Stock Market Investing”.

Why dip your toe in stock investing?

Financial advisors would agree that if you start investing in stocks, it is a great way to grow your money over time. With interest rates on your savings account quite low, you may take a riskier approach and invest in stocks some of your cash.

My approach is to treat my brokerage account as a long-term investment (minimum 5 years). Depending on your risk tolerance, you have many options for your investment account such as individual stocks, exchange-traded funds (ETF), bond funds, or index funds.

The other benefit of investing in stocks is that you won't have to pay taxes on dividends until you withdraw them from your brokerage account. And if you invest in index funds - a type of mutual fund that tracks major indexes like the S&P 500 - you'll also avoid capital gains tax when selling assets held more than one year.

You should talk to an investment advisor to understand the tax implications when you trade stocks.

Whilst it has experienced many downturns since its inception - some lasting years - the stock market has always bounced back. Whilst past performance is no guarantee of future results, it offers one of the highest historical returns compared to real estate, gold, or treasuries.

 

Will I lose money investing in stocks?

That's a recurring question, and everyone must evaluate the risks before any type of investment. When you start investing in stocks, I believe you will do well if you follow some stock market basics:

• Buy stocks with a medium to long-term investment objective (5 years+)
• Work on your asset allocation to build a diversified portfolio over time
• Be regular with your investing account
• Don't macro-manage your individual stocks
• Enjoy it!

More tips here How Much Cash Should I Have On Hand?

Buy stocks with a medium to long-term investment objective 

In my opinion, an individual investor has an advantage over financial institutions as you are not subject to target returns or portfolio quarterly rebalancing for example.

Give your investment accounts time to grow. When you buy an individual stock, you believe the company will do well. But, in most business cases, it cannot triple its turnover overnight.

Just ask yourself ''Will the company be bigger in 3-5 years?''. If the answer is yes, then your shares should go up.

With this method, you don't need to get into active trading; just buy stock and hold on to it. Do your research though; this only works if you selected a solid company in the first place.

 

Work on your asset allocation to build a diversified portfolio over time

The advice ''don't put all your eggs in one basket'' certainly applies here. When you invest money to grow your retirement accounts, for example, you want to ensure your life's savings don't rest on the success of a single company...

Some invest ALL of their own money in the ''next big thing'', I will NEVER recommend that, and neither should any brokerage firm.

The diversity of assets in your brokerage account would be based on your risk tolerance, time horizon, and investing goals. This can include:

• individual stocks
• mutual funds
• index funds or exchange-traded funds

Individual Stocks
You can further diversify your stock investments across various types such as:

• Market Cap: small-cap, mid-cap, large-cap
• Sector: Healthcare, Real Estate, Energy, Technology, Financials, Industrials, etc...
• Geography: Domestic stocks (U.S.) and international stocks (developed markets, emerging markets)
• Other types: growth stock, value stock, dividend stock, blue chip stock, etc...

Mutual Funds
A mutual fund is an investment vehicle managed by an expert stock mutual funds manager who manages money on behalf of many investors at once. The stock mutual fund manager makes investment decisions based on his/her research and the stock funds' objectives.

Mutual funds can be invested in equities (stock funds), bonds, money market instruments, or other securities. Pay attention to the mutual fund fees, which vary from one brokerage firm to another, and are also based on whether the stock mutual funds are actively or passively managed mutual funds.

Index Funds
Most brokerage services offer the option to invest in index funds. An index fund is a type of mutual fund or exchange-traded fund that tracks and aims to replicate the returns of the index it is following.

One of the most popular stock indexes is the Standard and Poor's 500 (S&P 500), which is a stock index tracking the performance of the 500 largest companies listed on stock exchanges in the U.S.

When you purchase an S&P 500 index fund, you are effectively investing in all 500 companies - instant diversification!

Both index mutual funds and ETFs can provide broad, diversified exposure, making them good long-term investments suitable for most investors. The main difference lies in how they are traded.

Be regular with your investing account

Start small and build your confidence. If you intend to allocate $1,200 a year to your investment account, my recommendation would be to invest $100 a month, instead of investing $1,200 in one go.

You may have also heard about investing in third. If you're allocating $100 to Amazon shares, for instance, you would spend three times $33 - on separate days throughout the year, instead of $100 once. This gives you different entry points, similar to the Dollar cost averaging practice.

Find your rhythm and stick to it; some invest weekly, monthly, or quarterly. Sometimes you will invest when the market is up, sometimes when it's down - and that's a good thing!

Don't macro-manage individual stocks

Beginning investors sometimes look at their stock portfolio and lose faith when seeing some of their stocks in the red. You have to be prepared for the ups and downs, that's part of the ''game''; ride the waves and stay invested, that would be my number one tip.

You must have heard ''buy low, sell high'', but the truth is nobody can predict when a stock will bottom or reach its highest. When looking at your asset allocation, remember that you technically wouldn't lose until you sell it (at a loss).

Others spend hours or days trying to work out the best time to invest, or they use a Robo advisor for investment advice.

One of my favorite finance quotes is ''The best time to invest was YESTERDAY. The next best time is TODAY''. This illustrates perfectly a long-term investor mindset.

Some investing services use price targets. As an individual investor, I ignore this when it comes to choosing which company to invest in.

Let's say you want to invest in company X, their share price today is $120, but you have set yourself a price target of $100 - meaning you've decided to wait until share prices reach or go below $100 before buying a share.

This can simply be because your investing style analysis shows that the current valuation is too high, or that $100 is the certain amount of money you've allocated.

Company X turns out to be an amazing performer - well done for identifying these stocks online! You've been keeping yourself updated with their results, and 5 years on, this growth stocks has reached $600. This is called a 5-bagger, meaning the share price went up x 5 times. Oh but wait, you never invested in company X...

The point here is that once you've identified a solid company, does it matter if you paid $120 today instead of $100 yesterday when it has the potential to reach $600 in 5 years?

Enjoy it!

Don't let emotions rule your investment decisions. If you lose sleep at night because one of the companies you invested in is down, then it's time to think about your risk tolerance and your investor's mindset.

As I write this article, my whole stock portfolio is down 32%. Yet I continue to invest monthly, I stand by the companies I invested in, and I don't panic.

There's a certain sense of pride in having ownership in a successful company. I thoroughly enjoy being a stocks investor and I've found satisfaction in teaching friends and colleagues how to invest in stocks.

Only invest money you are prepared to lose. If you've saved $1,000 in your holiday fund for next year's trip - don't invest this in the stock market in the hope of doubling it in 12 months - this won't happen.

Be patient - if you do not see immediate results from an investment then don't panic-sell; just stay calm and remember the reasons why you invested in the company - keeping an investing journal may help. If the fundamentals are still in place, then there's no reason to sell today.

 

How to invest in stocks: choose your first stock

Choosing your first stock can be tricky, but there are a few things you should keep in mind.

1. First, you want to choose a company that you have some interest in. You're more likely to keep up with their progress if you're invested because it has some personal meaning for you. For example, if your family has been involved in manufacturing for generations and one of the companies in town has recently seen an uptick in business because of rising exports globally, then that may be something worth keeping an eye on.
2. Second, look for companies with a strong history of growth and those who have proven themselves time and time again by staying profitable over periods spanning multiple years or even decades. These are signs that they will continue to grow as long as they stay competitive within their industry.
3. Thirdly, also look at their balance sheet to know how much debt or equity is being used by the company before making any decisions about investing; because this will affect what kinds of opportunities might arise down the road.

I wouldn't have the market knowledge I have today if I hadn't joined The Motley Fool in 2020. I am a member of two of their investment services: Stock Advisor and Rule Breakers. Their flagship service, Stock Advisor, is an online resource for stock research and recommendations for newbies and experienced investors alike.

When it comes to picking stocks, few companies are as successful as The Motley Fool as we highlighted in our Everlasting Stocks Review.

A few ways to invest in stocks

To invest in stocks, you need to open a brokerage account. There are three main types of brokerage accounts:

• A traditional brokerage account (or full-service brokerage such as Charles Schwab) allows you to talk to someone who can offer advice on investing. The benefit of this is that they'll be able to answer your questions and make sure you're making smart decisions when buying and selling stocks. But, logically, you pay for their brokerage services so they tend to charge higher fees than online or robo-advisor accounts.

• An online broker may be enough to get you started. The internet has made it easier and more accessible than ever before to begin investing, with fees considerably lower today than they were less than a decade ago. It gives investors access to other investments through one convenient platform.

• A robo-advisor uses algorithms and artificial intelligence to make investment recommendations. You would usually complete a questionnaire first to establish your financial situation and investment goals. The Robo advisor will automatically invest on your behalf based on the data you submitted. The best robo-advisors offer easy account setup, robust goal planning, account services, and portfolio management. A recent MagnifyMoney study found that 63% of consumers are open to using robo-advisors.

You may want to seek professional advice if you hesitate between a taxable brokerage account (no tax benefits but offers flexibility), or an individual retirement account (generally tax-deferred or tax-exempt but with restrictions).

How to invest in the market with no money

A good place to begin is by taking advantage of the low costs and ease of entry provided by an online broker. No-commission stock accounts are recent, but they changed everything for first-time investors. Two options you can consider when starting with a small budget:

• Fractional shares: this is a stock investing revolution! You'd love to invest in Company A, with a current share price of $500, but you cannot afford it. You can now spend $100 and own 0.2 share instead. This is a great way for first-time investors to gain exposure in the market without having to spend thousands.

• Consider investing via an employer-sponsored 401(k) plan if your company offers one. With these plans, employers typically match part or all of their workers' contributions. This is a great benefit to take into consideration when comparing job offers!

Being an investor: work on yourself

For those who don't know exactly how they will react to the market's ups and downs, it may be best to start small with broad index funds and monitor it for a few months.

However, if you're pretty confident that you can handle a little more risk, to potentially get higher returns, then perhaps start building your portfolio with individual stocks.

Knowing whether you're prepared for all this is part of what defines an investor; know what kind of investor you are. This means knowing your limits, goals, and time horizon. It also means knowing your risk tolerance, investment philosophy, and whether or not investing is something that makes sense for you.

When you set financial goals, remember to track your progress. The best way to do this is by keeping a budget and tracking your spending. If you don't know where all the money is going each month, then it will be hard for you to identify areas that need improvement.

You can download a budget template here.

Making sure that you're on track with your financial goals can also help reduce stress and anxiety when investing in the stock market, as it is normal for beginner investors to worry about losing money.

Now that you know the basics, it's time to start investing!

Now that you are familiar with the world of stocks, it’s time to start investing!
Stocks are a great way to invest in the future of a company, the future of a country, and the future of the world. Stocks are an excellent way to invest in your life.

David Gardner, the co-founder of the Motley Fool, once said "Make your portfolio reflect your best vision for our future."

Stay informed - The stock market moves fast and there are always new opportunities emerging so make sure that you stay updated with what's happening in the world of finance.

No time to research companies? Then you're in good hands with the Motley Fool!

Conclusion

We hope that this guide has given you a better understanding of how to invest in stocks successfully, demystifying finance and investment choices. We encourage you to share your investing experience by leaving a comment down below.

While the stock market can be intimidating to new investors, it is much easier to get started than you think, particularly thanks to online brokers.

We explore investing with kids in the How To Achieve Your Financial Independence eBook.

The stock market provides a smart way for investors' money to grow by investing in companies that will do well over time. It offers one of the highest historical returns and can help develop your wealth faster than inflation.

We are confident you'll enjoy a successful investing journey if you follow these golden rules.

No Financial Advice. This article does not provide financial advice and has been prepared without taking into account any person’s investment objectives, financial situation, risk tolerance, or particular needs. eToro is a multi-asset platform that offers both investing in stocks and crypto assets, as well as trading CFD assets. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Zero commission stock investing is available to all eToro users, excluding the US. Your capital is at risk. Other fees may apply. For more information, visit etoro.com/trading/fees

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