How to begin investing in stocks – steps to take before you invest

Here’s an observation, many people are interested in building an investment portfolio but they don’t know where or how to beginHow to begin investing in stocks investing in stocks. Checking what is out there on the internet in the way of guidance on this, it ranges from simple bullet point checklists to advisers trying to get you into a one on one conversation.

I am going to assume that you would like a little more than a checklist, I mean how useful is it to be told to – set your objectives, and you don’t particularly want the intrusion into your life of sitting down for a one on one conversation with a fast-talking adviser.

So this is going to be a walk through the steps you should take before you start building an investment portfolio.

Goal setting

OK, so this really is the first step. Maybe a more inspiring expression would be – building your vision. This is really where you set out, as in write down on a piece of paper or in a virtual post-it note what you are hoping to achieve. Maybe the simplest way to start looking at this would be with some examples.

Investing Goal example A – 35 years old, in a stable relationship, in full-time work at an OK career with potential of advancement, receiving somewhat above median income, personal/emotional life in a reasonably stable condition – more or less – health pretty good, participating in employers 401k but would like to start and manage their own portfolio.

Investing Goal example B – 30 years old, single parent, living near parents who help with child-minding, in a job earning slightly above minimum wage, health insurance through an employer, hard time making ends meet, $20,000 in credit card debt. The goal is to get out of the financial hole.

Investing Goal example C – 45, married, kids in high school, middle career, solid job, or a good business. Current financial situation – mortgage on the house, credit card debt paid off every month, paying max into employer 401k or own IRA. Estimate between $500 to $1,000 a month in disposable available. The goal is to start and manage their own portfolio.

As should be obvious from the above, you have to take an inventory of where you are and where your life is likely to go before you can set investing objectives for yourself.

How to begin investing in stocks - NYSE

What should they do?

As regards the three examples above, examples A and C are ready to start investing. If your situation is more like B then the first thing you should do is pay off your credit card debt because paying that debt down will give you a better return on your money than almost any stock trading ventures you would get into.

How to get out of debt? Assuming you are not so close to destitution that you are thinking of declaring bankruptcy, in a nutshell, you need to:

Get out of Debt

  • If possible move your debts to the lowest interest rate available
  • Increase your income – work more overtime if you can, take on additional part-time work
  • Reduce your outgoings to the extent you possibly can – i.e. tighten your budget
  • Call and if possible make appointments to see all your creditors and discuss lowering the rate they charge if you commit to paying off faster or whatever other arrangements they are open to.
  • Pay more than the minimum payments as much as you can.
  • Stick at it,
  • Once you get going and see that you can reduce your debt, turn up the gas, push yourself to pay off your debts even faster
  • Avoid debt consolidation services – many of them are just trying to benefit from people in vulnerable situations. They must be earning money out of your business somehow.
  • Prove you can do it yourself

BUT – if you are in debt over your head, check whether you are eligible for a free consultation with a debt relief provider.

Ready… steady …

Let’s say that all of our example cases above are now ready to start investing. Albeit at different levels. Let’s say at the low end that means barely above $100 a month and at the higher end that is more like a couple of thousand $ a month.

But before you start piling into stocks, you need to work out what you are going to do and how.

Back to school

Did you get as far as this point and then switch off and click on something else?How to begin investing in stocks - Bull

Well, I guess if you did you won’t be reading from here on.

It doesn’t have to be tedious lectures or trying to prop your eyelids open or slapping yourself to stay focused on the material.

The fact is that there are many resources out there falling over each other to help you learn what you need to know to build your own portfolio, trade stocks, options, futures, forex, cryptocurrencies and anything else that might come along. If I were to walk through a curriculum to learn what you need this would be it:

  • the basics of stock market supply and demand pricing
  • how companies use markets to raise funds in the capital markets
  • understanding how a company’s value, income-generating capacity and prospects are reflected in their stock price
  • risk and reward
  • diversification
  • investment strategies: income, growth, and value
  • qualitative investing vs quantitative investing
  • ETFs, market indices
  • technicalities:
    • brokerage accounts,
    • long term vs short term trading,
    • capital gains/losses vs income tax,
    • margin trading,
    • market orders & limit orders

There are some obvious places to go to acquire this knowledge. Here are some of the most obvious:

The Intelligent Investor REV Ed.

The How to Make Money in Stocks Complete Investing System

Reminiscences of a Stock Operator

Money Masters of Our Time

If you want to take maybe a broader journey through books on personal finance, here is a review of some of my all-time favorites.

That should be enough to get you started on trading stocks.

How to begin investing in stocks - NewspaperI am making an assumption here.

Pick up practically any serious book or follow any online guide on how to start investing and they will likely tell you to start with an ETF that tracks a broad market index and another one or two that give you exposure to bonds and other fixed interest instruments and then just keep buying more of those funds as you transfer money regularly into your brokerage account.

Hey, even Warren Buffet will give you that same sage advice.

Let’s face it though – that isn’t going to light anyone’s fire. It might actually be very good advice and your chances of making a good return over the long run are probably better than if you plug away yourself trading shares. But the fact is you’ve decided that you want to trade stocks and possibly options, or forex or cryptocurrencies. So stuffing all your spare funds into one or two ETFs won’t satisfy your desire. You also want to experience the excitement of buying and selling stocks and hopefully buying low and selling high.

What have you got so far

The following pieces of the puzzle are now in place:

  • You are making the most of your employer’s 401k or you are paying into an IRA
  • Any debt you have is well managed
  • If you have a mortgage the interest rate is low and you are paying it off
  • You have learned enough about investing in stocks to know the approach you will adopt:
    • Qualitative or quantitative
    • Growth or value

Risk Tolerance – understanding your comfort and not so comfortable zones

By now you should know enough about what goes on at least in the stock market to have a conversation with yourself about risk.

Essentially you need to work out where you want to be on a spectrum from conservative to aggressive.

Are you only comfortable with a safe low-risk approach which will set you up for slower gains in bull markets, but less pain in bear markets?

Or would you be ready to pursue growth aggressively and then accept that when the market turns you are going to see the value of your portfolio shrink.

Wait a minute – what about emergencies?

How to begin investing in stocks - TickerSince you are going to be investing in stocks and probably not on margin when you start out and you haven’t got into options yet, you will actually own the stocks in your portfolio.

As long as you don’t invest in micro stocks or penny stocks your stock holdings will be liquid and you can sell them for a market price on any trading day.

How large your emergency fund should be will depend on your circumstances. Whether you have good health insurance and other insurance coverage, how secure is your job or your business, what are your family responsibilities?

The general opinion is that a safety net that can keep you going for 6 months will do the trick. In practice, that means if at least that amount of your portfolio is in very liquid assets – in our case stocks – then you are covered.

Open a brokerage account

Certainly by this time you are ready to open a brokerage account.

There are excellent brokerage services out there. Ally, Charles Schwab, E*Trade, Fidelity, Interactive Brokers, Merrill Lynch, Robinhood, TD Ameritrade, and T Rowe Price just to mention the major players. A number of these have been reviewed from the perspective of the beginning trader on this site. So chose one that works for you.

Get started

That should be enough to get you going. If you are stuck looking for a way to build a diversified portfolio, check here.


You need to be disciplined about the strategy you are adopting. Assuming you are in it for the long haul, you need to stay invested. That means not pulling out when the market tanks. Give up on any ideas about trying to time the market. Use whatever triggers or indicators your strategy gives you to buy stocks and use whatever triggers or indicators your strategy gives you to sell stocks.

And that’s it.

Affiliate Disclosure: This article contains affiliate links, if you purchase through a link on this site, I may receive a commission.

Are you ready to get serious about investing in your own financial education? Then check out membership of the  American Association of Individual Investors, the AAII.

The AAII is a nonprofit organization, dedicated to the financial education of its members. Your membership of the AAII will give you access to courses and resources on stock investing, financial planning, and how to manage your retirement finances.

Affiliate Disclosure: This article contains affiliate links. If you click on a link and buy something, I may receive a commission. You will pay no more so please go ahead and feel free to make a purchase. Thank you!

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  1. Hi Andy, thanks for explaining the basic needs before we jumpstart to the stock trading world. Since I’m doing self quarantine due to coronavirus outbreak, I try to fill my spare time by learning about stock trading. I’m not sure if this will be a long-term activity for me, so maybe I’m more on risk avoider rather than risk taker. I’ll check your recommendation for beginner’s guide there. Thanks

    • Hi and thanks for your comment. The coronavirus lock down could be an excellent opportunity to learn about finance and investing. I hope that you stay well and are only in self quarantine as a precaution. As regards risk taking actually keeping cash in a time of extremely low interest rates, as is the case now is not a good idea. The value of cash is eroding and interest on savings will not keep pace. Especially with all the debt governments are issuing to deal with the crisis. I hope you stay healthy. Good luck and thanks for engaging. Best regards Andy

  2. Wow, this post is absolutely chock full of valuable advice! I’ve been interested in the stock market for a long time but really don’t know where to begin. You make some solid points about getting my current financial situation in check first, reducing debts and increasing savings where possible, this makes absolute sense. 

    Thanks for the book recommendations too, I’ll be checking them out. Knowledge is power! 

    I think I shall work through some of that and then come back to your page for more info on the next steps…thank you! 

    • Thanks for your comments. Indeed – knowledge is power. Good luck and stay well, Andy

  3. That is quite the informative article. I, myself, have read quite a few books on investing including the great Warren Buffet. I do recommend them. The one thing I still need to learn is how to invest what’s best for me. I can see how the books that you mention could do that. Your advice has helped me, too.

    • Hi Jim and thanks for the comment. It is interesting how Warren Buffet’s advice to everyone is to stick all your money in a few indexed funds and leave it at that. I am glad you found the article interesting and I hope useful. All the best, Andy

  4. Hey thanks for this, I have never been one to invest in this way myself because I don’t have the inherent interest in the associated machinations, in short it bores me.  That is quite irresponsible I know, but I have always had good fund managers so far who I have been happy to trust, mainly because they will do a way better job than I ever could.  My wife has banking training and she has started to dabble recently, she will like this article, it will help her find her way through what she is playing with at the moment.



    • Hi Hamish, thanks for the comment. Of course not everyone is going to have a passion for figures and stocks – actually very few will – and if you are happy with the job your fund managers do for you that is great. Thanks for your comment. All the best, Andy

  5. Thanks for all the Steps on How To Begin Investing in Stocks. For a person like myself who has a zero knowledge and experience with stocks and trade market, it is difficult for me to jump into investing even if I wanted to.
    But, you made the steps simple and easy to understand giving investing example A, B, & C. Which represent a real life situation.

    Now, I know that it is crucial to paid my credit card debts first before investin in stocks.
    By the way, with the current pandemic going on right now, is it safe to invest in stocks? When is the right time perhaps the good time on investing in stocks?
    Another thing, is cryptocurrencies and stocks the same?

    • Hi and thanks for the comment. I am glad that you found it interesting and useful. And yes I would reinforce that it is best to pay off your credit cards first before investing in stocks as they offer the better return on your money. Honestly, I think right now would be a very risky time for people new to the stock market to start investing. There are many signs that the market is heading for a significant correction. Volatility is likely to stay high for a while. And a very important point – historically, when a lot of new investors enter the stock market is a classic signal that the market is over-bought and about to take a nose dive.
      Cryptocurrencies are not the same as stocks. When you invest in stocks you are owning a bit of an ongoing business that owns assets many of which will be tangible – including bricks and mortar buildings and possibly plant and machinery and clients who pay money for services and products. Cryptocurrencies are pure intangible assets which are only worth what other people might be ready to pay for them. Stocks are also only worth what others are willing to pay for them, but companies also have a breakup value. Having said that, there are signs that institutions are building holdings of Bitcoin for example. So cryptocurrencies are risky but I for one think there is a good chance some of them will appreciate in value over the coming months and years. I hope this helps. Best regards, Andy

  6. Hello,
    Thanks for sharing such an insightful post. There are so many relevant factors that you’ve described here that people often wouldn’t even consider. This is particularly true for people new to stocks. With stockbrokers out there charging an arm and a leg in fees, you’d wonder if it’s even possible to break even sometimes. I love that you’ve included references to the different terms, they can get overwhelming. What I do is I create a cheat sheet of terms and their meanings, similar to what you’ve done above.

    Love your page and looking forward to your next article.


    • Hi Sharon
      Thanks for the positive feedback. I realized that this is one article that I keep referring people back to and I thought I should take the trouble and create a single page cheat sheet summary like you suggest. I will move that up the priority to-do list!
      Thanks again and best regards

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