How to Start Investing: Full Beginner’s Guide On Stocks

Stocks, Stock market, stock market chart

How to Start investing: Full beginner’s guide on stocks

If you want to learn how to invest in stocks but don’t know where to start, here is a full guide for you. By the end of the post, I promise you will have a strategy and a full plan on how to start your stock investing journey.

Before you read this post, make sure to read Should You Invest In Stocks and What are Stocks, Stock Market and Stock Exchange, where we discussed what you should should know and do before you start investing.

Assess Your Risk Tolerance
Determine How Much Money You Want To Invest
Choose Your Investing Style
Investment Strategy
Pick The Right Brokers
Build Your Portfolio
Do Your Due diligence
Build a story
Never Stop Educating Yourself

1. Set Your Investment Goal

The first step will be to define your investment goal. What is the reason for investing in stocks? Is it for retirement? To fight inflation? Some extra income? Determine your investment goal so you can pick the right strategy.

Be specific in your goal if you can. For example, “achieve a portfolio value of $1 million by age 60”, or “generate $1000 dividend income from stocks per month”. Setting a specific and clear goal helps you to pick the correct strategy and form an achievable plan. Here is a simple calculator that might be useful for you.

Note: In the last 30 years, the average return of the stock market is about 10% annually (not adjusted for inflation), when adjusted for inflation it is around 7%. But the 50-year average return is around 5%, therefore, using a conservative return rate of around 6% is recommended to ensure you can reach your goal.

2. Assess Your Risk Tolerance

Understanding your risk tolerance is crucial in stock investment. All kind of investments involves risks, and there is a risk of losing everything you invest in the market, even if the chances are small. Therefore do not invest the money you need in the stock market. Consider factors such as if you need to pay for your children’s education, pay for the mortgage, or if you need to take care of your family. Analyze your current situation, build an emergency fund that is enough to cover 6-12 months of your expenses, and invest according to your risk tolerance.

3. Determine How Much Money You Want To Invest

After you build an emergency fund, it is time to decide how much you want to invest in the stock market. It depends on the first two steps we have discussed.

your investment goal
your risk tolerance – how much you can invest

An easy way you can start is to set aside a percentage of your monthly income to invest in the market. A general rule is The 50/30/20 rule, which is 50% of your after-tax income towards needs, 30% towards wants, and 20% towards savings and investments. Everyone’s situation can be different, where one’s needs might be 60% or 70% of their income so modify the rule based on your circumstance. If you do not have much financial burden and have a higher risk tolerance at the moment, for instance, you don’t have to pay for the mortgage, don’t have kids, don’t have a partner. I will recommend putting a higher percentage of your income into savings and investments, so you can hit your financial goal quicker. After considering all the factors, you can use the calculator and estimate how much you need to invest weekly or monthly to achieve your financial goal.

4. Choose Your Investment Style

After setting an investment goal and deciding how much you want to invest, you can now establish the investment style and strategy you want to use. Your investing style and strategy should align with your investment goal.

Active Investor or Passive Investor

Active Investor

more active in the market
pick your stocks
requires effort and time to conduct research and analysis of companies
aim to outperform the market
higher risk

Passive Investor

more passive in the market
invest in ETFs or index funds such as S&P 500
do not aim to outperform the market but match the performance of the market
less to no effort and work
lower risk

Long-Term Investor or Short-Term Investor

Long term investor

Use fundamental analysis: analyzing the fundamentals of a company
Look at the balance sheet, income statement, and cash flow
Hold the stocks long-term
Lower risk

Short-term investor

Use technical analysis: Analyzing charts, market sentiments, price movements, trading activities, etc
Hold the stocks only for a short period of time, e.g. days or weeks
Scalping, day trading, swing trading and more
very risky but potentially faster and greater reward

There are other risky trading options even within long-term investing, such as margin trading or investing in penny stocks. You do not have to be one type of investor, you can put some money in individual stocks and some in index funds or ETFs to decrease the risk, which we are going to discuss more later in the portfolio section.

Apart from that, another tool you can consider for investing is AI trading. Due to the boom of AI, AI trading has also become an option among. AI trading involves analyzing an enormous amount of data to identify market trends and patterns and trade on behalf of you. By using AI trading, you can essentially “trade like a robot”, which removes potential buying due to FOMO and panic selling, which might increase your chance of success.

5. Investment Strategy

Everything that has been discussed is part of the investment strategy. However, these are some other more specific, common strategies you can consider. Tailored these to suit your style and how you want to invest, there are no strict rules.

Buy and Hold

Purchasing stocks and holding them for an extended period, such as years and decades, aim to benefit from long-term market growth. Examples will be investing in blue-chip companies.

Dollar-Cost Averaging

Invest a fixed amount in regular intervals. Spreading the money and investing in the market regularly instead of all at once reduces the risks of jumping into the market at the wrong time.

Value Investing

Searching for undervalued stocks that trade below their intrinsic values, based on fundamental analysis such as their assets, dividends, and earnings.

Dividend Investing

Invest in companies that pay dividends regularly and consistently, maximize the rewards through both dividends and capital appreciation.

Knowing Different Types of Stocks

Blue-chip stocks – Well-established and reputable companies with a history of stable earnings, and safe investments. E.g. Apple
Growth stocks – stocks of companies that are in their early phase and are growing more rapidly than average companies. Usually do not pay dividends. E.g. Nvidia
Value stocks – stocks that are undervalued and are trading at a lower price relative to the company’s fundamentals, such as earnings and assets. These are the stocks Warren Buffett searching for.
Dividend stocks – stocks that consistently and regularly pay out dividends. A source of regular income, however, the growth of these stocks is typically slower.
Penny stocks – stocks of small companies that typically traded under $5. High volatility, less liquid, high-risk, high-reward stocks.
Cyclical stocks – Sensitive to economic cycles, do well during bull markets and go down during bear markets. As its name suggests, it has cycles. E.g. companies in sectors like automakers, luxury goods, travel. These are the first things people abandon when the economy is bad.
Defensive stocks – stocks that pay dividends consistently and have stable earnings regardless of the economy. E.g Utilities, healthcare. Services and products remain in demand regardless of economic conditions.
ESG stocks – Environmental, Social, and Governance stocks. Companies that prioritize sustainability, social responsibility, and ethical business practices.

A stock isn’t restrict to just one category. The categorization serves to assist you in making informed investment choices.

6. Pick The Right Brokers

When investing in stocks, it’s essential to ensure you’re trading with brokers that align with your investing style. Even small commission fees can gradually eat into your profits and reduce returns over time. Here are some of the top online brokers to consider.

For American readers, you should consider creating an individual retirement account (IRA) or a 401(k) for tax benefits.

Top Online Brokers

Australia

Features	Cons	Links
Best Overall – Zero commission fees on stocks – trade stocks over 16 markets. ASX stocks and US stocks. – offers crypto (1% fees) – pay interest for uninvested cash, 2% for $10000, 5% for $250,000	– currency only in USD (conversion fees) – $5 withdrawal fees – $75 transfer-out fee	Visit Website
– $10 per trade – US and (USD 9.50 per trade) Hong Kong( $88 HKD per trade) markets	– Only bitcoin ETFs	Visit Website
– Australia Shares AUD$3 per trade(or 0.03%) – US Shares USD 0.99 per trade Hong Kong Shares – Minimum HK$18 (or 0.03%) -Excellent educational resources and educational tool	– Limited Markets – No crypto	Visit Website
– $0 brokerage fee on first buy orders per day up to the value of $1,000 per stock. Subsequent orders of $11 or 0.10$ – Excellent educational resources and educational tool – Offers Crypto (0.09% fees)	– Minimum order size of AUD$1,000 for international shares. $0 brokerage fees for US, UK, Canadian and Japanese stocks. $59.99 or 0.59% stocks outside of the US, UK, Canada and Japan. – All sell orders $11 or 0.10%	Visit Website
– Standard fees Australian shares $6 – Offer crypto (- 0.12 to 0.18 percent) – Many great research tools – cheap international commission fees (US stocks $1 per trade) – get paid interest on unused balance	– platform not suitable for beginners – interest paid on the portion above $10000 (e.g. $10500, gets paid interest on the $500) – complicated commission fee calculations – complicated account opening process	Visit Website
– Australian Share $8/0.01%, $5/0.05% if more than 2 trades in previous month -International Shares: $0 Brokerage fees	– higher conversion fees compared to other brokers – offers only crypto CFD	Visit Website

Unites States

Features	Cons	Links
Best Overall for Domestic and Crypto Trading – Free trading, stocks, options, cryptos, all with $0 commission fees – No minimum balance – get paid interest on unused balance (5%& APY for gold members and 1.5% for non-members – IRA matching	– $100 transfer-out fee – Don’t offer foreign stock trading	Visit Website
Best for International and Domestic Stocks – zero commission fees on stocks, including international stocks – Trade stocks over 16 markets. ASX stocks and US stocks. – Crypto (1% fees) – pay interest for uninvested cash, 2% for $10000, 5% for $250,000	– $5 withdrawal fees – $10 monthly inactivity fees if do not log into your account for over one year – $75 transfer-out fee	Visit Website
– $0 commission fee on US stocks. No minimum balance. No account fees. – Offer international trading – Offers account types such as IRA and 401k – Provide good research tools. – Offers crypto – 1% fees No transfer out fee – currently 4.96% interest on uninvested cash (may change)	– international commission fees depend on the country. E.g. Australia AU$32	Visit Website
– $0 commission fee on US stocks. No minimum balance. No account fees. – Offers account types such as IRA and 401k – 24-hour customer support – provides good research tools – 0.5% interest on uninvested cash	– $50 foreign stock transaction fees – No crypto – $50 full transfer out fees, $0 for partial	Visit Website
– $0 commission fees on US Stocks. – cheaper commission fees on international stocks compared to other online brokers. E.g. UK stocks only $3.8 per trade. – No account fee, no withdrawal fee. – Offer crypto (- 0.12 to 0.18 percent) – get paid interest on unused balance	– platform not suitable for beginners – interest paid on the portion above $10000 (e,g, $10500, gets paid interest on the $500) – complicated commission fee calculations – complicated account opening process	Visit Website

7. Build Your Portfolio

After picking the right broker or brokers, start building your portfolio based on your investing style and your investment strategy. Maybe you want to invest in some growth stocks, some dividends stocks, or some blue chip companies. The famous saying “Don’t put all eggs in one basket” is to mitigate the loss if a particular sector gets hit hard in the market. However, Warren Buffett’s opinion on diversification is that diversification “ is protection against ignorance.” A person who truly knows what he is doing does not diversify.

On the other hand, Peter Lynch explained, if you put all your money into a good company such as Walmart, of course, it would be great. But if you picked a bad company, you would wish you hadn’t done that. The point is, do not overthink about diversification, do not diversify just for the sake of diversity, and invest in as many good companies as you can find.

However, if you have already invested in some riskier companies, maybe consider putting the rest of your money into companies that are more stable and with good financials. Determine your strategy based on your risk tolerance.

Moreover, if you have a passion for or deep knowledge of a specific sector, such as technology or finance, it would make sense to leverage that expertise in your investment strategy. It will more likely increase your chance of success. But should you only invest in those sectors? What happens if you see an opportunity in other sectors? Peter Lynch recommended being open to opportunities and doing your research. if seeing an investing opportunity and after doing some research you feel confident enough to invest in it, do it. Don’t be restrained by rules such as “I only invest in __________ stocks”. Again, it is important that you only invest in companies you understand, but don’t limit yourself to only investing in a particular sector, you could miss huge opportunities to make huge returns.

8. Do Your Due Diligence

If you choose to be an active investor and want to pick your own stocks, you have to do your research. Here is where you could start.

Fundamental Analysis

Qualitative Analysis

There are two main types of fundamental analysis when you do your research on a company. The first one will be a qualitative analysis, which looks at the qualities of a company, and discern what factors can influence the performance of a company. Factors such as industry, management, and competitive advantages are all important to consider.

Quantitative Analysis

Quantitative analysis involves analyzing the numbers in a company’s financial reports.

Income Statement
Analyzing how much money the company generates from its main operation, the total revenue, the expenses, and the profits. It helps investors understand the company’s profitability and operating efficiency.

Balance Sheet
Looking at the liabilities, assets, and shareholder’s equity of a company. Questions such as how much debt a company has and does it has enough cash or assets to cover the debts of a company are all important questions to answer. The balance sheet helps investors to evaluate the company’s financial health.

Cash Flow Statement
Reports of the inflows and outflows from operating, investing, and financial activities. How much money flows into the company within a period, and how they use the money. The most important metric to look at is the free cash flow, which represents the cash a company has after all cash outflows to keep the company running.

9. Build A Story

As mentioned in, you cannot just invest in a company without doing some research, and not without a story. Peter Lynch educated investors to have a story before they invest in a company. A question you should ask yourself is “Why do I invest in this company?” It gives you directions on whether you should invest in a company, or if you should sell your favorite stocks. When you have a promising story, you buy, and when the story changes and a company no longer seems attractive, you sell.
For example, “ I invest in this stock because it has been growing consistently in the past few years with little debt”.

10. Never Stop Educating Yourself

It is unlikely that you will be a great investor after just reading this post. You have to continue to educate yourself and improve your knowledge. You can study the history of a company, look for patterns and understand why a company’s stock price went up or down. Furthermore more you can follow educational channels about stocks on YouTube, read blog posts, ask questions on Reddit, or read some investing books.

The Bottom Line

Stock investing is not easy and it can certainly be daunting at first. You do not have to invest a huge amount of money right from the start. You can either invest a small amount at the start and increase the amount gradually when you feel more comfortable. Or you can allocate most of the money into the S&P 500 at first and slowly readjust your monthly investment amount into attractive individual stocks you find. The most important thing is, do not wait till you feel comfortable to invest, the best time is today.

Peter Lynch has been one of the most successful and well-known investors. His book “One Up On Wall Street” is a beginner-friendly investing book that teaches you how to invest as an amateur. It helps you understand the basics of investing and gives you a checklist you can follow, all the do and don’t to succeed in the stock market. Grab one today to learn more about stock investing.

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