Investing in Stocks: How to Get Started?

I'm not a financial advisor, but here's what I tell people when they ask me how to get started investing.

1) Get your finances in shape otherwise. Low debt (except mortgages), no credit card debt, build an emergency savings account of a few thousand dollars (in case of short-term, unexpected money needs like your car dies or you get laid off).

2) Open an on-line, discount brokerage account with anywhere from $1k-$5k that you could afford to lose in the short run. Stocks don't always go on a straight upward line like interest on a bank account. Even great companies go up and down in the short term, though over 5-7 year spans, good companies go up overall.

If you can afford to put this money away for decades without withdrawing it, you can open your brokerage account as an IRA account (Roth or Traditional), giving you decades of tax-free growth until you reach retirement.

3) Buy stocks in dollar quantities. $500 per stock is a good starter amount where a $5 trade commission is only 1% of your total investment. Don't worry about the number of shares. If $500 buys you 3 shares of ABC, that's fine. If $500 buys you 20 shares of XYZ, that's fine too. Lots of people believe you have to buy 100 shares at a time or you have to be rich to have a brokerage account, and that's not true anymore (it was true 30 years ago, but the idea persists).

4) Strive to add money to your portfolio account over time, buying new companies or adding to the ones you already own, in those same moderate-sized increments. 10-15 stocks in a diverse range of industries is a good goal for a new investor to reach after the first few years of investing. Don't put all your eggs in one basket (or all your money in one stock).

5) If you're still unsure of what you're doing, a good way to start investing is with a low-cost index fund, like an S&P 500 index fund.

Want More Details?

Nerdwallet has a good guide to getting started. The Motley Fool also has a good guide to the basics. Both sites are credible sources for new investors.