How do you invest in stocks?

If you’re new to investing in stocks, the process can seem intimidating at first, but the payoff can certainly be worth the hassle of the learning curve. After all, stock investing is one of the most effective ways to grow wealth over time. For example, over the last several decades, the average annual stock market return has been over 10% — but the returns over the last couple of years have been much higher. 

But stock investing isn’t just about picking a company and hoping for the best. It requires strategy, patience and an understanding of how the market works. The good news is, though, that getting started with stock investing has never been easier, and with a little guidance, even the most inexperienced investors can enter the stock market with confidence. 

Whether you’re looking to invest for retirement, build long-term wealth or simply try your hand at the stock market, though, it’s important to approach this type of investing with a clear understanding of the various ways to get started. So what are your options for stock investing? That’s what we’ll break down below.

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How do you invest in stocks?

There are numerous ways to invest in stocks — and each option has its potential benefits and downsides. Here are some of the most common ways to consider:

Using an online brokerage account

An online brokerage account allows you to purchase individual stocks, exchange-traded funds (ETFs), mutual funds and other securities right from your computer, phone or other device. That makes it simple to manage your portfolio from the comfort of your own home. 

Online brokerage accounts offer numerous other benefits, too. For example, many of these platforms offer commission-free trades, meaning you won’t pay a fee every time you buy or sell stocks. They also typically provide educational resources and user-friendly interfaces that make it less intimidating to get started.

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Investing through robo-advisors

If you’re hesitant to pick stocks on your own, you might consider using a robo-advisor instead. Robo-advisors are automated platforms that build and manage a diversified investment portfolio for you based on your financial goals and risk tolerance. 

The main benefit of using a robo-advisor is that you don’t need to actively select stocks. You simply answer some questions about your financial situation and goals and the robo-advisor does the rest. So, if you’re looking for a hands-off approach to investing, this can be a great option to consider — but it can be more costly than managing your investments yourself.

Buying stocks through a financial advisor

If you prefer a more personal approach to stock investing, working with a financial advisor could be a smart approach. A financial advisor will help assess your financial goals, risk tolerance and investment horizon before recommending a portfolio that aligns with your needs. They can also assist you in selecting individual stocks, mutual funds, ETFs or other investment vehicles.

Financial advisors typically charge fees for their services, which can be a percentage of assets under management (AUM), a flat fee or an hourly rate. While these costs may be higher than using an online brokerage or robo-advisor, the benefit of tailored advice and hands-on management can outweigh the expense for investors who prefer more professional oversight.

Opting for direct stock purchase plans

Some companies offer direct stock purchase plans (DSPPs) that allow you to buy their stock directly from them, bypassing brokers entirely. These plans typically allow you to invest with lower minimum amounts and set up automatic monthly investments. Many also offer dividend reinvestment programs (DRIPs) that automatically use your dividend payments to buy more shares, often at a discount and without fees. 

While DSPPs aren’t as flexible as brokerage accounts, they can be an excellent way to build long-term positions in stable, dividend-paying companies. Just be aware that you’ll need to keep track of multiple plans if you invest in several companies this way, which can make tax reporting more complicated.

Investing in employer-sponsored plans

If you have a job that offers a 401(k) plan, you’re already closer to being a stock investor than you might think. These retirement plans often include stock mutual funds as investment options and many employers will match a portion of your contributions — essentially giving you free money to invest. 

The bottom line

While the stock market can seem complex, modern technology and various investment options have made it more accessible than ever to start building an investment portfolio. Whether you opt for the hands-on approach of managing your own brokerage account or prefer the guided expertise of a financial advisor or robo-advisor, there’s an investment strategy that can work for your needs and comfort level.

Just remember that successful stock investing is typically a long-term endeavor, so take time to educate yourself about the basics and start with an amount you’re comfortable with. As your knowledge and confidence grow, you can adjust your investment strategy to better align with your goals.