How to Buy Your First Stocks and Start Building a Portfolio

Opening a brokerage account is your first step, and it takes about 15 minutes

To buy stocks, you need a brokerage account — a holding place for your money and the shares you own. You open one by choosing a brokerage firm (Fidelity, Charles Schwab, Vanguard, and E*TRADE are large ones, but many others exist), visiting their website, and filling out an account application. You'll provide your name, address, Social Security number, and employment information. The brokerage runs a background check, which usually clears within a day.

Once approved, you link a bank account to your brokerage account so you can move money in. This takes a few days the first time — the brokerage makes two small test deposits to your bank, and you confirm the amounts to prove you own the account. After that, transfers are faster. Some brokerages let you start with as little as $1, though many suggest $500 to $1,000 to give yourself room to buy a few different stocks.

You don't pay a fee to open the account. Most brokerages make money when you trade (buy or sell), and many now charge zero commission per trade — meaning you keep more of your money working for you. Read the account agreement to see what fees apply, if any, and whether there are minimums to avoid monthly charges.

Key Takeaways

• A brokerage account is where you hold cash and buy stocks; opening one takes 15 minutes online and costs nothing.
• You can buy individual stocks one at a time, or buy funds (like index funds or ETFs) that hold many stocks at once, which spreads your risk.
• Stock prices move every trading day, and you can sell whenever the market is open, but holding for years usually works better than trading frequently.
• Commissions on trades are now free at most brokerages, but you still pay the bid-ask spread — the difference between what buyers and sellers will pay.
• If your employer offers a 401(k) or 403(b), starting there often makes more sense than a regular brokerage account because of tax breaks and matching contributions.

Decide whether to buy individual stocks or funds

Once your account is open and funded, you face a choice: buy individual stocks (shares of one company at a time) or buy funds that hold many stocks together. Individual stocks mean you pick which companies to own — Apple, Microsoft, a local bank. You research the company, decide it's a good investment, and buy shares. This takes time and carries risk: if you pick poorly, that stock can fall and stay down.

Funds bundle dozens, hundreds, or thousands of stocks into one purchase. An index fund tracks a list like the S&P 500 (500 large U.S. companies) or the total stock market. An ETF (exchange-traded fund) works the same way but trades like a stock during the day. A mutual fund is managed by a person who picks stocks for you. When you buy a fund, you own a tiny piece of all those companies at once, so one bad pick doesn't sink you.

Most people starting out do better with funds, especially index funds, because they require less research and spread risk across many companies. You can always buy individual stocks later once you understand how they work. Many investors do both — a core holding in an index fund, plus a few individual stocks they follow closely.

Understand how to place a trade

When you're ready to buy, you log into your brokerage account and search for the stock or fund by its ticker symbol — a short code like AAPL (Apple) or VOO (Vanguard's S&P 500 index fund). You enter how many shares you want and review the price. The price shown is usually a delay of 15 to 20 minutes for free accounts; real-time prices cost extra. Then you confirm the order.

Your order goes to the market, where it matches with someone selling at that price. This usually happens instantly during market hours (9:30 a.m. to 4 p.m. Eastern time, Monday through Friday). You can place orders outside those hours — before the market opens or after it closes — but they won't execute until the next trading day, and the price might be different.

Once your order fills, the shares appear in your account. You own them. You can hold them forever, sell them tomorrow, or sell them in 20 years. There's no penalty for holding or selling; the only cost is the bid-ask spread (the tiny difference between what buyers and sellers will pay) and any fees your brokerage charges. Most brokerages charge nothing per trade now.

Know the difference between taxable and tax-advantaged accounts

The brokerage account described above is a taxable account. When you sell a stock for more than you paid, you owe capital gains tax on the profit. If you hold it less than a year, it's taxed as regular income. If you hold it a year or more, it gets a lower tax rate. You also owe tax on dividends (payments companies make to shareholders) every year, even if you don't sell.

If you have earned income from a job, you can open an IRA (Individual Retirement Account) instead. A traditional IRA lets you deduct contributions from your taxes now, and you pay tax when you withdraw in retirement. A Roth IRA takes after-tax money now, but withdrawals in retirement are tax-free. Both let you buy stocks and funds inside them, and you pay no tax on gains or dividends while the money sits there — only when you withdraw. For 2024, you can contribute up to $7,000 per year to an IRA (or $8,000 if you're 50 or older).

If your employer offers a 401(k) or 403(b) (for nonprofits and schools), that's usually the best place to start. You contribute pre-tax money, and many employers match a portion of what you put in — assistance programs. The contribution limit is much higher: $23,500 per year for 2024. You can buy stocks and funds inside these accounts too, and gains aren't taxed until you withdraw.

Start small and add regularly

You don't need a large sum to begin. Many investors start with $500 or $1,000 and add money every month or every paycheck. This approach, called dollar-cost averaging, means you buy more shares when prices are low and fewer when prices are high — which smooths out the ups and downs of the market. Over time, small regular additions often build wealth faster than waiting to invest a large lump sum.

Set up automatic transfers from your bank to your brokerage if the brokerage offers it. Then set up automatic purchases of the same fund or stock on the same day each month. This removes emotion from the process: you're not trying to time the market or second-guessing whether today is a good day to buy. You're just buying consistently, which is how most long-term investors build portfolios.

Expect the value of your stocks and funds to move up and down. On some days the market rises 2%; on others it falls 1%. This is normal. If you're holding for years, these daily swings don't matter. If you're holding for months, they can feel stressful. The longer your time horizon, the more you can ignore short-term noise and focus on adding money regularly.

Avoid common mistakes when you're starting out

The biggest mistake is trading too often. Every time you buy or sell, you pay the bid-ask spread and possibly a commission (though most brokerages charge zero now). More importantly, frequent trading usually underperforms holding. Studies show that people who trade actively earn lower returns than people who buy and hold. The urge to sell when the market drops or buy when it's soaring is usually wrong.

Another mistake is putting all your money into one stock or a few stocks you think will explode. This is speculation, not investing. If you're going to own individual stocks, keep them to a small part of your portfolio — maybe 10% to 20% — and put the rest in diversified funds. That way, if one stock tanks, your whole portfolio doesn't.

Don't borrow money to invest (called buying on margin). If the stock falls, you owe the money back anyway, and you can be forced to sell at the worst time. This is how people lose more than they invested. Stick to money you can afford to lose without changing your life.

Frequently Asked Questions

How much money do I need to start investing in stocks?

Many brokerages let you open an account with $1, though $500 to $1,000 gives you room to buy a few different stocks or funds. You can add more money anytime. Starting small and adding regularly works better than waiting until you have a large sum.

Can I lose more money than I invested?

If you buy stocks with your own cash (not borrowed money), the worst that can happen is the stock goes to zero and you lose what you put in. If you borrow money to buy stocks (margin), you can lose more than you invested. For beginners, stick to cash you own.

What's the difference between a stock and a fund?

A stock is a share of one company. A fund holds many stocks (or bonds) bundled together. Funds spread risk across many companies, so one bad pick doesn't hurt as much. Index funds and ETFs are popular because they're diversified and require less research than picking individual stocks.

Do I have to watch the market every day?

No. In fact, checking constantly often leads to panic selling when prices drop. If you're holding for years, check your account once a month or once a quarter. Daily price swings are noise. Focus on whether you're adding money regularly and staying diversified.

Should I start with a 401(k) or a regular brokerage account?

If your employer offers a 401(k) or 403(b) with matching contributions, start there first — the match is assistance programs and the tax break is valuable. Once you've contributed enough to get the full match, you can open an IRA or a taxable brokerage account for additional investing.