How To Invest In Stocks: A Beginner’s Guide For Getting Started In 2024

If you want to learn how to invest in stocks but you’re not sure where to start, then we’re here to help. In this guide on investing for beginners, we break down the key steps you need to consider, along with some practical hints and tips to get you off to a smooth start.

Investing in stocks and shares can transform your finances, although you do need a plan, and you need to be able to stick with it for the long term. If you can, then the magic of compound returns can get to work. For example, did you know that £10,000 invested in the UK stock market 50 years ago would now be worth around £750,000?

Here are the seven steps you’ll learn about getting started with investing:

1. Set investing goals
2. Choose your investment strategy
3. Decide how much to invest
4. Open an investing account
5. Choose which stocks to buy
6. Keep track of your investments
7. Review your portfolio on a regular basis

Let’s get into the details.

1. Set investing goals

The first step in learning how to invest in stocks is to ask yourself, what exactly is your goal? After all, everyone’s financial goals are different. We all have different time horizons and objectives. Younger investors are often seeking to build wealth, while older investors typically look to protect it.

Establishing investing goals is a highly personal process. And there are multiple ways of going about it. However, professional financial planners tend to use the SMART system (or variants of it).

• Specific – make the objectives clear and precise. For example, are you saving for a house? Looking to pay for university? Growing a retirement fund? Maintaining a nest egg?
• Measurable – set a completion condition for each financial goal to know when it has been achieved.
• Achievable – what level of returns do you need to achieve your goals? What do you need to do to achieve them?
• Realistic – are your goals realistically achievable?
• Time – how long do you have to achieve your goals?

2. Choose your investment strategy

A great first step for investing beginners is to decide on an investing strategy. 

Think about how much time you’re willing and able to devote to investing. You can pretty much automate all your investing these days, making it simple and easy to grow your wealth. Or you can get much more involved, researching individual stocks and deciding which ones to buy and sell.

There are plenty of financial instruments available to stock market investors today. Each works slightly differently, with various degrees of risk and potential returns.

• Index trackers – Buying shares in an exchange-traded fund is a highly popular approach for individuals who want to put their investments on autopilot. You’ll never beat the market with an index fund because your portfolio effectively becomes the market. Each tracker follows a specified index like the FTSE 100, S&P 500, or Nasdaq, and replicates their performance.
• Unit trusts & funds – For investors who want to try their hand at beating the market but don’t have the time or interest in learning to analyse stocks, investing in a fund and/or investment trust is another option. A manager will pick stocks on your behalf in exchange for a small annual fee. But not every manager is Warren Buffett, so you need to choose carefully.
• Stocks & shares – Picking your own stocks and shares requires a larger time commitment than the first two options. And it undoubtedly carries more risk. But when done correctly, it’s the most profitable approach. The Motley Fool is a strong believer that just about anybody can beat the market by owning individual stocks over the long term, but only if they’re willing to put in the necessary effort. 

If you’re not quite sure which of these three approaches to choose right now, then don’t worry. We would say that index trackers are probably the best first step for most people who are just learning how to start investing.

But there’s nothing stopping you from trying all three approaches and seeing what works best for you. Or you might decide to start with index trackers and then move into funds and trusts, then onto individual stocks and shares as you get more comfortable when making an investment decision.

The most important thing is to have a plan and to make sure it’s one that suits your temperament so you can stick with it over the long term.

3. Decide how much to invest

There are a few questions to start with when deciding how much to invest.

How much do you need to start investing?

Many people are put off buying stocks and shares because they think it requires a lot of money. That used to be the case, but it certainly isn’t anymore.

Share dealing charges for buying individual stocks and shares are much lower than they used to be and it’s possible to set up plans that allow you to invest in stocks and shares from as little as £25 a month.

How often should you invest?

Invest in stocks and shares every month. In fact, setting up a regular plan to buy index trackers or funds and trusts can be an excellent way of investing for beginners, as you can build up a sizeable position over time. That’s especially true when the effects of compounding enter the picture.

Let’s demonstrate the power of compounding.

On average, the FTSE 100 delivers a return of around 9% annually when including income from dividends. Assuming this dividend income is reinvested, and every month, £25 was added to the portfolio, a total of £9,000 would have been deposited into the account after 30 years. 

But how much do you think the portfolio would be worth? It’s actually closer to £51,610, thanks to all the income it generated over the years. 

Now, let’s say you’ve managed to land a well-paying job and have £500 to invest each month. Under the same assumptions, how much do you think you’d have after 30 years?

The answer: £1,032,200! Now, that’s a nice retirement plan!

How long should you invest for?

Every investor has different objectives, time horizons, and risk tolerances. And each of these factors can significantly influence the holding period of portfolio positions.

In many cases, people invest as a means to save and build wealth for retirement. Having a chunky portfolio not only provides a source of funds for generating a passive income but also offers better financial security than simply relying on a variable State Pension.

However, there are plenty of investors with a specific objective in mind. It could be to raise enough money for a downpayment on a house, buy a new car, or pay for a university degree. And depending on their starting capital as well as the employed investment strategy, the time horizon could vary from a few years to possibly even decades.

Investors comfortable with taking on more risk and volatility could enjoy the benefit of achieving their investment objectives much faster than those who prefer safer investment vehicles, such as bonds. But even when operating on a long-time horizon, how long should an investor hold on to individual stocks?

When taking a Foolish approach to investing, investors should aim to hold onto their shares as long as they remain in excellent quality. After all, top-notch stocks have a habit of rising higher. So, providing the capital isn’t needed for a planned expense, investors are often better served staying invested. This is especially true for dividend-paying stocks as that can provide some welcome passive income that can be spent or reinvested.

Of course, even the best stocks in the world can be prone to volatility in the short term. And for the first couple of years, a stock may not reflect the performance of the underlying business. That’s why, as a general rule of thumb, money should only be invested in the stock market if it’s not going to be needed for at least the next three to five years.

4. Open an investing account

If you’re going to buy stocks and shares, then you’ll need to open a brokerage account. There are many different brokers available, offering a low-cost way of buying stocks and shares in the UK, US, and most other major markets across the world.

You’ll want to compare their charges and see which share dealing account offers the best value for you. Some brokers have very cheap dealing fees, while others are very competitive when it comes to monthly administration charges. Others will allow you to buy a fractional share in a business or provide you with investment advice.

Which investment platform is best for you will depend on how much you want to invest, how often you want to buy and sell, and whether you want a wider range of investing options.

How to open a brokerage account

Opening a share dealing account is relatively simple. You probably need to link it to either your bank account or debit card, and you may need details like your National Insurance number. The broker will carry out some basic identity checks behind the scenes, and then you should be able to start investing in stocks. It will probably just take a few minutes from start to finish.

If you are just learning how to start investing, then a single account with a broker is probably all you need. However, many people end up with multiple accounts if they find that one broker is good value for certain investments, while others might be better in different areas.

Take a look at our top-picked share dealing accounts in the UK to find one that’s right for you.

How to avoid the tax man (legally)

One thing we definitely recommend is investing in stocks and shares within an Individual Savings Account, or ISA. If you’re under 40, you can also open a variation of this called a Lifetime ISA, or LISA, where the government adds a bonus to your account, subject to certain conditions.

Investing in stocks and shares within an investment ISA or LISA means you pay no income tax on any dividends and no capital gains tax on your profits when a share price increases. Admittedly, when you first start investing, the amount of any tax you pay might be tiny, but it’s surprising how quickly that can change when you’ve been investing for a few years. 

Investing in a Stocks and Shares ISA could save you thousands of pounds in tax each year further down the line, and it usually doesn’t cost anything extra to have one.

An alternative tax-protected way to invest is through a Self-Invested Personal Pension, or SIPP. SIPPs probably have the edge when it comes to the amount of tax you can save. And any contributions up to £40,000 a year is actually tax-deductible!

But this advantage does come with a caveat. Under current rules, you can’t withdraw any money until you are 55 years of age. It is, after all, a pension account.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

5. Choose which stocks to buy

There are a few steps to choosing stocks.

Getting ideas for stocks and shares

Think about the products you use every day, the food you eat, and the services you buy. The chances are there is a well-known stock exchange-listed company behind them. Or there might be a customer or supplier you come across while you’re working that seems to dominate its industry. Great ideas for stocks and shares are all around us.

Our premium investing services also have great share recommendations. You can read more about our premium services to see which is right for you.

But you don’t need to buy every single good stock idea you come across, as otherwise, you could end up buying hundreds of different companies. So, you’ll want to concentrate on what you think are your best stock ideas and maybe add the ones that come close to a watch list so that you can revisit them at a later date.

Researching your stock ideas

The internet makes it easier to research companies you’re interested in investing in. Each public company should have a part of its website called ‘Investor Relations’ that will contain detailed reports, presentations, and explanations about how their business works.

You can draw on your experience as a customer, read company reviews to see what others think, and ask people who have to deal with the company directly what they think.

Diversify your portfolio of stocks and shares

One concept that’s very important to understand when you’re learning how to invest in stocks and shares is diversification. In short, it means don’t put all your eggs in one basket.

You want to buy stocks and shares from different industries and make sure they are diversified globally rather than being concentrated in a single country. While it’s tempting to learn just how to invest in UK stocks, it can make a lot more sense to spread your net a little wider. That way you can ensure that your stock portfolio won’t be overly dependent on a few key areas, and you can smooth out the bumps that are a natural part of investing in any business.

6. Keep track of your investments

Once you’ve bought your stocks and shares, you’ll need to follow their progress. You can sign up for news alerts for the companies you’re invested in and you can keep track of their share price via your broker or at financial websites like The Motley Fool.

It’s a good idea to jot down some notes about why you decided to invest in a particular company in the first place and list any performance targets that they have set for themselves. 

Apart from being an easy way to track the progress of a company, it also serves as a useful tool when it comes to selling.

Knowing when to sell a stock is a problem even professionals struggle with. But by writing down the reasons why you bought the stock in the first place it can make the selling decision much easier.

If the reasons why you bought the stock are no longer true, or the income/growth potential of the business has been compromised, then it might be time to head to the exits.

7. Review your portfolio on a regular basis

It’s a good idea to review your individual holdings on a regular basis and also to consider how your portfolio looks as a whole. Share prices move up and down all the time and you may find you have a little too much invested in one area or perhaps too little in another. In such cases, you might want to rebalance things a little.

Over time, you might find you build up a long tail of small positions. It might be time-consuming to keep track of all of them so you might want to cut loose your least favourite ideas so that you can concentrate on your best ones.

It’s also sensible to download any contract notes you receive for buying and selling shares and the transaction history of your account covering any cash going in and out, dividends received, and so on.

Not only might you need this information to measure your investing success, it will also save a lot of time when filling out a tax return for investments made in non-tax efficient accounts.

Frequently asked questions

Let’s explore some common questions we get asked by brand-new investors.

How much do I need to invest to make £3,000 a month?

Let’s say an investor is looking to retire early and wants to match their current monthly salary of £3,000 with income from an investment portfolio. How much would they need?

£3,000 a month is the equivalent of £36,000 per year. And following the 4% withdrawal rule, that would require a portfolio worth £900,000. Obviously, this isn’t pocket change. But as daunting as such a milestone seems, it’s definitely something that most investors can achieve given sufficient time.

By funding a portfolio with £500 each month and investing it in top-notch stocks, it’s possible to earn considerably more than what even high-interest savings accounts can offer. But even if a portfolio only matches the FTSE 100’s 9% annual historical return, building a £900k portfolio would take just under 30 years – more than 15 years shorter than the average length of a typical career.

Are stocks a good investment for beginners?

Investors have a lot of asset classes to choose from when building wealth beyond just stocks. However, when looking at the long-term performance of these financial instruments, equities have vastly outperformed.

There’s obviously a learning curve, as with every wealth-building instrument. Yet, stocks are still one of the few methods that are beginner-friendly. And the stock market even offers beginner-friendly ways to start investing in shares with instruments like index funds and mutual funds.

That way, if someone doesn’t feel immediately confident to jump into stock picking and can’t afford financial advice, they can leave the decision-making to a professional at minimal cost.

How do I choose my first stock?

Picking the first company to buy shares in can be a daunting task. After all, there are thousands of publicly traded businesses to choose from on the London Stock Exchange alone. And the list grows exponentially when venturing into international markets like the US.

However, generally speaking, a good first stock to buy is a mature large-cap enterprise with a proven track record and promising long-term outlook. While larger businesses typically offer less explosive growth potential, they can serve as a solid foundation to start building the rest of a portfolio from.

Here in the UK, a good place to start for these sorts of businesses would be the FTSE 100, which contains the largest 100 publicly traded corporations by market capitalisation.

You’re ready to start investing!

Now that you’ve learned all the steps to investing as a beginner, you’re ready to get your hands dirty. Get out there and start building wealth!