How to Start Investing in Stocks: A Beginner's Guide
Data as of Oct 21, 2026 · Text updated Oct 22, 2026
Decide what the money is for, open a brokerage account, and start with a low-cost S&P 500 index fund that you add to on a fixed schedule. Add individual stocks later, once you can explain why each one should beat the index: over the past 12 months, 190 of 468 S&P 500 companies did.
Step 1: Decide what the money is for
Stocks are for money you can leave alone for years. Prices swing hard in the short run: in the last 12 months, the typical S&P 500 company fell 26.9% from a peak at some point. Money you need for rent, tuition or an emergency in the next few years belongs in cash or short-term savings, not in stocks.
Before you buy anything, write down two answers: how many years the money can stay invested, and how large a drop you could watch without selling. Those two answers shape every step below.
Step 2: Open a brokerage account
You buy stocks and funds through a brokerage account. Look for a regulated broker with low or no trading commissions and access to US-listed stocks and ETFs. In the US, choose the account type that fits your goal, such as a regular taxable account or an IRA for retirement savings. Many brokers also sell fractional shares, so a small amount can still buy part of an expensive stock or fund.
Investing from outside the US? Use a broker regulated where you live that offers US markets, and check your local rules on taxes and moving money abroad before you fund the account.
Step 3: Start with the whole market, not a few stocks
An S&P 500 index fund owns all of the roughly 500 large US companies in the index, weighted by size, for a small yearly fee. It gives you the market's return instead of a bet on which companies will beat it, and picking the winners is harder than it looks.
The dashed line is 50%: above it, most companies beat the index; below it, most lagged.
How we computed this: Each S&P 500 constituent's price return minus SPY's over the same window; 468 companies, closing prices as of Oct 21, 2026. Dividends are not included.
Over the last 12 months, 190 of 468 S&P 500 companies (40.6%) beat the index, and the median company finished 5.8 percentage points behind it. That is not unusual. Tracking S&P 500 members back to 1990, Ben Carlson finds that in an average year just under half of them beat the index, and over 10, 15 and 20-year periods only about a third do.
37.2% of companies fell over the year.
How we computed this: Price return over the last 12 months for each constituent with a full year of prices, as of Oct 21, 2026. Percentiles split the companies into ranked groups, so a few companies with distorted price history (for example around a stock split) barely move them.
The spread between winners and losers is wide. Over the past year, the best 10% of companies returned +56.6% or more, while the worst 10% returned −27.3% or less. With one or two stocks you could land anywhere on that range. The index gives you the whole range at once, weighted toward the largest companies.
Step 4: Expect the drops before they happen
How we computed this: Largest peak-to-trough fall in daily closing prices within the last 12 months, for 468 constituents, as of Oct 21, 2026. SPY is measured the same way. A company whose price history is not adjusted for a split shows a false drop; such cases are rare but can add to the deepest buckets.
Declines come with owning stocks. In the last 12 months, the typical S&P 500 company fell 26.9% from a peak at some point, 70.7% of companies fell more than 20%, and the index itself fell at most 8.9%. Owning hundreds of companies at once is what kept the index's fall smaller than most of its members'.
Picture the typical drop above on your own balance before you invest. If that loss would make you sell, start with a smaller amount and keep more in cash.
Step 5: Invest a fixed amount on a schedule
Choose an amount you can invest every month or every payday, and automate it. This is called dollar-cost averaging: the same amount buys more shares when prices are low and fewer when they are high, and you never have to pick the right day to start. Raising the amount as your income grows does more for you than finding a perfect entry point.
Step 6: Add individual stocks only with a reason
If you want to own single companies, limit them to a share of your money that you could watch fall sharply, and write down why you expect each one to beat the index. Before you buy, check a few numbers: how the stock has done against the S&P 500, whether analysts are raising or cutting their earnings estimates, how expensive it is compared with its peers, and where the company sits in its supply chain. NVIDIA's analysis page shows all four.
Common beginner mistakes
- Buying whatever went up last month. One month of returns says little about the next year.
- Putting most of the money into one or two stocks.
- Selling during a drop that was always likely. Look again at the drawdown numbers above.
- Investing money you will need within a few years.
- Overlooking fees. A fund's yearly cost is charged every year, whatever the market does.
Frequently asked questions
How much money do I need to start investing in stocks?
Many brokers have no minimum, and fractional shares let you start with a small amount. Investing regularly, and only money you will not need for several years, matters more than the size of the first deposit.
Should a beginner buy an index fund or individual stocks?
An index fund first. It gives you the market's return at low cost, while picking stocks means trying to beat it. Over the past 12 months, 190 of 468 S&P 500 companies beat the index.
Is now a good time to start investing?
No one can reliably pick the best day. Investing a fixed amount on a schedule removes the need to guess. If you are worried about a fall, start with a smaller amount and add to it over time.
How long should I keep money in stocks?
Plan in years, not months. Money you need within a few years is safer outside the stock market, because a single company can fall 26.9% or more within one year, and even the index can drop sharply.