The ULTIMATE Beginner's Guide to Investing in Stocks (2024 Edition)
A Blueprint for Beginner Investors
Did you know that more than 50% of Americans own stocks? In fact, in 2024, American stock ownership rates are back at all-time highs:
(Image Source: Visual Capitalist)
However, despite the growing number of investors, many remain uncertain about how to buy individual stocks and build a portfolio that actually represents a meaningful part of their net worth.
If you find yourself in this situation, you're not alone. In this blog post, I’ll share a blueprint that simplifies the process of buying your first (or next) stock.
Whether you’re a beginner or already own a few shares, I’m certain this guide will help you approach stock investing in a more structured and thoughtful way. So let’s get started!
Step 1: Understanding Your Financial Goals and Investment Horizon
Before buying any stock, the first step is to understand why you want to invest. Are you looking to grow your wealth for retirement? Do you want to achieve financial independence and retire early? Whatever your reason, having clear financial goals will help guide your investment decisions and keep you committed during tough market periods.
Equally important is your investment horizon—how long you plan to keep your money invested. Stocks are a long-term investment, and short-term volatility can make stocks risky if you need the money in the next few years.
If you are planning to cash out in less than a years, you may want to reconsider investing in individual stocks or the stock market as a whole. However, with a long-term horizon (5 years or more), volatility becomes less of a risk, and the chances of growing your wealth increase. As you can see in the chart above, it’s difficult to lose money in stocks one you extend your time horizon to ten years plus.
Key takeaway: Investing in stocks is a long-term endeavor. If you can’t handle volatility or need the money soon, consider a different approach.
Step 2: Understanding What a Stock Really Represents
When you buy a stock, you’re not just purchasing a ticker symbol on a screen—you’re buying a piece of a company.
In the process of “going public,” usually via an Initial Public Offering (IPO), companies sell ownership stakes to the public, and these shares are then traded on stock markets. As a shareholder, you become a part-owner of the company.
It' simplifies things if you simply pretend to buy the entire company when you buy a share of a publicly-traded business.
This ownership mindset is crucial. If you buy 100 shares of Apple, you’re a part-owner of Apple’s business. It’s not gambling or speculation. You should understand why you’re buying a particular stock and what the company does to make money. This is what you’d do if you were to buy the entire company.