How to Buy Stocks for Beginners: Facts and FAQs

Many new investors aren’t sure where to begin. If you’re just starting out and wondering how to know what stocks to buy, you’re not alone! Remember, every investor starts off as a beginner. This handy guide covers common first-time-investor questions to help you get started on the right foot.

What are stocks?

A stock, or share, is a sliver of ownership in a company. 

The price of a stock generally rises and falls based on how well the company is doing—but many factors can cause a stock’s value to rise or fall. For example, the company may report positive or negative earnings, or political factors—such as tariffs or foreign wars—could affect its prospects. The state of the economy overall also often matters too. The bottom line is that stock prices go up and down: It’s the nature of the market.

Companies that issue shares of stock to everyday investors are publicly traded (sometimes called public companies). That means they’re listed on a stock exchange, and their stock is available for anyone to buy. 

The most famous stock exchange in the U.S. is the New York Stock Exchange (NYSE). When people talk about Wall Street, that’s generally what they mean—the NYSE is literally a building on Wall Street. There are thousands of listings on the NYSE; starting to familiarize yourself with those companies might be a place to start considering what stocks to buy.

What does it mean to buy shares of a company?

When you buy stock, you are essentially buying a piece—a “share”—of that company. A share is not a physical object—although in the past, investors did receive printed, signed stock certificates, including a seal of authenticity. Today, a share is a computer record that represents a percentage of ownership in the business. Issuing stock is one of the ways that public companies raise money.

Ideally, this partial ownership share increases in value as profits and the value of the company increase—that is, after all, the typical goal of investing your money. Of course, the value of stocks can go down, too; there is always risk when you invest in stocks. 

Depending on the type of shares you own, you may have some voting power at the company’s annual stockholder meetings. That means you can vote on such things as who sits on the board of directors, and perhaps some of the decisions the company will make in the coming year. But when you consider that most companies issue tens of millions of shares of stock (and keep much of it for themselves), the amount you actually own—and any “power” that might come with it—is likely a drop in the bucket.

Investors can also buy fractional shares. As the name implies, these types of shares are fractions of shares of stock—a piece of the piece of ownership. Why buy fractional shares? Well, depending on the company, the price of a single share of stock can be hundreds or even thousands of dollars. Purchasing fractional shares allows you to start investing with just a little bit of money. If you’re new to investing, this might be a good entry into how to buy stocks; for beginners who aren’t ready to lay out a large sum, fractional shares can make investing feel more accessible.

How much do shares of a stock cost?

Share prices vary dramatically. A single share of the latest hot tech company might cost a couple hundred dollars or several thousand dollars. You may even find that companies in the same industry—automobile manufacturing, for example—have vastly different stock prices. One company might sell shares for a few dollars, while another might offer them for several hundred dollars. What gives? 

As mentioned above, stock prices are constantly changing for lots of reasons, but there’s also a lot of math involved. Companies can choose the number of shares they issue for public sale—essentially, how many slices the pie (that is, the company) is divided into—and some issue more shares than others. Share prices depend on the company’s overall valuation (how much the company is worth), as well as supply and demand, the company’s earnings, and other financial measurements. 

When you find yourself wondering how to know which stocks to buy, remember that a high share price does not mean that a particular stock is necessarily “better” than one with a lower price (or vice versa). Sometimes it just means that the stock is in high demand—lots of people want to buy it, and they are willing to pay top dollar for it because they believe the shares they buy will be worth more in the future. 

Fortunately, you don’t have to buy an entire share of a company to invest in it. Stash offers fractional shares of stock, which means you can start investing with any amount.

Is investing risky?

All investing involves risk. The Securities and Exchange Commission (SEC) is the federal government agency responsible for protecting investors by making sure that stock buying and selling is orderly and transparent. But that does not mean that your investment is protected like money in an FDIC-insured bank account.

Stock prices—even those of profitable and well-known companies—can go down. In fact, they often do go down, especially in the short term. That said, the fact that a stock price is down on any particular day doesn’t mean it will stay that way.

Every investor must develop their own risk profile. That means determining how much risk you’re willing to take on as an investor. One of the most significant factors in risk tolerance is your time horizon. If you’ve got 30 years before you retire, you might decide your portfolio can weather market storms, so you may want to consider being more aggressive. If you’re planning to retire in 10 years, however, you may want to be more conservative in the level of risk you take on.

Stash’s Smart Portfolio tool can help you create a diversified portfolio with a mix of stocks, bonds, and exchange traded funds (ETFs) that matches your risk tolerance.

How should a person invest?

There’s no one way to invest. And no one can tell you the exact right way to invest—or promise you’ll make money year after year. Anyone who tells you they can guarantee results is most likely leading you down the garden path (if not pulling an outright scam).

While there’s no one “right” approach, many wise investors (including Stash experts) recommend a long-term strategy. In general, that means buying and holding your investments over a long period of time, rather than trying to time the market by buying and selling frequently in response to constant ups and downs.

People who try to time the market are attempting to make money based on daily, weekly, or monthly fluctuations in share prices—hoping to anticipate the market when deciding how to buy stocks. For beginners, that can be especially risky business. That kind of trading is best left to seasoned investors.

Who should invest in stocks?

Lots of new investors ask this question, but setting yourself up for success isn’t about who you are or how many stocks you own—it’s about your time horizon and your risk profile. When you’re young and have a long time horizon for your investments, you’re more likely to have time to weather any dips in the market. 

The stock market will always have its ups and downs. The 2008 stock market crash and the ensuing bear market are still fresh in many investors’ minds, and have made some millennials wary of investing in the stock market altogether. However, the reality is that, by 2012, the market had regained its previous levels—and has since made new all-time highs. 

So instead of asking if you’re the kind of person who can buy stock, a better question might be “What kind of stocks do I want to invest in?” You might also ask, “What asset mix best fits my risk tolerance?” New investors might like Stash’s Smart Portfolio tool—it can reduce the stress of asking how to know what kind of stocks to buy, because it can help you find the mix of stocks, bonds, and exchange traded funds (ETFs) that best matches your risk tolerance.

At the end of the day, investing can be accessible to anyone with the right tools—which is why Stash is built for everyone. 

What are growth and value stocks?

“Growth” and “value” are terms that investors use to talk about stock performance. 

Growth stocks are market hotshots. Their value is increasing quickly, and the companies that issue them usually have noteworthy earnings or are doing something that investors think will be profitable. Investors and market analysts often get excited about these stocks because the company is about to drop a game-changing product. That kind of news can lead to demand for the company’s shares going up, and their investors see growth.

But that growth may or may not continue. Growth stocks can be volatile—that is, likely to gain or lose value quickly. If you invest in growth stocks, you may want to balance that increased volatility with investments that have more stable value.

Value stocks, on the other hand, are usually solid performers whose fortunes have slipped—or simply companies that aren’t making waves in the current market. They aren’t necessarily cheap, but investors see them as a great deal—like designer clothing on clearance. Investors buy value stocks in hopes that their prices will rise (albeit more slowly than growth stocks).

Understanding the potential risks and rewards of growth and value stocks might help you know what stocks to buy based on your risk profile. Spreading your stock investments among a variety of growth and value stocks can be another avenue for diversifying your portfolio, allowing you to balance out the promising hotshots with the (hopefully) tried-and-true. 

What are small-cap, mid-cap, and large-cap stocks?

Typically, the investment world categorizes companies as small-cap, mid-cap, and large-cap. (Cap is shorthand for market capitalization, aka market cap.) These categories refer to the size of the company issuing stock. The categories are typically broken down like this:

• Small-cap: $250 million – $2 billion market cap 
• Mid-cap: $2 billion – $10 billion market cap 
• Large-cap: $10 billion+ market cap 

Size can be a useful way to think how to buy stocks. For beginners, sorting through all the possible companies to invest in can be overwhelming, and these categories may help you understand the pros and cons of different options.

Small-cap and mid-cap stocks tend to be riskier, because the companies are smaller. Unlike large companies, which are usually older and have relatively stable sales, smaller companies may be newer, with less certain revenues. But small-cap and mid-cap stocks might have greater potential for growth if they’re in a hot industry that’s poised for growth, like healthcare or technology. 

That’s why diversifying your portfolio in terms of company size can help spread out your risk. It’s also important to note that small-caps, mid-caps, and large-cap stocks can also be either growth or value stocks, and vice versa—yet another avenue for diversification.

Follow the Stash Way

Deciding how to buy stocks, for beginners as well as more experienced investors, can be tricky—there are many different platforms and brokers. And developing your sense of the investing “how”—to know which stocks to buy, to determine when to invest, to decide how much to put in—can feel complicated too. The Stash Way—a holistic investment philosophy based on regular investment in a diversified portfolio over the long term—can make it easier. And Stash products, like Smart Portfolio and fractional shares, can help you start building a diversified portfolio with any amount.

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