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How Stock Investing Works – A Getting-Started Guide for Beginners

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chris liverani

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If you think with the “Minority Mindset,” you already know that spending money on things that make you money is more fun and rewarding than spending money on something that loses its value.

If you buy a pair of Nike shoes, for example, they lose value over time. If you buy Nike stock, though, you can watch your money grow over time.

Investing in stocks is one way to get your money working for you, so that you can build wealth.

  • Abbott Labs secretary Grace Groner turned $180 worth of Abbott Labs stock into a $7 million fortune over 75 years.
  • Janitor Ronald Read, who enjoyed learning about stocks, amassed $8 million from stock market investing.
  • Secretary Sylvia Bloom duplicated her boss’s investment strategy and earned $9 million throughout her lifetime.

ron read storySource: CNBC

“Anyone can invest in stocks, and you don’t need a lot of money to get started.”

Stocks aren’t always a winning investment, though. For example, a stock market plunge in 2011 resulted in an $8.4 billion loss for Warren Buffett and a $3.26 billion loss for Jeff Bezos.

warren buffettSource: Money

Fortunately, Warren Buffett and Jeff Bezos follow investment strategies. Despite the losses, their portfolios bounce back and they’re likely to profit in the long run.

Stock market investing is a complicated hobby. In this article, we’ll simplify it so you can quickly understand the basics of stock marketing investing. 

This way, you can get started investing right away and learn more as you go along, without taking too much risk.

How Stocks Work

When a business is doing well, its stock prices are higher. When it’s not doing well, its stock prices are lower.

There are two ways you can earn money from stocks.

(1) Appreciation – when the price of your stock goes up, you can sell your stocks.

Imagine you purchased a thousand stocks at $100 apiece. Over time, your stocks go up and up and up — until they are worth $200 each. 

You could cash out and sell your stocks for $200 each — congratulations — you earned $100,000!

Or, you can reinvest your earnings and try to get that $100,000 to earn even more money. 

(2) Dividends – When a company is doing well, its board of directors distributes a portion of its earnings back to the stockholders.

  • Cash dividends return cash to stockholders.
  • Stock dividends give more shares to stockholders. It’s a way for investors to compound their investments. 

Reinvesting dividends, over decades, is how people like Grace Groner and Sylvia Bloom ended up as multi-millionaires, even without big salaries. 

So, instead of thinking about how you can turn your earnings into cash, think about how much wealth you’ll build by continually reinvesting your stock earnings.

What is a Brokerage Account and Why You Need One

To invest in stocks/funds, you need to open a brokerage account. Without a brokerage account, you can’t purchase stocks.

A brokerage account is something you open with an investment firm. It’s similar to a bank account, but you use it to purchase stocks and other types of investments.

You don’t need a lot of money or time to open a brokerage account and begin investing in the stock market.

You can open a brokerage account with a financial firm — we recommend opening your first account with Webull (for active investors) or M1 Finance (for passive investors). Both are commission-free!

artwork 5 - passive and active investing

Both firms allow you to start investing quickly, even on a small budget, without charging any commissions when you buy and sell stock.

How Active Investing Works

If you enjoy learning about and following the stock market and want to invest more than two hours a week, you could become an active investor.

Active investors pick their stocks and retain control over when to buy and sell them. 

If you’re interested in active investing, we recommend you open an account at Webull. 

webull active account

Webull is a commission-free trading platform that allows you to open a brokerage account to buy and sell stocks without spending a penny on commissions. It provides you with the trading tools and analytics you need to become an active stock investor.

webull platformSource: Webull

How Passive Investing Works

If you’d like to spend zero to two hours a week in stock trading, you can become a passive stock investor by purchasing index funds.

Investing in index funds is a “hands-off” way of building a diversified portfolio that returns steady earnings. 

Index funds also provide a lower-risk form of investing, since you’re buying a group of stocks instead of gambling big on specific companies.

“If you don’t want to spend hours learning and following the stock market, then passive investing through index funds is an excellent option.”

For example, opening a free account at M1 Investment allows you to build a “pie” investment plan. You select investments, add them to your “pie,” then determine what share of the pie each investment will own.

Perhaps you invest 20% each into Google, Apple, Snap, Amazon, and Tesla.

investment pie chart

Source: M1 Finance

As your stocks grow or drop, you watch the slices of your pie grow larger or smaller. The visuals help you easily understand what’s happening with your stocks.

We recommend opening an account with M1 Finance if you’re interested in passive investing. Its services are automated, commission-free, and the company allows you to purchase fractional shares if you don’t have big $$$ to spend right away.

Artwork 3 - m1 finance passive investing-2

Getting Started With Stock Market Investing

If you’re interested in stock market investing (active or passive), it’s better to get started now than wait for “someday.”

There’s a lot to learn about the stock market, and investing as little as $100 into your first stocks gives you hands-on experience that will help you invest more wisely in the future.

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