Did you know that investing in stocks has historically outperformed most other investment options, with average annual returns of about 10% over the past century?
For many beginners, the stock market appears intimidating – filled with complex terminology, volatile price movements, and seemingly unpredictable outcomes. However, starting your investment journey doesn't have to be overwhelming.
The truth is that investing early and consistently remains one of the most effective ways to build wealth over time. Even modest investments can grow significantly through the power of compound returns. Additionally, modern technology has made the process more accessible than ever before.
Whether you're saving for retirement, planning for a major purchase, or simply wanting to grow your money, understanding the fundamentals of stock investing is essential. This comprehensive guide will walk you through everything you need to know to start investing in stocks in 2025, from opening your first account to building a portfolio that aligns with your financial goals.
Decide How You Want to Invest
When beginning your investment journey, one of the first major decisions you'll face is determining how to approach the stock market. Should you take control of your investments or entrust your money to professionals? This fundamental choice shapes your entire investing experience and has significant implications for your time commitment, costs, and potential returns.
Decide How You Want to Invest
Before purchasing your first stock, you must decide which investment approach aligns with your financial goals, expertise level, and personal preferences. Your decision will impact everything from the fees you pay to the time you'll spend managing your investments.
Do-it-yourself vs. managed investing
The investment world offers two primary paths for stock investors: doing it yourself or having someone else manage your investments. Each approach comes with distinct advantages and challenges worth exploring before committing your hard-earned money.
Self-Directed Investing: Taking Control of Your Financial Future
Do-it-yourself (DIY) investing, also known as self-directed investing, puts you in complete control of your investment decisions. As a self-directed investor, you personally select which stocks, bonds, funds, and other assets to include in your portfolio, as well as determine their allocation percentages. Furthermore, you decide when to buy and sell, monitor performance, and rebalance as needed.
This approach has become increasingly popular thanks to the rise of discount brokerages and robust online investment tools that make it easier than ever to build personalized portfolios. Most major online brokers don't have minimum account requirements, allowing you to start investing with modest amounts.
The appeal of DIY investing lies primarily in these key advantages:
Complete control: You alone decide what to invest in, from stocks and bonds to ETFs, mutual funds, or any other asset class you find promising. This autonomy allows you to invest according to your specific preferences and values.
Lower costs: Self-directed investing typically means paying lower fees compared to managed options. You'll primarily pay transaction commissions when buying or selling investments, though many brokers now offer commission-free trading for stocks and ETFs.
Customization: You can tailor your investment approach precisely to your needs, goals, and risk tolerance without being limited by a manager's strategy or fund options.
Educational value: Managing your own investments provides valuable hands-on experience in financial markets, potentially building knowledge that serves you throughout your lifetime.
Nevertheless, the DIY approach requires substantial commitment, as noted in the factual keypoints:
Time investment: Self-directed investing demands significant time for research, portfolio monitoring, and making informed decisions based on market movements.
Knowledge requirements: You'll need to educate yourself about investment fundamentals, market analysis, and portfolio construction principles.
Emotional discipline: Without professional guidance, DIY investors must resist making impulsive decisions during market volatility, a challenge many struggle with.
No professional guidance: You won't have the benefit of a financial professional helping you navigate complex tax considerations or retirement planning strategies.
A 2021 study of investor behavior found that the average DIY investor consistently underperformed the market over the 20 years ending December 31, 2020, primarily due to emotional decision-making, such as buying high and selling low. This highlights one of the most significant risks of self-directed investing: allowing emotions to drive investment decisions.
Managed Investing: Letting Professionals Take the Wheel
Conversely, managed investing involves entrusting your investment decisions to financial professionals who select investments, monitor performance, and make adjustments on your behalf based on your financial goals and risk tolerance.
Several options exist within the managed investing category:
Traditional financial advisors: These professionals provide personalized investment management alongside comprehensive financial planning services. They typically charge around 1% of assets under management annually.
Robo-advisors: These automated investment platforms use algorithms to create and manage diversified portfolios based on your goals and risk tolerance. Most robo-advisors charge approximately 0.25% of your account balance annually, making them significantly less expensive than human advisors.
Target-date funds: These all-in-one investment funds automatically adjust their asset allocation to become more conservative as you approach your target retirement date.
The benefits of managed investing include:
Professional expertise: Trained professionals with market knowledge and access to sophisticated research tools make investment decisions on your behalf.
Time savings: The time-consuming tasks of research, monitoring, and rebalancing are handled for you.
Emotional buffer: A professional manager can help prevent emotion-driven decisions during market turbulence.
Comprehensive services: Many managed options provide additional services like retirement planning, tax strategies, and estate planning.
Studies by Vanguard and Fidelity found that investor-advised portfolios generated 3% and 1.8% more per year, respectively, after accounting for the costs of hiring an advisor. This potential performance advantage represents one of the strongest arguments for managed investing.
The downsides primarily relate to fees and control:
Higher costs: Management fees for traditional advisors typically run around 1% annually, potentially reducing your returns over time.
Less control: You'll have limited input into specific investment selections.
Potential conflicts of interest: Some advisors may be incentivized to recommend products that generate commissions rather than those that best serve your interests.
Minimum investment requirements: Many managed options require substantial minimum investments, though this varies by provider.
Who Uses Each Approach?
Despite the potential advantages of professional management, self-directed investing remains more common. A 2022 survey conducted by The Harris Poll found fewer than one-third (32%) of Americans regularly consulted a financial advisor. A somewhat larger percentage (38%) reported currently working with a financial advisor in a 2021 poll.
Instead of using paid professionals, DIY investors rely on various free information sources including:
- Online financial content
- Family members
- Social media
- Blogs
- Podcasts
Nevertheless, professional advice may be growing in popularity, particularly among younger investors. The same survey found that 71% of Gen Z respondents and 72% of Millennials strongly or somewhat agreed that there were financial topics they wanted advice on without knowing where to turn.
Choosing Your Approach: Factors to Consider
When deciding between DIY and managed investing, consider these crucial factors:
Knowledge and interest: Honestly assess your understanding of investments and willingness to learn. If you're genuinely interested in financial markets and willing to educate yourself, DIY investing may be satisfying. Otherwise, professional management might be more appropriate.
Time availability: Evaluate realistically how much time you can dedicate to managing investments. Self-directed investing requires ongoing research, monitoring, and decision-making.
Emotional temperament: Consider how you've reacted to market volatility in the past. If you panic when markets decline, professional management might provide a valuable buffer against emotion-driven decisions.
Portfolio size: The impact of management fees increases with portfolio size. A 1% fee on a $50,000 portfolio equals $500 annually, while the same percentage on a $500,000 portfolio costs $5,000 yearly.
Portfolio complexity: Larger portfolios with multiple account types and tax considerations often benefit from professional guidance.
Cost sensitivity: If minimizing fees is your primary concern, DIY investing typically offers the lowest-cost approach, especially if you focus on low-fee index funds and ETFs.
The Hybrid Approach: Combining DIY and Managed Investing
Importantly, this doesn't have to be an all-or-nothing decision. Many investors employ a "core-satellite" strategy that combines both approaches:
- The "core" portion of their portfolio consists of broadly diversified, low-cost index funds or a robo-advisor managed portfolio.
- The "satellite" portion includes individual stocks or specialized funds they select themselves based on personal research and convictions.
This balanced approach allows investors to benefit from professional management for their primary investments while maintaining the freedom to pursue specific opportunities through self-directed investing.
Another hybrid option involves consulting with a financial advisor on an hourly or project basis to develop an investment plan, which you then implement and manage yourself. This approach provides professional guidance without the ongoing percentage-based fees.
What is a brokerage account and how do you choose one?
A brokerage account serves as the foundation for your stock investing activities, functioning as a specialized financial account that allows you to buy and sell various investment securities. Unlike standard bank accounts, brokerage accounts give you access to the stock market and other investment opportunities.
These accounts come in several varieties, each with distinct features and benefits suited to different investor needs:
Standard taxable brokerage accounts: These flexible accounts allow you to buy and sell investments with no specific tax advantages or withdrawal restrictions. Any investment gains you realize are taxable in the year they occur.
Retirement accounts: These include tax-advantaged options like Individual Retirement Accounts (IRAs) and employer-sponsored plans such as 401(k)s. They offer significant tax benefits but typically restrict withdrawals until retirement age.
Education savings accounts: Specialized accounts like 529 plans provide tax advantages for saving toward educational expenses.
When opening a brokerage account, you'll need to provide personal information including:
- Your full legal name
- Social Insurance Number or Social Security Number
- Citizenship information
- Home address
- Spousal information (if applicable)
- Other details as required by regulation
Your choice of brokerage firm significantly impacts your investing experience through the available investment options, fees, research tools, and customer support. The major categories include:
Full-service brokerages: Traditional firms like Merrill Lynch and Morgan Stanley provide comprehensive services including personalized investment advice, retirement planning, and wealth management. They typically charge higher fees but offer extensive support.
Discount brokerages: Firms like Fidelity, Charles Schwab, and TD Ameritrade offer lower fees than full-service options while still providing robust trading platforms, research tools, and customer service.
Online-only brokers: Platforms like Robinhood focus on user-friendly mobile experiences and typically offer commission-free trading on stocks and ETFs with limited additional services.
Robo-advisors: Services like Betterment and Wealthfront automatically build and manage diversified portfolios based on your goals and risk tolerance for a fraction of traditional management fees.
When selecting a broker, evaluate these key factors:
Fees and commissions: Compare account maintenance fees, trading commissions, and other potential charges. Many brokers now offer commission-free stock and ETF trades, but other fees may apply.
Investment selection: Ensure the broker offers all the investment types you're interested in, from individual stocks to bonds, mutual funds, ETFs, and perhaps options or other securities.
Research and educational resources: Quality brokers provide research reports, educational content, and investment screening tools to help inform your decisions.
Account minimums: Some brokers require minimum deposits to open accounts, though many now offer accounts with no minimums.
Trading platform: Test the broker's website and mobile app to ensure they're intuitive and provide the functionality you need.
Customer service: Consider the availability and quality of customer support, particularly if you're new to investing and might need guidance.
Account protection: Verify the broker is a member of the Securities Investor Protection Corporation (SIPC), which protects securities customers if a brokerage firm fails.
The brokerage landscape continues to evolve with technology, with many firms now offering increasingly sophisticated mobile apps, educational resources, and commission-free trading options. This increased accessibility has dramatically lowered the barriers to entry for new investors.
If you choose the DIY investing path, you'll need to select the right broker for your needs. If you opt for managed investing, you'll either select a robo-advisor platform or work with a financial advisor who will likely handle the brokerage account setup for you.
For beginners, brokers that offer comprehensive educational resources, intuitive interfaces, and responsive customer support often provide the best experience, even if they don't offer the absolute lowest fees. As your knowledge and confidence grow, you might consider transitioning to platforms that offer more advanced features or specialized services.
Remember that your choice of broker isn't permanent—you can transfer your investments to another firm if your needs change or you find a better option. Nevertheless, thoughtful initial selection can save significant hassle later.
Regardless of which path you choose—DIY, managed, or a hybrid approach—the most important step is to start investing. The power of compound returns means that time in the market typically matters more than perfect timing or strategy selection, especially for long-term goals like retirement.
By carefully considering your personal circumstances, knowledge level, time availability, and financial goals, you can select an investment approach that positions you for long-term success in the stock market while aligning with your individual preferences and constraints.