How to Start Investing in Stocks for Beginners: The Complete Guide from the First Investment to Profits

If you’re looking for how to start investing in stocks, this article will answer all your questions. Many people think stock investing is difficult and risky, but with the right knowledge and strategies, starting gradually can become a powerful means of long-term wealth growth.

Is Stock Investing Really Suitable for Me?

Before starting, you need to assess whether investing is appropriate for you. Stocks offer potential returns unmatched by other financial products. You can profit from stock price increases as companies grow, and receive regular dividends to secure cash flow. Additionally, stocks are highly liquid, allowing you to cash out anytime when needed, which is quite different from real estate.

Historical data shows that the S&P 500 index has averaged about 10% annual returns since 1957, significantly outperforming inflation over the long term. This demonstrates how consistent investing can be a powerful asset-building tool.

However, stock investing isn’t suitable for everyone. It’s essential to clearly understand your financial situation, investment preferences, and risk tolerance. Stock prices can be highly volatile in the short term. For example, during the March 2020 pandemic crash, the S&P 500 plummeted about 34% in a month. Recognizing whether you can withstand such psychological stress beforehand is crucial.

Basic Concepts You Need to Know Before Starting Stocks

Stocks are securities representing ownership in a company. When you buy stocks, you own a part of that company, and can earn profits through dividends and capital gains as the company grows and profits. In simple terms, it’s like becoming one of the owners of a company you like.

For example, owning one share of Samsung Electronics means holding a tiny fraction (about 0.0000018% as of February 2025) of the entire company. Stocks are bought in small units like this, but their value can increase significantly over time.

There are various ways to trade stocks. You can buy individual stocks of companies like Samsung, Hyundai, Naver directly, or invest through ETFs (Exchange-Traded Funds) or mutual funds that hold multiple stocks. For beginners, starting with ETFs that diversify across the entire market is a good choice. Recently popular fractional trading allows buying expensive stocks in small amounts, and dollar-cost averaging involves investing a fixed amount monthly to reduce psychological pressure.

Leverage products like CFDs (Contracts for Difference) also exist. They can offer high returns with small capital but carry significant risk, so proper education is necessary before approaching them.

How to Choose a Brokerage and Open an Account

The first step to start investing is selecting a securities firm and opening an account. Fortunately, nowadays, you can open an account in about five minutes via a smartphone app—just need your ID.

Steps to open a stock account:

1. Choose a brokerage: Compare fees, app usability, customer service, etc. The Korea Financial Investment Association’s website provides a comparison of brokerage fees at a glance.

2. Download the app: Install the dedicated app of your chosen broker.

3. Verify your identity: Scan your ID and complete mobile authentication within the app.

4. Enter personal info: Accurately input your personal details and income sources.

5. Agree to terms: Consent to the account opening application and trading terms, then sign digitally.

6. Complete the process: Once done, you can start trading immediately.

Be aware of account types. General custody accounts are the most basic, allowing trading of domestic and international stocks and financial products. ISA (Individual Savings Account) offers tax benefits for long-term asset management, and CMA (Cash Management Account) provides interest on deposits with flexible liquidity.

Note: If you open a deposit/withdrawal account at a financial institution, you cannot open a securities account at another institution within 20 business days (to prevent financial crimes). However, partnerships with banks like Kakao Bank or K-Bank are exempt from this restriction.

Fees are also important. Direct trading through staff can cost around 0.5%, which is high. Using online trading platforms (HTS, MTS) significantly reduces fees. Since many investors tend to stick with their initial broker, choosing one with low fees from the start is wise.

Two Methods of Analysis for Profitable Investing

Before making investment decisions, you need to analyze companies and stocks thoroughly. There are mainly two methods:

Technical Analysis involves examining past price movements and trading volume patterns to predict future prices. Using charts, moving averages, MACD, and other indicators, traders decide when to buy or sell. This method is popular among short-term traders.

Fundamental Analysis studies a company’s financial statements, management performance, and industry trends. Metrics like PER (Price-to-Earnings Ratio), PBR (Price-to-Book Ratio), and ROE (Return on Equity) help evaluate intrinsic value. Long-term investors often use this to find a company’s true worth.

Combining both approaches yields more accurate investment decisions. For example, use technical analysis for short-term trends and fundamental analysis for assessing a company’s long-term value.

Investment Strategies: Short-term vs. Long-term

Once you understand how to start investing, you should choose a strategy that fits your goals.

Short-term trading involves buying and selling stocks within days or months to seek quick profits. Day trading is a typical example. While it offers rapid gains, it also carries high risks, higher transaction costs, and requires constant market monitoring.

Long-term investing involves holding high-quality stocks for over five years. Warren Buffett’s value investing is a prime example. It benefits from compound growth over time and often enjoys tax advantages in many countries. This approach is especially suitable for salaried workers and beginners.

Diversification and Risk Management Techniques

The fundamental rule “Don’t put all your eggs in one basket” applies strongly in investing. Holding stocks across multiple companies like Samsung, Hyundai, and Naver reduces losses from a single stock’s decline.

Specific risk management techniques include:

• Stop-loss orders: Automatically sell a stock if its price falls below a set level to limit losses.

• Periodic portfolio rebalancing: Review and adjust your holdings quarterly to maintain target allocations, responding to market changes.

• Dollar-cost averaging: Invest a fixed amount regularly (e.g., monthly) instead of lump sum, averaging out purchase prices.

• Long-term holding: Keep promising companies despite short-term volatility to benefit from their growth.

10 Tips for Successful Investors

If you know how to start investing, the next step is to succeed in actual investing.

1. Start small. Avoid investing large sums initially to prevent psychological stress. Gain experience with modest amounts.

2. Avoid speculative themes. Be cautious of hype around “dawn stocks” or “hot stocks.” Base decisions on objective analysis.

3. Read economic news regularly. Spend 30 minutes daily on investment news, and weekly review earnings reports and economic indicators of companies you follow to sharpen your sense.

4. Keep an investment journal. Record reasons for each trade and its outcome to analyze and improve your strategy.

5. Diversify your portfolio. Spread investments across industries and companies to reduce risk.

6. Set a stop-loss rule. Decide in advance how much loss you can tolerate (e.g., 5%) and sell if it’s reached.

7. Understand market cycles. Recognize that markets go through bull and correction phases. Keep cash ready to buy quality stocks during downturns.

8. Believe in the power of compound interest. Reinvest dividends to exponentially grow your assets.

9. Minimize transaction costs. Frequent trading eats into profits through fees; trade wisely.

10. Keep learning. Investing is a lifelong journey. Read books, attend webinars, and learn from successful investors.

Conclusion

Mastering how to start investing in stocks takes time and effort. For beginners, thorough analysis, systematic risk management, and choosing strategies suited to oneself are keys to success. Like running a marathon, consistent and careful investing over 5 or 10 years can lead to substantial wealth and financial freedom. Start implementing your plan today.