How to invest in stocks in the US: step by step for beginners

Step by step

1. 1

   Get your money ready

   Pay off credit cards first: they often charge 18% or more, and almost no investment beats that reliably. Keep emergency savings in a bank account; some people keep up to six months of income. Invest money you will not need for several years: large-company stocks as a group have lost money in about one year out of three.

2. 2

   Gather your documents

   Brokers ask for your name, address, date of birth, an SSN or other taxpayer number, a photo ID, your job, income and net worth. Most also want a US home address. Webull, Firstrade, Fidelity, Ally Invest and Acorns accept an ITIN; Robinhood, Public, Vanguard, J.P. Morgan, Merrill and Moomoo need an SSN. If you are not a citizen or green card holder, the visa matters too: Webull, Firstrade and Public accept E, F-1, H-1B, O-1 and TN visas.

3. 3

   Choose a broker and look it up

   Online US stock and ETF trades are $0 at Fidelity, Vanguard, Webull and Robinhood, but moving your account out costs $75 at Webull and $100 at Public and Vanguard. Look the firm up for free on FINRA BrokerCheck (brokercheck.finra.org or 800-289-9999) and read its relationship summary, Form CRS.

4. 4

   Open a cash account

   When you apply, choose a cash account: you pay in full for what you buy. In a margin account the broker lends you money against your stocks, and your losses can be larger. Some applications make margin the default, so check the account type before you sign.

5. 5

   Decide: index funds or single stocks

   An index fund is a mutual fund or ETF that tracks an index such as the S&P 500, so one purchase spreads your money over many companies. Index funds trade rarely, which can keep costs low, but not all are cheap: the yearly fee, the expense ratio, differs from fund to fund. A single stock depends on one company, and if it goes bankrupt, common shareholders are paid last and may get nothing.

6. 6

   Add money and place your first order

   Link your bank account: at Moomoo, for example, ACH deposits are free, while an outgoing wire costs $20 there and $25 at Public. Then find the stock or fund and enter a dollar amount or a number of shares. With fractional shares you can start small: from $1 at Robinhood and Fidelity, from $5 at Firstrade and J.P. Morgan.

7. 7

   Know the protection and the taxes

   If a SIPC-member broker fails, SIPC protects up to $500,000, including $250,000 in cash, but not a drop in prices. When you sell at a profit, you owe capital gains tax: usually 0%, 15% or 20% on stocks held over a year, and your regular rate on stocks held a year or less. Your broker reports sales on Form 1099-B and dividends of $10 or more on Form 1099-DIV; a tax professional can help with your first return.