How to Make Money Investing in Stocks for Beginners

Are you looking to make money investing in stocks but not sure where to start? Buying your first stock might seem a little intimidating but it’s not as bad as it seems! In this article I’ll be going over how to make money investing in stocks for beginners. This will include everything from basic terminology, how to open an account with a brokerage, and tips for making your first trade. Let’s get started!

Brokerages to start investing

The most common way to buy stocks these days is through an online stockbroker. A stockbroker is a professional trader who buys and sells stocks for you. The very first step you’ll have to do to trade stocks is to open a brokerage account. This will requires some personal information to validate who you are and a checking account to transfer funds and start trading.

Before you sign up for a brokerage, you’ll want to evaluate the fees they might charge for various types of trades. However, as a beginner and with more and more brokers offering no commission trades, there’s no reason you should sign up for a broker that requires you to pay commissions or have a minimum balance. Robinhood and WeBull are two brokers that I currently use to trade and both offer free stocks when you sign up with my link! There’s no minimum balance and commissions for basic trading and you can also buy fractional shares with these platforms. Get a free stock when you sign up with this link for Robinhood and four free stocks when you sign up with this link for WeBull. I’ve been using these platforms since I started investing a couple years ago and haven’t changed my platforms since.

Stocks or mutual funds/ETFs?

After you set up your brokerage account, you can choose to invest in individual stocks or mutual funds/ETFs. Individual stocks are higher risk but may give you higher rewards than mutual funds or Electronically Traded Funds (ETFs). This is ideal if you want to build your own portfolio, know which companies you want to invest in, and want no annual fees.

Mutual funds and ETFs let you invest in a portfolio of stocks with one single purchase. These are lower risk and allow you to have a small amount of a variety of companies, rather than putting a large amount into one specific company. There are also index funds, which are a types of mutual funds or ETFs that track a particular index such as the Dow Jones Industrial Average (DJIA) or S&P 500. It’s good to note that all mutual funds and ETFs both have annual expense ratios. This means that you’ll be paying a small annual fee in order to invest in them. Here are some differences between stocks, ETFs, and mutual funds based on what you’re looking for when you first learn how to make money investing with stocks.

Stocks vs. ETFs vs. Mutual Funds

	Stocks	ETFs	Mutual Funds
Investment minimums	None	None	Some have none, most require a minimum of $500 to $50001
Control over the price of your trade	Real time pricing	Real time pricing	Price is calculated once per trading day and stays at that price all day
Fees	No fees with commission free trading	Yes, annual expense ratios	Yes, annual expense ratios

Earning money and paying taxes

Whenever the value of your holdings go above the price you bought them at, you’ll have unrealized gains. Unrealized gains are your theoretical earnings “on paper” that you haven’t sold for cash yet. Those gains become realized gains when you sell. This is when you’ll begin to owe taxes on your earnings, which are called capital gains taxes.

Capital gains tax brackets

When you sell your assets for a profit, you have capital gains. A capital gain is the difference of the price you bought your asset at from the price you sold it at. There are two ways you can get taxed for your earnings: long term gains and short term gains. Long term gains occur when you’ve been holding the asset for a year or more while short term gains occur when you’ve been holding the asset for less than a year. This difference is crucial to when you are paying taxes on your earnings.

Long Term Capital Gains Tax for 2020

Filing Status	0% rate	15% rate	20% rate
Single	Up to $40,000	$40,000 to $451,450	Over $441,450
Married, filing jointly	Up to $80,000	$80,000 to $496,600	Over $496,600
Married, filing separately	Up to $40,000	$40,000 to $248,300	Over $248,300
Head of household	Up to $53,600	$53,600 to $469,050	Over $469,050

Short Term Capital Gains Tax for 2020

Filing Status	10%	12%	22%	24%	32%	35%	37%
Single	Up to $9,875	$9,876 to $40,125	$40,126 to $85,525	$85,526 to $163,300	$163,301 to $207,350	$207,351 to $518,400	Over $518,400
Married, filing jointly	Up to $19,750	$19,751 to $80,250	$80,251 to $171,050	$171, 051 to $326,600	$326,601 to $414,700	$414,701 to $622,050	Over $622,050
Married, filing separately	Up to $9,875	$9,876 to $40,125	$40,126 to $85,525	$85,526 to $163,300	$163,301 to $207,350	$207,351 to $311,025	Over $311,025
Head of household	Up to $14,100	$14,101 to $53,700	$53,701 to $85,500	$85,501 to $163,300	$163,301 to $207,350	$207,351 to $518,400	Over $518,400

One way around paying short or long term capital gains tax is to open a Roth IRA. Roth IRA’s are tax advantaged accounts that have a limit to how much you can contribute each year. I highly recommend investing your maximum limit to a Roth IRA first before you open an individual brokerage account, as your gains are completely tax free! You can read about how to make money investing in stocks with a Roth IRA here.

Some tips for beginners

Now you may have opened your first brokerage account but how do you choose what to invest in? When do you pull the trigger? Here are a few tips you can use before you decide where to invest your money.

Believe in the companies you invest in

Whatever company you decide to put your money towards, you should always believe they will succeed. For example, I love putting my money in fintech companies because fintech companies are currently seeing a compound annual growth rate of 20% from 2020 to 2025, despite the pandemic.¹ I also love Apple and their products as well as their track record for success so I invest pretty heavily in them too! (Check out the Apple Tower Theatre they recently made in LA!) Never invest in anything you don’t understand. Do your due diligence and research all about the companies you’re investing in.

Implement dollar cost averaging

When you first open your brokerage account, you might want to invest all your money at once. With the volatility of the market, a good strategy would be to implement dollar cost averaging, which is the practice of dividing up the total amount to be invested into smaller purchases. This reduces the need to “time the market” to find equities at the best price. I usually invest small amounts of money whenever the market is “down” and prices are low and repeat that whenever it happens.

Keep your emotions in check and don’t overtrade

Many people get excited when they’re trading for their first time. Some people buy stocks only to see it start going down soon afterwards and start panicking. Don’t panic. Fluctuation in the prices of stocks is completely normal and expected. If you keep your investments for a long enough period of time, given that you chose a solid investment, they will go up.

If you have less than $25,000 in your brokerage account, the U.S. Securities and Exchange Commission (SEC) will actually flag you if you make four or more day trades (buying and selling the same holding in the same day) within five trading days. This will mark you as a “Pattern Day Trader” and your account will be restricted for day trading until you bring your portfolio value to at or above $25,000 or you pass a certain period of restricted days. Make sure you’re not partaking too much in day trades without knowing what you are doing.

Conclusion

And that’s it! This is enough to get you started in the market and now you should know how to make money investing in stocks. As you start investing, you’ll learn more and more that’ll help you navigate the waters. Make sure you regularly read tips and tricks to get more knowledgeable about the market. In future posts, I’ll discuss other concepts and ways to invest such as options, bonds, and more!

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