How to Invest in Stocks: A Step-by-Step Guide for Beginners

There are things you need to know before entering the stock market. Many people consider stocks as ‘gambling,’ but with proper knowledge and strategies, it can become a powerful means to grow your assets. In this article, we will explain everything about how to invest in stocks, from basic concepts to choosing a brokerage, opening an account, and analyzing stocks step by step.

Understanding the Nature of Stocks

Stocks are securities that prove ownership in a company. When you buy stocks, you hold a stake in the company, and you can generate profits through two methods: dividends and capital gains as the company’s performance improves.

For example, owning one share of Samsung Electronics means holding a tiny fraction of the company’s total shares(, approximately 0.0000018% as of February 21, 2025). The core of stocks is owning part of a large company and enjoying the benefits of its growth.

Assessing if You Are Suitable for Stock Investment

The appeal of stock investing lies in the potential for high returns. As companies grow and stock prices rise, you can earn capital gains, and you can also secure regular cash flow through dividends. Additionally, stocks are highly liquid, meaning you can sell them at any needed time to convert to cash. This is a significant advantage over real estate, as quick cash conversion is possible.

Historical data shows that the S&P 500 index has yielded an average annual return of about 10% since 1957, providing returns that outpace inflation over the long term. Investing in high-quality companies’ stocks over the long term can lead to steady capital growth through compound interest.

However, stocks are not suitable for all investors. It is essential to accurately understand your investment temperament, current financial situation, and psychological capacity to endure losses beforehand. Stock prices can fluctuate sharply in a short period. For example, during the pandemic in March 2020, the S&P 500 index dropped about 34% in just one month. Psychological readiness and continuous learning are necessary to respond to such rapid changes.

Various Methods of Stock Trading

There are mainly two ways to invest in stocks.

Direct Investment: Buying and selling individual stocks directly. Since you bet directly on the growth potential of specific companies, high returns are possible, but so is the risk of significant losses.

Indirect Investment: Through ETFs(Exchange-Traded Funds), mutual funds, CFD(Contracts for Difference), etc. Diversified across multiple stocks, this method is less affected by the volatility of individual stocks.

Recently, fractional trading and dollar-cost averaging are gaining attention. Fractional trading allows purchasing expensive stocks with small amounts, and dollar-cost averaging involves automatically investing a fixed amount every month, aiding long-term asset growth.

Leverage products like CFDs offer the chance for large gains with small capital but carry higher risks. For example, if you expect Nvidia’s stock price to rise, buying a CFD contract can yield profit when it does. Conversely, if you anticipate a decline, you can take a short position to profit from falling prices. Such high-risk products require thorough understanding before investing.

Opening a Securities Account: Practical Procedures

To start investing in stocks, you need to open an account with a securities firm. The process is similar to opening a bank account but can be completed quickly online.

What you need to open an account:

• Identification(Resident registration card, driver’s license, passport, etc.)

Main account types:

A custody account is a standard trading account for buying and selling domestic and international stocks and various financial products.

An ISA(Individual Savings Account) is a long-term investment account with tax benefits, advantageous for asset management through income deductions.

A CMA(Cash Management Account) pays interest on deposits and allows simultaneous stock trading and short-term fund management.

Steps to open an account:

1. Choose a securities firm considering fees, service quality, and mobile app convenience.
2. Install the dedicated app for account opening of the selected firm.
3. Scan your ID and verify your identity via your mobile phone.
4. Enter personal information and source of income accurately.
5. Submit the application form, supporting documents for the purpose of financial transactions, and agree to online trading terms with a digital signature.
6. After completing all steps, you will receive a notification that your account has been successfully opened.

Note: If you have a record of opening a deposit or withdrawal account, you must wait 20 business days before opening a new account with another financial institution. This regulation aims to prevent financial crimes. However, in cases of affiliated bank-securities combinations(e.g., Kakao-Keibank), this restriction may not apply.

Tips to reduce trading fees: Orders placed through staff may incur about 0.5% in high commissions, but using online HTS or mobile MTS can significantly lower costs. Choosing a low-fee securities firm at the start of trading helps save costs in the long run.

Two Pillars of Stock Analysis

Before making investment decisions, thorough analysis of companies and stocks is essential.

Technical Analysis: Predicts future stock prices based on past price movements and trading volume patterns. Using charts and indicators(Moving averages, MACD, etc.) helps identify optimal buy and sell points.

Fundamental Analysis: Evaluates stocks by analyzing financial statements, management performance, and industry trends to assess intrinsic value. Metrics like PER(Price-to-Earnings Ratio), PBR(Price-to-Book Ratio), ROE(Return on Equity) help determine the true worth of a company.

These two methods are complementary. Short-term traders tend to focus more on technical analysis, while long-term value investors emphasize fundamental analysis.

Investment Strategies: Choosing by Time Horizon

Your stock investment strategy depends on your investment period.

Short-term Investment: Buying and selling stocks over a few days to weeks to seek quick profits. Day trading is a typical example. It uses technical analysis, real-time news monitoring, momentum trading, etc., but involves high transaction costs due to frequent trading.

Long-term Investment: Holding stocks for over five years. Warren Buffett’s value investing is a prime example. Over time, compound interest accumulates, and investment returns can grow exponentially. Many countries offer tax benefits for long-term investments.

Portfolio Strategies to Minimize Losses

To achieve stable returns, diversification and systematic risk management are essential.

Principle of Diversification: Do not concentrate all funds in a single stock. Holding stocks of multiple companies like Samsung Electronics, Hyundai Motor, Naver, etc., can absorb shocks from declines in specific stocks or sectors.

Risk Management Techniques:

• Stop-loss orders: Automatically sell stocks if prices fall below a certain level to limit losses.
• Periodic portfolio rebalancing: Regularly review holdings and adjust to maintain target ratios, responding to market changes.
• Dollar-cost averaging: Invest a fixed amount at regular intervals rather than all at once. For example, investing 20 million won each month over five months.
• Maintaining a long-term investment attitude helps reduce the impact of short-term market fluctuations and participate in the growth of promising companies.

Practical Tips for Beginner Investors

Start Small: Initially, experience actual investing with small amounts to build confidence.

Avoid Fads: Be cautious not to follow overheated market trends like ‘theme stocks’ or ‘limit-up stocks’ blindly. Make rational decisions based on objective analysis.

Continuous Learning: Read economic news daily, and review quarterly earnings reports and key economic indicators of your interest stocks.

Keep Investment Records: Record reasons for each trade and its outcome to analyze your patterns and improve decision-making processes.

Conclusion: The Core of How to Invest in Stocks

Learning how to invest in stocks properly requires in-depth study. For beginners, thorough analysis, systematic risk management, and choosing an investment strategy suited to oneself are keys to success. Like running a marathon, progress steadily and calmly toward the ultimate goal of long-term asset growth.