How to Start Investing in Stocks: The Perfect Beginner's Guide

Stock investing is widely recognized as an effective way to grow wealth, but at the same time, it is also perceived as risky gambling. In reality, stocks are a powerful financial tool that can significantly increase your assets if you have the right knowledge and a systematic approach. This guide will introduce the overall process of stock investing step by step, from how to start investing, choosing a securities firm, opening an account, analyzing stocks, to trading strategies.

Understanding the Basic Concepts of Stocks

Stocks are securities that represent ownership in a company. When you purchase stocks, you hold a partial stake in that company. Owning stocks allows you to generate income through dividends and capital gains from stock price increases.

For example, owning one share of Samsung Electronics means you own a very small part of Samsung Electronics’ total equity(as of February 21, 2025, approximately 0.0000018%). This can be understood as owning a tiny piece of a huge corporate building.

Am I Suitable for Stock Investment? Self-Assessment

Stock investing can offer higher returns compared to other financial products. As the company’s growth drives stock prices upward, investors can profit from capital gains and secure stable cash flow through regular dividends.

Another advantage of stocks is high liquidity. Unlike real estate, stocks can be sold at any time without long waiting periods, providing quick cash conversion. Especially when investing long-term in excellent companies, you can experience steady capital growth through the power of compound interest.

Historical data shows that the S&P 500 index has achieved an average annual return of about 10% since 1957, outperforming inflation over the long term.

However, stocks are not suitable for all investors. It is essential to understand your risk tolerance, investment horizon, and financial situation beforehand, and to be psychologically prepared for market volatility. Continuous learning and market monitoring are also crucial.

Stock prices can fluctuate sharply in the short term. For example, during the pandemic in March 2020, the S&P 500 index dropped about 34% in just one month. Maintaining emotional resilience during such rapid declines is vital.

Various Types of Stock Trading Methods

There are mainly two ways to invest in stocks: direct investment and indirect investment.

Direct investment involves buying and selling individual stocks of specific companies. While it offers the potential for high returns, it also carries risks concentrated in one company.

Indirect investment includes ETFs(Exchange-Traded Funds), mutual funds, CFD(Contract for Difference), etc., which allow diversification across multiple assets. This method effectively spreads risk.

Recently, fractional trading has gained popularity among beginners because it allows holding expensive stocks with small amounts of money. Systematic investment plans are also popular, where a fixed amount is automatically invested each month to promote long-term asset growth.

Leverage products like CFDs enable seeking large profits with small capital. For example, if you expect Nvidia’s stock price to rise, you can buy a CFD to profit from the increase; conversely, if you expect a decline, you can take a short position. However, leverage products can also amplify losses quickly, so thorough understanding and risk management are essential.

Choosing a Securities Firm and the Procedure for Opening a Stock Account

To start investing in stocks, you need to open an account with a securities firm. Fortunately, nowadays, you can create an account within minutes via smartphone apps.

Required Documents and Preparations

ID card(Resident registration card, driver’s license, passport, etc.) is sufficient.

Understanding Account Types

Custodial Account: A general account for stock trading, used for buying and selling domestic and international stocks and various financial products.

ISA(Individual Savings Account): A long-term investment account with tax benefits. It offers income tax deductions and is advantageous for long-term asset management.

CMA(Cash Management Account): Pays interest on deposits and allows simultaneous stock investment and short-term fund management.

Steps to Open an Account

Step 1: Choose a Securities Firm Compare commission rates, services offered, and mobile app convenience.

Step 2: Install and Access the App Download the official app of the selected securities firm.

Step 3: Verify Identity Take photos of your ID and complete mobile authentication.

Step 4: Enter Personal Information Accurately input required details and source of income.

Step 5: Agree to Terms and Sign Digitally Consent to account opening applications, proof of financial transaction purposes, online trading terms, and sign electronically.

Step 6: Completion Receive notification of successful account opening after all procedures.

Tips to Reduce Trading Fees

Orders placed directly through staff incur higher fees, around 0.5%. However, online trading via PC’s HTS or smartphone’s MTS has become standard, with much lower fees.

Since most investors tend to keep their accounts long-term, choosing a securities firm with low fees from the start is wise.

Note: If you open a new deposit/withdrawal account at a financial institution, you must wait 20 business days before opening a securities account at another institution. This is a regulatory measure to prevent financial crimes. However, affiliated securities accounts with Kakao, K-Bank, Toss Bank, etc., have relaxed restrictions.

Company Analysis Methods: Technical Analysis vs Fundamental Analysis

Before making investment decisions, it is important to analyze companies and stocks thoroughly.

Technical Analysis

Analyzing past stock price movements and trading volume patterns to predict future prices. It uses charts and indicators.

Indicators like Moving Averages(Moving Average) or MACD(Moving Average Convergence Divergence) are used to determine buy or sell points. This approach is popular among short-term traders.

Fundamental Analysis

Deep analysis of financial statements, management performance, and industry trends to evaluate the intrinsic value of stocks.

Financial metrics such as PER(Price Earnings Ratio), PBR(Price Book Ratio), ROE(Return on Equity) are used to assess true company value. This method is favored by long-term value investors.

Choosing an Investment Strategy: Short-term Trading vs Long-term Investment

Short-term Trading Strategy

Buying and selling stocks over a short period to seek quick profits. Day trading is a typical example.

It offers high potential returns but also involves significant risk of loss. Techniques include real-time monitoring, technical analysis, and momentum trading. Frequent trading can also lead to high transaction costs.

Long-term Investment Strategy

Maintaining investments over five years or more. Warren Buffett’s value investing is a representative example.

Over time, profits can grow substantially through compound interest. Many countries offer tax benefits for long-term investments.

Risk Minimization and Portfolio Management Strategies

Effective risk management is essential for stable and sustainable investing.

Principles of Diversification

As the saying goes, “Don’t put all your eggs in one basket.” Invest across multiple companies and industries. Holding stocks like Samsung Electronics, Hyundai Motor, Naver, etc., simultaneously reduces the risk of decline in any single company or sector.

Loss Limitation Techniques

Stop-Loss: Automatically sell when stock prices fall below a set level to limit losses.

Periodic Portfolio Rebalancing: Regularly review and adjust your portfolio to maintain target allocations. This helps respond to market changes and maintain balance.

Dollar-Cost Averaging: Invest a fixed amount at regular intervals rather than all at once. For example, investing 2 million KRW each month over five months with a total of 10 million KRW.

Long-term Holding: Hold stocks of excellent companies for the long term to reduce the impact of short-term market fluctuations.

Practical Tips for Beginners

Start with Small Investments

Do not invest large sums initially. Begin with small amounts to learn the market and gain experience.

Avoid Market Fads

It is important not to be swayed by “theme stocks” or rapid surges. Instead, make decisions based on objective analysis rather than following overheated markets blindly.

Continuous Learning and Monitoring

Spend 30 minutes daily reading economic news, and weekly review earnings reports and key economic indicators of your interest stocks.

Keep Investment Records

Record reasons for each trade and its outcome. This helps analyze your investment patterns and improve decision-making processes.

Long-term Success in Stock Investing

Learning how to invest and starting stock trading is not a short-term task. Sufficient study, systematic risk management, and developing an investment strategy suited to yourself are key to success.

If you proceed steadily and cautiously like running a marathon, you will be able to achieve your goal of long-term asset accumulation.