Investing in Stocks: How to Get Started

May 24, 2024

Share this article

What are stocks?

Stocks are a type of investment you make in a company. When you purchase a stock, you own a “share” of the company. When the company performs well or makes a profit, share prices tend to go up. The company may distribute some of that profit to their shareholders in the form of dividends. In short, when you buy stocks, you’re essentially investing in the potential success of that company with the hope of earning a return on your investment over time.

Basic types of stocks

Stocks are also sometimes referred to as “equities,” and companies issue shares in order to raise money for various projects – for example, to fund their current operations or an expansion of the business.

There are many different types of stocks, but they typically fall into two main categories: common stock and preferred stock. Here’s a quick summary of the two.

Common stock: As the name implies, this is what most people think of when they’re talking about buying or selling stocks. It represents a share in the ownership of a company. As an owner, you’re allowed to vote at shareholder meetings, and you’re entitled to dividends when they’re declared by the company’s board of directors.
Preferred stock: This type of stock is often considered a hybrid between stocks and bonds given its features. Similar to a common stock, you own a share of the company, but you do not have voting rights. And similar to a bond, you can usually expect to receive a dividend payment on a regular basis (monthly, quarterly, etc.). The “preferred” status also means that if the company were to go bankrupt or liquidate, preferred stockholders would have priority over common stockholders in terms of getting paid.

Under these two broad categories, you may have also heard of growth stocks (stocks with earnings that are usually expected to grow at a faster rate than the market average); income stocks (those that provide predictable dividend payments); blue-chip stocks (stocks issued by large, well-established companies).

Potential benefits and risks of investing in stocks

One main reason why people invest in stocks is to earn a potential return on their investment over time (e.g., when stock prices increase). Stocks, along with bonds, are one of the basic building blocks of a balanced investment portfolio, which could help you reach your longer-term goals like saving for retirement.

However, it’s important to understand that investing involves taking risks.

Investments like stocks can fluctuate in value based on market and economic conditions. Also, the company or companies you’ve invested in aren’t guaranteed to grow or perform well. This means that when you invest in stocks, you could make money or lose money, including the loss of your principal. There are no guaranteed or predictable returns.

With these potential risks in mind, you may be wondering why people invest in stocks at all. That’s because while there’s potential for losses, there’s also the possibility for gains. Historically, over long periods, financial markets have generated higher returns than interest earned in bank accounts. In this way, investing gives you a chance to keep up with the pace of inflation.

Learn more: Saving vs. Investing

How to invest in stocks

There are many different ways you could invest in stocks. A good place to start might be through a retirement account. If you have an individual retirement account (IRA) or a workplace retirement plan like a 401(k), take a look at your plan’s investment strategy. You’ll likely find that stocks are already part of your asset allocation.

If you like to be a little more hands-on when it comes to selecting, buying, or trading stocks, you could open an individual brokerage account. Depending on your account provider and the options offered, you could build a portfolio with a combination of individual stocks, stock ETFs, or stock mutual funds.

But be sure to do your research before buying any assets. You’ll also want to review and understand any potential fees (e.g., trading fees or commissions, etc.) and taxes related to the buying or selling of stocks through your brokerage account.

In general, before opening any type of investment account, it’s important that you understand your investment goals, time horizon, risk tolerance, as well as the role of diversification. If you have questions about finding the right account or appropriate mix of investments for your goals, consider working with a financial advisor.

This article is for informational purposes only and shall not constitute an offer, solicitation, or recommendation. This article was prepared by and approved by Marcus by Goldman Sachs® but is not a description of any of the products or services offered by and does not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA, or any of their affiliates, subsidiaries or divisions. Goldman Sachs Bank USA is not providing any financial, economic, legal, accounting, tax or other recommendation in this article and it is not a substitute for individualized professional advice. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice. Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA, or any of its affiliates, none of which are a fiduciary with respect to any person or plan by reason of providing the material or content herein. Neither Goldman Sachs Bank USA, nor any of its affiliates make any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.