How to Invest in Stocks: A Step-by-Step Complete Guide from Investment Introduction to Portfolio Construction

Many people view stocks simply as risky gambling, but in reality, they are a powerful financial tool that can effectively grow assets when supported by systematic knowledge and a planned approach. This guide will cover all stages of stock investing suitable for beginners.

Understanding the Nature of Stocks

Stocks are securities that represent ownership in a company. Buying stocks means owning a portion of a specific company. For example, holding 1 share of Samsung Electronics stock means owning about 0.0000018% of the entire company(as of February 21, 2025).

The profits from stock investing come in two forms. First, capital gains from the company’s growth, and second, regular cash flow through dividends. As a company grows, its stock price rises, allowing investors to generate returns.

Is Stock Investing Right for Me?

Stock investing’s biggest appeal is its high return rate. Looking at the US S&P 500 index, it has recorded an average annual return of about 10% since 1957, significantly exceeding inflation over the long term. Additionally, stocks are highly liquid, allowing you to cash out anytime you need, which is a major difference from real estate investments.

However, it is not suitable for all investors. Stock prices can fluctuate sharply in the short term. For example, during the COVID-19 pandemic in March 2020, the S&P 500 index dropped about 34% in just one month. Therefore, it is essential to clearly understand your financial situation, investment temperament, and risk tolerance beforehand. Successful investing requires continuous learning and market analysis.

Various Methods of Stock Investment

Stock trading can be broadly divided into two methods.

Direct investment involves buying and selling shares of specific companies directly, which can yield high returns but also carries significant risks.

Indirect investment utilizes ETFs(Exchange-Traded Funds), mutual funds, CFD(Contracts for Difference), etc. Diversifying across multiple assets helps effectively reduce risk.

Recently, fractional trading and installment investing have gained attention. Fractional trading involves slightly higher fees but allows access to high-priced stocks with small amounts, while installment investing automatically invests a fixed amount monthly to promote long-term asset growth.

Leverage products like CFDs can offer large profits with small capital but also entail high risk of loss. For example, if you expect Nvidia’s stock price to rise, you can buy a CFD contract to profit from the increase, or short it if you expect a decline. These products should be invested in only after thorough understanding.

Opening an Account: The First Step in Investing

To start stock investing, you must first open an account with a securities firm. Unlike in the past, now you can open an account within minutes via a smartphone app.

Required documents include ID(such as a resident registration card, driver’s license, or passport).

Account Types and Features

Accounts vary depending on purpose.

General Custodial Account is the basic type that allows trading domestic and international stocks and various financial products.

ISA(Individual Savings Account) offers tax benefits, making it advantageous for medium- to long-term investments, and provides income deduction benefits.

CMA(Cash Management Account) pays interest on deposits and supports both stock trading and short-term fund management.

Account Opening Procedure

1. Step 1: Choose a securities firm - compare fees, service quality, and app usability.

2. Step 2: Install the mobile app - download the dedicated app of the selected firm.

3. Step 3: Verify identity - scan your ID and complete mobile verification.

4. Step 4: Enter personal info - accurately input personal details and income sources.

5. Step 5: Agree to terms - digitally sign and submit the account application and terms of use.

6. Step 6: Completion - receive notification once the account is successfully opened.

Trading Fees Overview

Trading fees vary by securities firm. The highest is about 0.5% for employee trading, while online orders via PC(HTS) and mobile(MTS) are cheaper. Since many investors tend to stay with the same broker long-term, starting with a low-fee provider is advantageous. The Korea Financial Investment Association offers a disclosure service comparing fees across firms.

Note: If you have a deposit and withdrawal account with a financial institution, you can open an account at another financial company after 20 business days. This regulation aims to prevent financial crimes. However, securities firms partnered with Kakao, K-Bank, Toss Bank, etc., are exempt from this restriction.

Two Pillars of Stock Analysis

Effective stock trading methods require analytical skills.

Technical Analysis: Reading the Future with Charts

Predicts future stock prices based on past price movements and trading volume patterns. Uses indicators like Moving Average and MACD to determine trading timing.

( Fundamental Analysis: Finding the True Value of a Company

Analyzes financial statements, management performance, and industry trends to evaluate the intrinsic value of stocks. Key metrics include PER)Price-to-Earnings Ratio(, PBR)Price-to-Book Ratio###, and ROE(Return on Equity).

Investment Strategies: Choosing Over Time

( Short-term Trading Strategies in Reality

Day trading involves buying and selling stocks over short periods to seek quick profits. Mainly uses technical analysis, real-time news monitoring, and momentum trading. While offering high returns, it also involves high risks and frequent trading costs.

) Long-term Investment Strategies’ Strengths

Maintains investments for over five years, exemplified by Warren Buffett’s value investing philosophy. The power of compound interest can exponentially increase returns over time. Many countries offer tax benefits for long-term investments.

Risk Management: Strategies to Minimize Losses

To ensure portfolio stability, various risk management techniques are necessary.

Diversification Principle: “Don’t put all eggs in one basket.” Holding stocks of multiple companies like Samsung Electronics, Hyundai Motor, and Naver reduces the risk of decline in any single stock or industry.

Stop-Loss Technique: Automatically sells stocks if prices fall below a set level to limit losses.

Periodic Portfolio Rebalancing: Regularly review and adjust holdings to match target ratios, responding to market changes.

Dollar-Cost Averaging: Invest a fixed amount over multiple installments instead of all at once. For example, investing 10 million KRW over five months at 2 million KRW per month.

Long-term Holding: Keep stocks of promising companies for the long haul, less affected by short-term market fluctuations.

Practical Investment Tips for Beginners

Start Small: It’s wise to begin with a small amount to gain market experience.

Avoid FOMO on Overheated Markets: Don’t get caught up in themes or “Ttang” stocks hype. Objective analysis is essential for investment decisions.

Continuous Learning and Monitoring: Read economic news for 30 minutes daily, and weekly review of earnings reports and key economic indicators of your interest stocks.

Keep an Investment Journal: Record reasons for each trade and outcomes to analyze your patterns and improve decision-making.

Conclusion: Steady Like a Marathon

Stock investing requires ongoing effort and learning, not short-term effort. Thorough analysis, systematic risk management, and choosing a stock trading method suited to your situation are key to success. Proceed calmly and carefully, like a marathon, to achieve your long-term asset growth goals.