How to Invest in Stocks: A Practical Investment Guide for Beginners

Stock Investment, Should You Really Learn It?

Stock investment is often misunderstood as gambling, but with proper knowledge and planning, it can be a powerful means of wealth accumulation. Stocks represent ownership in a company, meaning holding a small stake in a business. For example, owning one share of Samsung Electronics stock as of February 21, 2025, grants you approximately 0.0000018% of the company’s total shares(.

The appeal of stock investment lies in various profit opportunities. You can gain from capital gains as stock prices rise with company growth, receive regular dividends, and enjoy high liquidity that allows you to cash out anytime when needed. Unlike real estate, stocks are traded quickly and have low entry barriers.

Historical data supports this. The S&P 500 index has achieved an average annual return of about 10% since 1957, outperforming inflation over the long term. However, short-term volatility can be significant, as seen during the COVID-19 pandemic in March 2020, when the index dropped about 34% in just one month.

Understanding Your Investment Style

Stock investing isn’t suitable for everyone. Before starting, you must clearly understand your financial situation, risk tolerance, and investment horizon. Psychological stability is also crucial; maintaining composure during rapid price fluctuations is essential.

Additionally, continuous learning is vital in stock investing. You need to stay informed about market trends, analyze company performance, and monitor economic news regularly. This preparatory process forms the foundation of successful investing.

Different Methods of Stock Trading

How to invest in stocks varies depending on your approach. There are mainly two trading methods.

Direct investment in individual stocks involves buying and selling shares of specific companies. It offers high potential returns but also carries significant risks. If you are confident in your analysis and have a clear investment focus, this method is suitable.

Indirect investment includes financial products like ETFs)Exchange-Traded Funds(, mutual funds, and CFDs)Contracts for Difference(, which allow diversification across multiple stocks. This approach effectively reduces risk.

Recently popular methods include fractional trading and dollar-cost averaging. Fractional trading enables investing small amounts in high-priced stocks, while dollar-cost averaging involves automatically investing a fixed amount each month to promote long-term asset growth.

Leverage products like CFDs can offer substantial returns with a small capital. For example, if you expect Nvidia’s stock price to rise, you can buy a CFD contract to profit from the increase, or go short if you anticipate a decline. However, these carry high risks, so thorough understanding of the product is necessary before investing.

Step-by-Step Guide to Opening a Securities Account

To start stock investing, you need a securities account. Although it used to be complicated, nowadays you can open one in minutes via smartphone apps.

Required documents: Just a form of ID)such as a resident registration card, driver’s license, or passport(.

Choosing an account type:

• Custodial account: A standard account for trading domestic and international stocks and financial products.
• ISA)Individual Savings Account(: A long-term investment account with tax benefits, allowing for income deductions and advantageous for wealth management.
• CMA)Cash Management Account(: Pays interest on deposits and supports both stock trading and short-term fund management.

Account opening process:

Step 1: Select a financial institution - consider fees, services, and mobile app convenience.

Step 2: Install the app - download the dedicated app for account opening from your chosen institution.

Step 3: Verify identity - scan your ID within the app and verify your identity via your mobile phone.

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

Step 5: Agree to terms - consent to the account application, provide proof of financial transaction purpose, and agree to online trading terms with a digital signature.

Step 6: Completion - receive confirmation that your account has been successfully opened.

Fee information: Stock trading fees are highest when placing orders through staff)about 0.5%(. However, online orders via HTS)Home Trading System( or MTS)Mobile Trading System( are now dominant and much cheaper. Since many investors tend to keep their accounts with the same broker long-term, choosing a broker with low fees from the start is wise.

Note: If you have recently opened deposit and withdrawal accounts with other financial institutions, you must wait 20 business days before opening a new securities account. This regulation aims to prevent financial crimes. However, using partner banks like Kakao Bank, K-Bank, or Toss Bank bypasses this restriction.

Two Pillars of Investment Analysis

Successful stock trading begins with thorough analysis.

Technical analysis predicts future stock prices based on past price movements and trading volume patterns. It uses charts and indicators, such as moving averages)Moving Average( or MACD)Moving Average Convergence Divergence(, to determine optimal entry and exit points.

Fundamental analysis evaluates a company’s intrinsic value by analyzing financial statements, management performance, and industry trends. Metrics like PER)Price-to-Earnings Ratio(, PBR)Price-to-Book Ratio(, and ROE)Return on Equity help assess true corporate value.

Both methods are important. Technical analysis is more suited for short-term trading, while fundamental analysis is typically used for long-term investing.

Investment Strategies: Choosing by Time Horizon

Your investment approach varies depending on the duration.

Short-term speculative strategies involve buying and selling stocks within a brief period to seek quick profits. Day trading is a prime example. It offers high returns but also high risks. Techniques include technical analysis, real-time news monitoring, and momentum trading. The downside is frequent trading costs.

Long-term investment strategies involve holding stocks for over five years. Value investing, exemplified by Warren Buffett’s philosophy, is typical. This approach benefits from compound interest, with returns growing significantly over time. Many countries also offer tax advantages for long-term investments.

No Success Without Risk Management

To minimize losses and achieve stable profits, risk management is essential.

Diversification principle: As the saying goes, “Don’t put all your eggs in one basket.” Invest across multiple stocks to reduce the risk of a major decline in any single company or sector. Holding stocks of various companies like Samsung Electronics, Hyundai Motor, and Naver helps.

Using stop-loss orders: Automatically sell stocks if their price falls below a certain level to limit losses. Letting go of greed and quickly accepting losses are also key skills.

Regular portfolio rebalancing: Periodically review and adjust your portfolio to maintain your target asset allocation, responding to market changes and maintaining balance.

Dollar-cost averaging: Instead of investing all at once, spread your investment over time. For example, instead of investing 10 million KRW at once, invest 2 million KRW each month over five months to reduce risk.

Long-term holding: To reduce the impact of short-term market fluctuations, hold stocks of promising companies for the long term.

Tips Every Beginner Investor Must Know

Start small: Begin with a modest amount to gain experience. Even if you fail, you won’t suffer major losses and can learn about the market.

Avoid blind following: Don’t get caught up in hype around theme stocks or “top-gaining” stocks. Make decisions based on objective analysis rather than overheated market sentiment.

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

Keep an investment journal: Record reasons for each trade and its outcome. Analyzing your patterns helps improve decision-making.

Manage your psychology: Stay calm during losses. Emotional decisions can lead to bigger losses.

Stock Investment, Like a Marathon, Requires Consistency

How to invest in stocks isn’t learned overnight. For beginners, thorough analysis, risk management, and choosing an investment strategy suited to oneself are keys to success.

Stock investing is not a sprint but a marathon. Instead of rushing for quick gains, continue investing steadily and cautiously toward the goal of long-term wealth growth. With proper knowledge, mature psychology, and patience, stock investment can become a reliable partner on your path to financial freedom.