How to Start Investing in Stocks: A Practical Investment Roadmap for Beginners

There are many misconceptions about stocks. Many people dismiss stocks as “gambling,” but in reality, with proper knowledge and a systematic approach, they are an effective financial tool to grow assets. This article covers all stages of stock investing, from choosing a brokerage to opening an account and establishing an investment strategy.

Understanding the Nature of Stocks

Stocks represent ownership in a company in the form of securities. Buying one share means owning a part of that company. For example, holding one share of Samsung Electronics is equivalent to owning approximately 0.0000018% of the entire company(as of February 21, 2025).

Stockholders generate income in two ways. The first is capital gains, which occur when stock prices rise due to improved company performance, allowing investors to profit from the difference. The second is dividends, which are a portion of the company’s profits returned to shareholders.

Determining if Stock Investing Fits You

The strength of stocks lies in their high profitability. The S&P 500 index has recorded an average annual return of about 10% since 1957, meaning it has significantly outpaced inflation over the long term.

Additionally, stocks are highly liquid. Unlike real estate, stocks can be sold immediately when needed, converting them into cash.

However, there are many cautions. Stock prices can be extremely volatile in the short term. For example, during the COVID-19 pandemic in March 2020, the S&P 500 plummeted about 34% in just one month. Investors must be psychologically prepared for such sharp declines.

To assess if stock investing is suitable for you, objectively evaluate your investment personality, financial situation, and risk tolerance. Continuous learning and market analysis are also essential.

Comparing Different Stock Trading Methods

Direct Investment in Individual Stocks
Select and trade stocks of specific companies directly. While offering high potential returns, it also carries a higher risk of selection errors.

Indirect Investment via ETFs and Funds
Invest in products that diversify across multiple stocks. Effective for risk reduction.

Fractional Trading
Trade in units less than one share. Allows entry into expensive stocks with small amounts of money, though fees tend to be higher.

Dollar-Cost Averaging
Automatically invest a fixed amount every month. Lowers the average purchase price and prevents emotional trading.

Leverage Products
Aim for higher returns with small capital, but losses can also be magnified. Approach cautiously after fully understanding the products.

Practical Guide to Opening a Stock Account

Today, opening a stock account is very simple. It can be completed in minutes via a smartphone app.

Required Documents

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

Choosing an Account Type

A standard brokerage account is for basic stock trading, allowing investment in domestic and international stocks and various financial products.

ISA (Individual Savings Account)
A long-term investment account with tax benefits. Offers income deductions, making it advantageous for long-term asset management.

CMA (Cash Management Account)
Pays interest on deposits and allows for both stock investments and short-term fund management.

Account Opening Procedure

Step 1: Choose a brokerage - consider fees, service quality, and mobile app convenience.
Step 2: Install the app and verify identity - scan your ID and complete phone authentication.
Step 3: Enter personal information - accurately provide details like income source.
Step 4: Agree to terms and submit documents - digitally sign the trading and service agreements.
Step 5: Complete the process - receive confirmation that your account has been successfully opened.

Fee Strategy

Fees are highest when placing orders directly with staff(about 0.5%). Using online HTS or mobile MTS is much cheaper.

Since you tend to keep your chosen brokerage long-term, it’s wise to select one with low fees from the start.

Regulatory Considerations

Recently, if you open a deposit and withdrawal account with a financial institution, you must wait 20 business days before opening a new account with another financial company. This regulation aims to prevent financial crimes. However, brokerage firms partnered with Kakao, K-Bank, or Toss Bank are exempt from this restriction.

Two Pillars of Stock Analysis: Technical and Fundamental

Thorough analysis is essential before making investment decisions.

Technical Analysis
Predicts future stock prices based on past price movements and trading volume patterns. Uses indicators like moving averages and MACD to determine buy and sell points. Mainly used by short-term traders.

Fundamental Analysis
Analyzes financial statements, management performance, and industry trends to assess intrinsic value. Looks at PER (Price-to-Earnings Ratio), PBR (Price-to-Book Ratio), ROE (Return on Equity), etc. Suitable for long-term investors.

Developing an Investment Strategy: Short-term vs Long-term

Short-term Trading Strategy
Day trading is a typical example. Aims for quick profits over a short period. Requires technical analysis and real-time monitoring.

Advantages: quick profit realization
Disadvantages: high risk, increased transaction costs, psychological stress

Long-term Investment Strategy
Holding for over five years, following value investing principles like Warren Buffett.

Advantages: exponential asset growth through compound interest, tax benefits, low transaction costs
Disadvantages: slower initial returns

The power of compound interest for long-term investors is significant. Investing 1 million won at 10% annual return for 20 years results in about 6.73 million won.

Practical Tactics for Risk Management

Diversification
The saying “Don’t put all your eggs in one basket” applies. Holding stocks of multiple companies like Samsung Electronics, Hyundai Motor, and Naver reduces the risk of sector or stock-specific declines.

Setting Stop-Loss Orders
Automatically sell when stock prices fall below a certain level to limit losses. Effective in preventing emotional decisions.

Regular Portfolio Rebalancing
Periodically review and adjust your portfolio to maintain target allocations. Helps respond to market changes and maintain balance.

Dollar-Cost Averaging
Invest gradually rather than all at once. For example, instead of investing 10 million won at once, investing 2 million won monthly over five months lowers the average purchase price.

Practical Tips for Beginners

Start Small
Don’t invest large sums initially. Using small amounts helps understand market trends and your own investment style.

Avoid Fads
Be cautious of “theme stocks” or “double-up stocks” hype. Follow objective analysis rather than chasing overheated markets.

Continuous Learning
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. Analyzing these helps improve future decision-making.

Final Thoughts: How to Start Investing in Stocks

Stock investing is not just about short-term gains. Success relies on thorough analysis, strict risk management, and a systematic investment approach.

If you’re a beginner, don’t rush. Proceed step by step, like running a marathon. Time will become your best ally. Learning and practicing proper stock investment methods will help you achieve long-term asset growth.