Since 1950, the US stock market has lost money in 20.9% of all 12-month periods. That includes dividends, the cash companies pay to their shareholders. Over 20-year periods, it has not lost money once.
That gap is the first thing to weigh before investing in stocks. This guide walks through the six steps of a first portfolio, from the goal to the first purchase and regular reviews. It does not recommend any product, provider or amount.
How do you invest in stocks? You open an investment account, choose single shares or funds that hold many shares, then buy them through that account. The main choices are how long to invest, which account to use, what to buy and what it costs.
Time changes the odds. Since 1950, the US stock market lost money in 20.9% of 12-month periods but in no 20-year period, with dividends counted.
A fund spreads the risk of single shares. Of all US stocks listed from 1926 to 2016, only 30.8% beat the whole market over their listed lives. A fund that holds the whole market owns the few big winners by design.
The account decides the tax. In the UK, a Stocks and Shares Individual Savings Account (ISA) shields up to £20,000 a year from tax on income and gains. In the US, an Individual Retirement Account (IRA) gives tax breaks on retirement saving.
How to invest in stocks: the six steps
Investing in stocks means owning shares in companies, one by one or through a fund. A fund pools money from its investors to hold many shares. We explain what a share is in What Is a Stock? The six steps are:
Set a goal and a time frame.
Choose an account.
Choose funds, single shares or both.
Check the costs.
Place your first order.
Invest regularly and review.
Step 1: set a goal and a time frame (how often stocks have lost money)
A goal sets the date you will need the money. Shares can fall a long way before then.
Source: Robert Shiller, S&P Composite data; YX Insights
Chart 1 uses Robert Shiller's monthly data for the S&P Composite, the index of large US companies that became the S&P 500. It counts every holding period from January 1950 to August 2026, starting in each month. Dividends are reinvested, meaning the cash paid out buys more shares. 33.6% of single months ended in a loss. That fell to 20.9% of 12-month periods, 7.6% of five-year periods and 2.9% of ten-year periods. None of the 680 periods of 20 years lost money. The worst 12 months, to March 2009, lost 40.9%.
Use these odds to set the time frame. The sooner you need the money, the bigger the chance you need it during a fall. Money held for 20 years has not lost value since 1950.
Method: Shiller's data uses each month's average price, so falls within a month look smaller.
Step 2: choose an account (Stocks and Shares ISA, SIPP or IRA)
You hold shares in an account with an investment platform, also called an investment account provider. The type of account decides how the money is taxed. Four terms help with the table:
Stocks and Shares ISA: a UK account with no tax on income or gains. A gain is the profit when you sell for more than you paid.
Self-invested personal pension (SIPP): a UK pension where you choose the investments.
Individual Retirement Account (IRA): a US account for retirement saving.
Tax relief: the government adds back tax on what you pay in.
Account | Yearly limit | Tax | Taking money out |
|---|---|---|---|
Stocks and Shares ISA (UK) | £20,000 across all your ISAs, 2026 to 2027 tax year; age 18 or over | No tax on income or gains | At any time |
SIPP (UK) | £60,000 a year before a tax charge applies; tax relief on up to 100% of earnings | Your provider adds 20% tax relief, the basic rate of income tax | Usually from age 55, rising to 57 from 6 April 2028 |
General account (UK) | No limit | Dividends above £500 and gains above £3,000 a year can be taxed | At any time |
Taxable account (US) | No limit | Gains are taxed; a lower rate can apply to shares held more than one year | At any time |
IRA (US) | $7,500 in 2026 ($8,600 at age 50 or over) | Traditional IRA: you may deduct what you pay in from taxable income now. Roth IRA: no deduction now, but withdrawals that meet the IRS rules are tax free | Before age 59½, an extra 10% tax may apply |
Source: GOV.UK; IRS.gov
An ISA takes up to £20,000 a year across all your ISAs. Money in a SIPP or IRA is meant for later life, so taking it out early is limited or taxed. GOV.UK, the UK government's website, advises checking that a pension provider is registered. The Financial Conduct Authority (FCA), the UK regulator, keeps the register. We cover tax on dividends outside these accounts in How Are Dividends Taxed? This is general information, not tax advice.
An index is a list of shares that tracks part of the market. The S&P 500 is one, as What Is the S&P 500? explains. An index fund holds every share in its index, in the same proportions. It comes in two forms. A mutual fund is bought from the fund and sold back to it. An exchange-traded fund (ETF) trades on an exchange like a share, as What Is an ETF? shows.
Source: Bessembinder (2018), Journal of Financial Economics; YX Insights
Chart 2 comes from a study by Hendrik Bessembinder of Arizona State University, published in the Journal of Financial Economics in 2018. It follows every ordinary US company share (common stock) listed from 1926 to 2016, with dividends reinvested. Only 49.5% made money over their listed lives. 42.6% beat one-month Treasury bills, which are loans to the US government that work much like cash. 30.8% beat the whole US stock market over the same years. 11.8% lost almost everything.
The market still rose because a few companies did extremely well. Just 1,092 companies, 4.3% of the 25,332 in the study, accounted for all of the market's net gain. A fund that holds the whole market owns those companies by design. A handful of single shares may miss them.
Step 4: check the costs (fund, platform and trading fees)
Investing has three kinds of cost:
The fund's yearly fee, called the expense ratio or ongoing charge. The S&P 500 funds in What Is an Index Fund? charge 0.03% to 0.14% a year. US share funds where a manager picks the shares charged an average of 0.64% in 2025, according to the Investment Company Institute (ICI), the US fund industry body.
The platform's fee. Investment platforms can charge a yearly fee, a fee for each trade or both.
Costs on each trade. In the UK, buying shares in a UK company electronically costs 0.5% in Stamp Duty Reserve Tax, according to GOV.UK. Buying a fund straight from its manager does not. Every trade also pays the spread, the gap between the buying and selling price.
Fees compound. In that guide, $10,000 put into SPY (the S&P 500 ETF) in June 2016 grew to $43,469 by September 2026, with dividends counted. SPY charges 0.0945% a year. At a 0.64% fee, the same money would have ended at $41,103, or $2,366 lower.
Step 5: place your first order (market and limit orders)
Search for the fund or share by name or by its ticker, the code it trades under. Some platforms sell parts of a share, called fractional shares. Then pick the order type. A market order buys at the prices sellers are asking when it arrives. A limit order sets the most you will pay, but it may not fill. We follow what happens after you press buy in How Does the Stock Market Work?
Step 6: invest regularly and review (rebalancing)
A fixed monthly purchase spreads buying across good and bad months. We test $100 a month into an S&P 500 fund over ten years in What If You Invest $100 a Month for 10 Years?
A review checks whether the goal or its date has changed. It also checks whether the mix has drifted, because holdings that rise grow into a bigger share. Selling some of them to restore the planned mix is called rebalancing. Checking often shows mostly noise. In Chart 1, one month in three ended in a loss.
What can go wrong for a first-time investor
Selling in a fall. A loss on paper becomes a real one when shares are sold near the bottom.
Currency moves. A UK investor in US shares, even through a fund priced in pounds, gains or loses as the dollar moves against the pound. We explain why in How Exchange Rates Work.
A provider failing. In the UK, the Financial Services Compensation Scheme (FSCS) covers up to £85,000 per person, per firm, if an investment firm fails while holding your assets. In the US, the Securities Investor Protection Corporation (SIPC) covers up to $500,000, including $250,000 of cash. Neither covers a fall in the value of your investments.
Summary: how to invest in stocks
Investing in stocks comes down to six steps: a time frame, an account, a choice of holdings, low costs, the first order and regular reviews. In the data shown here, longer holding periods and a wider spread of shares cut the risk of losing money.
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DISCLAIMER: This article is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.