Picking stocks comes down to matching each company to a clear goal: income, value or growth. Then confirming its financials support that goal before you buy.
Use a stock screener to filter thousands of companies down to a shortlist, then check core metrics like the P/E ratio, debt-to-equity ratio and revenue growth.
Set an exit strategy before you buy so you know in advance when you’d sell, whether that’s a target price or a maximum acceptable loss.
Individual stocks carry more company-specific risk than index funds or ETFs, so many beginners hold a mix of both.
To pick a stock, decide what job you want it to do in your portfolio, then verify the company’s fundamentals back that up. That means defining whether you’re after income, long-term value or growth, using a stock screener to narrow the field, and reviewing financials like the price-to-earnings ratio and revenue growth before you place a trade.
Building your first portfolio doesn’t need to be daunting. Below, we break the stock-picking process into eight steps any beginner can follow, from figuring out what kind of investor you are to executing your first trade.
1. Determine what type of investor you are
Investors fall into two broad camps: active and passive. Active investors take a hands-on approach, regularly monitoring their portfolios, analyzing stocks and placing trades. At the far end of that spectrum are day traders, who may buy and sell positions within a single session.
Passive investors favor a buy-and-hold approach and trade less often. At the far end of that spectrum are investors who hand the work to a robo-advisor or portfolio manager.
Knowing which camp you fall into shapes everything that follows. Ask yourself: What are your short-term and long-term financial goals, and what do you want your portfolio to achieve? Active investors often lean toward growth stocks they can trade around, while passive investors tend to prefer steadier value or income holdings.
2. Identify what your portfolio needs
Stocks can be grouped by the type of goal they’re best suited to serve:
Income. Income investments pay regular dividends and typically include lower-growth stocks, bonds and real estate investment trusts (REITs). They suit investors who want a steady stream of cash from their holdings.
Value. Value investments aim to preserve wealth and hold their worth over time (think blue-chip companies). They suit investors seeking a long-term asset that protects their capital.
Growth. Growth investments come from younger companies with room to expand. These stocks tend to be more volatile and are generally better handled by experienced investors who can stomach the swings.
A healthy portfolio is a balanced one, which usually means holding a mix of all three types. Getting the ratios right comes back to what kind of investor you are: active investors may want a heavier weighting in growth stocks, while more passive investors often prefer value or income.
3. Choose a sector or industry
Once you know what type of stock you’re after, pick a market sector or industry to focus on. Under the Global Industry Classification Standard (GICS), the market is divided into 11 stock sectors, which break down further into 25 industry groups.
Many first-time investors find it helpful to start with what they already know. Pick an industry that genuinely interests you. Maybe you follow technology closely, or you’ve always been drawn to real estate.
Let personal interest guide you, but lean on market news, industry newsletters and analyst research for ideas too. There are plenty of free resources for beginners, and narrowing to a sector you understand makes the next steps far easier.
4. Narrow down your stock choices
With a sector in mind, start shortlisting. A single sector can contain hundreds of companies, so filtering out the ones that don’t fit your goals or budget is a critical step.
The fastest way to do this is with a stock screener. A stock screener is an online tool that filters companies by metrics like market, exchange, sector, industry, price, dividend yield and more. Most online brokerage accounts include a free screener, and there are also several free third-party stock screeners you can use.
5. Analyze company financials
Found a candidate? Before you buy, understand how to value a stock. These are the core figures to check when weighing up a company’s potential:
P/E ratio. The price-to-earnings ratio is a stock’s price per share divided by the company’s earnings per share. It shows how much investors are paying for each dollar of profit and functions as a rough gauge of how expensive a stock is relative to its earnings.
D/E ratio. The debt-to-equity ratio is total liabilities divided by total shareholder equity, both found on the balance sheet. It helps you judge how much debt a company carries against its equity, and by extension its financial health.
Revenue growth. Comparing total sales across periods shows whether a company is growing or shrinking. Consistent revenue growth is a sign the business is expanding.
Dividend yield. Not every stock pays dividends. A stock’s dividend yield tells you how much it pays relative to its price, and tracking it over time shows whether payouts are growing or shrinking.
6. Determine your timeline
Your timeline is simply how long you plan to hold a stock. Buy-and-hold investors may keep a position for years, waiting for it to appreciate, collecting dividends along the way, or both. Day traders sit at the opposite end, aiming to flip stocks for a quick profit, often within the same day.
Before you trade, weigh your investment goals against the type of stock you’re buying, and set a clear exit strategy, which is a defined point where you’ll sell. How much volatility are you willing to weather? How high or low does the price need to move before you get out? Committing to an exit plan in advance is one of the most practical ways to protect your portfolio from impulsive, emotion-driven losses.
7. Choose your broker
To buy stocks and build your portfolio, you’ll need a brokerage account. The right platform depends on how you plan to invest, so compare accounts on:
Commissions and fees. Many brokers now offer commission-free stock and ETF trades, but watch for account, options, margin and transfer fees.
Account minimums. Some platforms let you start with no minimum; others require an opening deposit.
Fractional shares. These let you buy a slice of a high-priced stock with a small dollar amount, which makes diversifying easier on a limited budget.
Research and screening tools. Built-in screeners, analyst reports and charting can do a lot of the heavy lifting in steps 4 and 5.
Usability. A clean trading app matters if you plan to manage your portfolio on the go.
Compare brokerage accounts side by side to find the platform that fits your goals.
8 of 8 results
What is the Finder Score?
The Finder Score crunches 147 key metrics we collected directly from 18+ brokers and assessed each provider’s performance based on eight different categories, weighing each metric based on the expertise and insights of Finder’s investment experts. We then scored and ranked each provider to determine the best brokerage accounts.
We update our best picks as products change, disappear or emerge in the market. We also regularly review and revise our selections to ensure our best provider lists reflect the most competitive available.
Once you’ve settled on a stock, it’s time to place your order:
Locate the stock. Log in to your brokerage account and search for the company name or ticker symbol.
Select your order type. Common options include market, limit, stop-loss and stop-limit orders. To buy immediately at the current price, choose a market order; to set the maximum you’ll pay, choose a limit order.
Check your buying power. Make sure your account has enough funds to cover the purchase.
Enter the number of shares. Add how many shares (or the dollar amount, if buying fractional shares) you want, then review the total cost.
Submit. Review the order details and submit to complete the trade.
Should you pick individual stocks or buy funds?
Picking individual stocks gives you full control and the chance to outperform the market, but it also concentrates risk and takes ongoing research. Many beginners pair a handful of individual picks with index funds or ETFs that spread money across hundreds of companies in a single trade. Here’s how the trade-offs compare.
Bottom line
Choosing stocks for a first portfolio can feel overwhelming, but a repeatable process makes it manageable: know what kind of investor you are, decide what your portfolio needs, then screen, value and set a timeline before you buy. Take time to assess your goals, settle on a strategy and compare brokerage account options before placing any trades. And if researching individual companies isn’t for you, index funds and ETFs offer a lower-maintenance way to invest.
Frequently asked questions
Beginners can follow a simple process: decide whether you want income, value or growth from a holding, choose a sector you understand, use a stock screener to build a shortlist, then check core financials like the P/E ratio and revenue growth before buying. Setting an exit strategy in advance helps you avoid emotional decisions later.
The most widely used starting metrics are the price-to-earnings (P/E) ratio, which shows how much investors pay per dollar of earnings; the debt-to-equity (D/E) ratio, which gauges how much debt a company carries; revenue growth, which shows whether the business is expanding; and dividend yield, if you're investing for income. Learn more in our guide on how to value a stock.
There's no single right answer, but a common rule of thumb is 10 to 30 stocks spread across different sectors. More recent research suggests you may need more — often 30 or more — to fully smooth out company-specific risk. The right number depends on your goals, experience and how much time you can spend on research. Many beginners hold fewer individual stocks alongside a diversified fund.
A stock screener is an online tool that filters the market by criteria you set — such as sector, price, market capitalization, P/E ratio or dividend yield — to help you narrow thousands of companies down to a manageable shortlist. Most brokerages include one for free, and there are also free third-party stock screeners available online.
You can start with a small amount. Many brokerages have no account minimum and offer fractional shares, which let you buy a portion of a single share for as little as a few dollars. That means you can begin investing even if you can't afford a full share of a higher-priced company.
Individual stocks give you more control and the potential to beat the market, but they carry more company-specific risk and require ongoing research. Index funds and ETFs spread your money across many companies in one trade, offering instant diversification with less effort. Many investors use a mix of both.
A diversified portfolio holds a balanced mix of assets across different sectors, industries and asset types. The goal is to reduce risk: the more spread out your investments, the less any single company or sector can drag down your overall returns.
An exit strategy is a plan, set before you buy, for when you'll sell a stock. It might be a target price at which you'll take profits or a maximum loss you're willing to accept before cutting a position. Deciding this in advance helps protect your portfolio from impulsive, emotion-driven trades.
Sources
Paid non-client promotion. Finder does not invest money with providers on this page. If a brand is a referral partner, we're paid when you click or tap through to, open an account with or provide your contact information to the provider. Partnerships are not a recommendation for you to invest with any one company. Learn more about how we make money.
Finder is not an advisor or brokerage service. Information on this page is for educational purposes only and not a recommendation to invest with any one company, trade specific stocks or fund specific investments. All editorial opinions are our own.
Shannon Terrell is a lead writer and spokesperson at NerdWallet and a former editor at Finder, specializing in personal finance. Her writing and analysis on investing and banking has been featured in Bloomberg, Global News, Yahoo Finance, GoBankingRates and Black Enterprise. She holds a bachelor’s degree in communications and English literature from the University of Toronto Mississauga.
See full bio
's expertise
has written
67
Finder guides across topics including:
Copper is an industrial metal with many applications. Here’s what you should consider before investing.
Advertiser disclosure
Finder.com is an independent comparison platform and information service that aims to provide you with the tools you need to make better decisions. While we are independent, the offers that appear on this site are from companies from which Finder receives compensation. We may receive compensation from our partners for placement of their products or services. We may also receive compensation if you click on certain links posted on our site. While compensation arrangements may affect the order, position or placement of product information, it doesn't influence our assessment of those products. Please don't interpret the order in which products appear on our Site as any endorsement or recommendation from us. Finder compares a wide range of products, providers and services but we don't provide information on all available products, providers or services. Please appreciate that there may be other options available to you than the products, providers or services covered by our service.
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
