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The U.S. stock market has a history dating back more than 200 years, so it has a lot of history. Some of it is bad, but fortunately for long-term investors, most of it is good. The historical average annual return for the stock market, measured by the S&P 500, is approximately 10%.

That average includes years when the S&P 500 has declined 20% or more, which is to say the stock market doesn’t go up every year. You can lose money in the stock market, but history also shows that the stock market has been a great wealth-generating machine for patient-minded investors.

The S&P 500 tracks the 500 largest companies that trade on stock exchanges in the U.S. and includes companies that operate in 11 economic sectors: communication services, consumer discretionary, consumer staples, energy, financials, health care, industrials, information technology, materials, real estate, and utilities. The S&P 500 is a market-capitalization weighted index, meaning the biggest stocks (in terms of their value, not their stock price) have more influence in dictating the daily performance of the S&P 500.

According to S&P Dow Jones Indices, to be eligible for inclusion in the S&P 500, a company should be a U.S. company, have a market capitalization of at least $11.8 billion, be highly liquid, have a public float of at least 10% of its shares outstanding, and its most recent quarter’s earnings and the sum of its trailing for consecutive quarters’ earnings must be positive.

So, how does one get started investing in the stock market? Below we offer a simple guide to that process.

1. First, you need to have a good understanding of your risk tolerance. Would you be comfortable remaining invested if your investment went down 30% or more? Is a 10% loss the most you can stomach? These are questions only you can answer, but they are the foundation for understanding the types of stocks you will feel comfortable investing in.


2. Determine what you want out of the stock market? Everyone wants to make money in the stock market, but there are different ways to make it. Money can be made through capital appreciation (i.e., rising stock prices) and money can be made through dividend payments (i.e., money companies pay to their shareholders, typically on a quarterly basis). Some companies provide both options: capital appreciation and dividend payments.


3. Determine your investment goal(s). Is it for a down payment on a house? Is it to save money for college? Is it to help fund your retirement years? The answers will give perspective on your holding period and the types of stocks/investments that will improve the potential for meeting your investment goals.


4. Understand that not all stocks are the same. There are growth stocks, which are stocks of companies that are projected to grow well above the average growth rate of the market. Growth stocks tend to offer higher returns, but with higher returns comes higher risk. Briefing.com publishes a list every Monday of the top 25 small-cap and mid-cap growth stocks in the market on our Emerging Growth Stocks page, using a quantitative screening process that removes emotion and bias from the stock-picking process. There are value stocks, which are stocks that trade at prices below their fundamental value or long-term growth potential. Even so, it can take a while to realize that value, making them a potential “value trap” for investors who might suffer an opportunity cost by holding a depressed value stock for an extended time while other stocks go up in price. Briefing.com publishes a Value Leader Rankings table every Wednesday to our Stock ideas page. The rankings are derived from a proprietary screening method that helps investors avoid value traps. There are also income stocks, which are stocks of companies that typically don’t grow very much and offer less capital appreciation potential but have dependable earnings that enable a regular dividend payment. Each Friday Briefing.com publishes a Yield Leader Rankings table to our Stock ideas page that helps investors identify companies that offer a combination of dividend income and capital appreciation potential. Access these investment ideas and more with a Briefing Investor subscription.


5. Do your research. Learn about companies first before investing in them. What do they do? Do they sell only in the U.S., or do they have international business? Who are their competitors? Who are their biggest customers? What are their growth trends and opportunities? Answers to these questions can be found in SEC filings, which are typically available for free on the investor relations site of publicly traded companies. Specifically, you would want to read the 10-K SEC filing to learn about a company’s business operations, and supplement that reading with other sources of information like the company’s annual report and earnings press releases. In turn, Briefing.com, with its daily Story Stocks coverage, and investment columns that cover emerging growth, value, income, and IPO ideas, is another useful source for learning more about companies that trade on U.S. stock exchanges. Try a Briefing.com subscription service to access company research, investment ideas, and trading calls.


6. Look at statistical data that gives insight on sales, earnings, and cash flow trends This information can also be found in SEC filings that contain a company’s income statement, balance sheet, and cash flow statement. There are also free sites like Yahoo! Finance that provide a snapshot of this information.


7. Find a broker that can help you make your investment. That can be done through a full-service broker like Morgan Stanley or Goldman Sachs, but these full-service brokers can have high limits for making an investment through them. A financial advisor can also be a helpful resource. Just be sure to understand the fees they charge for their services. There are many reputable online sources now that offer investment assistance without any limits. They also offer an ability to make investments on your own or with the help of a registered agent with zero or very low commissions. This would include companies like Charles Schwab, Fidelity, E*Trade, TD Ameritrade, Interactive Brokers, and Robinhood. In addition, these brokers, and the full-service brokers and financial advisors, provide a suite of research services and investment screening tools that will help identify suitable investment opportunities based on your risk tolerance and investment goals. You will also find analyst ratings on individual stocks that involve specific buy, sell, or hold recommendations.


8. Keep learning. Investing in a stock isn’t the end. It’s just the beginning. Follow your investment by following the company and its competitors.