It is crucial for a modern investor to learn how to invest in stocks to prepare for his financial goals. Stocks offer a higher average rate of return than other investments such as bonds and money markets. This makes stocks a useful investment for long-term goals like retirement. Through proper investing in stocks, you can take advantage of this growth to build your total net worth.To begin investing in stocks, you need to open a brokerage account. A brokerage account is an account with a financial institution that lets you buy, sell, and research stocks. Many banks offer a brokerage department as part of their services. You can also open a brokerage account with an investment management company that does not deal with banking. Another option is to open an account with an online trading company like E-Trade.Your brokerage firm trades stocks on the stock exchange. The stock exchange is an organized financial market where investors buy and sell shares of companies. To make transactions on the stock market, you must work with a licensed stockbroker. Individuals cannot make trades without going through a brokerage firm. The creation of online brokerage firms has made it much simpler for investors to trade on the stock market.The cost of your brokerage account is based on the size of your investment account and your total activity in the account. Most firms charge an annual expense fee based on your total assets invested with the company. The annual fee is higher for larger accounts as they as more expensive to maintain. Brokerage accounts also charge a transaction fee whenever you buy or sell a stock. The more you trade stocks throughout the year, the higher your total transaction fees.Before making your first stock purchase, you should understand how a stock works. A company issues stock as a way to raise money for its operations. When you buy a company’s stock, you are buying an ownership share in the company. In return for the investment of your money, you become a partial owner of the company. As a partial owner of the company, you are entitled to a share of the company’s profits. You earn a higher return on your investment as the company becomes more profitable.The two most common ways to invest in the stock market are through individual stocks and through mutual funds. When you invest in individual stocks, you individually decide which companies to purchase and design your portfolio on your own. A mutual fund is a portfolio of stocks built and managed by a professional investor. When you buy a mutual fund, you only decide how much to invest. The management of your investments is handled by the fund manager.If you are a new investor, it is preferable to invest in mutual funds over individual stocks. Managing your stock portfolio is a full time job. If you do not continuously pay attention to your investments and the state of the stock market, you could mismanage your stocks and hurt your total return. Investing in a mutual fund avoids this problem.Mutual funds also provide the advantage of diversification. When you invest in stocks, you invest in a risky asset. Your rate of return on stocks is not guaranteed and some of your investments can lose money. Diversification is a strategy to invest your money in a variety of stocks to reduce the total riskiness of your portfolio. For example, a rise in oil prices would hurt car companies and help oil companies. If you invest in both industries, your two investments balance each other out and help maintain a consistent return.A mutual fund is automatically diversified over many companies. If you wanted to build a diversified portfolio out of individual stocks, you would need to purchase several dozen companies. This means you would need to be able to understand and value companies across a wide range of industries. In addition, you would need to spend more time continuously monitoring your portfolio to make sure market changes have not changed your original predictions. Investing in a mutual fund lets you purchase a diversified portfolio without the work of building one on your own.There is nothing wrong with investing some of your portfolio in individual stocks. If you have an expert understanding of an industry or believe the stock market has made a mistake on a certain company’s value, feel free to invest some of your money on your own. However, because of the difficulty and time commitment needed to manage a stock portfolio, you should place the majority of your account in a fund managed by a professional.Learning how to profitably invest in stocks is a difficult skill, but one that must be mastered for an investor to meet her financial goals. There are many resources available to help a new investor. The best way to learn how to invest in the stock market is to work with a trained advisor. If your bank or brokerage firm does not offer an advisor, you should hire a financial planner to help you start investing. By studying this article and by meeting with a professional, you should understand the basics of how to invest in stocks.