How to Grow Wealth with Stocks: The Complete Practical Investment Guide for Beginners

The True Nature of Stock Investing: Understanding Corporate Ownership

Many people consider stock investing to be gambling, but in reality, it’s a completely different concept. Stock investing means holding securities that represent ownership in a company. For example, buying 1 share of Samsung Electronics stock means owning approximately 0.0000018% of the company’s total assets( as of February 21, 2025).

As companies grow, investors can earn returns in two ways. The first is capital gains. When a company grows and its stock price rises, selling the shares can realize a profit. The second is dividends. A portion of the company’s profits is returned to shareholders, providing a regular cash flow.

One reason stocks are more attractive than other financial products is liquidity. Unlike real estate, you don’t have to wait long to sell. You can sell immediately when needed and convert to cash, which is why many investors prefer stocks.

Is Stock Investing Right for Me?

Stock investing isn’t suitable for everyone. Before starting, it’s essential to objectively assess your financial situation, investment preferences, and risk tolerance.

Historical data shows that the S&P 500 index has achieved an average annual return of about 10% since 1957, outperforming inflation over the long term. This demonstrates how capital can grow through consistent investment in quality companies.

However, short-term volatility can be significant. During the COVID-19 pandemic in March 2020, the S&P 500 plummeted about 34% in just one month. To be suitable for stock investing, you need to be psychologically resilient to unexpected market shocks.

To succeed in stock investing, continuous learning and market analysis skills are essential. Develop habits such as reading news, observing economic indicators, and analyzing corporate financial statements.

Various Approaches to Stock Investing: From Direct to Indirect Investment

Stock trading methods are broadly divided into two categories.

Direct Investment: Buying and selling shares of specific companies individually. It offers the potential for high returns but also involves significant risks. It requires time and effort for company analysis.

Indirect Investment: Investing through derivatives such as ETFs(Exchange-Traded Funds), funds, or CFDs(Contracts for Difference). These allow diversification across multiple stocks, reducing risk.

Recently, some methods have gained popularity among beginners.

Fractional Trading: Buying expensive stocks in small portions. However, transaction fees tend to be relatively high.

Dollar-Cost Averaging: Automatically investing a fixed amount each month, which is effective for long-term wealth building. It’s advantageous because it eliminates the need to time the market.

Leverage Products(CFD): Potential for large profits with small capital, but losses can also be substantial. For example, if you anticipate Nvidia’s stock will rise and take a position, you profit if it does, but if it falls, you incur losses. It’s wise not to approach without sufficient understanding.

How to Invest in Stocks: A Guide to Opening a Practical Account

Choosing a Securities Firm Before Opening an Account

To start stock investing, you first need to select a securities firm. Consider:

• Trading Fees: Vary by firm. About 0.5% for employee-placed orders, but online orders(HTS/MTS) are much cheaper.
• Mobile App Convenience: Most trading is now done via smartphones, so app usability is important.
• Customer Service: Ensure quick responses in case of issues.

Tip: Once you choose your first securities firm, you tend to stick with it, so initial choice is very important. Starting with a firm that has low fees is wise.

Understanding Account Types

There are several types of stock trading accounts.

• General Custodial Account: The basic account for trading domestic and international stocks and various financial products.
• ISA(Individual Savings Account): A long-term investment account with tax benefits, including income deductions, suitable for long-term asset management.
• CMA(Cash Management Account): Pays interest on deposits and allows for both stock trading and short-term fund management.

Step-by-Step Account Opening Process

Modern account opening is very simple. You can complete it in minutes using a smartphone app.

Step 1: Download the Securities Firm’s App Install the dedicated app for opening an account with your chosen firm.

Step 2: Identity Verification Scan your ID(Resident Registration Card, Driver’s License, Passport, etc.) and verify via mobile authentication.

Step 3: Enter Personal Information Accurately fill in basic info, income sources, and investment experience.

Step 4: Agree to Documents and Terms Consent to the account application, proof of financial transaction purpose, HTS/MTS usage terms, and sign digitally.

Step 5: Completion Once all steps are done, you’ll receive a notification that your account is ready.

Note: If you have recently opened a deposit/withdrawal account at a financial institution, you must wait 20 business days before opening an account at another institution. This regulation aims to prevent financial crimes. However, securities firms partnered with Kakao, K-Bank, Toss Bank, etc., are exempt from this restriction.

How to Invest in Stocks: Two Approaches to Stock Analysis

Before making investment decisions, you need to analyze companies and markets thoroughly. The two main methods used by experts are:

Technical Analysis: Reading Charts and Patterns

Technical analysis predicts future stock price movements based on past price and volume data. It uses chart patterns and various indicators.

• Moving Average(Moving Average): A line connecting the average prices over a certain period, helping identify trends.
• MACD(Moving Average Convergence Divergence): Provides buy/sell signals based on the difference between two moving averages.

Technical analysis is especially useful for short-term traders. Monitoring in real-time with news can help capture quick trading opportunities.

Fundamental Analysis: Understanding a Company’s True Value

Fundamental analysis involves comprehensively reviewing financial statements, management performance, and industry outlooks to evaluate a stock’s intrinsic value.

Key indicators:

• PER(Price-to-Earnings Ratio): Shows how high the stock price is relative to earnings. Lower PER suggests undervaluation.
• PBR(Price-to-Book Ratio): Indicates the stock price relative to company assets.
• ROE(Return on Equity): Shows how efficiently a company uses its equity.

Fundamental analysis is highly suitable for long-term investing, as it allows deep understanding of a company’s competitiveness, growth potential, and financial health.

Investment Strategies: Choosing by Time Horizon

Short-term Trading: Pursuing Quick Profits

Short-term trading involves buying and selling stocks within a brief period to earn quick profits. A typical example is day trading.

Advantages:

• Quick realization of profits
• Use of technical analysis and momentum trading

Disadvantages:

• High risk
• Frequent trading increases fees
• Psychological stress

Short-term traders must continuously monitor real-time market data and respond swiftly to rapid changes.

Long-term Investing: Growing Wealth Over Time

Long-term investing involves holding investments for over five years. Warren Buffett is a prominent long-term investor.

Advantages:

• Compound Effect: Returns grow exponentially over time.
• Less affected by short-term volatility
• Many countries offer tax benefits
• Psychological stability

Long-term investing requires thorough research to select quality stocks and patience to hold through market fluctuations.

Key Strategies to Reduce Risks

Importance of Diversification

“Don’t put all your eggs in one basket” is a fundamental investment principle.

Focusing only on one company’s stock can lead to significant losses if that company or industry faces problems. Holding stocks of multiple companies like Samsung Electronics, Hyundai Motor, and Naver can minimize the impact of a decline in any single stock.

Loss Management Techniques

Stop Loss(Stop Loss) Automatically sell when the stock price falls below a certain level to limit losses. For example, if you buy at 100,000 KRW and sell if it drops to 80,000 KRW. Recognizing losses early can prevent bigger damage.

Portfolio Rebalancing Regularly review and adjust your portfolio to match your target allocations. This helps respond to market changes and maintain balance.

Dollar-Cost Averaging Invest a fixed amount over time instead of all at once. For example, invest 2 million KRW monthly over five months for a total of 10 million KRW. This lowers the average purchase price.

Long-term Holding Hold promising stocks for the long term to avoid being swayed by short-term volatility. Over time, unfavorable timing effects diminish.

Practical Tips for Stock Investing

Start Small Don’t invest large sums initially. Gaining experience with small amounts is crucial to understanding the market.

Avoid Fads Don’t get caught up in trends like ‘theme stocks’ or ‘double-up stocks,’ which can lead to big losses. Make investment decisions based on objective analysis.

Consistent Learning and Monitoring Spend 30 minutes daily reading economic news, and weekly review earnings reports and key economic indicators of your interest stocks. Deepening market understanding leads to better investment choices.

Keep an Investment Journal Record reasons for each trade, target returns, and outcomes. Reviewing past trades helps identify patterns and mistakes, enabling continuous improvement.

How to Invest in Stocks: Final Thoughts

Stock investing is not simple. It requires thorough learning, careful analysis, and systematic risk management. Beginners should prioritize these three elements.

Proceed steadily and cautiously like a marathon. Don’t focus on short-term fluctuations; instead, aim for long-term wealth growth. If you maintain the right mindset and strategy, you can significantly increase your assets through stock investing. With the proper attitude and plan, stock investing will no longer be gambling but an effective wealth-building tool.